Ardent Health, Inc.

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Ardent Health Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw a question again, press this star one. I would now like to turn the conference over to Dave Stiblow, Senior Vice President of Investor Relations. You may begin.

Thank you, operator, and welcome to Ardent Health's third quarter 2025 earnings conference call. Joining me today is Ardent President and Chief Executive Officer Marty Bonick and Chief Financial Officer Alfred Lumsdain. Marty and Alfred will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Marty, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which was issued yesterday evening after the market closed and is available at artandhealth.com. With that, I'll turn the call over to Marty.

Thank you, Dave, and good morning. We appreciate everyone joining the call and webcast. Arden finished the quarter with two contrasting realities. On one hand, our performance reflects a continuation of growth momentum we've experienced across our business, driven by robust demand, improving surgical trends, and disciplined execution. Year-to-date adjusted EBITDA is up 30%, and we've made meaningful progress on margin expansion, cash flow, and our balance sheet, with least adjusted net leverage improving one and a half turns since our IPO last summer. On the other hand, our earnings performance this quarter did not meet our expectations. As noted in our release, we've revised our full-year adjusted EBITDA guidance to $530 million to $555 million, reflecting persistent industry-wide cost pressures, particularly those around professional fees and payer denials that have proven more durable than anticipated. We view this revision as a prudent recalibration grounded in a pragmatic assessment of current conditions and establishing a reset baseline from which we can build. These pressures are not demand-driven and our revenue guidance remains unchanged. But our earnings pull-through has been impacted and we are taking decisive actions to address it. Through our impact program, we've already launched targeted initiatives to further optimize cost and strengthen margins. These actions have been building momentum and are expected to begin contributing in the fourth quarter and will continue to ramp through 2026. With strong demand across our markets and a solid balance sheet, we remain confident in our ability to deliver sustainable growth and long-term shareholder value. To frame today's conversation, I'm going to focus my comments on three key areas. First, I'll walk you through our three key results and the strong demand environment. Second, I will provide color on the industry headwinds that are impacting 2025 earnings more than previously anticipated. And third, I will provide details of how we are already working to address and mitigate these challenges. Let's start with our third quarter performance. At a high level, we generated strong volumes and revenue growth driven by improving surgical trends and sustained strength in industry demand. Our markets are growing two to three times faster than the national average and are further bolstered by rising care complexity, structural trends that reinforce our long-term growth thesis. Arden's leading positions in these growing midsize urban markets give us a durable advantage and these demand dynamics provide a strong foundation for continued strategic inpatient and outpatient growth. Our strong platform, combined with initiatives to improve capacity and efficiency, drove admissions growth of 5.8% in the quarter. This is a continuation of the favorable trends we've observed in the first half of 2025, with year-to-date admissions growing 6.7%, well above the 2% to 3% population growth we see across our markets. Additionally, adjusted emissions increased 2.9%, landing near the top end of our 2025 guidance range of 2 to 3%. Surgical volumes also improved, with total surgeries up 1.4% in the third quarter, reversing a small decline of 0.4% in the first half of the year. Turning to financial performance, revenue grew 8.8% in the quarter, or 11.7%, excluding a one-time revenue adjustment that Alfred will detail later. Adjusted EBITDA increased 46% in the third quarter to $143 million, with margins expanding 240 basis points to 9.1%, and further lowering our least adjusted net leverage from 2.7 times to 2.5 times. Of note, third quarter adjusted EBITDA included approximately $15 to $20 million of earnings we previously expected to realize in the fourth quarter. Excluding this timing benefit, underlying third quarter adjusted EBITDA was below our expectations, which we factored into our updated guidance. That's a good segue to the second topic of today's discussion, industry headwinds. While our revenue growth has been strong, earnings did not reflect the level of pull-through we anticipated. First, professional fee expense growth. This has been a persistent challenge across the industry for several years now. For Ardent, growth peaked at over 30% in 2023, moderated to 12% in 2024, and was expected to moderate further this year. Instead, professional fees increased 6% in the first quarter, 9% in the second quarter, and accelerated to 11% in the third quarter. We now expect second half growth in the low double digits versus the high single digits previously assumed. This accounts for roughly half of the 2025 adjusted EBITDA guidance reduction. Payer denials were the second factor impacting our adjusted EBITDA guidance outlook. After a sharp increase in denials beginning in the second quarter of 2024, trends largely stabilized through the first half of 2025, consistent with our outlook. However, these payer pressures moved higher again in the third quarter, and our updated adjusted EBITDA guidance reflects the development of this trend throughout the second half of 2025. In summary, our updated outlook prudently assumes these industry headwinds observed in the third quarter will persist at elevated levels in the fourth quarter. While these dynamics are industry-wide, we are taking decisive action to mitigate their impact and strengthen our performance. Which brings us to my third and most important takeaway, what we are doing to close the earnings gap. We are taking swift and decisive action to improve our near-term earnings profile while maintaining a disciplined approach to strategic investments that support long-term growth. Immediate priorities, including contract renegotiations and targeted staffing adjustments, are already underway, with additional initiatives ramping in early 2026 that are expected to drive measurable impact across revenue cycle, labor, and supply chain performance. Under our impact program, we have launched an expanded set of margin enhancement and efficiency initiatives. As an example, we've renegotiated terms of an exchange plan to secure meaningful rate improvement with an additional step up in 2027. We've recently completed a targeted reduction in workforce, and we revised the key agency labor contract to lower base rates and reduce premium pay. These three actions will phase in during the fourth quarter and reach full run rate benefit in early 2026 generating an expected annual benefit of more than $40 million. Beyond these near-term actions, we are executing on initiatives to build momentum in 2026 and beyond under the leadership of our Chief Operating Officer, Dave Kaspers. These include precision staffing to better align patient care resources with real-time volumes, optimizing contract labor, and accelerating speed to hire. We are also driving supply chain discipline and savings through vendor consolidation, commodity standardization, and tighter inventory management. In our operating rooms, our OR Excellence program is focusing on improving case mix and evaluating additional service line rationalization opportunities to ensure the right surgeries happen at the right time in the right setting. While payer headwinds remain an industry-wide challenge, we are taking proactive steps within our control to drive sustainable improvement. We've mobilized a multidisciplinary team that combines expertise in clinical operations, contracting, and revenue cycle management to respond with an integrated strategy. This team is leveraging innovative processes and advanced analytics to reduce denials and align payer contracting to maximize net yield. Early results are promising, and we anticipate broader impact as these initiatives scale in the near term. We are also taking steps to right-size professional fees. We are renegotiating certain vendor contracts, particularly in anesthesia, to introduce more flexible cost structures that better align with patient volumes, helping to eliminate excess fixed costs in our business. Additionally, given our increased scale, we are strategically replacing locums with more cost-efficient full-time hires. Collectively, these initiatives are strengthening the organization and will better position us for future earnings growth. While industry headwinds remain, we are confident in our ability to execute with discipline and deliver long-term shareholder value. With that, I'll turn it over to Alfred to provide more detail on our third quarter financial performance and outlook.

Thanks, Marty, and good morning, everyone. I'll focus my comments on third quarter performance, detail the two non-recurring items we noted in our release, and elaborate on our outlook for the business. Building on Marty's comments, we again delivered strong volumes during the quarter. Third quarter admissions growth was 5.8%, driven by double digit increases in exchange and managed Medicaid, and 8% growth in non-exchange commercial. Inpatient surgery growth was 9.7% in the third quarter, while outpatient surgeries declined 1.8%. Total surgeries grew 1.4% in the third quarter, which is continued improvement from a 0.7% decline in the first quarter and a 0.2% decline in the second quarter. Adjusted admissions increased 2.9% in the third quarter and are up 2.4% year to date, consistent with our 2025 outlook of 2% to 3% growth. Now turning to financial performance, third quarter revenue increased 8.8% to $1.58 billion compared to the prior year driven by adjusted admissions growth of 2.9%, and net patient service revenue per adjusted admission growth of 5.8%. Excluding a non-recurring adjustment that I'll discuss in a moment, revenue growth was 11.7%. Adjusted EBITDA increased 46% in the third quarter to $143 million compared to the prior year, and adjusted EBITDA margin increased by 240 basis points to 9.1%. Year-to-date through the third quarter, adjusted EBITDA grew 30% and margins expanded 150 basis points to 8.7% compared to the prior year. The largest driver of the third quarter margin improvement was in salaries and benefits. As a percentage of total revenue, salaries and benefits improved by 90 basis points to 42.9% or by 200 basis points when excluding the one-time revenue adjustment. Inside of this dynamic, we're pleased with our contract labor improving to 3.5% of salaries and wages in the third quarter, down from 3.8% in both the first and second quarters of this year, and down from 3.9% in the same prior year period. Moving on to cash flow and liquidity, we ended the third quarter with total cash of $609 million and total debt outstanding of $1.1 billion. Our total available liquidity at the end of the third quarter was $904 million. Cash flow from operating activities during the third quarter was strong at $154 million compared to $90 million for the third quarter of 2024. Capital expenditures during the third quarter totaled $59 million, and we'd expect a modest increase in capital spending the remainder of this year. At the end of the third quarter, our total net leverage was 1.0 times and our lease adjusted net leverage was 2.5 times, which is an improvement from 2.7 times at the end of the second quarter. As Marty outlined, our third quarter adjusted EBITDA did not grow as fast as we previously projected due to the elevated level of professional fees and worsening payer dynamics. As a result, we're revising 2025 adjusted EBITDA guidance to $530 to $555 million, which at the midpoint implies growth of 9% and 20 basis points of margin expansion. However, we're maintaining our previous revenue guidance of $6.2 to $6.45 billion, or 6% growth at the midpoint. Before concluding, I'd like to elaborate on the two non-recurring items we recorded in the third quarter. First, we recorded a $43 million revenue reduction as a result of a change in accounting estimate during the quarter. This change in estimate reflected our transition to the Kodiak RCA net revenue platform. As many of you may know, Kodiak is an industry-leading revenue cycle platform with more than 2,100 hospital customers including public, private, and not-for-profit healthcare systems. At the simplest level, this is a change in methodology to one that recognizes reserves earlier in an account's lifecycle, all other things being equal. This transition reflects a strategic move from an internally developed model to an efficient and scaled system with enhanced real-time reporting capabilities, all of which are important as we grow and scale. As we indicated in our earnings release, the $43 million adjustment reduced total revenue for the third quarter but is excluded from adjusted EBITDA. Second, we recorded an increase to our professional and general liability reserves of $54 million, fully attributable to our New Mexico market. This reserve change primarily relates to adverse claims development for a single provider who ARDN has not employed for several years as well as overall social inflationary pressures in the New Mexico market. The $54 million adjustment was recorded within third quarter other operating expenses, but is excluded from adjusted EBITDA. I want to be clear, we consider both of these items isolated matters, and they were not a factor in revising our 2025 adjusted EBITDA guidance. So as we think about the business on a go forward basis, we remain encouraged about our ability to drive durable top line growth. Our volumes have been quite strong and we continue to execute on initiatives to optimize demand to our system. From an earnings perspective, we have a number of opportunities that we can control to drive improvement off our adjusted EBITDA base. As Marty already mentioned, Many of the revenue and earnings enhancement initiatives under our impact program are well underway, with others expected to begin in the near term. Execution with discipline and urgency is paramount and a top priority for our entire organization. Our strong balance sheet and liquidity position give us the flexibility to invest through cycles, pursue strategic growth, and support operational transformation without compromising financial discipline. We're continuing to support future growth with our outpatient build out. In the second half of 2025, we will have opened several urgent care and imaging centers. And in 2026, we expect to open two ambulatory surgery centers, four more urgent cares, and one freestanding emergency department. Further, Our strong cash flow generation and balance sheet give us the flexibility to support strategic growth into new markets. Collectively, this positions us well to deliver long-term shareholder value, grow adjusted EBITDA, and expand margins over the next several years. With that, I'll turn the call back to Marty for concluding remarks. Thank you, Alfred.

I want to leave you by reinforcing three key takeaways. First, we operate in a strong and durable demand environment. Our markets continue to grow two to three times faster than the national average, supported by demographic tailwinds and rising care complexity, structural trends that reinforce our long-term growth thesis. Second, we've prudently adjusted 2025 guidance to reflect industry pressures, and importantly, we've already begun implementing decisive actions to mitigate these challenges. Under our impact program, we are harvesting operating efficiencies through initiatives in labor, supply chain, and revenue cycle that will strengthen margins and position us for sustainable growth. Third, we remain financially strong and strategically positioned to create long-term shareholder value. Our balance sheet and cash generation gives us flexibility to invest through cycles and deploy capital to support long-term growth. Looking ahead, these fundamentals position us to expand margins and grow adjusted EBITDA over the next several years. Before I turn the call over for questions, I want to take a moment to thank our 24,000 team members and 1,800 affiliated providers across Ardent. As the healthcare industry continues to evolve, we are deeply grateful for their continued commitment to our purpose, caring for people, our patients, our communities, and one another. Their resilience and focus enable us to adapt and improve how we work while continuing to deliver exceptional care to our patients. With that, I will turn the call over to the operator for our question and answer session.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question only. Thank you. And our first question comes from the line of Jason Casorla with Guggenheim. Your line is open.

Great. Thanks. Good morning. It sounds like the payer denial and professional fee pressures are going to spill over into next year. There doesn't seem to be much incremental BPP development in your markets at this juncture, but there's a rural transformation fund to consider. You've discussed 40 million of annual run rate benefits from the impact program next year. and demand in your market seems durable at this point. I mean, your volume growth speaks to that. So maybe just stepping back, I know it's early, but for 2026, could you just help frame the headwinds and tailwinds that we should be considering a bit more? And then ultimately, if you would expect to grow EBITDA next year? Thanks.

Good morning, Jason. This is Marty. I appreciate that. Yeah, as we covered a lot in that question, as we think about Where we're at, we're going to wait until our fourth quarter call in February to provide that 26 guidance. We'll have a more complete view of pro fees and payer dynamics and progress in our impact program and the economy. And so there's a lot of things in there. But yes, you framed it right. We see strong durable demand as we go into next year. Our markets are growing. We're well positioned in those markets, and we're still executing them. Our impact program, we do expect to, it is ramping and we expect that to continue to provide benefit, but it's a little bit too early to give definitive guidance in terms of what that growth is. We do expect to see our long-term growth thesis continue and both EBITDA growth and margin over the next several years.

Okay, got it. Thanks. And maybe just as a follow-up, even with the EBITDA headwinds this year, you're still producing solid free cash flow. You talked about the M&A environment, the pipeline you have, the puts and takes on how that's materializing in this volatile backdrop. Your leverage is in a solid spot. You've got $900 million of available liquidity. You've got growth opportunities ahead of you. There might be some IPO or other ownership nuances to consider, but are there discussions around the consideration of implementing a share repurchase program at this juncture or any thoughts around that? Thanks.

Hey, Jason, it's Alfred. It would be premature. I wouldn't want to speak to the board, but I think management and the board are committed to optimizing shareholder value. And so over time, I'm confident the board will look at every option to optimize shareholder value.

Next question comes from the line of Whit Mayo with Learing Partners. Your line is open.

Hey, thanks. I just wanted to go back to the malpractice development and why you think that this won't lift your recurring accruals given that the frequency is higher and the size of the claims is higher and why we shouldn't also expect that your revenue yield is impacted on a go-forward basis with this payer denial issue. Thanks. I'm sorry, not payer denial, but the revenue cycle change.

Sure. Thanks, Whit. This is Alfred. There's obviously two questions incorporated there. I'll speak first to the New Mexico medical malpractice charge. As we indicated, 100% of that charge relates to the New Mexico market, where we have seen significant social inflationary pressure. in medical malpractice cases the past several years. So this is not new. There has been an increasing dynamic year over year of increasing premiums, increasing costs in the New Mexico market. The amount recorded in our charge represents our best estimate for Arden's liability for this market for the adjustment for those pressures and for an individual provider who was with Arden between 2019 and 2022 and who is no longer employed by Arden and for whom the statute of statute of limitations has expired so I guess the short answer to your question is yes we do believe the environment we're in this is a headwind to the business and has been for a number of years. This adjustment was specific to the specific set of facts around a single provider and a single market. Moving to the AR charge, I would say at the simplest level, this is a change in accounting estimate. Our current net revenue model The one that we've moved to under the Kodiak platform reserves for an account earlier in its lifecycle as compared to our internally developed model, which had utilized a 180-day cliff, at which time an account became fully reserved. So, I would say the difference is reserve timing between the two models, and it results in a reduction in net revenue just upon implementation. And that reduction is essentially attributable to the fact that Hardin is a growing company. And so it's adding reserves to that, you know, call it that growth layer. And it's a one-time adjustment. Going forward, the models would essentially produce the same results. So we would not expect going forward any difference between the model that we've moved to under the Kodiak platform and our previous model. internally developed model.

Okay. And I think I heard maybe it was Marty that referenced maybe $15 million of a benefit in the third quarter that was favorable versus expectations. Maybe I got that number wrong. If you could just maybe provide a little bit more detail on that, thanks.

Yeah, this is Alfred. Marty noted that, you know, we, in third quarter, we had roughly 15, somewhere between 15 and 20 million of benefit that we previously had expected in Q4. So, when you think about the reduction in guidance, you know, it's relatively evenly split between Q3 and Q4, maybe a little bit more weighted towards Q4 simply because, you know, we still are not, until we see tangible evidence of the turn in pro fees and payer behavior, we're still expecting a little bit of an acceleration of those dynamics.

But what exactly was the 15? Was it DPP or something?

There was a DPP component in that, in the Kansas market.

Next question comes from the line of Scott Seidel with Goldman Sachs. Your line is open.

Oh, hi, thanks. Good morning. Just to just I'll put a bow on on with last question. So just on the 15 to 20 million, just so we make sure that we're modeling for you correctly. So it sounds like is that just all in in revenue per adjusted emission pricing in terms of how we should be thinking about that 15 to 20 million? Or are there other line items on the expect lines that are affected as well?

No, I think that's fair. This is Alfred. I think it's fair to say it's all in the REVPER.

Okay, thanks. And then I guess my real question would be around the payer denials and I guess sort of how you, you know, maybe think about the exit rate in terms of where that sits. I know that you gave us sort of the details in terms of how much of the guide down it reflects. you know, just thinking about, I guess, as you try to address this, how widespread, first, would you say that the rampant denial activities are across your key payers? Is it, you know, one or two of maybe who we would think could be the most likely suspects, or is it more broad-based? And then, you know, I guess you're thinking about 26, and I know you're not ready or comfortable yet to provide guidance, but How would you, I guess, contemplate, you know, that level of payer denial sort of, you know, pressure, I guess? What would you sort of think about, you know, sort of just taking the 4Q and annualizing that and then sort of try to work, you know, off of that and see what you could improve and that could be upside? Or do you think that you'll be able to implement initiatives that could start to bring that down in 26 relative to the 4Q run rate?

Good morning, Scott. This is Marty. Thanks. I'll start and I'll turn it over to Alfred for the second half of your question. But yeah, as we look at the payer denials, you know, we saw that initial step up the second half of last year, largely stabilized and then started to drift up and accelerated as we went into this third quarter. You know, it's largely across the managed payers, and we've got some good data and statistics to show that, which is informing how we are changing our response Clearly, we're delivering the care. We know that the services we're providing are necessary and warranted, and the payers, through policy changes and impacts, are either downgrading claims, denying claims, or slow-playing claims, all of which have had an impact, which we're describing here. The managed products, Medicare, Medicaid, are the culprits, and it's fairly uniform across all of those different categories. We've ramped up our contracting. We've integrated how we're approaching this from an internal perspective in terms of our teams coming together, working with our revenue cycle partner, working with our legal team, ramping up our litigation efforts and demand letters as a result because we know that these services were warranted and provided, and taking steps to get more aggressive and push back on us.

Yeah, and just taking off on Marty's point, again, obviously, we're not prepared to speak to 2026 in terms of financial details. But in terms of the things we're doing, Scott, as we mentioned, putting a finer bow, final denials in Q3 were up 8% over the first half of the year. So we are Expecting this, we think it's prudent to continue to expect this level of denials for the immediate future. But in terms of the actions that we're taking, and we've significantly stepped up the number of appeals we're filing. I think we're up in terms of over the prior year, like 60% in terms of appeals. Appeal turnaround time, by the same token, is down 25%. And then just taking off on Marty's point on recent organizational changes, That has resulted in us filing 60 demand letters with payers with delinquent adjudication just in the last 90 days with an expectation of somewhere above $15 million benefit. These are just some of the actions that we're taking. So to your point, I mean, I think it's prudent to not expect that payer behavior is going to change in the foreseeable future. And we're focused on what are the things we can do to improve the throughput and to get paid for the work that we're doing fairly.

Okay, thank you.

Next question comes from the line of Kevin Fishback with Bank of America. Your line is open.

Great. Thanks. Um, I appreciate that, uh, you're not interested to talk about next year. I don't think almost any hospital company has talked about next year, but you, you have said a few times, um, that, you know, this second half is, you know, it's creating a base up of which you think you can grow. Can you just let's think a little bit more about how you view this change of guidance and how, if you were to pro forma the 2025 base, um, how we should think about that. Um, and then we can make our own decisions about how that grows next year. Is, is that like the current guidance, but annualize the 50, 55, um, and then maybe add back, you know, 40, is that like a good way to start about 2025 on a normalized basis? Or is there something else that we should be thinking about the timing of the 15 to 20 million? I'm not sure how to think about that. Um, as I try to think about what, what a core base 25 looks like.

This is Alfred Kevin. Now, thanks for the question. Yeah, obviously, like you say, given the policy uncertainty and exchange uncertainty, it would be imprudent to speak to 2026 at all. But as we think about the exit run rate for 2025, again, we think it is prudent to think about the current headwinds. We think an appropriately prudent reset, which is what we've done to incorporate that, is the right thing to do. Again, it would be too optimistic to think that pro fees are going to, you know, take a turn in the other direction and payer behavior. At the same time, we've already articulated some of the things that we're doing. Marty talked about the impact initiatives and the $40 million, which is actually simply incremental efforts that we've made recently that should fully manifest in the run rate next year. And there's a lot of other things we're doing from an impact perspective. It's focused, I would say, in seven buckets around revenue integrity, productivity, payer disputes, supply chain management, purchase services, revenue cycle management, and professional fees. And so we have strategies across all of those buckets, the things we can do that are in our control to combat these headwinds. Again, we think as we forecast out, it's appropriate not to believe that things are going to change fundamentally, but then what are the actions that we can take to tangibly offset that? So we would expect that $40 million to grow next year in terms of the potential offsets in impact programs. Again, would be preliminary to actually quantify all those dynamics for 2026.

Yeah, OK, that makes sense. I guess just my second question would be, Yeah, you guys are growing very well. I guess, though, we've seen another company kind of grow by shrinking, if you will, you know, and focusing on high margin businesses. I just wonder, is there any scenario where some of the margin pressure that you're seeing is because of some of the volume growth that you're pursuing? Or do you believe that the cost issues are really kind of separate from that? You know, just trying to think through if there's another way

option or opportunity to improve margins in a different way thanks yeah thanks kevin this is marty yeah as we think about our impact programs this is part of that you know that that impact stands for improving margins performance agility and care transformation and so we've talked a lot about our service line rationalization efforts and we're seeing the pull through of growth you know nine percent nine point two percent growth in And, you know, through our transfer centers, we've seen robust inpatient growth better than most of our peers. And so, yes, as we look forward, we are looking at those conversations to make sure that we're maximizing the opportunities to bring the right acuity cases in there into the hospital, into our platform, and making sure we can service those patients well. So, yes.

continuing progress on as we go into next year. And this is Alfred. I would just add to what Marty said. We are committed to expanding our margins. Again, we're not speaking to 2026 as we sit here, but we continue to believe that we have a platform that can deliver mid-teens EBITDA margins, and we are focused on creating shareholder value, not just through growth, but by also growing margins. Great. Thanks.

Next question comes from the line of Matthew Gilmore with KeyBank. Your line is open.

Hey, this is Akon from Matt. I just want to ask on the professional fees. It seems like this stepped up pretty quickly and just was asking, you know, kind of what drove this? Was this tied to any one specific contract? Any additional color that you could provide? Just kind of what transpired during the quarter would be helpful. Thanks.

Thanks, Matt. This is Marty. As we look at the last several years, we sort of detailed out how these fees have grown and they are moderating, just not quite to the extent that we anticipated. But what gives us a little bit more confidence is this has gone in cycles. And we've seen the rise in ER, anesthesia. This year, we've seen a little bit more pressure on radiology. And so as we lap through these contract renewals, we've got better visibility with the terms in which we're negotiating. We've got preferred partners in most of these specialties now that are giving us the ability to cool our resources across markets and make sure that we can demonstrate strength and visibility in terms of these trends. and you know as we've laughed through now most of these uh specialties um you know that gives us better visibility that we will continue to see moderation as we go forward uh hopefully at a slower pace than what we've experienced thus far but uh but yeah this year the radiology step up uh accounts for a lot of the increases that we've seen

And then just as a follow-up, I want to touch on the partnership with Ensembl. I guess, are they seeing similar payer denials across their network, or is this more isolated to your partnership?

Yeah, so as we look at the national statistics, we're still outperforming, you know, sort of the national benchmarks with Ensembl. So they've been, you know, a strong partner to us, and we've seen a step up, and that step up is seen, you know, across the industry. We're not as... You know, I'd say we're growing the trend of denials inside of that and still better than average across the industry, but, you know, more than we had expected. So they've been a strong partner for us. We know they're investing a lot in their capabilities just to continue to make sure that we've got clean claims going out the front door and taking away those opportunities for denials to happen. And we can see that in that, you know, the payers have just gotten more aggressive. non-cloting claims or flat-out denying claims. Two Midnights is an example that stands out, that's continued pressure across the industry. So those are... Ensembl is performing very well, better than the average, it's just the entire environment has gotten more difficult. Great, thank you.

Next question comes from the line of Rajkumar with Stephens. Your line is open.

Hi, good morning. Maybe just kind of touching on the EBITDA margin expansion still targeting mid-teens, kind of given the rebasing of 2025, that would kind of imply instead of the 100 to 200 of core margin expansion, that's like 200, 300 now. Does that change the timeline of achieving that mid-teens EBITDA target? Or do you think that over 26, 27 and 28, that, you know, that timeline still stays intact.

Thanks, Raj. This is Alfred. No, good question. And, you know, I think it would, again, be early to give specificity. I mean, it is fair to say, right, that with these headwinds that there is near-term pressure that wasn't expected and that all things being equal, that it would extend the timeline out. And as we've said, we are focused intensely on accelerating and increasing the volume of the impact programs to offset these headwinds. So I think when we come to 2026 guidance, we'll be in a better position to frame those timelines out a little bit better and put additional quantification around the impact programs. But again, the message I would want you to take away is that we are intensely focused on increasing the aperture of

uh offsets given these headwinds and you know are accelerating uh those the that intensity in order to uh as much as possible stay on the timeline got it and then kind of on my follow-up just you know looking at the exchange markets it seems like kind of one of your core states new mexico is looking to kind of fully fund the enhanced subsidies up to 400 of fpl kind of do internal means next year so seems like a kind of cushion to the potential headwind on the enhanced subsidy side. So, and then, you know, you talked about your contracting dynamics in Texas. So maybe just kind of any updated framing you provide on that front in terms of, I know, you know, maybe not a, probably not a number given the, you know, uncomfortability on 26 framing, but just any kind of gives and takes on that front would be helpful.

No, good question. And again, I think, I mean, great to call out, you know, that there will be the individual states, you know, are not going to sit by, you know, and a lot will obviously still depend on what is the ultimate outcome of, you know, of the exchanges, you know, still very much in the air and, you know, anybody's guess into where it ultimately can land is. But I think Your example of what New Mexico has come out is a good one that, you know, and again, it's one of the reasons why it would be very imprudent to, you know, forecast. You know, what we have obviously said and our exposure to exchange lives is lower than many in the industry. And although it has been a, you know, the single largest driver of growth among our exporters, payer mix this year. So important to us, but as we continue to say, not an extremely highly profitable segment of our business. And yeah, we're keeping a close eye on all those dynamics within the states. But again, good call out on the New Mexico plan.

Thank you.

Next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is open.

Yes, thanks. Just going back to the impact program, is this really kind of an acceleration or pull forward in terms of timeline? Or do you think over time you could expand that program further? How do you think about that?

Craig, this is Marty. It's both. These efforts don't just produce immediate value. There's a number of things in line, and we sort of bucket them into the revenue cycle supply chain. and SWB, and so all of those things have various initiatives underway, and so we have confidence that we'll see these things continue to provide benefit and start to provide more benefit in Q4 and then continue to ramp as we go through the year, and we're adding to that. This is really a focused effort across the organization led by our COO, Dave Kaspers, and getting all of our teams marching in the same direction around these impact initiatives. And so, you know, we've got good conviction that as these things continue to ramp, that it's spurring more opportunities and, you know, presenting more leverage for us to continue to pull. But it does take some time for this to get going, and we can start to see that momentum building, and we'll continue to build. So that's the way in which we're looking at that going forward.

Got it. And then just to follow up, Marty, just given some of the challenges near term on profitability, how does that, if at all, kind of influence some of the growth initiatives that you have? Like, can you kind of handle some of this and still kind of march forward? Or do you pause a little bit? How are you kind of planning around that?

Yeah, no, I mean, a thesis around growth of you know starting in our core markets and we've continued to execute on that as alfred referenced you know we've opened more urgent cares uh next year we'll be opening two ambulatory surgery centers at least uh that those you know are already well underway uh and uh you know continuing to build out that outpatient platform uh you know our our chief development officer has been very active since he he began several months ago um you know building building interest in our partnership model, both to continue the expansion growth within our core markets, as well as looking for new market opportunities. We've got the balance sheet to support that growth. And, you know, we don't, we are not deterred by this short-term headwind. You know, when we look at it, you know, we're still showing with this guidance, 9% EBITDA growth, that's, you know, nothing to be ashamed about. Not as robust as we anticipated, but certainly strong growth, you know, it's helping us to deliver the balance sheet and putting us in a position to continue to capitalize on these trends across the industry. So no, not deterred at all. Got it. Thank you.

Next question comes from the line of Ben Henrichs with RBC. Your line is open.

Great. Thank you very much. I believe you mentioned in your prepared remarks to the one exchange contract renegotiation and you called out, you know, elevated denial activity in exchanges on the second quarter call and potential to renegotiate or even maybe exit some contracts. I'm wondering just how much of this denial activity headwind you believe you could address in the near term from, you know, kind of shrinking your already small footprint in exchanges.

uh and uh and exiting certain contracts or renegotiating thanks yeah that's a great uh great call out then um yeah and and the One contract that we cited and prepared remarks is just one example of the tangible things we're doing. And we put that, you know, into the revenue integrity bucket under our impact initiatives. You know, and it is an example that, you know, to the earlier question, you know, we're not just going to grow to grow from a top line perspective. We have to see profitable pull through. And the changes we've made from an organization structure to create alignment between our revenue cycle and our payer operations should continue to yield more opportunities in this area. It does take time. It does take time to, say, put out an early termination, and then hopefully that can yield a renegotiation of appropriate terms. The example that we cited here was one where we were seeing a significant margin erosion in this contract from payer denial activity. We termed it. payer came back to the table, we negotiated a better rate and better terms to prevent the denial activity that we were saying. And so again, just a tangible example, but a good call out of things that we are doing and accelerating from an offset perspective. And again, we'll be incorporating those strategies into our 2026 view.

Thank you.

And again, if you would like to ask a question, press star then the number one on your telephone keypad. And we'll take our last question from Benjamin Rossi with JP Morgan. Your line is open.

Hey, good morning. Thanks for taking my questions here. Is this Following up on the negotiations and just where your commercial negotiations stand for 2026, 2027, and maybe now even 2028. I believe last quarter you said you were about 65% for 2026. How are those conversations going along? How much of those contracts have been negotiated at this point, and how do those contracts compare to the last couple of negotiation cycles?

Sure. This is Alfred. Good question. You know, compared to when we last spoke, you know, we're about, we're close to three quarters contracted for 2026. You know, I would say the headline rates are, have edged down from historical levels. You know, it is a tougher environment. You've heard it in all the payers, you know, more getting closer to, you know, what I would call the traditional type of increases. And we're very focused, not just on that top line rate, but also creating you know, the things that lead to better yield under our contracts, you know, to stem some of the denial activity. So it's not just a, you know, it's important not just to think about a top line number, but more important to think about the ultimate yield under our contracts. And I would say that is a much greater focus than in past renewal cycles.

Got it. Appreciate the color. I guess just as a follow-up maybe on why you're seeing higher denials here? I guess just on your rates, were your rates here higher than the industry average in your markets? You've noted that your NJ pricing is the highest in the state. Are there any particular states where your denial activity was higher, or maybe where you're over-indexed?

Ben, this is Marty. No, I wouldn't characterize it exactly that way. For the most part, we are the value-based provider in our markets. While we have leading shares, number one or number two in the majority of our markets, from a payer perspective, we're still a little bit behind a lot of those trends. And so our managed care team has been working to bridge that gap. But I wouldn't say that our rates are particularly higher in our markets. But the activity across the payers, and I think that the pain that they're seeing is trickling down into the provider segment. So we know that we've still got opportunity to continue to bridge that gap and to strengthen our performance. But again, it's not just headline rate, as Alfred was talking about. It's getting to the terms, because more and more increasingly, we're seeing these sort of technical denials or payment slowdowns because of policy changes Again, whatever that top line increase that we are able to negotiate with payers is translating into bottom line yield.

Got it. Thanks for the additional comment.

That concludes the question and answer session. I would like to turn the call back over to Marty Bonick for closing remarks.

Thank you. As we conclude, I just want to thank the investor community for their interest in Ardent and thank our teams across the company for their continued commitment and resilience in fulfilling our purpose. As we've talked about, we operate in a very strong and durable demand environment, and while these industry pressures have impacted near-term earnings, we've taken decisive actions to mitigate those challenges and continue to strengthen our performance. Our impact programs are ramping and delivering meaningful efficiencies, and our financial strength is going to give us that flexibility to continue to invest and pursue strategic growth. Looking ahead, we're very confident that these fundamentals position us to expand margin and grow adjusted EBITDA over the next several years. Thank you all for your continued support, and this concludes our call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.