Hello and thank you for standing by. My name is Lacey and I will be your conference operator today. At this time, I would like to welcome everyone to the Ardent Health Second Quarter 2026 Earnings Conference Call. Our lines have been placed on mute to prevent any background noise. After the speakers, 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 your question, press star one again. Please limit yourself to one question and one follow-up. Thank you. I would now like to turn the call over to Dave Stiebelow, Senior Vice President of Investor Relations. You may go ahead.

Thank you, Operator, and welcome to Ardent Health's second quarter 2026 earnings conference call. Joining me today is Ardent President and Chief Executive Officer, Dave Kaspers, and Chief Financial Officer, Alfred Lumsdain. Dave and Alfred will provide prepared remarks and then we will open the line to questions. Before I turn the call over to Dave, 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. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and supplemental earnings presentation, which were both issued yesterday evening after the market closed and are available at ardenthealth.com. With that, I'll turn the call over to Dave.

Thank you and good morning. I want to begin by thanking our 25,000 team members for the way they continue to adapt, improve how we operate, and deliver high-quality care to our patients and communities we serve. To frame today's discussion, I'll focus my comments on three areas. First, where we stand, including the strength of our current platform. Second, where we're going, including my priorities and the opportunities ahead. And third, what you can expect from me. Let's start with where we stand. The Arden platform is built on a strong foundation with clear opportunities to improve our performance. With 30 hospitals and over 280 sites of care, attractive markets growing two to three times faster than the U.S. average, and strong joint venture partners, we are well positioned to capture market share. Over the past two years, we have broadened our access points and strengthened partnerships by acquiring and or building over 25 urgent care and ASC facilities. These investments expand our ability to care for patients across the most appropriate care setting, while also targeting volume growth. In addition, strategic partnerships, specifically with Ensemble and EPIC, are strengthening our revenue cycle and clinical capabilities. In short, we are well-positioned, but there is more work ahead. Since transitioning into this role, I've leaned into areas where I see the greatest opportunity to optimize and accelerate performance, and I want to share the progress already underway. I'm encouraged by the momentum of our IMPACT program. On the cost side, I'm pleased with improvements in SWB, which grew just 0.7% year-over-year as we reduced contract labor spend by 42%. We have taken deliberate action to build a more efficient enterprise by intentionally redesigning our structure and standardizing how we operate. Impact is more than a savings program. It's also designed to increase our agility and transform care. We accomplish that in part by leveraging technology with our strong clinical engine. That engine is a strategic collection of assets, including our partnership with Epic and Ensemble, our virtual care platform, and our growing AI capabilities. It's the backbone that makes standardization and efficiency possible while empowering our people to deliver consistent, high-quality, personalized care across the network. our virtual care rollout with hello care ai is an early proof point in texas and idaho our first markets to go live virtual nurses completed 58 of discharge in june and we reduced the hour spent monitoring patients by 18 looking ahead it positions us to capture additional volume and better manage capacity so we can deliver the right care at the right time in right setting in supplies we are beginning to harvest gains by consolidating vendors renegotiating contracts and streamlining physician preference items on the i.t front we are rationalizing our application portfolio to eliminate any redundancy and reduce waste turning to revenue we are taking a more disciplined data-driven approach to payer contracting using price transparency data to identify where our rates lag the market as we work through our contract portfolio. In many instances, our rates rank below the 50th percentile, and we believe we can drive them higher given our strong market positions while improving contract terms and yield. We're already seeing evidence this strategy is creating meaningful improvement. An early proof point is a June renewal with a key payer in one market where outpatient payments were materially below market benchmarks. The new contract improved both rate and terms, and we now expect stronger economics from this agreement. We estimate this will add between $5 and $10 million to this year's adjusted EBITDA that wasn't in our previous guidance. We've also brought greater structure and dedicated leadership to how we grow, organizing around our highest value service lines, such as cardiology and women's and children's. This work is guided by Capacity IQ, the framework we introduced last quarter to match demand with capacity across our system, directing capital, physician recruitment, and assets to where we see the strongest growth and returns. It's an area you'll hear more about going forward. That's where we stand. Now, this is where we're going. My focus is on delivering more consistent financial results, growing EBITDA, deploying capital effectively, and executing against our targets in a way that supports long-term shareholder value. At a high level, our three-part growth strategy is unchanged. It remains focused on, number one, strengthening EBITDA margins through operational excellence. 2. Accelerating strategic growth in core markets and services, including new ways to optimize how we reach and engage customers at scale, and 3. Pursuing disciplined M&A. Within this strategy, sharper operational execution is my highest priority. We will continue to manage through the healthcare head and tailwinds, but as an operator, I am laser focused on the performance that we can directly influence. how we staff, how we contract, how we allocate capital, how we standardize, and how we hold ourselves accountable. As part of that, we are building a culture that works as one team, aligned around one plan, and delivering with one standard. While we have made meaningful progress standardizing operations across the enterprise, I see additional opportunity to reduce variation and strengthen consistency in our execution. As such, I am keenly focused on the executive-level KPI-driven decision-making, reducing unwanted variation, and strengthening our accountability. Carrying forward our impact savings momentum is a top priority. Impact is not a one-year project. It's a multi-year strategic imperative, and it is building momentum. We have increased our 2026 savings target twice, from $40 million originally to the $55 million target established in the fourth quarter of 2025 earnings call, to now over $70 million expected to be realized this year. We will continue to evaluate our portfolio and take action where we see opportunities to sharpen our focus and improve our margins. That will entail assessing and evaluating all aspects of our operations. And if an asset or service line is not the right long-term fit, we will act thoughtfully and with discipline. An example of this is our intentional service line rationalization work in the second quarter. We moved lower margin procedures, including ENT and ophthalmology, out of the hospital to free up capacity for higher margin service lines. As we wrap up, I want to be clear about what you can expect from me. First, we will push ardent to be more nimble and faster while maintaining our strong commitment to patient care quality and safety we will measure what matters focus on fewer but more important priorities and pivot quickly as necessary when circumstances change our response to the second quarter volumes is a testament to this approach we quickly flexed staffing and implemented additional non-clinical actions that support our confidence to reaffirm our 2026 adjusted EBITDA guidance. That agility reflects the strength of our team and our ability to execute consistently with speed. Secondly, I recognize the importance of delivering on our financial commitments to the investment community. Consistency and credibility matter, and you can expect us to remain focused on disciplined execution and accountability. And third, you can expect me to bring steady leadership and rigorous operational discipline with consistency, which ultimately supports long-term shareholder value creation. We have the right leadership team, operating model, and market positions to advance our strategy, and now our focus is delivering consistency over time. I'm enthusiastic about the opportunity ahead and look forward to working with our team members, providers, partners, and the investment community. With that, I'll turn the call over to Alfred.

Thanks, Dave, and good morning, everyone. Thank you for joining us on the call today. I'm very pleased with how our team responded to a challenging volume environment in the second quarter. Surgeries were down materially in April and May before rebounding with modest growth in June. Our leaders managed through these dynamics with discipline, focusing on the controllables, and as a result, delivered strong results and cash flow. As I'll discuss later, we've taken the necessary actions to maintain our full year 2026 adjusted EBITDA guidance, despite a softer volume outlook. I'll begin with second quarter results. We reported revenue of $1.62 billion dollars and adjusted EBITDA of $115 million. In early June, we indicated that the business experienced broad-based volume softness during April and May, with surgeries and admissions down 5% and 2% respectively compared to the prior year. These trends improved in June, with surgeries and admissions returning to modest growth. For the full second quarter, surgeries and admissions declined 2.9% and 1% respectively. And although July volumes are still below our original expectations entering this year, like June, they are improved from April and May volumes. During the second quarter, we executed two initiatives that are already beginning to benefit our financial results. First, as Dave mentioned, we successfully negotiated a key payer contract renewal in one of our markets, effective June 1st, that is now expected to generate earnings above our original 2026 plan. Importantly, the improved rate and terms are part of our broader strategy to enhance our revenue yield through payer contracting. Second, we streamlined our structure to reduce managerial layers at both corporate and field locations. We expect these actions to generate $15 to $20 million of additional savings this year, with a full annualized impact of $30 to $35 million. As a result, we're increasing our 2026 Impact Program savings target to at least $70 million, up from $55 million communicated previously. These actions are almost entirely non-clinical in nature and are intended to improve accountability and speed our execution. Collectively, the payer contracting and structural actions help mitigate some of the volume-related earnings pressure in the second quarter, and the associated earnings improvement will be at full run rate as we enter the third quarter. In terms of the other key metrics, second quarter adjusted admissions increased 2.5% year-over-year. Net patient service revenue per adjusted admission decreased 3.9%, reflecting the benefit in the second quarter of 2025 from recording two quarters' worth of the New Mexico DPP program, as well as the surgery decline that produced a lower acuity service mix. From a payer standpoint, our exchange admissions declined 8% year-over-year, and we saw a corresponding increase in self-pay, but these trends were manageable and largely contemplated in our original guidance. As Dave also noted, we managed our labor expense very well during the second quarter, with SW&B growing a modest 0.7% year-over-year. In addition, we reduced our contract labor spend by 42% year-over-year, and contract labor as a percentage of SW&B improved to 2.2% in the second quarter from 3.8% a year ago. As expected, year-over-year professional fee growth slowed to 10.4% compared to 12.9% in the first quarter, and supplies increased 3.3% year-over-year. Payer denial trends were consistent with the previous two quarters. We continue to work closely with our revenue cycle partner, Ensemble, to drive targeted denial management and recovery efforts, and we see additional opportunities to improve yield going forward. Moving on to cash flow and liquidity, we're pleased with the robust operating cash flow of $197 million generated in the second quarter compared to $117 million a year ago. Our first half, 2026 operating cash flow, was $137 million, up 47% from $93 million in the first half of 2025. Capital expenditures during the second quarter were $39 million, and we expect that to ramp through the year. Additionally, we repurchased $13 million of stock in the second quarter, leaving the company with a remaining authorization of $34 million at June 30, 2026. We ended June with total cash of $724 million and total debt outstanding of $1.1 billion. Our total available liquidity at the end of the second quarter was $992 million, and we finished the quarter with total net leverage of 0.8 times and lease-adjusted net leverage of 2.6 times. Our strong balance sheet gives us flexibility, and our capital deployment approach remains return-driven and disciplined, with a clear preference for high-margin service line, ambulatory growth, and operational investments. Turning to our guidance, we're maintaining our outlook for full-year 2026 revenue and adjusted EBITDA, and I'll provide some additional context around each of those. For revenue, we're now biased towards the lower end of our $6.4 to $6.7 billion range. This view reflects the weaker second quarter volumes and assumes these trends remain below our original expectations in the second half of the year, despite the volume improvements in June and July. We remain confident in our adjusted EBITDA guidance range of $485 to $535 million. dollars. Our outlook now incorporates a headwind of approximately $25 million from lower volumes in the second quarter and lower volume expectations for the rest of this year. We expect to fully offset this headwind with $20 to $30 million from the two actions I discussed earlier. Just to reiterate those actions, we expect $15 to $20 million of higher impact program savings this year from workforce reductions and $5 to $10 million of higher than expected earnings from payer recontracting. We have full visibility into both of these items since they were both executed during the second quarter. From a timing standpoint, we recognized only a small amount of the $20 to $30 million of expected impact in the second quarter. Since the associated earnings benefit will be at full run rate entering the third quarter, we expect to be able to fully offset the projected earnings impact of lower volumes in the second half of the year. As a result, we would expect third quarter adjusted EBITDA to improve from the $115 million in the second quarter and approach the first quarter adjusted EBITDA of $124 million. Finally, we're reaffirming our original $35 million exchange headwind for this year. So far, actual development compared to key assumptions has been encouraging. Volume declines have been less pronounced than expected, and our data indicates that those losing exchange coverage are not all moving to self-pay. Instead, we're seeing some trends that indicate a material portion of impacted individuals are finding other insurance coverage. We're continuing to monitor these dynamics, of course, but overall we remain confident in the $35 million net impact for the year. So as I wrap my prepared remarks, it's clear this industry has been through some overall very fluid dynamics this year. Navigating industry crosswinds requires discipline, planning, and decisive execution. This leadership team will continue to take swift and deliberate actions to position ardent to deliver in the near term, while also building a stronger company for the long term. With that, I'll turn the call back today for concluding remarks.

Thank you, Alfred. I want to leave you with three key takeaways. First, operational execution and consistency are our top priorities. We moved quickly to respond to a softer volume environment and have taken actions that position the company to deliver on our commitments. Second, we have a strong platform with attractive markets, leading positions, and meaningful opportunities to improve performance as we continue to standardize operations and drive growth. Third, we have the right team, strategy, and financial strength to execute on our plan and create long-term value for shareholders. With that, I'll turn the call over to the operator for questions and answer session.

I'd like to remind everyone, if you would like to ask a question, please press star 1 on your telephone keypad. Your first question comes from the line of Ann Hines with Mazuho Securities. Please go ahead.

Thank you. Just on the payer contract changes on the outpatient side, how many more markets do you think you have opportunities to get to market rates?

This is Alfred Ann. Good question.

You know, and it's a difficult one to give you kind of a uniform answer. I mean, I would say we have opportunity across all of our markets that our, I think we have talked in the past that our revenue integrity function was somewhat siloed and the, you know, I call the revenue cycle management component was not fully integrated with the contracting component. And now we have integrated those. We've brought in new leadership. We've taken a much more data and market-driven approach. And candidly, just being more thoughtful and, I'd say, strong in our position that we need to be paid fairly in our markets. And so I would say that there is opportunity across most of our markets for improvement.

Thank you. And just as a follow-up on the surgery, your inpatient surgery has declined much more than outpatient, which is kind of the opposite of what we're seeing with other hospitals. What was driving that decline?

A couple things. This is Alfred again. I would say, yeah, clearly our inpatient was a much steeper decline. I think clearly the inpatient-only list did have an impact. When we look across our markets, we saw a majority of the inpatient decline was a shift from inpatient to outpatient. So with that, and a majority of that shift was procedures that were on the coming off of the inpatient only list. If there's good news embedded in there, I would say that when we quantify the economics underlying that shift, it's actually a very modest impact from the move. We would put it in the quarter, maybe between $1 and $2 million of net impact. So overall, very modest.

Great. Thank you.

Thank you.

Our next question comes from the line of Jason Casorla with Guggenheim.

Please go ahead. great uh thanks um and good morning maybe just to follow up on the volume side um obviously it's great to hear that you had some recovery in june and july um was that broad-based or was that recovery within selective service lines um and then the second half expectation are you assuming that uh for the second half you're running at like the second quarter run rate or where you ended up in june and july and then you know i guess it's difficult to predict the macro But based on how you're seeing pressures on visit conversions into procedures and surgeries, would you consider 2026 as effectively an easy comp or more of a baseline for you to grow off of?

Hey, Jason, this is Alfred. In terms of, and I think I've got the components of your question. The first was, you know, was the recovery that we saw broad-based? And I would say absolutely, essentially across all of our volume metrics, we saw improvement in the June and July timeframe compared to the April and May timeframe. So very, very broad based, really, again, across all of our volume metrics. In terms of how we think about the rest of the year, June and July, we really are assuming the quarter volumes and projecting that out rather than the June and July, taking that in isolation. And, you know, again, we're going to be cautiously optimistic. We'd love to see the type of volume improvement that we've seen in June and July extend through the year. But again, we want to take a prudent approach as we work on our cost structure in the organization. And again, going back to the actions that we took inside of the quarter, we were very quick to off of the weakness in volumes in April and May to take what I would call decisive action to ensure that we've got the appropriate cost structure, regardless of what the volume environment that we were faced. And then I apologize. I forgot the third part of your question.

Thanks. Yeah, just if you think, given what you've seen volume trends this year, is this representing more of an easy comp for you? Or do you think this is like the new baseline for which you kind of normally grow off of? So any thoughts there for next year?

Yeah, I think really tough to say. You know, we're in, as I mentioned in my prepared remarks, a really fluid environment from a volume standpoint. And I think underlying that is economic uncertainty, as well as some of the changes with, of course, the exchange subsidies as one example. So difficult to predict the volume going forward. Again, I come back to what I just mentioned is that we want to be sure we have the position for success regardless of the volume overlay. And again, we're going to be hopeful for the future, but prepared for the current.

Jason, this is Dave. I want to build upon what Alfred mentioned. I couldn't agree more about how pleased we are with our team's agility and their action around impact. We will and do continue to plan to have the right projects and opportunities lined up to ensure our success either way. On that note, you know, we are somewhat encouraged by what the top of the funnel holds. And I think inside of your question, the conversion language that you mentioned is very accurate, and it is very important for us to meet the consumer where they are with the solutions that will help them at this particular time for us to keep their trust so when they are ready to do what will be necessary, we're ready to take care of them.

If there's good news, this is Alfred again, just tailgating off what Dave said. If there is good news embedded in here, it's that we are firm believers you can't defer care forever and that there would be pent-up demand built for the future.

Got it. Thanks. Very helpful. Maybe this is a follow-up. It sounds like professional fees and denial trends were in line with your expectations in the quarter. I know you'll comp the big step up in those headwinds, so to speak, next quarter. But I guess, you know, looking back over the past couple of years, you've seen some pretty big step-ups in both denials and professional fees developing around the second quarter or third quarter timeframe, or at least when you've called it out. So I guess in that context, it's a dynamic environment. But are there any, like, benchmarking or contracting or anything else that gives you visibility or confidence that you won't see, like, a further stepped-up pressure for professional fees or denials at this point?

Sure. Thanks for the question. Yeah, as you said, very, very difficult to predict the future. But what we do know, starting with professional fees, is that we are seeing those very much in line with our expectations this year. We are expecting the year-over-year trend increase to be decreasing in the back half over the front half. And as we've said in the past, we've seen a full reset of essentially all of those contracts. And so, again, we would expect that rate of increase to slow. In terms of denial trends, I think that's a little bit harder to predict. You know, it goes a lot off of payer behavior. As we've mentioned, we're working on our payer contracting to strengthen contract terms to improve, you know, our ability to enforce and improve those denial trends. and working very closely with Ensemble on a number of initiatives, you know, strengthening our joint operating commissions and our payer governance. We're leveraging AI to help identify denial patterns and prioritize high value opportunities, et cetera. So there's a whole litany of work we're doing together to position us to improve off of our current, right?

And again, we have not seen so far this year any evidence of escalation of those denial trends it's been very stable adding on and building on just a bit um in the prepared comments you heard you know very specific language around operational rigor and that rigor and the results in pro fees represent the work that we've been underway and an example of keeping pro fees well under control has to do with tightly managing operating rooms and the costs associated to those operating rooms. And as you saw in our results, that balancing act between managing the right volume in and managing pro fees is critical. And just kind of putting a bow on it, that to me is what represents operational excellence and rigor.

Great.

Your next question comes from the line of Matthew Dealmore with KeyBank. You may go ahead.

Hey, thanks for the question. Maybe starting off on the service line rationalization, I guess I was hoping you could help us think through kind of the broader strategy there and just, you know, the service lines that you are targeting and what the opportunity is as you're moving some of the lower value service lines away from your health systems. And then, Alfred, can you just give us a sense for how we should expect that to impact the surgical metrics, especially on the outpatient side, as you execute that rationalization?

You bet. This is Dave, and thank you for your question. We've stood up a team that we call Products and Services, who are leveraging the tools that we referred to in the previous quarter called Capacity IQ. That team is a collection of individuals who have led service lines in the past, real estate, construction, M&A, to name a few. And those teams are using the tools at a system level and market level to ensure that we are looking at every asset and service line and doing the right work to optimize margin and meeting the customer and market where its needs are and where the margin opportunity is. I think it's a little early to be able to tell you what that is going to bring for specific value and specific changes. What we're encouraged by is the clarity we're getting on our key service lines, as you heard mentioned in the earlier remarks around cardiology, women's and children. And you'll see us focus in in those areas, strengthen our service lines, strengthen the consumer's journey in that and able to really manage and improve standardization across the financials as we do that. So for now, that's where I'd like to leave it. And we will continue quarter by quarter to shape exactly what those actions are. But no, we're very excited to have that team in place. We're seeing some of the fruit of their work now and more to come.

And the second part, this is Alfred, Matt, the second part of your question in terms how do we think that will impact our surgical volumes across the back half of the year? As we mentioned, we're really not baking into our assumptions that significant improvement. We're taking second quarter and really expecting to be at that volume level across the back half of the year. So you can think of, you know, that would mean surge of decline in the low single digit range, you know, similar to what we saw in Q2. And, as Dave indicated, a lot of work happening across getting the service lines optimized, focusing on the higher profitability lines. We're adding, we've got a number of position starts slated in one individual market. We have over 20 specialists scheduled to start over the back half of the year. So, again, it does take time to get this fully optimized because of the time to wind things down, wind things up, and you can end up with a little bit of, I'll say, disassociation like we saw in Q2. But we're very confident in the strategy.

Great. And then on the exchange topic, it sounded like you're trending better than the $35 million you baked in, at least for the first half of the year. I was curious in your mind, you know, what you thought would cause the exchange headwind to grow in the back half. You know, maybe there's just a healthy dose of conservatism in there as well. But just wanted to get your sense for how that may trend to the back half of the year.

Sure. Thanks, Matt. This is Alfred. Yeah, we you know, I think we always expected the trends to grow throughout the year. You know, maybe we didn't foresee some of the macroeconomic pressures that might cause somebody to come off and not pay their premium and lose coverage. But we certainly saw that growth from Q1 to Q2 and, again, remain very comfortable with our original assumption set and the $35 million impact. And, you know, hopefully, potentially there could be some conservatism in there, but that's how we'd like to, you know, we're just trying to be thoughtful and planful because, you know, this is an area that, you know, is developing as we speak. Fair enough. Thank you.

Your next question comes from the line of Ben Hendricks with RBC Capital Markets. You may go ahead.

Thank you very much. I was hoping you could provide a little more detail on some of the payer mix dynamics that you saw in the quarter. You mentioned migration from exchanges to uninsured, and that's consistent with your peers. But I'm wondering if you were able to pick up a notable number of members in other group employer plans or other types of coverage. Thanks.

Hey, Ben. This is Alfred. Yeah, obviously, you know, we're not immune from the dynamics that our peers have all reported on in terms of the exchange pressure and the growth in self-pay volumes, which we clearly have seen. I'd say, you know, potentially, again, as we just look across the peer set, seems like in the markets we're in, there's been a little bit less pressure on the loss of exchange lives. And maybe a little different than what we've heard others say. we have certainly seen some amount as we look at our data, a material amount of individuals who've lost HICS coverage go into other forms of coverage, both commercial and governmental programs of coverage. So, you know, that gives us a little bit of, you know, I wouldn't call it optimism, but the movement seems to be a little bit better than what our underlying assumptions were. Now, when we look at our payer mix, I mean, the most of the pressure this year has been in the coverage areas that carry the higher co-pays and deductibles. I mean, that to me speaks to economic pressure. And again, I come back to potentially some pent-up demand because when we look at the top of the funnel, we look at our stats related to urgent care visits and physician clinic visits we're actually seeing very nice growth in those areas it's not translating its way through to the higher acuity procedures specifically or most pronounced in those coverage uh in those payer categories that carry the high higher uh deductibles um so that that does to us speak to uh some amount of macroeconomic pressure and potential pent-up demand great Appreciate that.

And just a real quick follow-up on your outpatient contracting commentary. You noted opportunities for continued contracting benefits in other markets. Just wanted to get a sense of how much of a gating item that is for continued ASC development and build out of those capabilities in your other markets.

Sure. You know, I think it goes hand in hand. And, you know, as you change the mix of sites of care, you've got to have it tightly coordinated with your payer contracting strategies for sure. So, yeah, I'd say it very much goes hand in hand.

Your next question comes from the line of Kevin Fishbeck with Bank of America. Please go ahead.

Great. I just want to follow up on the volume commentary first. I guess, is there a good theory for why, you know, April and May would have been so weak and then June and July having come back? I mean, I appreciate some of the things you said about, you know, deductibles and things like that, but that seems like a pretty significant move from deductibles who have been causing the pressure and then the rebound. Is there anything else that you could point to as to why it was so weak and maybe why this might be proof conservative to use the quarter number instead of the, you know, July numbers?

Yeah, no, thanks for the question, Kevin. This is Alfred. Yeah, you know, I mean, I guess we would have a number of theories, but at the end of the day, it does strike, says that there is some overall, I'll call it macroeconomic pressure. Again, as we look at the payer mix sources, the service lines or the coverage areas like Medicare, Medicaid, that don't carry the same levels of deductible and co-pays, we saw more consistent demand across those months. And so that gives us some optimism for the back half. But again, we are loathe to fake optimism into our consideration for our go forward guide. So, again, we'll be cautiously optimistic, but it is a very volatile backdrop, and, you know, certainly we could see an acceleration of exchange lives lost.

So, again, don't have a lot of speculation, but it is, you know, it was a very pronounced trend. building building on what alfred's saying this this is dave um which i think speaks to why we you know headwinds tailwinds why we believe operational rigor really matters and the impact program really matters there is some portion that's very hard to predict but what is not hard to predict are are those things we have control over we have control over how we staff we have control over how we utilize our resources, how we utilize our facilities. We are very focused, laser focused on the impact program and ensuring that we will deliver that value either through top line or through expense improvement. And that's the power of impact and the power of us having the teams that are identifying the projects, the intentional redesign of the work, the speed to implementation, which we execute every single Friday, the follow-through and measurement of that work to ensure that we can deliver our financials and be consistent.

Okay, great. And then I guess on the repricing dynamic, I guess the $5 to $10 million pickup seems like a pretty relatively large number for one market, and then in your earlier answer, you indicated that there were multiple markets or almost all of your markets where you thought there was an opportunity. Should we be thinking about that type of size across multiple markets, or was that somewhat unusually large? And then if there is that kind of opportunity, over what kind of period can we expect you guys to capture that?

Sure. This is Alfred again, Kevin. Yeah, that was one contract, one market. Now it was a large contract in one market. Not all contracts carry the same level of opportunity. And of course, renewal cycles are generally two to three year period. So I would suggest we're looking at a similar two to three year period. And negotiations are hard. You know, as I think we've clearly messaged, we're taking a more data driven approach. And we believe we have, because now we do have good, you know, with the transparency data really now telling a story and being able to decipher it meaningfully. You know, we do think we have a great opportunity to have data-driven conversations, to partner potentially with certain payers to get a better outcome. If we're wildly underpriced in a market, it certainly doesn't do the payer any good to continue, you know, to take us out of network. But but the negotiations are never easy. And, you know, we've already seen examples this year where we in multiple markets have had to send letters to had letters go out to members about potential disruption. That's not where we want to go. But if it takes that to yield being paid fairly, we're we're willing to, you know, to to have those conversations.

Your next question comes from the line of Scott Fidel with Goldman Sachs.

Hi, thanks. Good morning. From the first question, Dave, I wanted to ask you a strategy question, maybe just sort of lining up some of the previous core elements of the strategy in terms of what you're thinking now for the future. And particularly, you know, when the company went public, there was a lot of focus on the JV opportunity, the joint venture opportunity with major health systems. And, you know, over the course of the last couple of years, I would say that narrative has definitely sort of quieted down pretty substantially. Alternatively, the company has definitely talked a lot more about increasing and advancing the outpatient strategy, and then also just the service line enhancements and recruitment that you've been doing with physicians. So maybe if you could sort of just walk us through all of those things and how those line up, and then especially just, you know, because clearly this is going to drive some of your capital considerations. If you still have the JV strategy as a key element, you probably want to retain more capital on the balance sheet. If not, maybe you'd be more aggressive around, you know, sort of deploying capital on those other opportunities. So we'd love your view on that, Dave, and maybe offer it as well in terms of the balance sheet dynamics around that.

Sure. Thanks, Scott, for the question. A lot of parts to that question. And so I'm going to give you, I guess, what may seem like a more general answer to that deep question, given the venue. First of all, if we start with, we do believe in our existing growth strategy, right? We still believe the right markets matter significantly, that that growth has to outpace, you know, the rest of the growth in the U.S. um inside of that the products and services team that we built is very focused and looking at all m&a activity that could exist and doing so in a very disciplined approach as you heard earlier with capacity iq which is an intelligent engine that helps us to ensure we're making all of the right decisions with all of the right resources, you know, that plays a critical role in our existing markets, ensuring that we improve our yield at the very same time that we look for those M&A opportunities. And, you know, that discipline and structure, it's taking us some time to really get exactly organized around the plan we want, the execution we want, and the timeline we want, as well as the appropriate kind of, you know, opportunities that may or may not exist. Secondarily, you know, inside of that, JV opportunity and JV partnerships, without going incredibly deep on it, I'll tell you that we're pleased with a good portion of our JV relationships. In particular, you know, UT Tyler, Texas is an important relationship that is improving our results. It's improving our business and we have, you know, great opportunities and great plans ahead there. So we will stay very focused on our existing strategy. No major pivots to that. We are, you know, as I mentioned with products and services, taking a deeper look at every single asset, every single service line to ensure that it fits our long-term strategy to grow value. And you can anticipate, you know, over the next quarter, we'll have quarter quarters, we'll have more specific plans to walk through step by step. But as for today, you know, staying very focused on our existing plan, I hear you on the capital and the opportunities that exist. You can see we're organizing our team to advance further, and we will stay steadfast to make disciplined decisions that are best for us long term.

And the second part of your question, Scott, really is no different than really what Dave just articulated. We're taking a very balanced and opportunistic approach overall to capital deployment. Obviously, we love having a strong balance sheet and the opportunities that that can create to be opportunistic. And you also saw in the second quarter, we repurchased $13 million of stock. We have, as of the start of the third quarter, another $34 million remaining under that repurchase authorization. You know, the board and the management team certainly believe that there's value in the stock and that it can be an effective use of balanced capital deployment.

So, you know, I would say, you know, as long as there is what we think could be a disassociation in the underlying value that there would be a bias to continue to repurchase uh shares thank you and then just on the follow-up that i'll this will be a much more surface level uh question uh just a quick numbers question um appreciate you know definitely uh intrigued around the commentary around seeing more of the uh the hicks attrition members finding additional coverage um you know i'm curious if um And some of the peers have talked about the ratio of their HICS and Trinidad members going that are uninsured, and they've talked about a one-to-one or close to that type of relationship. Have you been tracking it that way? Is there a comparable ratio that you can – obviously, it's lower, it sounds like, but that you could share with us in terms of what percentage are going uninsured versus finding additional coverage?

Yeah, we certainly do try. We track it in a multiple number of ways working with our revenue cycle partner Ensemble, who, of course, has both our data as well as much broader industry data. You know, I'd be like, because there are multiple ways to look at, you know, are you talking about all members? Are you talking about the member who you saw last year and who has shown up for a new procedure this year? Are you talking the whole population? So we have certainly greatest visibility to those individuals who we saw last year and we saw this year and knowing what their coverage migrated to. And I would just say of that cohort, it's, you know, there is a very material amount that are finding incremental coverage.

Okay. Thank you.

Your next question comes from the line of A.J. Rice with UBS.

Please go ahead. uh hi everybody um i just want to ask you about first um some of the other expense areas where you seem to have done pretty well salaries and benefits and supplies um up modestly both year to year i would think supplies got some help from the weak surgery um cases but anything to call out in either of those metrics in terms of what you're seeing and any initiatives around those that might be worth highlighting?

No, thanks for the question, AJ. This is Alfred. Certainly, yeah, no, we appreciate the call out. We're very satisfied with the overall expense management. You know, as they've said, being able to control the controllables and having the operational rigor to be successful in a lower volume environment, you know, positions as well, even when volumes accelerate. Right. We're particularly pleased in the SW&B. That's where we had the strongest response to what we saw as the weaker volumes early in the quarter. You heard us talk about the efforts to reduce our spans and layers across our managerial functions and create a more nimble, quicker, and more accountable organization. And that's going to endure, again, regardless of the environment. So that's the area where we've got the ability to respond most quickly. Supplies, I would say we believe we have more opportunity in the supply chain area to continue to drive. That is, to your point, yes, it tracks to improvement with just the volume and the acuity level being lighter. but we do think we have more opportunity across a number of areas in the supply chain. It just takes a little bit longer to create that impact.

Okay, and then maybe for the follow-up, I know you've talked about what you saw in surgeries being perhaps partly dealing with more copay deductible issues in the first half of this year given dynamics in the commercial market and the public exchange market. I wonder, are you allowing at all for a seasonal pickup later in the year when people maybe hit their deductibles and then start to come back in some of the utilization? And maybe just remind us, if you don't mind, along those lines, how does the comparison look versus last year? Did you see a lot of that activity last year in the third and fourth quarter? So is it an easier or tougher comp in that regard?

No, thanks for the follow-up, AJ. Certainly, we would expect what we would call a normal seasonal pickup. Now, that's off of a lower base, so it would still be lower, but we certainly still would expect, you know, one, just seasonal activity off of respiratory illness at the end of the year. But, you know, yes, with every year as we look at the data, half two is stronger than half one. And I don't would fully expect that to happen again. We certainly didn't predict this. But, you know, there as again, as I've talked about potential pent up demand, is there even a scenario where that where that seasonal dynamic is stronger than than historically, given the economic uncertainty? If you're now worried, you know, we've all seen the headline rates with exchange coverage or exchange premiums next year going up, you know, double digits again and commercial premiums going up double digits again and deductibles increasing. Is there even a scenario where it's a stronger than normal seasonal bump? Possibly, but that's certainly not what we've incorporated into our outlook.

And AJ, to your question about how are we positioned for the back half should surgical volume come forward. Good news here. A lot of our rigor in work is around standardization and efficiency. And that work shows up in a couple areas and in combination with salary with benefits. An example is this fall, we open our singular patient logistics command center that we call core that command center um it it was an influence in reducing salary with benefits cost and it is an improver for standardization and efficiency that's just one example of how we'll be able to handle inbound transfers and inbound patient logistics better than ever um so we're excited about you know the ability for for impact which you heard me mentioned before, this is not just an expense program. It is care transformation. And as we standardize and improve these efficiencies with CORE, we're going to be able to see more patients at scale with an improved expense structure.

Okay, great. Thanks so much. Thank you.

Our next question comes from the line of Craig Kettenbach with Morgan Stanley. Please go ahead.

Yes, thank you. Dave, going back to your comments about the top of funnel and 25 urgent care and ASCs. Can you just talk about kind of the pipeline and any updated stats you can share with us in terms of just driving activity from that top of the funnel?

Yeah, Craig. Specifically, top of the funnel that I'm focused on right now has a lot to do with referrals and patient transfers yes of course our provider efficiency and our urgent care availability for the patients those certainly matter and those are certainly strong but we've seen doubles low double digit growth in referrals and transfers and our ability to maximize that inbound patient flow is critical and that's what gives us good positive signals about the potential business that's there so for now i'd like to just leave it on those two specifically and those two matter a lot because inside of the capacity iq the patients that we are able to acquire via those two methods are critical patients to our financial formula and they're also critical patients who desperately need care.

Got it. And then maybe building on the hello.ai, you know, kind of AI commentary, I saw the press release recently of ambience healthcare in terms of the uptake for ambience scribes. I think it's well above kind of the industry averages. So how are you approaching that just from kind of an ROI perspective? Obviously the use cases there and physicians like it, but anything else you would share on just kind of the rollout of that and what you see as the implications for the business?

You bet. I'm going to start with, I'm going to probably primarily focus on HelloCare AI for now. Because the economics are very simple, actually, our ability to leverage HelloCare AI, which will be deployed in over 2,000 of our hospital rooms. The financials for that proof positive through our ability to handle virtual sitting appropriately, which is just a small portion. We are able to be ROI positive and take better care of our patients and reduce unnecessary patient falls all off of improving virtual sitting and the technology that allows more patients to get better oversight by fewer team members using the technology. It's really critical and a really important part of making the financial dynamics work. All of the rest is bonus above that, let alone how the customer feels or the patient feels about the experience, knowing at any moment they can get care in their room immediately is critical when it comes to uh ambient listening uh yes we we reached the million mark uh last month and uh we are seeing substantial you know time savings for our providers the translation of that time savings into additional visits is something we're still working through because inside of there is a balancing act between respecting our providers work balance the quality of the product that's being produced and so today we're positive about

it you're right the providers feel good it is uh greater than a mid single digit improvement in productivity now it is about realizing how we want to best use that that productivity gain very helpful thank you operator i think we've got time for one more question since we're at top of the hour our final question comes from the line of benjamin rossi with jp morgan please go ahead great uh thanks for squeezing me in here uh regarding the impact program as you're adding this savings here under this scheme of operational rigor do you think the incremental benefit realization is largely coming from pull forward on other initiatives that have been further in the pipeline or did you see opportunity open up as surgical volumes were coming in softer just I'm just curious how you'd frame the additional savings opportunities being presented here.

I'll start. This is Alfred. Ben, yeah, I would say for the most part what we saw in June was a pull forward. Certainly, you know, we have a, as Dave said in his opening comments, this is not a project. This is not a single-year focus. This is a multi-year strategic imperative to ensure that the cost structure overall is aligned. And so we intentionally went further and faster, you know, faster implies a pull forward than in the past. And as Dave mentioned, I mean, this is something, you know, every Friday we have the leadership team assembled to ensure that we're tracking, that we're improving, we're enhancing and growing the potential for the impact initiatives. So, it is, you know, I would say the inventory of opportunity is expanding, but what we have executed on so far this year is largely a pull forward going faster.

Great.

And this is Dave. Inpatient surgery.

I'm sorry. Just, Dave, just adding on to it. There's a really unique and powerful thing happening right now between both of those elements. between products and services and service lines getting more clear and between optimization and the impact program those two were able to be clear on what we stand for and optimize what we don't and that is really helping shape us and that helps in the swb intentional redesign where do we need to be at our best and how do we want to design for it and you may hear me mention one team one plan and one standard as we um reduce the number of spans and layers or layers in our team it allows us to put design and execution more closely together and when that is close together you become more nimble and so as we continue to go forward you're going to see us be able to implement with speed execute with speed and ensure that what we've manufactured in design comes true in execution great and i'll follow up offline for the rest here thanks for your time thank you this concludes today's question and answer session ladies and gentlemen Thank you for joining today's conference call.