Ardent Health, Inc. (ARDT) May 13, 2026 Conference Transcript

All right. I want to thank everyone for joining us. It's my pleasure to be kicking off day two of the healthcare conference with Ardent Health. With us today, we have Marty Bonick, who's the CEO, and Alfred Lundsdain, who's the CFO. Dave Sablo from Investor Relations is in the audience as well. Maybe it makes sense to kind of start off. The company's a little bit different than some of the other hospital companies out there. Maybe it just makes a little sense to start off with how you guys think about growing your business, the growth strategy of Ardent.

Yeah, I'll start. Good morning, everybody. Great to see everybody here. Arden Health is a health system that's grown to 30 hospitals, almost 300 sites of care across eight states and six markets. Our markets are growing faster than the U.S. average, which has built in some tailwinds that we've benefited by since we've gone public, and I think people are getting to see. And we said from the onset that we've got a tri-part growth strategy. The first is improving margins inside of our core book of business and our impact program, which I'm sure we'll get into today. reflects that activity. We said we were going to grow within our regions. Those eight markets were number one or two in the majority of those markets. And we've got a unique joint venture partnership that we'll talk about some more as well that has allowed us to grow our inpatient share to leading positions. But we have room to grow our outpatients. And so we focused on access points with urgent cares and now growing into ASCs and other parts of the outpatient arena to be able to take advantage of the growth within our growing markets. And then the third is opportunistic growth, looking for M&A either to complement our existing regions and expand our presence or to grow into new territories where it makes sense, where we think we can bring value to both the community and to the company. All right, great.

And you just want to talk a little bit about, take a step back for like the industry.

There's been kind of a slowdown in volumes the last, you know, few quarters. um but in the q1 you guys actually had a couple percent growth in adjusted emissions but the admission number was low so can you just talk a little bit about the volume trends that you're seeing and i've seen the last couple quarters sure yeah no we're as marty already touched on you know we're in growing markets and that's that is a built-in tailwind and we have as we've executed on our ambulatory growth strategy we uh clearly have an opportunity to capture more share inside of our markets and that's been a tailwind too from a from a volume growth perspective Yeah, we were very happy with what we saw in Q1 from adjusted admissions growth overall, which was right at the 2% with midpoint of our range of 1.5% to 2.5% for the year. maybe talking a little bit about what we saw from an exchange perspective because that's been on everybody's mind as we entered the year at the midpoint of our guidance we had a we had quantified about a 35 million dollar headwind relating to exposure from an exchange perspective now in the states we're in we've seen better support from the exchanges than the national excuse me the national averages um and again that's really driven by the specific states that we're in and excuse me we're still seeing a change in behavior inside of the exchange markets we saw from a metal level perspective while the gold held up very well approximately the same from a year-over-year perspective we saw about a 12 shift out of silver into bronze levels and so that is having an impact uh on on our exchange so we remain comfortable with the guidance uh that we put out but we actually saw a slight increase in admissions uh from exchange lives in q is there any color on um where the strength and volume were either by service line or by geography it was pretty consistent across the geography uh you know we did see some weather impact in our texas and oklahoma and new jersey markets uh that impacted the inpatient side and some surgical volume, but we saw a good strength in our outpatient ASCs, our outpatient surgical volume,

I should say, and we've got a really robust clinic infrastructure and urgent care network now that we've built, and so that was a little bit less impacted by the weather, so the strength of those outpatient programs, I think, helped fuel our adjusted admissions.

Yeah, and I guess when we think about the volume impact, is it, or the volume for the quarter, was it relatively stable throughout or was it like lower in january and kind of rebuilt it started out with some of the weather impact in january and then started to you know get into more normal seasonal patterns with february and march um you know you've got spring break in there which happens every year you know just a little bit of timing issues in there but yeah we were pleased with how we were growing through the quarter and clearly we saw lighter flu volume like everybody did throughout the industry we put that from a headwind perspective at about maybe a 200 basis point headwind from admissions overall combined with the weather you know approximately but um you know as we have said flu volumes are generally lower acuity we don't generate a whole lot of uh

incremental uh profit off of flu volume so much more of an impact to the top line than the bottom line yeah that's helpful and you mentioned the the jv model um can you talk a little bit about what you benefit from the jv model why it works um why others maybe aren't replicating it yeah well Well, it's not, it adds complexity to operating.

We've got partnerships and joint venture boards with our partners in each of these markets that we have a joint venture relationship, but it's well worth it from our perspective. You know, particularly we look at the academic sector right now. They're being faced with cuts from NIH funding and other cuts that, you know, we're all facing across the industry, but everybody wants to grow. And so for us, it allows us to partner with a name brand organization that brings credibility and it brings stability as we come in. It helps us to recruit physicians and specialists into the market. We've been able to grow services successfully as a result of this model. And for them, it allows them to expand their brand, expand their reach, but de-risks that expansion. We've got the operating and execution abilities on our end, and we know how to scale, which is something that when you're leaving your core market and expanding across the state could be more difficult for some of those that don't have the integrating or operating experience or may not have the balance sheet for them to grow themselves, but know that they have a brand that would spread across the state in a positive way. So it's a symbiotic relationship in terms of how we can help each other. And it's generated a lot of interest with our chief development officer. We've got conversations going on with close to a dozen different academic centers that are interested and intrigued by what we're doing and how we might be able to help.

Yeah, I think that, you know, that that opportunity was a big part of kind of like the IPO a couple years ago. You know, we haven't seen a big acquisition yet. I mean, what would you say the odds are that in the next couple of years, we don't see a hospital transaction?

Yeah, pretty low. I mean, if you just look at the state of the industry, it's still a tale of two cities, you still have roughly, you know, 30% of hospitals still losing money, You know, and that puts financial strain on their balance sheet and their ability to be, you know, financially solvent and stable, you know, independently. And so I think the opportunities are going to continue to be prevalent for us. It's a matter about finding the right fit. You know, we've talked a little bit openly about an acquisition we were looking at. There's a couple we looked at that we really like the academic partner, like the vision, had an alignment in terms of the strategy. But, you know, either found things within diligence, within the target opportunity that, you know, just we didn't see that we can either overcome from a price perspective or from a value perspective to make it accretive to the company. And so we're going to be very choosy in terms of doing these acquisitions. We're not chasing growth for growth's sake. I think we had the best growth organically across the peer group last year independently of M&A. And we want to keep that going. We're looking for markets that emulate the success that we've seen in our sort of secondary, you know, sort of mid-tier urban markets where we can see that growth and expansion. But we're not going to do a bad deal and chase growth for growth sake.

I guess where do these deals come from? Because I think you guys obviously are being very picky about that you want to be in a market that grows above average, you know, has opportunity. And you think that those hospitals have been doing relatively well. So, like, why are they selling? What are you bringing to those hospitals in that transaction?

Yeah, well, I mean, any number of reasons things can happen, you know, in every market, every state's a little bit different. Typically, the inner dynamics between the payers and the providers in those markets often have a, you know, a big factor in terms of why, you know, hospitals and systems go up for sale. And so, you know, we are going through and proactively identifying partners that we might want to, you know, join forces with and then go look for target opportunities. And then, you know, when the system does realize that it's got to go outside and find a, you know, a strategic capital partner like us, you know, and it becomes an auction process, we're getting involved there. But those are a little bit more difficult to jump into without a proactive relationship. You know, so if we were going to do a deal together and we got a ticking clock on the other side, it's tough. So we're trying to proactively build those relationships. So if and when those opportunities come, you know, we're ready to join forces to go after those opportunities.

You know, I guess you mentioned a little bit about some of the payer issues that some of these hospitals have come up with. You guys have been dealing with payer denials. Can you talk a little bit about the trends that you're seeing on denials?

As I think most people know, last year we saw a significant spike in our denial levels in the middle of the year, and that has stabilized for us, stabilized through Q4, and we saw much the same through Q1. So there has not been any sort of acceleration, maybe just a little bit of an improvement from what we've seen. We continue to be very focused on the things we can control to improve the denial process. You know, it starts at the front end with authorizations, tightening up our authorization process. We're working with our revenue cycle partner, Ensemble, to use advanced analytics and AI to identify root causes of denials, things like accelerating appeals processes, standardizing appeals processes, and building contractual language that strengthens our ability to overturn and prevent both overturn and prevent denials on the front end.

So can you quantify kind of like what the headwind has been the last year?

Well, we talked about from the step up that we saw in Q3 about on an annualized basis, about a $50 million impact to the organization when you combine denials and the professional fee headwind that we also saw in the back half of last year.

And so how much of it do you think is, you know, something fixable on your end from like the RCM perspective versus kind of necessary to kind of recontract? And how long does that kind of take to get back to where you were?

Yeah, I think difficult to, you know, actually apportion that out in that way. But I think, you know, what we're focused on is, you know, certainly first ensuring that it doesn't get worse, control the things that we can control. Um, and I think overall, you know, uh, very candidly, what we've seen from the payers is, you know, they had a challenging year last year and, you know, that has a trickle down effect to the providers as, you know, there was a significant, uh, ramp up in denial activity broadly. Um, you know, clearly we saw the payers as a set had pretty good Q1. We think there's been a rewriting and better underwriting. And we do think that, you know, again, the, what we don't control is what happens. on that end. But we think working with Ensemble in terms of really doing the things we can do to prevent, overturn, and again, use both technology and leveraging Ensemble's expertise, we think we've gotten to a better place than we were, you know, call it 12 months ago.

Yeah, because essentially because the managed care companies keep putting out press releases about reducing prior authorizations is that just not in the hospital setting that they're doing it's more physicians or you know what is the disconnect there yeah i mean i one we haven't seen a huge change so we've seen that press release and so when we see the change on the other side i think it's more consumer facing uh you're going to see it more so with the outpatient test you know your imaging test and those types of things uh gi procedures those things that are going to need that pre-authorization um you know we'll be interested to see and if that helps the flow As Alfred said, though, we want to make sure that we've got those people pre-cleared in terms of making sure we've got all the other things that we're going to be necessary to successfully bill and collect on the opposite side of that. So I think we hear the headlines and we'll be pleasantly surprised if we start to see that trickle through.

You mentioned the professional fee pressure last year as well. So can you tell a little bit about what happened there and where you are in dealing with that?

Yeah, we saw, and again, the pro fees have been a pressure point now for a number of years, right? We're into really our third year of really significant elevation in the rate of increase. Now, what we saw last year beyond our expectations in the back half, particularly on the radiology side, we saw a big step up that was unexpected. But going into this year, Q1, year over year, we are at about a 13 percent increase, which seems high, but is actually fully consistent with our expectations because we saw that big ramp in the back half of last year. So once we lap that from a year over year comp perspective, we expect to be in the high single digits from a rate of increase perspective. We do think that we're to a point in the process where essentially the recontracting has happened throughout all specialties at this point. And that will, you know, I think it would be way optimistic to think we'll get back to kind of a parity with inflation, but where we'll see a trend downward in the rate of increase. And again, nothing that we've seen would change our perspective on what our expectations are for 2026.

So what does that mean? Like by the end of the year, is it still, it's out of the double digits, but it's still high single digits?

High single digits, I think, is where we expect it to end up this year. You know, again, the provider groups that we contract with, and we've got some great relationships across different specialties as we recontract within a given market or geography, bringing in partners. We're able to gain from the scale of that partnership and relationship, but they're facing, you know, some of the same payer challenges that we are, which is driving, you know, a lot of this. And you hear a lot about the IDR process and dispute resolution for, you know, surprise bills. Most of our groups are, you know, required to be in network. And so that's not an issue unless they get forced out of network. And so we're feeling some of the sideways pressure that they're feeling from the payers that becomes a result of that professional fee increase. And then you've just got some specialties like anesthesia that have had, you know, significant wage inflation growth, particularly with CRNAs. and at the beginning you kind of laid out as part of the growth strategy you know cost control is one of the margin improvement where is the opportunity greatest for the margin improvement story it's across the board i mean we talked just now about some of the improvements on the revenue cycle side and some of the things that we're seeing from revenue integrity but across the board you know we've seen great improvement in our continued focus around productivity precision staffing and a decrease in contract labor. That's been a big focus for us. We're now back down to sort of pre-pandemic levels. About 2.2% of our SWB was contract labor, you know, down from a peak in the high single digits during COVID when this started. And so we're finally back down to where it was before. And we're going to continue to push on that, I think, as we get into more technological advances. You know, there's probably always going to be some base level of contract labor spend, but we want to see that as low as possible. And, you know, I don't think that the step-down functions will be as dramatic as they've been over the last few years, but now that we're at pre-pandemic level, we are going to continue to push on that agenda. And then the supply chain and professional services or professional fees, you know, continued opportunity there that we're focused. We've got a new supply chain leader who's come in with experience from another reputable health system and driving this expense down for us, focusing on physician preference items, focusing on, you know, the consumables, focusing on just the amount of supplies that we use. We continue to see opportunity in the supply chain. And so it's a combination of all of those different factors that will be continuing to press. And this is meant to be our impact strategy is meant to be a multi-year journey. We've quantified $55 million of benefit for this year, and we feel like we're definitely on pace for that. But, you know, expect that the tail benefits and additional opportunities to come from a care transformation and business transformation side with AI to continue into the out years.

Yeah, that 55, I guess you got five last year, incorrectly 50 this year. How do we think about, is there an exit rate? Think about like, is that number ramping and so that it actually annualizes into something into next year? How do we think about that?

That's correct. I'd say there's two elements to that ramp, right? Meaning it will ramp throughout the year. We talked about coming into this year that we already had $40 million achieved. So that's kind of a 10 million per quarter impact that's, you know, baked into our expectations. And then with the remainder kind of a ramp throughout the year. And as Marty mentioned, this is a multi-year journey. So we would expect more off of that run rate as we go into 2027. So there, you know, there is more to come. Obviously, not going to get into 27 expectations yet, but there will be incremental contribution from the impact programs into 27, both from a run rate and from a new initiative perspective.

Is there a way to think about longer term where the margin target is for the group of assets that you have today?

Yeah, you know, we've always talked about getting to a mid-teens EBITDA margin, and from a core operations perspective, we feel like we're very much on track for that achievement over the next couple of years. Now, what, you know, what becomes more difficult, of course, is the triple B and the expiration of the exchange subsidies and the impact that those things will have over the long term. And so, you know, we wouldn't, while we're certainly not coming off of our expectations from a core operating perspective, wouldn't want to predict what the overall backdrop is and what happens with the triple B cuts.

Okay. And then I guess you mentioned additional savings potentially from AI. Everyone's excited about AI. Can you talk about where you see the most opportunity? And then I don't know if people get too excited in some areas that I think people are getting over their skis on as far as AI goes.

Yeah, I continue to say that I think AI is going to be a massive transformation for this industry, and it's going to be evolution versus revolution. Everybody wants it to happen tomorrow and thinks that, okay, it's here, we're seeing the benefits. Healthcare is a different type of industry than most, and And historically, we've been fairly impervious to technological advances. This has been a very labor-dependent industry. And, you know, we have physician shortages. We have nursing shortages. And so I think AI is going to be a deflationary aspect for us, you know, in taking out some of the increases that we've seen. But we see it broadly across, you know, I'd say three general themes. There's the clinical theme. And we've talked about some of the things that we're doing with virtual nursing and virtual attending and our bio button initiative and some of the care advances that we've seen, which have all been great benefits to the patients from an outcomes and a safety perspective, but also to us from an efficiency. And that's I'd say we're still in the early innings of that, but we're encouraged by the results and continuing our rollout. The second is from a consumer perspective. When you think about, you know, how consumers interact with their daily lives, I mean, everybody's got a phone and there's an app for whatever you're looking for and you can schedule things online. Healthcare has not been like that historically. And so we're really leading into the consumer side, which, again, helps with that access. We've got 1,800 physician and extender providers throughout our network making sure that those doors open, making sure the urgent cares are open. people can schedule easy appointments, get access to the care that they need, which then has a trickle-down effect into our facilities, into our outpatient agenda. And so everything on the consumer side to make healthcare easier for them, which makes it easier for us to pull them through our system and has less leakage into disruptive competitors outside of our system. And then the third is the business transformation. And again, I think we're still very early on this part of the journey, but excited about the opportunities we see when we look across labor productivity, when we look across finance, when we look across supply chain and enabling some of the things in our impact that Alfred just discussed, we see opportunities to identify a lot of the work that's happening behind the scenes to help us to harvest those gains and, you know, continue to make margin improvement that Alfred was talking about. Okay.

And then when we think about, you know, the cost side of the equation, how do we think about getting to that mid-teens? Is it kind of like a step, kind of straight line to that, or is there a asymptote there?

Yeah, we do think it's relatively linear, and it's a combination of the confluence of the things that we've talked about from the work around our impact programs, taking cost and putting more efficiency into our underlying processes, and then the build out of our system inside of all of our markets, the ambulatory outpatient settings, which sometimes have a higher margin and then also contribute to the overall contribution to admissions inside of our acute care settings. as well. So again, we see that, you know, as a multi-year journey, but we are very happy with the progress that we've made already. And again, we think we have a very clear roadmap from an operational perspective to, you know, to optimize our underlying operating system.

You've talked about outpatient a couple of times, so let's dig into that a little bit. You know, where is outpatient as a percentage of revenue for you guys today? Where can that number go? And when you think about adding assets, you talked a lot about the urgent care assets. Is Is that where the focus is? Is it ASCs? Where are we going from here?

Yeah, today outpatient revenue is about 55, you know, 50% of our total revenue. And, you know, we've not quantified exactly where we think we can go, but north of there for certain. You know, if we look at just how healthcare is evolving, there's, you know, a tremendous amount of growth in the outpatient space. And while we've had great market share on the inpatient side, We've had relatively weaker or lower market share on the outpatient side. So given the fact that our markets are growing, there's still white space inside of those for us to expand. We made a great push on urgent cares right out of the gate as a public company. You know, we've gone from hardly any urgent care to commanding market share in most of our core markets around urgent care. And so now the focus is shifting to ASCs, imaging centers, micro hospitals, freestanding EDs. And we've talked about some of the things that we've got in the plans this year. We want to make sure that we're being disciplined in that rollout, one that we can capture and bring that volume inside the system and making sure we're picking out the right sites in our core markets to be able to do that. And just to be able to fund the working capital, you know, build up of launching a new center without taking us off of our overall trajectory as a company from an EBITDA growth perspective. So, but I would expect to see us focusing beyond the urgent care. There's still, you know, a few sides to round out in our markets, but moving into those other core operating assets like ASCs and imaging centers that are going to have a higher margin profile for the business.

Is there a way to think about that margin differential? Like what kind of, what is an outpatient margin versus an inpatient margin?

It, again, depends on the specialty. But, you know, if we're, you know, currently in the low double digits from an EBITDA margin perspective, you know, these are going to be, you know, in the high teens to perhaps low 20s on the AIC side.

Okay. And then when we think about that, you know, your balance sheet is pretty strong as far as having a huge cash balance or generating free cash flow. Are you saving that for that large hospital deal? Is that the way to think about it? Is there any way to think about near-term capital deployment as far as ASCs or outpatient versus inpatient?

Yeah, I think that's exactly right. That, you know, obviously very strong balance sheet, very low leverage overall. And, you know, that essentially you can think of that as preparation for, and it ties to, you know, our whole reason for going public a couple of years ago to create the liquidity for that acquisition growth strategy. we talked about the build out of our ambulatory assets and that has we have seen a step up in our capex as a consequence of that but that's that would never you know we would never burn through our current cash and liquidity and cash flow generation just off of uh executing on that ambulatory strategy so very clearly we are expecting that we will be acquisitive and that'll be, you know, one deal could, you know, at the right size would have a significant reduction in cash on the balance sheet. But, you know, we continue to be positioned to operate the company, you know, with a very modest leverage profile. Marty and I both worked in much higher leverage situations, and we believe in a conservative balance sheet.

Okay. And then can you talk a little bit about, we talked a little about denials, but like, what's commercial pricing looking like, broadly speaking? And it sounds like contracting terms are just as important sometimes as the rate update, but just talk a little bit about that.

Yeah, we're still seeing, you know, headline rates sort of in, call it the low to mid single digit range. But to your secondary point there, yield is just as important. And so if you get the headline rate, but you're not collecting it because of denials or underpayments on the back end, you're effectively not achieving that volume growth. And so we are, or that the revenue growth. And so we are focused on both sides of that. You know, we believe that in most of our markets that we're not the highest reimbursed. And so we want to bridge the gap to make sure that there's parity in the market and for the quality of care that we're delivering and the services that we're delivering that we're getting fairly compensated for that work. And we need to make sure that that payment is happening from a timing and a friction perspective much better than it is today. The denials across the industry that we face, we don't believe that we're unique in that. that has been fairly prevalent across the industry. And as Alfred said, you know, when the payers had a challenging backdrop last year, it's one of the few levers that they can pull. But so realizing that, strengthening our terms around medical necessity and defining that, strengthening our terms around payment and retroactive denials, all of those things come into play in terms of making sure that we are taking out the friction points for the care that we've already delivered. You know, and there should be contractual obligation to pay for. So just making sure that we're sort of buttoning those hatches down as best as we can.

And I would just add internally, we've reorganized around this function because prior we had very siloed. We had a managed care unit and a revenue cycle. Well, we've created a unified revenue integrity unit inside of the company and enhanced our resources significantly. So, again, going to Marty's point, contract terms are just as important as the headline rate. And so having both managed care and revenue cycle under the same part of the house has created a much more unified approach towards our pair negotiations.

Great. And then when you think about, you mentioned the OBB and the ACA headwinds, is there anything that you're doing specifically, you have the impact program, I guess that's something that you guys have kind of always been thinking about doing. Is there anything special that you can do or think about doing to kind of offset those pressures, or is it just more about continuing on the path you were on?

Yeah, no, I think the expansion of the impact and continuation of the impact beyond this year, as we talked about, is how we're getting ahead of that and addressing it. You know, this is going to be a challenging piece of legislation for the industry and for, you know, low-income Medicaid patients that may or may not have access to some of these services like they used to. But, you know, our ability to continue to, you know, improve our margins, as we've talked about today, and transform the way in which we deliver care is how we end up, you know, overcoming those headwinds that we foresee down the road.

Yeah. And then, you know, last year was tough. Q1 was good, though. You guys beat certainly consensus expectations, but you reaffirm guidance for the year. Is there anything to kind of read into that as far as is there something that you're worried about that might go wrong?

Is it just early? how do we think about the lack of raise there yeah just as a matter of practice i mean we just gave guidance uh you know 60 days ago and so it's it's a little bit too early in the cycle as a matter of practice to to be able to change that but we're encouraged by the way in which the year started off we you know definitely see the momentum from our impact program carrying out as we said it would and uh you know look forward to continuing the progress this year all right i think that's all we have time for but thank you very much