"Ardent Health" Q2 2026 Earnings Call - Cost Discipline and Payer Repricing Offset Volume Weakness, Raising Full-Year Savings Target

Lacey, Conference Operator: 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. All 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 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Please limit yourself to one question and one follow-up. Thank you. I would now like to turn the call over to Dave Styblo, Senior Vice President of Investor Relations. You may go ahead.

Dave Styblo, Senior Vice President of Investor Relations, Ardent Health: 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 Caspers, and Chief Financial Officer, Alfred Lumsdaine. 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.

Dave Caspers, President and Chief Executive Officer, Ardent Health: 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. Third, what you can expect from me. Let’s start with where we stand. The Ardent 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 SW&B, 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 hellocare.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 hours 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 the right setting. In supplies, we are beginning to harvest gains by consolidating vendors, renegotiating contracts, and streamlining physician preference items. On the IT 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 million 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. 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. Two, accelerating strategic growth in core markets and services, including new ways to optimize how we reach and engage customers at scale. Three, 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. 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.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Thanks, Dave, 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 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. 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 million-$20 million of additional savings this year, with a full annualized impact of $30 million-$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. 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.

We repurchased $13 million of stock in the second quarter, leaving the company with a remaining authorization of $34 million at June 30th, 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, I’ll provide some additional context around each of those. For revenue, we’re now biased towards the lower end of our $6.4 billion-$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 million-$535 million. 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 million-$30 million from the two actions I discussed earlier. Just to reiterate those actions, we expect $15 million-$20 million of higher IMPACT Program savings this year from workforce reductions and $5 million-$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 million-$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. We’re reaffirming our original $35 million exchange headwind for this year. 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.

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. 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 to Dave for concluding remarks.

Dave Caspers, President and Chief Executive Officer, Ardent Health: 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.

Lacey, Conference Operator: I’d like to remind everyone, if you would like to ask a question, please press star one on your telephone keypad. Your first question comes through the line of Ann Hynes with Mizuho Securities. Please go ahead.

Ann Hynes, Analyst, Mizuho Securities: Great. 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?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: This is Alfred, Ann. Good question. It’s a difficult one to give you a uniform answer. I would say we have opportunity across all of our markets. I think we have talked in the past, that our revenue integrity function was somewhat siloed and the, I’d call the revenue cycle management component, was not fully integrated with the contracting component. 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. I would say that there is opportunity across most of our markets for improvement.

Ann Hynes, Analyst, Mizuho Securities: Thank you. Just as a follow-up on the surgery, your inpatient surgeries declined much more than outpatient, which is the opposite of what we’re seeing with other hospitals. What was driving that decline?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: A couple of things. This is Alfred again. I would say, 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. A majority of that shift was procedures that were on the coming off of the inpatient-only list. 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 million and $2 million of net impact. Overall, very modest.

Ann Hynes, Analyst, Mizuho Securities: Great. Thank you.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Thank you.

Lacey, Conference Operator: Our next question comes from the line of Jason Cassorla with Guggenheim. Please go ahead.

Jason Cassorla, Analyst, Guggenheim: Great. Thanks, and good morning. Maybe just to follow up on the volume side. Obviously, it’s great to hear that you had some recovery in June and July. Was that broad-based, or was that recovery within selective service lines? The second half expectation, are you assuming that for the second half, you’re running at the second quarter run rate, or where you ended up in June and July? 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? Thanks.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Got you. Hey, Jason, this is Alfred. In terms of, I think I’ve got the components of your question. The first was the recovery that we saw broad-based. 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. 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. 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.

Again, we want to take a prudent approach as we work on our cost structure in the organization. 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. I apologize, I forgot the third part of your question.

Jason Cassorla, Analyst, Guggenheim: 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 what you kind of normally grow off of? Any thoughts there for next year?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Yeah, I think really tough to say. We’re in, as I mentioned in my prepared remarks, a really fluid environment from a volume standpoint. I think underlying that is economic uncertainty, as well as some of the changes with, of course, the exchange subsidies as one example. 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. Again, we’re going to be hopeful for the future, but prepared for the current.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Jason Cassorla, this is Dave Caspers. I want to build upon what Alfred Lumsdaine 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, we are somewhat encouraged by what the top of the funnel holds. 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. When they are ready to do what will be necessary, we’re ready to take care of them.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: If there’s good news, this is Alfred Lumsdaine again. Again, just tailgating off what Dave Caspers 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.

Jason Cassorla, Analyst, Guggenheim: Got it. Thanks. Very helpful. Maybe just as 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. I guess, 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. I guess in that context, it’s a dynamic environment, but are there any benchmarking or contracting or anything else that gives you visibility or confidence that you won’t see a further stepped-up pressure for professional fees or denials at this point? Thanks.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Sure. Thanks for the question. As you said, very difficult to predict the future. What we do know with 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 of increase to be decreasing in the back half over the front half. 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. 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 our ability to enforce and improve those denial trends and working very closely with Ensemble Health Partners on a number of initiatives, strengthening our Joint Operating Committees and our payer governance. We’re leveraging AI to help identify denial patterns and prioritize high-value opportunities, et cetera. There’s a whole litany of work we’re doing together to position us to improve off of our current trend. Again, we have not seen so far this year any evidence of escalation of those denial trends. It’s been very stable.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Adding on and building on just a bit. In the prepared comments, you heard very specific language around operational rigor. That rigor, and the results in pro fees, represent the work that we’ve been underway. 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. As you saw in our results, that balancing act between managing the right volume in and managing pro fees is critical. Just kind of putting a bow on it, that to me is what represents operational excellence and rigor.

Jason Cassorla, Analyst, Guggenheim: Great. Thank you.

Lacey, Conference Operator: Your next question comes through the line of Matthew Gilmore with KeyBank. You may go ahead.

Matthew Gilmore, Analyst, KeyBank: 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 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. Alfred, could 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?

Dave Caspers, President and Chief Executive Officer, Ardent Health: 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. 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. You’ll see us focus in those areas, strengthen our service lines, strengthen the consumer’s journey in that, and be able to really manage and improve standardization across the financials as we do that. 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. 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.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: 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 assumption set significant improvement. We’re taking second quarter, and really expecting to be at that volume level across the back half of the year. You can think of, that would mean surgical decline in the low single-digit range, similar to what we saw in Q2. 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 physician starts slated. In one individual market, we have over 20 specialists scheduled to start over the back half of the year.

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.

Matthew Gilmore, Analyst, KeyBank: Great. Then on the exchange topic, it sounded like you’re trending better than the $35 million you’d baked in, at least for the first half of the year. I was curious in your mind, what you thought would cause the exchange headwind to grow in the back half. 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 through the back half of the year.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Sure. Thanks, Matthew. This is Alfred. I think we always expected the trends to grow throughout the year. 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. We certainly saw that growth from Q1 to Q2, and again, remain very comfortable with our original assumption set, and the $35 million impact. Hopefully, potentially there could be some conservatism in there, but that’s how we’d like to, we’re just trying to be thoughtful and planful, because this is an area that is developing as we speak.

Matthew Gilmore, Analyst, KeyBank: Fair enough. Thank you.

Lacey, Conference Operator: Your next question comes from the line of Ben Hendrix with RBC Capital Markets. You may go ahead.

Ben Hendrix, Analyst, RBC Capital Markets: 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, That’s consistent with your peers, but wondering if you were able to pick up a notable number of members in other group employer plans or other types of coverage. Thanks.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Sure. Hey, Ben. This is Alfred. Obviously, we’re not immune from the dynamics that our peers have all reported on in terms of the exchange pressure, The growth in self-pay volumes, which we clearly have seen. I’d say, 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. 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 HIX coverage go into other forms of coverage, both commercial and governmental programs of coverage. That gives us a little bit of, I wouldn’t call it optimism, but the movement seems to be a little bit better than what our underlying assumptions were.

When we look at our payer mix, the most of the pressure this year has been in the coverage areas that carry the higher co-pays and deductibles. That, to me, speaks to economic pressure. 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 payer categories that carry the higher deductibles. That does, to us, speak to some amount of macroeconomic pressure and potential pent-up demand.

Ben Hendrix, Analyst, RBC Capital Markets: Great. Appreciate that. 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. Thanks.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Sure. I think it goes hand in hand. As you change the mix of sites of care, you’ve got to have it tightly coordinated with your payer contracting strategies for sure. Yeah, I’d say it very much goes hand in hand.

Lacey, Conference Operator: Your next question comes from the line of Kevin Fischbeck with Bank of America. Please go ahead.

Kevin Fischbeck, Analyst, Bank of America: Great, thanks. Just want to follow up on the volume commentary first. Is there a good theory for why April and May would have been so weak? June and July having come back? I appreciate some of the things you said about deductibles and things like that seems like a pretty significant move from deductibles that 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 June, July numbers?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: No, thanks for the question, Kevin. This is Alfred. I guess we would have a number of theories, but at the end of the day, it does strike us as 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 where we saw more consistent demand across those months. That gives us some optimism for the back half. Again, we are loath to bake optimism into our consideration for our go-forward guide. Again, we’ll be cautiously optimistic. It is a very volatile backdrop and certainly, we could see an acceleration of exchange lives lost. Again, don’t have a lot of speculation. It was a very pronounced trend.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Building on what Alfred’s saying, this is Dave. I think speaks to why we, 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. What is not hard to predict 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.

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.

Kevin Fischbeck, Analyst, Bank of America: Okay, great. I guess on the repricing dynamic, I guess the $5 million-$10 million pickup seems like a pretty relatively large number for one market. In an 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? Was that somewhat unusually large? If there is that kind of opportunity, over what kind of period can we expect you guys to capture that?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Sure. This is Alfred again, Kevin. That was one contract, one market. Now it was a large contract in one market. Not all contracts carry the same level of opportunity. Of course,

Dave Caspers, President and Chief Executive Officer, Ardent Health: The renewal cycles are generally 2-3-year periods, I would suggest we’re looking at a similar 2-3-year period. Negotiations are hard. 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, with the transparency data really now telling a story and being able to decipher it meaningfully, 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 to take us out of network. The negotiations are never easy. We’ve already seen examples this year where we, in multiple markets, have had to send letters to, have letters go out to members about potential disruption.

That’s not where we want to go, if it takes that to yield being paid fairly, we’re willing to have those conversations.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Okay, great. Thanks.

Lacey, Conference Operator: Your next question comes from the line of Scott Fidel with Goldman Sachs. Please go ahead.

Scott Fidel, Analyst, Goldman Sachs: Hi. Thanks. Good morning. For 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. Particularly, when the company went public, there was a lot of focus on the JV opportunity, the joint venture opportunity with major health systems. 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. Then just the service line enhancements and recruitment that you’ve been doing with physicians.

Maybe if you could sort of just walk us through all of those things and how those line up especially just, 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 sort of deploying capital on those other opportunities. Would love your view on that, Dave, and maybe Alfred as well in terms of the balance sheet dynamics around that.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Sure. Thanks, Scott, for the question. A lot of parts to that question. 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 that the right markets matter significantly, that that growth has to outpace the rest of the growth in the U.S. 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, 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. 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 opportunities that may or may not exist. Secondarily, 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, UT Tyler, Texas, is an important relationship that is improving our results. It’s improving our business.

We have great opportunities and great plans ahead there. We will stay very focused on our existing strategy. No major pivots to that. We are, 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. You can anticipate, over the next quarter, we’ll have, quarter or quarters, we’ll have more specific plans to walk through step by step. As for today, 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. We will stay steadfast to make disciplined decisions that are best for us long term.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: The second part of your question, Scott.

Scott Fidel, Analyst, Goldman Sachs: Go ahead, Alfred.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: 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. 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. 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. I would say, 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 shares.

Scott Fidel, Analyst, Goldman Sachs: Thank you. Just on the follow-up, this will be a much more surface level question, just a quick numbers question. Appreciate, definitely intrigued around the commentary around seeing more of the HIX attrition members finding additional coverage. I’m curious if some of the peers have talked about the ratio of their HIX attrition members going that are uninsured, and they’ve talked about like 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 % are going uninsured versus finding additional coverage?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: We certainly do 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. There are multiple ways to look at are you talking about all members? Are you talking about a member who you saw last year and who has shown up for a new procedure this year? Are you talking the whole population? 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. I would just say, of that cohort, there is a very material amount that are finding incremental coverage.

Scott Fidel, Analyst, Goldman Sachs: Thank you.

Lacey, Conference Operator: Your next question comes from the line of A.J. Rice with UBS. Please go ahead.

A.J. Rice, Analyst, UBS: Hi, everybody. I just wanted to ask you about, first, some of the other expense areas where you seem to have done pretty well. Salaries and benefits and supplies up modestly both year-over-year. I would think supplies got some help from the weak surgery cases, 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?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: No, thanks for the question, A.J. This is Alfred. Certainly, yeah, no, we appreciate the call out. We’re very satisfied with the overall expense management. As Dave said, being able to control the controllables and having the operational rigor to be successful in a lower volume environment positions us well, even when volumes accelerate. 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. That’s going to endure, again, regardless of the environment. 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. 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.

A.J. Rice, Analyst, UBS: Okay. Maybe for the follow-up, I know you’ve talked about what you saw in surgeries being perhaps partly dealing with more co-pay 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? Is it an easier or tougher comp in that regard?

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Thanks for the follow-up, A.J. Certainly, we would expect what we would call a normal seasonal pickup. That’s off of a lower base, so it would still be lower, but we certainly still would expect, one, just seasonal activity off of respiratory illness at the end of the year. Yes, with every year as we look at the data, half two is stronger than half one, I would fully expect that to happen again. We certainly didn’t predict this, again, as I’ve talked about potential pent-up demand, is there even a scenario where that seasonal dynamic is stronger than historically given the economic uncertainty. If you’re now worried, we’ve all seen the headline rates with exchange coverage or exchange premiums next year going up double digits again, commercial premiums going up double digits again and deductibles increasing.

Is there even a scenario where they’d say stronger than normal seasonal bump? Possibly, that’s certainly not what we’ve incorporated into our outlook.

Dave Caspers, President and Chief Executive Officer, Ardent Health: A.J., to your-

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Oh.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Dave, 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 and work is around standardization and efficiency. 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, 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. We’re excited about the ability for IMPACT, which you heard me mention before. This is not just an expense program. It is care transformation.

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.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Okay, great. Thanks so much.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Thank you.

Lacey, Conference Operator: Your next question comes through the line of Craig Hettenbach with Morgan Stanley. Please go ahead.

Craig Hettenbach, Analyst, Morgan Stanley: 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?

Dave Caspers, President and Chief Executive Officer, Ardent Health: 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. We’ve seen low double-digit growth in referrals and transfers. 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. For now, I’d like to just leave it on those two specifically. 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.

Craig Hettenbach, Analyst, Morgan Stanley: Got it. Then maybe building on the hellocare.ai, AI commentary. I saw the press release recently of Ambience Healthcare in terms of the uptake for ambient scribes. I think it’s well above the industry averages. How are you approaching that, just from an ROI perspective? Obviously, the use case is there and physicians like it, but anything else you would share on just the rollout of that and what you see as the implications for the business?

Dave Caspers, President and Chief Executive Officer, Ardent Health: You bet. I’m going to probably primarily focus on hellocare.ai for now. 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 ambient listening, yes, we reached the million mark last month, we are seeing substantial time savings for our providers. The translation of that time savings into additional visits is something we’re still working through. Inside of there is a balancing act between respecting our providers’ work balance, the quality of the product that’s being produced. Today, we’re positive about it. You’re right, the providers feel good. It is greater than a mid-single digit improvement in productivity. Now it is about realizing how we want to best use that productivity gain.

Craig Hettenbach, Analyst, Morgan Stanley: Very helpful. Thank you.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Operator, I think we’ve got time for one more question since we’re at the top of the hour.

Lacey, Conference Operator: Our final question comes from the line of Benjamin Rossi with JPMorgan. Please go ahead.

Benjamin Rossi, Analyst, JPMorgan: Great. Thanks for squeezing me in here. Regarding the IMPACT program, as you’re adding those 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 had been further in the pipeline, or did you see opportunity open up as surgical volumes were coming in softer? Just curious how you’d frame the additional savings opportunities being presented here. Thanks.

Alfred Lumsdaine, Chief Financial Officer, Ardent Health: Sure. 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, we have, 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. We intentionally went further and faster implies a pull forward, than in the past. As Dave mentioned, this is something, 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. It is, 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.

Benjamin Rossi, Analyst, JPMorgan: Great.

Dave Caspers, President and Chief Executive Officer, Ardent Health: This is Dave.

Benjamin Rossi, Analyst, JPMorgan: Thanks for that. I’ll follow up on inpatient surgery. I’m sorry. Go ahead.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Just Dave. Just adding onto 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. 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? You may hear me mention one team, one plan, and one standard. As we reduce the number of spans and layers or layers in our team, it allows us to put design and execution more closely together. When that is close together, you become more nimble.

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 and designed comes true in execution.

Benjamin Rossi, Analyst, JPMorgan: Great. I want to follow up offline for the rest, too. Thanks for your time.

Dave Caspers, President and Chief Executive Officer, Ardent Health: Thank you.

Lacey, Conference Operator: This concludes today’s question and answer session. Ladies and gentlemen, thank you for joining today’s conference call.