Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ardent Health Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Dave Styblo, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and welcome to Ardent Health's Fourth Quarter 2025 Earnings Conference Call. Joining me today is Ardent President and Chief Executive Officer, Marty Bonick; and Chief Financial Officer, Alfred Lumsdaine. Marty and Alfred will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Marty, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures including adjusted EBITDA, adjusted EBITDAR and free cash flow. 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 Marty.

Thank you, Dave, and good morning. We appreciate everyone joining the call and webcast. During our third quarter call, we committed to taking swift and decisive action to address certain industry challenges that has intensified. The initiatives were designed to strengthen our operating model and better position the company for long-term earnings growth. I'm pleased to share that our fourth quarter results reflected a number of positive developments and encouraging signs of progress as a result of the actions we took since our last update. Key industry headwinds that we flagged as accelerating on the third quarter call, including professional fees and other rate pressures driven by payer denials showed stability in 4Q. Additionally, our team focus on disciplined execution and expense optimization is already starting to pay dividends and drove solid fourth quarter earnings performance. Furthermore, we generated robust cash flow that was above our expectations resulting in nearly a 50% increase in full year 2025 operating cash flow. In short, I'm pleased with our finish to 2025 and the momentum that we've built exiting the year. Importantly, we expect operating performance traction to further ramp throughout 2026. During today's conversation, I'm going to focus my comments on 3 key areas: First, I'll walk you through fourth quarter performance, which resulted in 2025, recording our highest ever revenue, EBITDA and operating cash flow. Second, I will provide color on our IMPACT program, our work to improve margins, performance, agility and care transformation and how those actions are strengthening our business, along with an update on industry challenges we highlighted last quarter. And third, I will share context around our 2026 financial guidance. Let's start with fourth quarter performance in 2025 results. We reported solid fourth quarter revenue supported by durable industry demand. This capped off a strong 2025, where…

Thanks, Marty, and good morning, everyone. Building on Marty's comments, we're pleased with our fourth quarter results and our momentum exiting the year. Fourth quarter revenue of $1.61 billion was essentially flat compared to the prior year and in line with our expectations. As a reminder, we recorded 2 quarters of financial benefit related to the New Mexico DPP program in the prior year period. Adjusting for this, year-over-year revenue growth would have been approximately 3%. In terms of volumes, fourth quarter admissions increased 1.5%, adjusted admissions grew 2% and surgeries were essentially flat. Fourth quarter adjusted EBITDA of $134 million was 2% above our implied guidance midpoint, driven by expense discipline, operating efficiencies and our IMPACT program initiatives. As Marty noted, these actions contributed to SW&B cost savings after increasing 6.7% for the first 9 months of 2025 compared with the prior year period, salaries, wages and benefits declined 0.4% in the fourth quarter year-over-year, reflecting our focus on precision staffing and reducing reliance on contract labor. For the full year 2025, revenue increased 6% to $6.3 billion and adjusted EBITDA grew 9% to $545 million with margins expanding 20 basis points to 8.6%. Similarly, pre-NCI adjusted EBITDA margin also expanded 20 basis points to 12.7%. We generated robust operating cash flow of $471 million in 2025, up nearly 50% over the prior year. And free cash flow, net of noncontrolling interest distributions was $170 million. This is an outstanding result and reflects the work we've done to improve collections and correspondingly reduce AR days. Of note, the timing of our last payroll cycle in 2026 will create about a $50 million cash flow headwind year-over-year. We also strengthened our balance sheet during 2025. At the end of the fourth quarter, our lease adjusted net leverage was 2.5x, which…

Thank you, Alfred. I want to leave you with 3 key takeaways from today's call. First, our fourth quarter results reflected solid earnings performance as we quickly addressed the industry headwinds outlined last quarter. These actions helped drive our strongest revenue, EBITDA and operating cash flow in our history. Second, our IMPACT program continues to accelerate under Chief Operating Officer, Dave Casper's leadership. The operational improvements underway are strengthening the business. We have raised our 2026 savings target and pressure points of payer denials and professional fees and stabilize with early indications of improvement. Third, we have established prudent 2026 guidance and expect to return to EBITDA growth in 2027. We remain financially strong and strategically positioned to create long-term shareholder value. In 2025, we generated $471 million in operating cash flow and strengthened our balance sheet, giving us the flexibility to invest through cycles and deploy capital to support long-term growth. Looking ahead, these fundamentals position us to expand margins and grow adjusted EBITDA over the next several years. Before I turn the call over for questions, I want to recognize our 25,000 team members and 2,000 affiliated providers across Ardent. This is a time of significant change in health care and their resilience, agility and unwavering commitment to our purpose have been critical to our progress. Every day, they continue to adapt, improve how we operate and deliver high-quality care to the people and communities we serve. Their dedication is the foundation that allows us to navigate change and positions Ardent for long-term success. With that, I will turn the call over to the operator for a question-and-answer session.

[Operator Instructions] Our first question comes from the line of Ann Hynes, Mizuho Securities.

Just on some guidance assumptions on maybe a little bit more details. So you said professional fees, can you remind us what the actual increase in professional fees was in 2025 and what you expect the year-over-year increase to be in 2026? And then also with the enhanced subsidies. I know bad debt can be an issue, especially in Q1 you have greater -- should we assume greater maybe lower net revenue growth in Q1, just given that we're not 100% sure how many people will be kicked off and we might not have visibility into that until later this spring. Like how should we assume bad debt through the year-on-year assumptions?

Thanks, Ann. Appreciate the questions. Professional fee growth year-over-year 2025 was in the roughly high single-digit range. We are making similar assumptions into 2026, consistent with our comments with denials and pro fee growth, not expecting significant reduction from these elevated rates and it would be upside if we did see some improvement in those. On the second half of your question on the enhanced subsidies, and we see lower growth from a revenue standpoint in Q1? I mean I think some of it is just going to depend on the timing. I'm sure you're familiar with the 90-day grace period. We'll have to see how that plays through. It's too early for us to really speak to that dynamic. As you saw from our guide, we think we're being prudent in our overall assumptions as it relates to the HIX enrollment expectations.

Our next question comes from the line of Matthew Gillmor with KeyBanc Capital Markets.

This is [ Zack ] on for Matt. Could you guys provide some detail on your underlying HIX assumptions as it pertains to expected volumes declines in 2026? And then what percent are you assuming shift to other coverage versus uninsured?

Yes. This is Marty. The good news is, given the expectations in the market for enrollment declines. Our markets were actually up. New Mexico was up. Texas was up, and so we're seeing some good pull-through on the initial side. I think the uncertainty comes in terms of what happens after the grace period and how many of those people defect. We're planning for enrollment to decline about 20% as we play through the fluctuation of that impact. And we're assuming about 10% to 15% move to employer-sponsored coverage and the rest go to self-pay. So we assume that the utilization we got 30% lower in that cohort.

Great. And then just for the $15 million increase in the IMPACT program, can you provide some detail on how those were identified, maybe bucket those savings, whether it be revenue integrity, cost takeouts or other met that you guys are producing those savings?

Yes. This is Alfred. I would say of that $15 million increment that we've identified, the vast majority currently is in the SW&B line.

Our next question comes from the line of Raj Kumar with Stephens.

Maybe just kind of it would be helpful to get a perspective on the kind of IMPACT initiatives that have a longer lead time until the benefits materialize. And just kind of when we think about the commentary in 2027 return to EBITDA growth and then kind of thinking about the sustainability of that earnings growth heading into '28 as you kind of incur some of the OBBVA-related headwinds. Just kind of curious on how much more tank there is or how much more fuel there is left on the kind of IMPACT initiatives front on those kind of longer lead time initiatives?

Yes. This is Marty. As I stated before, the IMPACT initiatives are meant to be multiyear and durable and sustainable, as we look at the OBBB impacts coming down the line. We're very confident that with the technology improvements that I mentioned in the AI. These are going to be multiple tailwinds that we're going to be able to continue to capitalize on. As Alfred said, SWB is an early target because it's the most direct control, but we know that we still have opportunities in the supply chain that we're harvesting and continued opportunities in the revenue cycle as we continue to enhance our coding, our collections and management, returning those denials. And so there's multiple factors. And so the early wins, as Alfred talked about, we are harvesting, but we expect these to continue. an magnify over the continuing years to come out to offset those headwinds that we have. So we feel very confident in our ability to continue to harvest these and direct them for the future.

Got it. And then maybe as my follow-up, just kind of thinking about some of the kind of moving pieces in 2026 guidance. I guess is there any kind of 1Q volume impact from the winter storms that's embedded and maybe any call out on that would be helpful?

Yes. Obviously, for us, the primary impacts were in the Texas, East Texas and Oklahoma markets from Winter Storm Burn. Of course, we did -- went into bull mode to ensure that we're rescheduling cancer surgeries. Did see some of that lost volume at the tail end of January come back in February. We're not pointing to that for any sustainable impact. You could have maybe just a very, very immaterial impact to Q1 overall, but not looking for that from any kind of an enduring dynamic.

Our next question comes from the line of Ben Hendrix with RBC Capital Markets.

This is [ Michael Murray ] on for Ben. Your guidance called for 3.6% revenue growth at the midpoint, and you project core earnings growth of 4%. So slight core margin expansion, but that obviously excludes the headwinds that you called out. So I wanted to see if there's anything to call out on your core operations cost structure. Whereas some of the margin expansion you would normally see rolled up in that IMPACT program?

No, I don't think there's anything in particular that I would call out that core margin expansion is similar to what we saw in 2025 once you exclude the headwinds that we've talked about at length, and so very consistent. Again, obviously, we talked about the HICS dynamics as well. But no, there's really nothing to call out. We've seen, we believe, sustainable efforts to improve both the labor line and the supplies line.

Okay. And then my follow-up. On professional fees, I appreciate the commentary on high single-digit growth expectations for the year. Should we expect a bigger headwind in the first half versus the second half? And if so, what growth rate do you believe you'll end the year at?

Yes, I would continue to stick with that high single digits growth. Again, as we mentioned in our commentary, we're not modeling in any substantial improvement. So I think a similar rate throughout the year would not be inappropriate.

Our next question comes from the line of Kevin Fischbeck with Bank of America.

This is [ Joanna Gajuk ] filling in for Kevin. So first one, just a follow-up on the IMPACT program cost saves. And it sounds like you expect more in the future, but as we just think about that number for '26. Is there some sort of time line? And should we think about a run rate number you expect to be when you exit '26 in this cost savings?

Yes, thanks, [ Joanna ]. Yes, from a ramping perspective, the 40 plus the 15 is, I would say, fully identified and being executed on and there will be a modest amount of ramp into '27 on that, but the larger opportunity would be anything else that we identified during the year and are able to actuate and that would create additional impact, no pun intended, into 2027.

Okay. So a modest ramp, but I guess the point you were making before is that there's additional progress, right? So like '26, you have on whatever you identified, there's a little bit of a ramp, but it's more about like incrementally any additional savings after you achieve that target for this year?

Yes.

Okay. And a different topic. So I appreciate the comments about the core growth being 4%. And when we look at things, we exclude the benefit because we're assuming like there's not much of a growth, I guess, in that sort of bucket. So if we do that, we get to implied growth excluding the DTP, so everything else besides the DPTs will have to grow 12%. So that seems like a high growth. So can you walk us through like what's driving the fast growth?

Well, I guess I would start with saying that the PPP are volume-based. States are growing. And we certainly, in addition, have strategies to capture share as well. So I would not say that PPPs would be flat. But then second, going back to the previous question as well, we generated a similar core growth to that 4% number in 2025, we need to adjust for those incremental headwinds of and payer denials. We've laid out what our volume growth expectations are of 1.5% to 2.5%. And then I would also add our rate of increase on our commercial contracts. We're roughly 90% contracted for the year and we're seeing rate increases of between 4% to 5%, all leads us to be very comfortable with that $20 million expectation from core growth.

All right. And then you said the DPP sorry, just a follow-up on that. So all your programs, the DPP programs are volume-based. But I guess if the enrollment in Medicaid enrollment is declining in these states, like what happens with that funding?

That would be an exposure at Medicaid. And then again, depending on where those lives go.

And this is Marty. As we saw in previous years, some of that Medicaid disenrollment actually attributed to positive commercial conversion. And so again, we feel very confident, as Alfred said, in terms of the core growth algorithm we've outlined it, consistent with prior performance.

Our next question comes from the line of it Benjamin Whitman Mayo with Leerink Partners.

Was hoping to get an update on the ambulatory or outpatient strategy. You guys acquired some urgent care assets, I think, in the last year-or-so, but maybe give us a look at the pipeline, what does it look like? And do you feel like you're in line or behind on your targets?

Whit, this is Marty. Yes, we feel like our ASC and ambulatory strategy has been continuing to develop. We started with the urgent cares and had good success with those opening up access points. And I think that contributed to a lot of the positive growth that we saw when you look at across the peer group. This year, we're continuing to focus on growing that, opening up a new ED department in our market, opening up 5 new urgent cares hospital-based ASC and other HOPD ASC and a freestanding ED in Texas. And so we feel like, again, we're continuing to deploy capital in a disciplined way to continue to grow that outpatient market share and capture the shift of where a lot of these volumes are going. And so we feel we're very much on pace and continuing to deploy capital in very rational manner.

Okay. And then maybe for Alfred. Cash flow this year, any reason that it wouldn't grow in line with your EBITDA? I think you mentioned there were some timing factors that influence the shape of cash flow this past year.

Sure. Thanks, Whit. Yes, obviously, we were really pleased with the robust cash flow that we generated for the full year from a -- as I called out in my opening comments that we did have a dynamic of a -- our last payroll cycle being fully accrued at the end of the year and next year that effectively will be paid right before the end of the year. And that's about a $50 million headwind from a year-over-year perspective and then it starts to build every year again and that's simply from a timing perspective. Otherwise, we would expect cash flows to follow consistent with our 2026 guidance.

Can I squeeze in 1 more just on the rural health fund. Do you believe that any of your hospitals qualify for that? And that's it.

Yes, this is Marty. Yes, we do believe that given our footprint sort of midsized urban markets with regional spokes with primary and secondary level hospitals that we should qualify, we think that maybe upwards of 1/3 of our hospitals could qualify now. We're closely working with our state governments to understand how they're utilizing these funds and going to be deploying those. It does seem that they're going to be deploying these funds greater than just hospitals to support the entire rural care network. But with our clinic presence, we think that we've got a good story to tell and good rationale based upon some of the technologies that we've deployed and continue to deploy out the markets our virtual attending program being an example of how we're keeping patients close to home and supporting those local hospitals in local markets. And so we're working very closely with our vendors and with the states to make sure that we can capture as much of that as possible. At this point, it's too early to tell what's going to happen in terms of how those are going to be distributed or win. So we did not include any of that in our guide. So that would be potential upside. And there's a couple of good points. Our 2 largest states in terms of Texas and Oklahoma have also been to the Texas received at the largest allocation from the government in Oklahoma, I think, was the fifth highest in the country. So those are some good proof points and antidotes that will hopefully help and pay out based upon how we've been supporting the rural networks and supporting those rural hospitals.

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

You've got [ Sarah ] on for Scott. Can you please describe how the 4Q volume trends compared to your expectations? And then with the exchange open enrollment and Medicare AEP complete, what further perspectives do you have on sustaining volume growth this year?

This is Marty. I'll take the first part of that. I think the volume was very consistent with what we thought. In Q4 of '24, we're overlapping or lapping some of the midnight rule, and so that contributed to a little bit of a deceleration. But otherwise, volumes were very strong and adjusted admissions continue to grow. And if we look across all of our statistics, volume statistics for full year 2025, we are sort of best-in-class in the peer group, and so the demand for our services continues to remain strong in our markets, #1 or #2 in majority of the markets that we serve and our markets are growing 2 to 3x faster. So the slowdown in Q4 is consistent with lapping that 2 midnight rule and focusing on high acuity growth versus just growth for growth sake.

On the second part of your question, this is Alfred, under the assumptions we laid out pertaining to the exchange dynamics, the headwind that we would expect associated with admissions from the HIX enrollment would be upwards of 50 basis points.

And then just with the progress in payer denial activity, can you provide any color here on the impact of 4Q performance and how we should think about that benefit on a go-forward basis?

This is Marty. Yes. The fourth quarter, we did see some moderation or stabilization from the elevated Q3, and we're expecting that to continue. We've got the second half of the year from '24 -- '25, I should say, that we're expecting to continue into '25, but then moderating. So that's the view.

Yes. This is Alfred. I would just say add that overall, we did see some slight improvements very modest and late in the year or take any month or weeks and project that out as a trend. However, we're both optimistic that the work we're doing with to curtail and combat the denial trends will yield some benefit. However, we want to be very sober and realistic and to Marty's point, in not projecting that to be sustained and just deal with the reality of what we experienced in the last half of 2025.

Our next question comes from the line of Craig Hettenbach from Morgan Stanley.

I appreciate all the color on the exchange implications this year. Outside of that, can you give us a sense in terms of other payer mix of Medicaid, Medicare, commercial exchange is kind of what you're expecting from a volume perspective this year?

This is Alfred, Craig. Yes, I think we get the color as it pertains to the exchange dynamics. And just as a reminder, we we ended last year with 6% of our 7% of our revenues from an exchange perspective. So just a little bit lower than, I'd say, the industry average from an overall exposure standpoint. Otherwise, I wouldn't say we expect any significant material shifts in our planning other than what we lined out from an exchange perspective. And then, of course, where do those lives end up, one dynamic, I think it's a little too early to tell, but we've seen just a little bit as we've seen this inexorable march of traditional Medicare moving to MA, that seems to be slowing or maybe even reversing a bit in early data, but I would say that's not -- we didn't necessarily forecast that as a trend, but we would view that as a positive development if it continues.

Got it. And then, Marty, just following up on all the technology initiatives, how do you think about that in terms of just time line of beginning to the needle from a margin perspective and things we should be watching for around that?

Yes, Craig. We've got a number of things that I outlined that we're deploying. care virtual care is building off of a successful pilot that we already started in East Texas. We'll be rolling that out across the the entire system, an entire company by the end of this year. So we expect that benefit to continue to ramp. We're starting in a very focused way with our virtual nursing and sitting programs, which should have a direct financial benefit as well as a quality benefit to our patients. And as we continue on that, as I mentioned before, we saw a positive success with our virtual attending where we're actually bringing specialists from the metro areas into some of those rural areas and helping to keep those patients close to home, which allows us to keep some of those acuity transfers in our primary and secondary markets while making room for the higher acuity cases to come into tertiary centers. And so that's an example. But this will continue to ramp throughout the year as well as other initiatives that we have in flight across the board from both the back-end business side as well as on the frontline clinical side and staffing and scheduling in between, so these will continue to ramp, and this is part of our care transformation impact that we expect to continue to ramp over the next several years as AI becomes more and more prominent. We've had a very labor-dependent business across this industry. And I think AI is going to be a liberator. We're looking into new ways of helping to extend our primary care reach with AI and then helping patients to do that so we can expand panels. And so there's a lot of focus in this area to actually transform the way in which we deliver care to make it more accessible, make it more affordable and transform the cost structure for the business. So we're excited about the future possibilities.

Our next question comes from the line of Benjamin Rossi with JPMorgan.

Just an assessment the uptick in average length of data close the year. I appreciate that you've been making some efforts to try and bring this down through improved rounding and some of your new investments in the virtual care. What do you think have been some of the winning factors in bringing this figure down this year? And are you seeing any variation in length of stay across your payer classes between Medicaid, Medicare and commercial, particularly among your exchange volumes?

This is Marty. Thanks. Length of stay is a factor of acuity and a factor of efficiency inside the hospital. As our acuity continues to grow, that raw length of stay will also likely have the corresponding impact. But as we look at sort of a geometric mean length of stay, we've actually seen very good performance and the technology investments that we're making are helping with that efficiency. So I think that the length of stay is a continued focus across all of our hospitals. It's a quality measure. It's a safety measure and it's an efficiency measure. But we think that we're managing that and still have some opportunity to improve.

Understood. And I guess this is a follow-up from the policy side. With the CMS model and Medicare fee-for-service some of this program overlapping in a few of your states and your footprint, are you thinking about any potential impact in 2026 as CMS starts rolling out these AI-based tools for prior auths? And then do you factor this into your embedded assumptions for now raising in 2026, it sounds like you aren't assuming a meaningful shift in denial trends during the year. So just curious any color there?

Yes. As Alfred outlined, we're taking a very prudent look at denials and not making any dramatic assumptions from it changing. That being said, to the question, it does overlap in a couple of our smaller markets. Our work with Epic and that is an advantage we have. Epic has been working collaboratively with both payers and providers. and we're part of that work group to advance ways in which we can streamline that. We just had a new electronic prior authorization module go live with one of the large payers in the country just recently. And so while CMS is focusing on this, I think it's an opportunity for us to work with our partners with both Ensemble and Epic to drive better performance in this area. So we think that these technological advances will help address the governmental intentions behind these laws that are coming out and they're experimenting with a lot of these different programs, but we feel like we're well positioned given the technology partner vendors we have to stay on top of that.

[Operator Instructions]. Our next question comes from the line of Timothy Greaves with Loop Capital.

I guess, I want to ask around the existing market and the growth there. I believe you listed a bunch of initiatives that you guys are working on in answering with question. But I guess around that, I guess, I want to know from a broader sense, how -- what you're seeing in the current environment impacted your plan around these initiatives? Like are you guys like maybe leaning into more affecting physical versus digital opportunities or anything around that in the near term? Anything that you can point out that's notable?

Apologize, it came across a little bit distorted the question, can you reframe this core question

Yes, I'll reframe it a bit. I guess what I'm trying to see is how you guys are interacting with the market in a broader sense of like growing in existing markets? So as far as versus physical expansion versus digital opportunities, you listed like the -- Hello Care, virtual care opportunities. But just in the current environment, how you guys are prioritizing this expansion of your footprint?

That came across a little bit more clear. Yes, we are focused on growth in a number of different ways. We always said from the onset, we're going to prioritize growth in our core markets, both high acuity service lines in our inpatient environment as well as growing the outpatient, our focus the last couple of years of growing urgent cares as access points has paid off for us. We are expanding that funnel, so to speak. But our consumer team is really helping to drive that continued engagement. So last year, we saw about a 5.5% improvement in our total encounters and we grew our total unique number of individuals that we serve consumers in our markets and so our digital outreach strategies are very much focused on not only attracting those initial patients but retaining them in our system. And again, our technology vendors with Epic really help play into that because we can have a longitudinal relationship with our patients and make sure that we can be their one-stop shop for care when they need it, and they're not going out and searching in the market for point solutions. We've got a strong virtual care offering in all of our markets and all of our clinics. And so patients can get the care where and when they need it the most. It doesn't have to be inside of a hospital or a clinic setting, it can be virtual and in the home. So we're very much focused on using those lower cost of capital digital solutions to attract, retain and grow our patient base.

Okay. I think the one question is good for me.

At this time, we have no further questions. I would like to turn the call back over to Marty Bonick for closing remarks.

Thank you all for your participation in our Q4 call. We're entering 2026 with operational momentum, financial strength and strategic clarity, and we are confident in our ability to execute. We appreciate everybody's support, and thank you.

This concludes today's conference call. You may now disconnect your lines. Have a pleasant day.