Ardent Health Reports Third Quarter 2024 Results

Ardent Health Partners, Inc. (NYSE: ARDT) (“Ardent Health” or the “Company”), a leading provider of healthcare in growing mid-sized urban communities across the U.S., today announced results for the third quarter ended September 30, 2024.

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Third Quarter 2024 Operating and Financial Summary

All comparisons are versus the same prior year period, unless otherwise noted. See the footnotes to the Operating Statistics table of this press release for definitions of the metrics below and a full list of key operating metrics.

(1) Adjusted EBITDA and Adjusted EBITDAR are non-GAAP financial measures. See "Supplemental Non-GAAP Financial Information" for reconciliations of non-GAAP measures to their most comparable GAAP financial measures.

Financial Performance Summary

Total revenue for the third quarter of 2024 grew 5.2% year-over-year to $1.45 billion. This primarily reflects a 3.8% year-over-year increase in adjusted admissions and 0.9% year-over-year growth in net patient service revenue per adjusted admission.

The third quarter of 2023 benefited from the recognition of approximately $25 million of discrete non-recurring revenue associated with Medicaid supplemental programs, primarily attributable to a one-time allocation to Oklahoma hospitals participating in the Supplemental Hospital Offset Payment Program ("SHOPP"). Additionally, in May 2024, the Company made a strategic decision to transfer certain oncology and infusion services to a health system partner. This transition resulted in a revenue reduction of more than $10 million in the third quarter of 2024 compared to the same prior year period, with no material change to adjusted EBITDA. Excluding these items, total revenue growth for the third quarter of 2024 would have been approximately 8%.

For the third quarter of 2024, net income attributable to Ardent Health was $26 million, or $0.19 per basic and diluted share, compared to $21 million, or $0.17 per basic and diluted share, in the third quarter of 2023.

Adjusted EBITDA for the third quarter of 2024 increased 15.3% year-over-year to $98 million, which represented margin expansion of 50bps to 6.7%. The adjusted EBITDA growth was primarily driven by higher patient volumes, increased reimbursement rates, strategic service line optimization, and cost reduction initiatives.

Operating Performance Summary

The following table provides a summary of certain key operating metrics for the third quarter of 2024 compared to the same prior year period. See the footnotes to the Operating Statistics table of this press release for definitions of the metrics below and a full list of key operating metrics.

• Admissions for the third quarter of 2024 increased 6.4% year-over-year, modestly faster than the comparable 5.3% growth in the first half of 2024. The increase was primarily attributable to growth in general medicine, including strong growth in pulmonology and gastroenterology cases, as well as the ongoing impact of the two-midnight rule.
• Surgeries for the third quarter of 2024 increased 0.3% year-over-year, an improvement from a comparable decline of 1.9% during the first half of 2024. The year-over-year growth in total surgeries of 0.3% reflected increases of 0.5% and 0.2% in inpatient and outpatient surgeries, respectively. As expected, the Company’s strategic service line optimization efforts continued to be a volume headwind for lower margin services, including otolaryngology; however, growth in higher acuity lines, including orthopedics, contributed to a more favorable case mix.
• Net patient service revenue per adjusted admission for the third quarter of 2024 increased 0.9% year-over-year. The growth rate would have been over 3.0%, excluding the aforementioned $25 million in discrete non-recurring revenue associated with Medicaid supplemental programs recognized during the third quarter of 2023 and the $10 million year-over-year decrease in revenue related to the oncology and infusion service transfer.

Balance Sheet, Cash Flow & Liquidity Update

As previously announced, during the third quarter, the Company amended its term loan credit agreement with lenders to reprice its term loans. The repricing is expected to generate approximately $5 million in annual interest expense savings and will provide incremental flexibility to pursue capital allocation priorities.

As of September 30, 2024, the Company had total cash and cash equivalents of $563 million and total debt of $1.1 billion. The Company’s net leverage ratio as of September 30, 2024 was 1.6x, as calculated under the Company's credit agreements, and its lease-adjusted net leverage ratio¹ was 3.5x. Ardent Health expects its lease-adjusted net leverage ratio will approach a target of 3.0x by the end of 2024, as the impact of the cybersecurity incident in the fourth quarter of 2023 rolls off. At the end of the third quarter, the Company’s available liquidity was $851 million.

During the third quarter of 2024, net cash provided by operating activities was $90 million, compared to $89 million in the same prior year period.

Other Matters

The Company acknowledges the devastation left by Hurricane Helene and Hurricane Milton across the southeastern U.S. Ardent Health's facilities were not in the hurricanes' paths and, therefore, were not impacted by the storms. Additionally, the Company's supply chain, including its sourcing of IV fluids, has not been impacted to date.

Financial Guidance

The Company is updating its financial guidance for the full year 2024, increasing revenue and adjusted EBITDA to reflect third quarter results and continued confidence in its business execution. The Company is lowering net income guidance due to a delay in the expected timing of collecting business insurance proceeds related to the cybersecurity incident, partially offset by higher adjusted EBITDA. The Company's expectation for its business insurance claim remains unchanged, with additional proceeds expected to be collected in 2025. All guidance is current as of the time provided and is subject to change.

The Company’s forecasted guidance is based on current plans and expectations and is subject to a number of known and unknown uncertainties and risks, including those set forth below under the heading “Forward-Looking Statements.” The Company does not forecast the impact of items such as, but not limited to, losses (gains) on sales of facilities, losses on retirement of debt, legal claim costs (benefits) and impairments of long-lived assets because the Company does not believe that it can forecast these items with sufficient accuracy. This is due to the inherent difficulty of forecasting the timing or amount of various items that have not yet occurred and are out of the Company’s control or cannot be reasonably predicted.

Third Quarter 2024 Results Conference Call

The Company will host a conference call to discuss its third quarter financial results on November 7, 2024, at 9:00 a.m. Eastern Time. A webcast of the conference call will be available in the Investor Relations section of the Company’s corporate website at https://ir.ardenthealth.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software.

About Ardent Health

Ardent Health (NYSE: ARDT) is a leading provider of healthcare in growing mid-sized urban communities across the U.S. With a focus on people and investments in innovative services and technologies, Ardent Health is passionate about making healthcare better and easier to access. Through its subsidiaries, Ardent Health delivers care through a system of 30 acute care hospitals and more than 200 sites of care with over 1,800 affiliated providers across six states. For more information, please visit www.ardenthealth.com.

Supplemental Non-GAAP Financial Information

We have included certain financial measures in this press release that have not been prepared in a manner that complies with U.S. generally accepted accounting principles ("GAAP"), including Adjusted EBITDA and Adjusted EBITDAR. We define these terms as follows:

• Adjusted EBITDA. Adjusted EBITDA is defined as net income plus (i) provision for income taxes, (ii) interest expense and (iii) depreciation and amortization expense (or EBITDA), as adjusted to deduct noncontrolling interest earnings, and excludes the effects of losses on the extinguishment and modification of debt; other non-operating losses (gains); Cybersecurity Incident recoveries, net of incremental information technology and litigation costs; restructuring, exit and acquisition-related costs; expenses incurred in connection with the implementation of Epic Systems ("Epic"), our integrated health information technology system; equity-based compensation expense; and loss (income) from disposed operations.

Adjusted EBITDA is a non-GAAP performance measure used by our management and external users of our financial statements, such as investors, analysts, lenders, rating agencies and other interested parties, to evaluate companies in our industry. Adjusted EBITDA is a performance measure that is not defined under GAAP and is presented in this press release because our management considers it an important analytical indicator that is commonly used within the healthcare industry to evaluate financial performance and allocate resources. Further, our management believes that Adjusted EBITDA is a useful financial metric to assess our operating performance from period to period by excluding certain material non-cash items and unusual or non-recurring items that we do not expect to continue in the future and certain other adjustments we believe are not reflective of our ongoing operations and our performance.

Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. While we believe this is a useful supplemental performance measure for investors and other users of our financial information, you should not consider Adjusted EBITDA in isolation or as a substitute for net income or any other items calculated in accordance with GAAP. Adjusted EBITDA has inherent material limitations as a performance measure, because it adds back certain expenses to net income, resulting in those expenses not being taken into account in the performance measure. We have borrowed money, so interest expense is a necessary element of our costs. Because we have material capital and intangible assets, depreciation and amortization expense are necessary elements of our costs. Likewise, the payment of taxes is a necessary element of our operations. Because Adjusted EBITDA excludes these and other items, it has material limitations as a measure of our performance.

• Adjusted EBITDAR. Adjusted EBITDAR is defined as Adjusted EBITDA further adjusted to add back rent expense payable to REITs, which consists of rent expense pursuant to the master lease agreement (the "Ventas Master Lease") with Ventas, Inc. ("Ventas"), lease agreements associated with the MOB Transactions (defined below) and a lease arrangement with Medical Properties Trust, Inc. ("MPT") for the Hackensack Meridian Mountainside Medical Center.

Adjusted EBITDAR is a commonly used non-GAAP valuation measure used by our management, research analysts, investors and other interested parties to evaluate and compare the enterprise value of different companies in our industry. Adjusted EBITDAR excludes: (1) certain material noncash items and unusual or non-recurring items that we do not expect to continue in the future; (2) certain other adjustments that do not impact our enterprise value; and (3) rent expense payable to our REITs. We operate 30 acute care hospitals, 12 of which we lease from two REITs, Ventas and MPT, pursuant to long-term lease agreements. Additionally, during 2022, we completed the sale of 18 medical office buildings to Ventas in exchange for $204.0 million and concurrently entered into agreements to lease the real estate back from Ventas over a 12-year initial term with eight options to renew for additional five-year terms (the "MOB Transactions"). Our management views the long-term lease agreements with Ventas and MPT, as well as the MOB Transactions, as more like financing arrangements than true operating leases, with the rent payable to such REITs being similar to interest expense. As a result, our capital structure is different than many of our competitors, especially those whose real estate portfolio is predominately owned and not leased. Excluding the rent payable to such REITs allows investors to compare our enterprise value to those of other healthcare companies without regard to differences in capital structures, leasing arrangements and geographic markets, which can vary significantly among companies. Our management also uses Adjusted EBITDAR as one measure in determining the value of prospective acquisitions or divestitures. Finally, financial covenants in certain of our lease agreements, including the Ventas Master Lease, use Adjusted EBITDAR as a measure of compliance. Adjusted EBITDAR does not reflect our cash requirements for leasing commitments. As such, our presentation of Adjusted EBITDAR should not be construed as a performance or liquidity measure.

Because not all companies use identical calculations, our presentation of Adjusted EBITDAR may not be comparable to other similarly titled measures of other companies. While we believe this is a useful supplemental valuation measure for investors and other users of our financial information, you should not consider Adjusted EBITDAR in isolation or as a substitute for net income or any other items calculated in accordance with GAAP. Adjusted EBITDAR has inherent material limitations as a valuation measure, because it adds back certain expenses to net income, resulting in those expenses not being taken into account in the valuation measure. The payment of taxes and rent is a necessary element of our valuation. Because Adjusted EBITDAR excludes these and other items, it has material limitations as a measure of our valuation.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on current expectations and assumptions that are subject to risks and uncertainties. Forward-looking statements include all statements that are not historical facts. The words "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek," "foreseeable," the negative version of these words, or similar terms and phrases are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding anticipated financial performance and financial position, including our financial outlook for the full year 2024 and other statements that are not historical facts. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, but not limited to, the following: (1) changes in government healthcare programs, including Medicare and Medicaid and supplemental payment programs and state directed payment arrangements; (2) reduction in the reimbursement rates paid by commercial payors, our inability to retain and negotiate favorable contracts with private third-party payors, or an increasing volume of uninsured or underinsured patients; (3) the highly competitive nature of the healthcare industry; (4) inability to recruit and retain quality physicians, as well as increasing cost to contract with hospital-based physicians; (5) increased labor costs resulting from increased competition for staffing or a continued or increased shortage of experienced nurses; (6) changes to physician utilization practices and treatment methodologies and third party-payor controls designed to reduce inpatient services or surgical procedures that impact demand for medical services; (7) continued industry trends toward value-based purchasing, third party payor consolidated and care coordination among healthcare providers; (8) loss of key personnel, including key members of our senior management team; (9) our failure to comply with complex laws and regulations applicable to the healthcare industry or to adjust our operations in response to changing laws and regulations; (10) inability to successfully complete acquisitions or strategic joint ventures (“JVs”) or inability to realize all of the anticipated benefits, including anticipated synergies, of past acquisitions and the risk that transactions may not receive necessary government clearances; (11) failure to maintain existing relationships with JV partners or enter into relationships with additional healthcare system partners; (12) the impact of known and unknown claims brought against our hospitals, physician practices, outpatient facilities or other business operations or against healthcare providers that provide services at our facilities; (13) the impact of government investigations, claims, audits, whistleblower and other litigation; (14) the impact of any security incidents affecting us or any third-party vendor upon which we rely; (15) inability or delay in our efforts to construct, acquire, sell, renovate or expand our healthcare facilities; (16) our failure to comply with federal and state laws relating to Medicare and Medicaid enrollment, permit, licensing and accreditation requirements, or the expansion of existing or the enactment of new laws or regulation relating to permit, licensing and accreditation requirements; (17) failure to obtain drugs and medical supplies at favorable prices or sufficient volumes; (18) operational, legal and financial risks associated with outsourcing functions to third parties; (19) sensitivity to regulatory, economic and competitive conditions in the states in which our operations are heavily concentrated; (20) decreased demand for our services provided due to factors beyond our control, such as seasonal fluctuations in the severity of critical illnesses, pandemic, epidemic or widespread health crisis; (21) inability to accurately estimate market opportunity and forecasts of market growth; (22) general economic and business conditions, both nationally and in the regions in which we operate; (23) the impact of seasonal or severe weather conditions and climate change; (24) inability to demonstrate meaningful use of Electronic Health Record technology; (25) inability to continually enhance our hospitals with the most recent technological advances in diagnostic and surgical equipment; (26) effects of current and future health reform initiatives, including the Affordable Care Act, and the potential for changes to the Affordable Care Act, its implementation or its interpretation (including through executive orders and court challenges); (27) legal and regulatory restrictions on certain of our hospitals that have physician owners; (28) risks related to the Ventas Master Lease and its restrictions and limitations on our business; (29) the impact of our significant indebtedness, including our ability to comply with certain debt covenants and other significant operating and financial restrictions imposed on us by the agreements governing our indebtedness, and the effects that variable interest rates, and general economic factors could have on our operations, including our potential inability to service our indebtedness; (30) conflicts of interest with certain of our existing large stockholders; (31) effects of changes in federal tax laws; (32) increased costs as a result of operating as a public company; (33) risks related to maintaining an effective system of internal controls; (34) volatility of our share price and size of the public market for our common stock; (35) our guidance differing from actual operating and financial performance; (36) the results of our efforts to use technology, including artificial intelligence, to drive efficiencies and quality initiatives and enhance patient experience; (37) the impact of recent decisions of the U.S. Supreme Court regarding the actions of federal agencies; and (38) other risk factors described in our filings with the Securities and Exchange Commission.

Many of the important factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this press release. Except as otherwise required by law, we do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this news release or to reflect the occurrence of unanticipated events. All references to “Company,” “Ardent Health,” “we,” “our” and “us” as used throughout this release refer to Ardent Health Partners, Inc. and its affiliates, unless stated otherwise or indicated by context.

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