Ardent Health, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ARDENT HEALTH PARTNERS, INC. CONDENSED CONSOLIDATED INCOME STATEMENTS Unaudited (Dollars in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Total revenue $ 1,449,817 $ 1,377,727 $ 4,359,783 $ 4,063,449 Expenses: Salaries and benefits 635,223 595,580 1,880,790 1,785,939 Professional fees 274,223 246,540 810,820 715,111 Supplies 251,862 249,548 769,034 743,713 Rents and leases 26,410 24,506 76,251 73,230 Rents and leases, related party 37,249 36,413 111,413 108,914 Other operating expenses 117,700 124,642 354,851 342,026 Government stimulus income — — — ( 8,463 ) Interest expense 14,629 19,041 52,050 55,854 Depreciation and amortization 36,771 35,488 108,434 104,860 Loss on extinguishment and modification of debt 1,490 — 3,388 — Other non-operating gains ( 2,807 ) — ( 3,062 ) ( 522 ) Total operating expenses 1,392,750 1,331,758 4,163,969 3,920,662 Income before income taxes 57,067 45,969 195,814 142,787 Income tax expense 11,062 7,261 36,997 24,591 Net income 46,005 38,708 158,817 118,196 Net income attributable to noncontrolling interests 19,683 17,870 62,678 60,139 Net income attributable to Ardent Health Partners, Inc. $ 26,322 $ 20,838 $ 96,139 $ 58,057 Net income per share: Basic $ 0.19 $ 0.17 $ 0.74 $ 0.46 Diluted $ 0.19 $ 0.17 $ 0.74 $ 0.46 Weighted-average common shares outstanding: Basic 137,107,595 126,115,301 129,877,510 126,115,301 Diluted 137,542,995 126,115,301 130,022,643 126,115,301 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents ARDENT HEALTH PARTNERS, INC. CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS Unaudited (Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 46,005 $ 38,708 $ 158,817 $ 118,196 Other comprehensive (loss) income Change in fair value of interest rate swap ( 10,180 ) 43 ( 12,280 ) 76 Other comprehensive (loss) income before income taxes ( 10,180 ) 43 ( 12,280 ) 76 Income tax (benefit) expense related to other comprehensive (loss) income items ( 2,657 ) 12 ( 3,205 ) 20 Other comprehensive (loss) income, net of income taxes ( 7,523 ) 31 ( 9,075 ) 56 Comprehensive income 38,482 38,739 149,742 118,252 Comprehensive income attributable to noncontrolling interests 19,683 17,870 62,678 60,139 Comprehensive income attributable to Ardent Health Partners, Inc. $ 18,799 $ 20,869 $ 87,064 $ 58,113 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents ARDENT HEALTH PARTNERS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (Dollars in thousands) September 30, 2024 (1) December 31, 2023 (1) Assets Current assets: Cash and cash equivalents $ 563,142 $ 437,577 Accounts receivable 705,747 775,452 Inventories 108,231 105,485 Prepaid expenses 119,956 77,281 Other current assets 193,616 222,290 Total current assets 1,690,692 1,618,085 Property and equipment, net 814,860 811,089 Operating lease right of use assets 261,214 260,003 Operating lease right of use assets, related party 932,246 941,150 Goodwill 852,001 844,704 Other intangible assets, net 76,930 76,930 Deferred income taxes 34,764 32,491 Other assets 137,307 147,106 Total assets $ 4,800,014 $ 4,731,558 Liabilities and Equity Current liabilities: Current installments of long-term debt $ 12,167 $ 18,605 Accounts payable 368,850 474,543 Accrued salaries and benefits 255,370 267,685 Other accrued expenses and liabilities 250,945 233,271 Total current liabilities 887,332 994,104 Long-term debt, less current installments 1,083,725 1,168,253 Long-term operating lease liability 233,786 235,241 Long-term operating lease liability, related party 922,665 932,090 Self-insured liabilities 231,951 243,552 Other long-term liabilities 53,686 76,002 Total liabilities 3,413,145 3,649,242 Commitments and contingencies (see Note 9 ) Redeemable noncontrolling interests 2,391 7,302 Equity: Common units, no and unlimited units authorized as of September 30, 2024 and December 31, 2023 , respectively; no and 484,922,828 units issued and outstanding as of September 30, 2024 and December 31, 2023 , respectively — 496,882 Preferred stock, par value $ 0.01 per share; 50,000,000 and no shares authorized as of September 30, 2024 and December 31, 2023 , respectively; no shares issued and outstanding as of September 30, 2024 and December 31, 2023 — — Common stock, par value $ 0.01 per share; 750,000,000 and no shares authorized as of September 30, 2024 and December 31, 2023 , respectively; 142,735,842 and no shares issued and outstanding as of September 30, 2024 and December 31, 2023 , respectively 1,428 — Additional paid-in capital 743,364 — Accumulated other comprehensive income 9,486 18,561 Retained earnings 251,592 155,453 Equity attributable to Ardent Health Partners, Inc. 1,005,870 670,896 Noncontrolling interests 378,608 404,118 Total equity 1,384,478 1,075,014 Total liabilities and equity $ 4,800,014 $ 4,731,558 (1) As of September 30, 2024 and December 31, 2023 , the unaudited condensed consolidated balance sheets included total liabilities of consolidated variable interest entities of $ 303.2 million and $ 337.8 million , respectively. Refer to Note 2 , Summary of Significant Accounting Policies , for further discussion. The acc ompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ARDENT HEALTH PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (Dollars in thousands) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net income $ 158,817 $ 118,196 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 108,434 104,860 Other non-operating gains — ( 45 ) Loss on extinguishment and modification of debt 2,158 — Amortization of deferred financing costs and debt discounts 4,235 4,266 Deferred income taxes 1,690 5,346 Equity-based compensation 8,873 723 Loss from non-consolidated affiliates 2,160 3,622 Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: Accounts receivable 77,284 ( 54,896 ) Inventories ( 2,545 ) ( 556 ) Prepaid expenses and other current assets ( 21,189 ) ( 20,450 ) Accounts payable and other accrued expenses and liabilities ( 132,031 ) 9,996 Accrued salaries and benefits ( 12,429 ) ( 16,863 ) Net cash provided by operating activities 195,457 154,199 Cash flows from investing activities: Investment in acquisitions, net of cash acquired ( 8,044 ) — Purchases of property and equipment ( 106,234 ) ( 79,959 ) Other ( 738 ) ( 1,318 ) Net cash used in investing activities ( 115,016 ) ( 81,277 ) Cash flows from financing activities: Proceeds from initial public offering, net of underwriting discounts and commissions 208,656 — Proceeds from insurance financing arrangements 10,797 24,749 Proceeds from long-term debt 3,600 1,225 Payments of principal on insurance financing arrangements ( 7,370 ) ( 15,885 ) Payments of principal on long-term debt ( 106,335 ) ( 10,549 ) Debt issuance costs ( 2,450 ) — Payments of initial public offering costs ( 8,636 ) — Distributions to noncontrolling interests ( 53,138 ) ( 50,677 ) Redemption of equity attributable to noncontrolling interests — ( 26,024 ) Other — ( 7,209 ) Net cash provided by (used in) financing activities 45,124 ( 84,370 ) Net increase (decrease) in cash and cash equivalents 125,565 ( 11,448 ) Cash and cash equivalents at beginning of year 437,577 456,124 Cash and cash equivalents at end of year $ 563,142 $ 444,676 Supplemental Cash Flow Information: Non-cash purchases of property and equipment $ 5,546 $ 13,188 Offering costs not yet paid $ 898 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ARDENT HEALTH PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Unaudited (Dollars in thousands, except for unit amounts) Equity Attributable to Ardent Health Partners, Inc. Noncontrolling Interests Total Equity Redeemable Noncontrolling Interests Common Units Accumulated Other Comprehensive Income Retained Earnings Units (*) Amount Balance at December 31, 2022 $ 10,796 482,726,544 $ 510,968 $ 26,533 $ 101,549 $ 400,460 $ 1,039,510 Net income attributable to Ardent Health Partners, Inc. — — — — 4,143 — 4,143 Net income attributable to noncontrolling interests — — — — — 20,427 20,427 Net loss attributable to redeemable noncontrolling interests ( 788 ) — — — — — — Other comprehensive loss — — — ( 4,564 ) — — ( 4,564 ) Distributions to noncontrolling interests — — — — — ( 12,555 ) ( 12,555 ) Vesting of Class C Units — 587,053 360 — — — 360 Balance at March 31, 2023 $ 10,008 483,313,597 $ 511,328 $ 21,969 $ 105,692 $ 408,332 $ 1,047,321 Net income attributable to Ardent Health Partners, Inc. — — — — 33,076 — 33,076 Net income attributable to noncontrolling interests — — — — — 23,600 23,600 Net loss attributable to redeemable noncontrolling interests ( 970 ) — — — — — — Other comprehensive income — — — 4,589 — — 4,589 Distributions to noncontrolling interests — — — — — ( 19,254 ) ( 19,254 ) Redemption of equity attributable to noncontrolling interests — — ( 14,990 ) — — ( 11,034 ) ( 26,024 ) Vesting of Class C Units — 558,013 182 — — — 182 Balance at June 30, 2023 $ 9,038 483,871,610 $ 496,520 $ 26,558 $ 138,768 $ 401,644 $ 1,063,490 Net income attributable to Ardent Health Partners, Inc. .. — — — — 20,838 — 20,838 Net income attributable to noncontrolling interests ......... — — — — — 17,837 17,837 Net income attributable to redeemable noncontrolling interests .................................. 33 — — — — — — Other comprehensive income — — — 31 — — 31 Distributions to noncontrolling interests ......... — — — — — ( 18,868 ) ( 18,868 ) Vesting of Class C Units ....... — 543,589 181 — — — 181 Balance at September 30, 2023 .. $ 9,071 484,415,199 $ 496,701 $ 26,589 $ 159,606 $ 400,613 $ 1,083,509 (*) See Note 1 , Description of the Business and Basis of Presentation - Initial Public Offering and Corporate Conversion, for further discussion. The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ARDENT HEALTH PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Unaudited (Dollars in thousands, except for unit amounts) Equity Attributable to Ardent Health Partners, Inc. Non- controlling Interests Total Equity Redeemable Noncontrolling Interests Common Units Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Units (*) Amount Shares Amount Balance at December 31, 2023 $ 7,302 484,922,828 $ 496,882 — $ — $ — $ 18,561 $ 155,453 $ 404,118 $ 1,075,014 Net income attributable to Ardent Health Partners, Inc. — — — — — — — 27,047 — 27,047 Net income attributable to noncontrolling interests — — — — — — — — 21,089 21,089 Net loss attributable to redeemable noncontrolling interests ( 2,285 ) — — — — — — — — — Other comprehensive income — — — — — — 703 — — 703 Distributions to noncontrolling interests — — — — — — — — ( 14,256 ) ( 14,256 ) Vesting of Class C Units — 464,853 512 — — — — — — 512 Balance at March 31, 2024 $ 5,017 485,387,681 $ 497,394 — $ — $ — $ 19,264 $ 182,500 $ 410,951 $ 1,110,109 Net income attributable to Ardent Health Partners, Inc. — — — — — — — 42,770 — 42,770 Net income attributable to noncontrolling interests — — — — — — — — 25,540 25,540 Net loss attributable to redeemable noncontrolling interests ( 1,349 ) — — — — — — — — — Other comprehensive loss — — — — — — ( 2,255 ) — — ( 2,255 ) Distributions to noncontrolling interests — — — — — — — — ( 17,401 ) ( 17,401 ) Vesting of Class C Units — 522,002 226 — — — — — — 226 Balance at June 30, 2024 $ 3,668 485,909,683 $ 497,620 — $ — $ — $ 17,009 $ 225,270 $ 419,090 $ 1,158,989 Net income attributable to Ardent Health Partners, Inc. — — — — — — — 26,322 — 26,322 Net income attributable to noncontrolling interests — — — — — — — — 20,960 20,960 Net loss attributable to redeemable noncontrolling interests ( 1,277 ) — — — — — — — — — Other comprehensive loss — — — — — — ( 7,523 ) — — ( 7,523 ) Issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions and other offering costs — — — 13,800,000 138 198,984 — — — 199,122 Conversion of member units to common stock — ( 485,909,683 ) ( 497,620 ) 128,963,328 1,290 536,291 — — ( 39,961 ) — Distributions to noncontrolling interests — — — — — — — — ( 21,481 ) ( 21,481 ) Vesting of restricted stock unit awards — — — 9,441 — — — — — — Tax withholding on vesting of restricted stock unit awards — — — ( 2,396 ) — ( 46 ) — — — ( 46 ) Forfeiture of restricted stock awards — — — ( 34,531 ) — — — — — — Equity-based compensation — — — — — 8,135 — — — 8,135 Balance at September 30, 2024 $ 2,391 — $ — 142,735,842 $ 1,428 $ 743,364 $ 9,486 $ 251,592 $ 378,608 $ 1,384,478 (*) See Note 1 , Description of the Business and Basis of Presentation - Initial Public Offering and Corporate Conversion, for further discussion. The accompanying notes are an integral part of the condensed consolidated financial statements. 7 Table of Contents ARDENT HEALTH PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2024 (Unaudited) 1. Description of the Business and Basis of Presentation Reporting Entity Ardent Health Partners, Inc. was initially formed in Delaware in 2015 as Ardent Health Partners, LLC. On July 17, 2024, Ardent Health Partners, LLC converted from a Delaware limited liability company into a Delaware corporation in connection with its initial public offering and changed its name to Ardent Health Partners, Inc . Ardent Health Partners, Inc. is a holding company that has affiliates that operate acute care hospitals and other healthcare facilities and employ physicians. The terms “Ardent,” the “Company,” “we,” “our” and “us,” as used in these notes to the unaudited condensed consolidated financial statements, refer to Ardent Health Partners, LLC and its affiliates and, subsequent to July 16, 2024, Ardent Health Partners, Inc. and its affiliates, unless stated otherwise or indicated by context. The term “affiliates” includes direct and indirect subsidiaries of Ardent and partnerships and joint ventures in which such subsidiaries are equity owners. At September 30, 2024 , the Company operated 30 acute care hospitals in six states , including two rehabilitation hospitals and two surgical hospitals. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, which consist of normal recurring adjustments, and disclosures considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions. The financial statements include the unaudited condensed consolidated balance sheets, income statements, comprehensive income statements, statements of cash flows and statements of changes in equity of the Company and its affiliates, which are controlled by the Company through the Company’s direct or indirect ownership of a majority equity interest and rights granted to the Company through certain variable interests. All intercompany balances and transactions have been eliminated in consolidation. Certain information and disclosures normally included in annual financial statements presented in accordance with GAAP have been omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 included in the Company's final prospectus, dated July 17, 2024, filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on July 18, 2024 in connection with the Company's initial public offering. Initial Public Offering and Corporate Conversion On July 19, 2024, the Company completed an initial public offering of 12,000,000 shares of its common stock at a public offering price of $ 16.00 per share (the "IPO") for aggregate gross proceeds of $ 192.0 million and net proceeds of approximately $ 181.4 million , after deducting underwriting discounts and commissions of approximately $ 10.6 million . The Company provided the underwriters with an option to purchase up to an additional 1,800,000 shares of common stock of the Company, which was fully exercised by the underwriters, and, on July 30, 2024, the Company issued 1,800,000 additional shares of common stock at $ 16.00 per share for additional net proceeds of approximately $ 27.2 million , after deducting 8 Table of Contents underwriting discounts and commissions of approximately $ 1.6 million . The Company’s common stock is listed on the New York Stock Exchange under the symbol “ARDT”. On July 17, 2024, in connection with the IPO and immediately prior to the effectiveness of the Company's registration statement on Form S-1, the Company converted from a Delaware limited liability company into a Delaware corporation by means of a statutory conversion (the “Corporate Conversion”) and changed its name to Ardent Health Partners, Inc. As a result of the Corporate Conversion, the outstanding limited liability company membership units and vested profits interest units were converted into 120,937,099 shares of common stock and outstanding unvested profits interest units were converted into 2,848,027 shares of restricted common stock. Immediately following the Corporate Conversion, ALH Holdings, LLC, a subsidiary of Ventas, Inc. ("Ventas"), a common unit holder that beneficially owned a percentage of the Company’s outstanding membership interests and maintained a seat on the Company’s board of managers, making Ventas a related party, contributed all of its outstanding common stock in AHP Health Partners, Inc. ("AHP Health Partners"), a direct subsidiary of the Company, to Ardent Health Partners, Inc. in exchange for 5,178,202 shares of common stock of Ardent Health Partners, Inc. (the "ALH Contribution"). As a result of the ALH Contribution, AHP Health Partners is a wholly-owned subsidiary of Ardent Health Partners, Inc. The Corporate Conversion and the ALH Contribution have been retrospectively applied to prior periods herein for the purposes of calculating basic and diluted net income per share. The Company’s certificate of incorporation authorizes 750,000,000 shares of common stock and 50,000,000 shares of preferred stock, each with a $ 0.01 par value per share. Cybersecurity Incident In November 2023, the Company determined that a ransomware cybersecurity incident had impacted and disrupted a number of the Company’s operational and information technology systems (the “Cybersecurity Incident”). During this time, the Company’s hospitals remained operational and continued to deliver patient care utilizing established downtime procedures. The Company immediately suspended user access to impacted information technology applications, executed cybersecurity protection protocols, and took steps to restrict further unauthorized activity. Additionally, because of the time taken to contain and remediate the Cybersecurity Incident, online electronic billing systems were not functioning at their full capacities and certain billing, reimbursement and payment functions were delayed, which had an adverse impact on the Company’s results of operations and cash flows for 2023 and the first quarter of 2024. While the Company’s hospitals continued to deliver patient care at varying levels during the disruption and remediation periods and the Company’s business is no longer materially disrupted, the Company has incurred, and will continue to incur, certain expenses related to the Cybersecurity Incident, including expenses related to the settlement of the consolidated class action lawsuit related to the Cybersecurity Incident. The Company continues to work with its various insurance carriers to obtain reimbursement for its costs and liabilities incurred due to the Cybersecurity Incident. Pure Health Equity Investment On May 1, 2023, an affiliate of Pure Health Holding PJSC (“Pure Health”) purchased a minority interest in the Company from the unit holders at the time. In connection with Pure Health’s investment, unit holders were eligible to exercise tag- along rights to sell a proportionate share of their individual equity ownership interest in Ardent Health Partners, LLC and AHP Health Partners, the Company's direct subsidiary. Ventas exercised its tag-along right to sell its proportionate share of ownership interest in both Ardent Health Partners, LLC and AHP Health Partners. To fulfill Ventas’ right to sell its proportionate share of noncontrolling ownership interest in AHP Health Partners, the Company exercised its right to repurchase those shares from Ventas for $ 26.0 million concurrent with Pure Health’s purchase of a minority interest in the Company. The carrying value of the noncontrolling interest was adjusted proportionate to the shares repurchased to reflect the change in ownership of AHP Health Partners, with the difference between the fair value of the consideration paid and the amount by which the noncontrolling interest was adjusted recognized in equity attributable to Ardent Health Partners, LLC. As of September 30, 2024 , Pure Health and Ventas beneficially owned approximately 21.2 % and 6.5 % , respectively, of the Company’s outstanding common stock . General and Administrative Costs The majority o f the Company’s expenses are “cost of revenue” items. Costs that could be classified as general and administrative by the Company would include its corporate office costs, which were $ 33.7 million and $ 29.0 million for the 9 Table of Contents three months ended September 30, 2024 and 2023 , respectively, and $ 95.7 million and $ 82.2 million for the nine months ended September 30, 2024 and 2023 , respectively. 2. Summary of Significant Accounting Policies COVID-19 Pandemic In March 2020, the World Health Organization declared the outbreak of Coronavirus Disease 2019 (“COVID-19”), a disease caused by a novel strain of coronavirus, a global pandemic. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted by the federal government. Among other provisions, the CARES Act authorized relief funding to healthcare providers through the Public Health and Social Services Emergency Fund (“Provider Relief Fund”). The CARES Act also expanded the Medicare Accelerated and Advance Payment Program through which eligible providers could request accelerated Medicare payments to be repaid through withholdings against future Medicare fee-for- service payments. Distributions from the Provider Relief Fund were intended to reimburse healthcare providers for lost revenue and increased expenses related to the pandemic and were not subject to repayment, provided recipients attested to and complied with applicable terms and conditions set forth by legislation. Distributions provided by the Provider Relief Fund were accounted for as government grants and were recognized in the unaudited condensed consolidated income statements once the grant was received and there was reasonable assurance that the applicable terms and conditions required to retain the distributions were met. During the three and nine months ended September 30, 2024 , the Company did not receive or recognize any cash distributions from the Provider Relief Fund and other state and local programs . During the three and nine months ended September 30, 2023 , the Company receiv ed $ 0.0 million and $ 8.5 million , resp ectively, in cash distributions from the Provider Relief Fund and other state and local programs and recognized the distributions as government stimulus income, a reduction of operating expenses, on its unaudited condensed consolidated income statements. Government compliance audits may result in derecognition of amounts previously recognized and repayment of such amounts. Since 2020, the Company has received and recognized $ 366.4 million of government stimulus income. Pursuant to Accounting Standards Update (“ASU”) 2021-10, Disclosures by Business Entities about Government Assistance , as an accounting policy election, the Company has utilized International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy to recognize funds received under the CARES Act from the Provider Relief Fund as revenue, given no direct authoritative guidance is available to for-profit organizations to recognize revenue for government contributions and grants. CARES Act revenue may be subject to future adjustments based o n co mpliance audits. Adoption of Recently Issued Accounting Standards In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting and applies only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 became effective as of March 12, 2020 and continues through December 31, 2024. Entities may adopt ASU 2020-04 as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company adopted the standard as of January 1, 2023. The adoption of this standard had no material impact on the Company’s unaudited condensed consolidated financial statements and notes. Recent Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which expands disclosures about reportable segments and provides requirements for more detailed reporting of a segment’s expenses that are regularly provided to the Chief Operating Decision Maker ("CODM") and included within each reported measure of a segment’s profit or loss. Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning 10 Table of Contents after December 15, 2023 and interim periods within fiscal years beginning one year later. Early adoption is permitted, and amendments must be applied retrospectively to all prior periods presented. The adoption of this guidance will not impact the Company’s consolidated results of operations, financial position or cash flows. The Company is currently evaluating the standard to determine its impact on the Company’s disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires a public business entity to disclose specific categories in its annual effective tax rate reconciliation and provide disaggregated information about significant reconciling items by jurisdiction and by nature. ASU 2023-09 also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions and includes several other changes to income tax disclosure requirements. This standard is effective for annual periods beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows. The Company is currently evaluating the standard to determine its impact on the Company’s disclosures. Variable Interest Entities GAAP requires variable interest entities (“VIEs”) to be consolidated if an entity’s interest in the VIE is a controlling financial interest in accordance with ASC 810, Consolidation . Under the variable interest model, a controlling financial interest is determined based on which entity, if any, has (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses, or the right to receive benefits, from the VIE that could potentially be significant to the VIE. The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE could cause the Company’s consolidation conclusion to change. The consolidation status of the VIEs with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively. The Company, through its wholly-owned subsidiaries, owns majority interests in certain limited liability companies (“LLCs”), with each LLC owning and operating one or more hospitals. The noncontrolling interest is typically owned by a not-for-profit medical system, university, academic medical center or foundation or combination thereof (individually or collectively referred to as “minority member”). The employees that work for the LLC and the related hospital(s) are employees of the Company, and the Company manages the day-to-day operations of the LLC and the hospital(s) pursuant to a management services agreement (“MSA”). The LLCs are VIEs due to their structure as LLCs and the control that resides with the Company through the MSA. The Company consolidates each of these LLCs as it is considered the primary beneficiary due to the MSA providing the Company the right to direct the day-to-day operating and capital activities of the LLC and the respective hospital(s) that most significantly impact the LLC’s economic performance. Additionally, the Company would absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both, as a result of its majority ownership, contractual or other financial interests in the entity. The MSAs are subject to termination only by mutual agreement of the Company and minority member, except in the case of gross negligence, fraud or bankruptcy of the Company, in which case the minority member can force termination of the MSA. The governance rights of the minority members are restricted to those that protect their financial interests and do not preclude consolidation of the LLCs. The rights of minority members generally are limited to such items as the right to approve the issuance of new ownership interests, calls for additional cash contributions, the acquisition or divestiture of significant assets and the incurrence of debt in excess of levels not expected to be incurred in the normal course of business. All of the Company’s VIEs meet the definition of a business, and the Company holds a majority of their issued voting equity interest. Their assets are not required to be used only for the settlement of VIE obligations as the Company has the ability to direct the use of the VIE assets through its joint venture and cash management agreements. As of September 30, 2024 and December 31, 2023 , nine of the Company’s hospitals were owned and operated through LLCs that have been determined to be VIEs and were consolidated by the Company. Consolidated assets at September 30, 2024 and December 31, 2023 included total assets of VIEs equal to $ 1.2 billion . The Company ’ s VIEs do not have creditors that have 11 Table of Contents recourse to the Company. As the structure and nature of business are very similar for each of the LLCs, they are discussed and presented herein on a combined basis. The total liabilities of VIEs included in the Company’s unaudited condensed consolidated balance sheets are shown below (in thousands): September 30, 2024 December 31, 2023 Current liabilities Current installments of long-term debt $ 2,222 $ 2,386 Accounts payable 86,521 103,274 Accrued salaries and benefits 32,480 34,730 Other accrued expenses and liabilities 48,116 53,684 Total current liabilities 169,339 194,074 Long-term debt, less current installments 7,679 8,044 Long-term operating lease liability 111,449 120,056 Long-term operating lease liability, related party 9,449 9,520 Self-insured liabilities 659 651 Other long-term liabilities 4,606 5,437 Total liabilities $ 303,181 $ 337,782 Income from operations before income taxes attributable to VIEs was $ 68.6 million and $ 60.3 million for the three months ended September 30, 2024 and 2023 , respectively. Income from operations before income taxes attributable to VIEs was $ 207.0 million and $ 198.4 million for the nine months ended September 30, 2024 and 2023 , respectively. Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Deferred Offering Costs Deferred offering costs consist primarily of legal and accounting fees, which are direct and incremental fees related to equity financings. The Company capitalizes these costs until equity financings are consummated, at which time the costs are recorded against the gross proceeds of the offering. Upon receipt of the IPO proceeds during the current period, deferred offering costs were recorded against the IPO proceeds within additional paid-in capital on the Company's condensed consolidated balance sheet as of September 30, 2024 . Revenue Recognition The Company’s revenue generally relates to contracts with patients in which its performance obligations are to provide healthcare services to the patients. Revenue is recorded during the period the Company’s obligations to provide healthcare services are satisfied. Revenue for performance obligations satisfied over time is recognized based on charges incurred in relation to total expected charges. The Company’s performance obligations for inpatient services are generally satisfied over periods that average approximately five days. The Company’s performance obligations for outpatient services are generally satisfied over a period of less than one day. As the Company’s performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption under ASC Topic 606, Revenue from Contracts with Customers , and, therefore, is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize revenue. Additionally, the Company is not required to 12 Table of Contents adjust the consideration for the existence of a significant financing component when the period between the transfer of the services and the payment for such services is one year or less. Contractual relationships with patients, in most cases, involve a third-party payor (Medicare, Medicaid and managed care health plans) and the transaction prices for services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans) the third-party payors. The payment arrangements with third-party payors for the services provided to the related patients typically specify payments at amounts less than the Company’s standard charges. The Company’s revenue is based upon the estimated amounts the Company expects to be entitled to receive from patients and third-party payors. Estimates of contractual adjustments under managed care insurance plans are based upon the payment terms specified in the related contractual agreements. Revenue related to uninsured patients and copayment and deductible amounts for patients who have healthcare coverage may have discounts applied (uninsured discounts and other discounts). The Company also records estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenue at the estimated amounts expected to be collected. Medicare and Medicaid regulations and various managed care contracts, under which the discounts from the Company’s standard charges must be calculated, are complex and are subject to interpretation and adjustment. The Company estimates contractual adjustments on a payor-specific basis based on its interpretation of the applicable regulations or contract terms. However, the necessity of the services authorized and provided, and resulting reimbursements, are often subject to interpretation. These interpretations may result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating continual review and assessment of the estimates by management. Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process). Settlements under reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts earned under the Medicare, Medicaid and other third-party payor programs often occurs in subsequent years because of audits by the programs, rights of appeal, and the application of technical provisions. Settlements are considered in the recognition of net patient service revenue on an estimated basis in the period the related services are rendered, and such amounts are subsequently adjusted in future periods as adjustments become known or as years are no longer subject to such audits and reviews. Differences between original estimates and subsequent revisions, including final settlements, are included in the results of operations of the period in which the revisions are made. These adjustments resulted in changes to net patient service revenue of an increase of $ 4.9 million and $ 1.1 million for the three months ended September 30, 2024 and 2023 , respectively, and an increase to net patient service revenue of $ 4.9 million and $ 6.1 million for the nine months ended September 30, 2024 and 2023 , respectively. At September 30, 2024 and December 31, 2023 , the Company’s settlements under reimbursement agreements with third- party payors were a net payable of $ 2.9 million and $ 10.3 million , respectively, of which a receivable of $ 39.2 million and $ 34.4 million , respectively, was included in other current assets and a payable of $ 42.1 million and $ 44.7 million , respectively, was included in other accrued expenses and liabilities in the unaudited condensed consolidated balance sheets. Final determination of amounts earned under prospective payment and other reimbursement activities is subject to review by appropriate governmental authorities or their agents. In the opinion of the Company’s management, adequate provision has been made for any adjustments that may result from such reviews. Subsequent adjustments that are determined to be the result of an adverse change in the patient’s or the payor’s ability to pay are recognized as bad debt expense. Bad debt expense for the three and nine months ended September 30, 2024 and 2023 was not material to the Company. Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers to offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from the Center for Medicare & Medicaid Services (“CMS”) and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Under these supplemental programs, the Company recognizes revenue and related expenses in the period in which amounts are estimable and collection is 13 Table of Contents reasonably assured. Reimbursement under these programs is reflected in total revenue. Taxes or other program-related costs are reflected in other operating expenses. The Company’s total revenue is presented in the following table (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue Medicare $ 561,491 38.7 % $ 537,884 39.0 % $ 1,709,137 39.3 % $ 1,608,041 39.6 % Medicaid 148,448 10.2 % 151,401 11.0 % 460,060 10.6 % 459,244 11.3 % Other managed care 627,112 43.3 % 587,802 42.7 % 1,874,705 43.0 % 1,713,964 42.2 % Self-pay and other 79,390 5.5 % 75,761 5.5 % 234,522 5.2 % 210,338 5.1 % Net patient service revenue $ 1,416,441 97.7 % $ 1,352,848 98.2 % $ 4,278,424 98.1 % $ 3,991,587 98.2 % Other revenue 33,376 2.3 % 24,879 1.8 % 81,359 1.9 % 71,862 1.8 % Total revenue $ 1,449,817 100.0 % $ 1,377,727 100.0 % $ 4,359,783 100.0 % $ 4,063,449 100.0 % The Company provides care without charge to certain patients who qualify under the local charity care policy of the hospital where the patient receives services. The Company estimates that its costs of care provided under its charity care programs approximated $ 8.2 million and $ 8.4 million for the three months ended September 30, 2024 and 2023 , respectively. The Company estimates that its costs of care provided under its charity care programs approximated $ 41.8 million and $ 34.0 million for the nine months ended September 30, 2024 and 2023 , respectively. The Company does not report a charity care patient’s charges in revenue as it is the Company’s policy not to pursue collection of amounts related to these patients, and therefore contracts with these patients do not exist. The Company’s management estimates its costs of care provided under its charity care programs utilizing a calculated ratio of costs to gross charges multiplied by the Company’s gross charity care charges provided. The Company’s gross charity care charges include only services provided to patients who are unable to pay and qualify under the Company’s local charity care policies. To the extent the Company receives reimbursement through the various governmental assistance programs in which it participates to subsidize its care of indigent patients, the Company does not include these patients’ charges in its cost of care provided under its charity care program. Market Risks The Company’s revenue is subject to potential regulatory and economic changes in certain states where the Company generates significant revenue. The following is an analysis by state of revenue as a percentage of the Company’s total revenue for those states in which the Company generates significant revenue: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Oklahoma 24.7 % 24.7 % 24.8 % 24.3 % New Mexico 13.7 % 15.2 % 14.6 % 15.7 % Texas 37.4 % 37.2 % 36.4 % 35.9 % New Jersey 10.1 % 10.1 % 10.2 % 10.4 % Other 14.1 % 12.8 % 14.0 % 13.7 % Total 100.0 % 100.0 % 100.0 % 100.0 % Texas Waiver Program Certain of the Company’s facilities receive supplemental Medicaid reimbursement, including reimbursement from programs supported by broad-based provider taxes to fund the non-federal share of Medicaid programs or fund indigent care within a state. The State of Texas operates the Texas Health Care Transformation and Quality Improvement Program pursuant to a 14 Table of Contents Medicaid waiver, the Texas Waiver Program (the “Program”), granted by Section 1115 of the Social Security Act. The Program expands managed care programs in the state, provides funding for uncompensated care and supports various delivery system reform initiatives. On March 25, 2022, the Program was extended through September 2030; however, certain delivery system reform initiatives within the Program operate under separate approval periods. The timing, determination and basis of funding is specific to the Program’s various components. For example, reimbursements associated with the Program’s uncompensated care component are determined based on a participating provider’s costs incurred with providing unreimbursed care to Medicaid and uninsured patients. The Company accrues for estimated payments associated with the Program’s uncompensated care component to be received in the period in which the associated unreimbursed care is provided constrained to an amount such that a significant reversal of cumulative revenue is not probable in the future. Payments associated with certain directed payment programs are contingent on a provider reporting and meeting certain pre-determined metrics and clinical outcomes and contributing to the non-federal share of the Program component via provider assessments. The Company accrues directed payment program funding in the period in which metrics are expected to be achieved and collection is reasonably assured. Management routinely monitors communications regarding the Program from the State of Texas and CMS to ensure there is no uncertainty about entitlement or collectability, such as disruption in state and federal funding. Payments from the Program are received at different points of time during a funding year. Differences between original estimates and subsequent revisions to the payments, including final settlements, represent changes in the estimate and are recognized in the period in which the revisions are made. Subsequent adjustments to the payments received and the Company’s related estimates have historically been insignificant. The Company recognized revenue of $ 54.0 million and $ 68.6 million for the three months ended September 30, 2024 and 2023 , respectively, and $ 165.9 million and $ 147.3 million for the nine months ended September 30, 2024 and 2023 , respectively. Additionally, the Company incurred costs related to provider assessments for the Program in the amounts of $ 15.1 million and $ 28.7 million for the three months ended September 30, 2024 and 2023 , respectively, and $ 56.8 million and $ 58.8 million for the nine months ended September 30, 2024 and 2023 , respectively, which were included in other operating expenses on the unaudited condensed consolidated income statements. Fair Value of Financial Instruments Cash and cash equivalents, accounts receivable, inventories, prepaid expenses, other current assets, accounts payable, accrued salaries and benefits, accrued interest and other accrued expenses and current liabilities (other than those pertaining to lease liabilities) are reflected in the accompanying unaudited condensed consolidated financial statements at amounts that approximate fair value because of the short-term nature of these instruments. The fair value of the Company’s revolving credit facility also approximates its carrying value as it bears interest at current market rates. Refer to Note 5 , Interest Rate Swap Agreements , for discussion of the fair value measurement of the Company ’ s derivative instruments. The carrying amounts and fair values of the Company’s senior secured term loan facility and its 5.75 % Senior Notes due 2029 (the “ 5.75 % Senior Notes”) were as follows (in thousands): Carrying Amount Fair Value September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 Senior Secured Term Loan Facility $ 773,515 $ 874,262 $ 773,515 $ 876,448 5.75 % Senior Notes $ 299,574 $ 299,506 $ 293,582 $ 259,822 The estimated fair values of the Company’s senior secured term loan facility and the 5.75 % Senior Notes were based upon quoted market prices at that date and are categorized as Level 2 within the fair value hierarchy. Noncontrolling Interests The financial statements include the financial position and results of operations of hospital and healthcare operations in which the Company owned less than 100% of the equity interests, but maintained a controlling interest during the presented periods. Earnings or losses attributable to the noncontrolling interests are presented separately in the consolidated income statements. 15 Table of Contents In accordance with ASC 810, Consolidation , holders of noncontrolling interests are considered to be equity holders in the consolidated company, pursuant to which noncontrolling interests are classified as part of equity, unless the noncontrolling interests are redeemable. Certain redemptive features associated with the noncontrolling interests for The University of Kansas Health System – St. Francis Campus (“St. Francis”) could require the Company to deliver cash if the redemptive features are exercised. These redemptive features could be exercised upon, among other things, the Company’s exclusion or suspension from participation in any federal or state government healthcare payor program. Therefore, the noncontrolling interests balance for St. Francis is classified outside the permanent equity section of the Company’s unaudited condensed consolidated balance sheets. The redeemable noncontrolling interests related to St. Francis at September 30, 2024 and December 31, 2023 have not been subsequently measured at fair value since the acquisition date in 2017. The noncontrolling interests are not currently redeemable and it is not probable that the noncontrolling interests will become redeemable as the possibility of the Company being excluded or suspended from participation in any federal or state government healthcare payor program is remote. Earnings Per Share Basic net income per share is computed by dividing net income available to common stockholders by the weighted-average common shares outstanding during the period. Diluted net income per share takes into account the potential dilution that could occur if securities or other contracts to issue shares, such as stock options and unvested restricted stock units, were exercised and converted into shares. Diluted net income per share is computed by dividing net income available to common stockholders by the weighted-average common shares outstanding during the period, increased by the number of additional shares that would have been outstanding if the potential shares had been issued and were dilutive. Segment Reporting The Company has one reportable segment: healthcare services. The healthcare services segment provides healthcare services primarily through its ownership and operation of hospitals, certain of which provide related healthcare services through physician practices, outpatient centers, and post-acute facilities. The CODM is its President and Chief Executive Officer, who regularly reviews financial operating results on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company’s CODM manages the operations on a consolidated basis to make decisions about overall company resource allocation and to assess overall company performance. As of September 30, 2024 and December 31, 2023 , all of the Company’s long-lived assets were located in the United States, and for the three and nine months ended September 30, 2024 and 2023 , all revenue was earned in the United States. 3. Related Party Transactions Effective August 4, 2015, Ventas acquired ownership of the Company’s real estate in exchange for a $ 1.4 billion payment from Ventas and the Company’s agreement to lease the acquired real estate back from Ventas (the “Ventas Master Lease”). The Ventas Master Lease is a 20 -year master lease agreement (with a renewal option for an additional 10 years ) with certain subsidiaries of Ventas, pursuant to which the Company currently leases 10 of the Company’s hospitals. The Ventas Master Lease includes an annual rent escalator equal to the lesser of four times the Consumer Price Index or 2.5 % . In accordance with ASC 842, Leases (“ASC 842”), variable lease payments are excluded from the Company’s minimum rental payments used to determine the right-of-use assets and lease obligations and are recognized as expense when incurred. The Ventas Master Lease includes a number of operating and financial restrictions on the Company. Management believes it was in compliance with all financial covenants as of September 30, 2024 and December 31, 2023 . The Company recorded rent expense related to the Ventas Master Lease and other lease agreements with Ventas for certain medical office buildings of $ 37.2 million a n d $ 36.4 million f or the three months ended September 30, 2024 and 2023 , respectively, and $ 111.4 million a nd $ 108.9 million f or the nine months ended September 30, 2024 and 2023 , respectively. 16 Table of Contents 4. Long-Term Debt and Financing Matters Long-term debt consists of the following (in thousands): September 30, 2024 December 31, 2023 Senior secured term loan facility $ 773,515 $ 874,262 5.75 % Senior Notes 299,574 299,506 Finance leases 19,848 21,706 Other debt 18,796 12,322 Deferred financing costs ( 15,841 ) ( 20,938 ) Total debt 1,095,892 1,186,858 Less current maturities ( 12,167 ) ( 18,605 ) Long-term debt, less current maturities $ 1,083,725 $ 1,168,253 As of September 30, 2024 and December 31, 2023 , the senior secured term loan facility reflected an original issue discount (“OID”) of $ 4.0 million and $ 5.5 million , respectively. As of September 30, 2024 and December 31, 2023 , the 5.75 % Senior Notes balance reflected an OID of $ 0.4 million and $ 0.5 million , respectively . Senior Secured Credit Facilities On August 24, 2021, the Company entered into a credit agreement for its senior secured term loan facility (the " Term Loan B Facility"), which provides funding up to a principal amount of $ 900.0 million . The Term Loan B Facility has a seven year maturity with principal due in consecutive equal quarterly installments of 0.25 % of the initial $ 900.0 million principal amount (subject to certain reductions from time to time as a result of the application of prepayments), with the remaining balance due upon maturity of the Term Loan B Facility. The proceeds from the Term Loan B Facility were used to prepay in full the Company's $ 825.0 million senior secured term loan facility (the "2018 Term Loan B Facility"), including any accrued and unpaid interest, fees and other expenses related to the transaction. On June 8, 2023, the Company further amended and restated the Term Loan B Facility credit agreement (the "Term Loan B Credit Agreement") to replace LIBOR with the Term Secured Overnight Financing Rate ("SOFR") and Daily Simple SOFR (each as defined in the amended Term Loan B Credit Agreement) as the reference interest rate effective June 30, 2023. On June 26, 2024, the Company used cash on hand to prepay $ 100.0 million of the $ 877.5 million outstanding principal on the Term Loan B Facility; no modification was made to the Term Loan B Credit Agreement as a result of this prepayment. On September 18, 2024, the Company executed an amendment to reprice its Term Loan B Credit Agreement. The repricing reduced the applicable interest rate by 50 basis points from Term SOFR plus 3.25 % to Term SOFR plus 2.75 % and eliminated the credit spread adjustment. No modifications were made to the maturity of the loans as a result of the repricing and all other terms were substantially unchanged. Effective July 8, 2021, the Company entered into an amended and restated senior credit agreement for its $ 225.0 million senior secured asset based revolving credit facility (the “ABL Credit Agreement”). The ABL Credit Agreement consisted of a $ 225.0 million senior secured asset-based revolving credit facility with a five -year maturity. On April 21, 2023, the Company further amended and restated the ABL Credit Agreement to replace LIBOR with the Term SOFR and Daily Simple SOFR (each, as defined in the amended ABL Credit Agreement) as the reference interest rate. On June 26, 2024, the Company further amended the ABL Credit Agreement to increase the revolving commitment to $ 325.0 million and extend its maturity date to June 26, 2029. The Term Loan B Credit Agreement and ABL Credit Agreement contain a number of customary affirmative and negative covenants that limit or restrict the ability of the Company and its subsidiaries to (subject, in each case, to a number of important exceptions, thresholds and qualifications as set forth in the Term Loan B Credit Agreement and ABL Credit Agreement): • incur additional indebtedness (including guarantee obligations); • incur liens; • make certain investments; • make certain dispositions and engage in certain sale / leaseback transactions; • make certain payments or other distributions; and 17 Table of Contents • engage in certain transactions with affiliates. In addition, the ABL Credit Agreement contains a springing financial covenant that requires the maintenance, after failure to maintain a specified minimum amount of availability to borrow under the senior secured asset-based revolving credit facility, of a minimum fixed charge coverage ratio of 1.00 to 1.00, as determined at the end of each fiscal quarter. Management believes that, as of September 30, 2024 and December 31, 2023 , the Company maintained more than the minimum amount of availability under the senior secured asset-based revolving credit facility and, therefore, the minimum fixed charge ratio described herein was not applicable. 5. Interest Rate Swap Agreements Market risks relating to the Company’s operations result primarily from changes in interest rates. The Company’s exposure to interest rate risk results from the entry into financial debt instruments that arose from transactions entered into during the normal course of business. As part of an overall risk management program, the Company evaluates and manages exposure to changes in interest rates on an ongoing basis. The Company has no intention of entering into financial derivative contracts, other than to hedge a specific financial risk. To mitigate the Company’s exposure to fluctuations in interest rates, the Company uses pay-fixed interest rate swaps, generally designated as cash flow hedges of interest payments on floating rate borrowings. Pay-fixed swaps effectively convert floating-rate borrowings to fixed-rate borrowings. Unrealized gains or losses from the designated cash flow hedges are deferred in accumulated other comprehensive income (“AOCI”) and recognized as interest expense as the interest payments occur. Hedges and derivative financial instruments may continue to be used in the future in order to manage interest rate exposure. The Company has entered into interest rate swap agreements to manage its exposure to fluctuations in interest rates. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company has determined the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. On August 26, 2021, the Company amended its existing interest rate swap agreements with Barclays Bank PLC and Bank of America, N.A. as counterparties, with original notional amounts totaling $ 558.0 million and expiring August 31, 2023. Under the amended agreements, the Company was required to make monthly fixed rate payments at annual rates ranging from 2.50 % to 2.51 % , and the counterparties were obligated to make monthly floating rate payments to the Company based on one-month LIBOR, each subject to a floor of 0.50 % . On October 8, 2021, the Company executed new interest rate swap agreements (the “October 2021 Agreements”) with Barclays Bank PLC and Bank of America, N.A. as counterparties, with notional amounts totaling $ 529.0 million and an effective date of August 31, 2023 and expiring June 30, 2026. Under the October 2021 Agreements, the Company was required to make monthly fixed rate payments at annual rates ranging from 1.53 % to 1.55 % , and the counterparties were obligated to make monthly floating rate payments to the Company based on one-month LIBOR, each subject to a floor of 0.50 % . Effective August 31, 2023, the Company amended the October 2021 Agreements to adjust the fixed rates and replace the LIBOR floating interest rate options with Term SOFR floating rate options. Under the amended October 2021 Agreements, the Company is required to make monthly fixed rate payments at annual rates ranging from 1.47 % to 1.48 % , and the counterparties are obligated to make monthly floating rate payments to the Company based on one-month Term SOFR, each subject to a floor of 0.39 % . The Company accounts for its interest rate swap agreements in accordance with ASC 815, Derivatives and Hedging . Because the interest rate swap agreements amended on August 26, 2021 did not meet the definition of derivatives in their entirety due to the financing element of the agreements, the Company accounted for these as hybrid instruments that consisted of a debt instrument (debt host) and an embedded at-market derivative. At August 26, 2021, the debt portion of the hybrid instruments was equal to the fair value of the existing interest rate swap agreements, and the balance within AOCI associated with the debt portion was amortized on a straight-line basis to interest expense over the remaining effective period of the amended agreements, which expired August 31, 2023. The at-market derivative portion of each hybrid instrument was designated as a cash flow hedge with changes in fair value included in AOCI as a component of equity. Amounts were subsequently reclassified from AOCI into interest expense in the same periods during which the hedged transactions affected earnings. Cash interest payments associated with the at-market derivative portion of the hybrid instruments were classified as operating 18 Table of Contents activities in the Company’s unaudited condensed consolidated statements of cash flows; whereas cash interest payments for the debt portion of the hybrid instruments were classified as financing activities. The Company performs assessments of effectiveness for its cash flow hedges on a quarterly basis to confirm that the hedges continue to meet the highly effective criteria required to continue applying cash flow hedge accounting. During the nine months ended September 30, 2024 and the year ended December 31, 2023 , these hedges were highly effective. Accordingly, no unrealized gain or loss related to these hedges was reflected in the accompanying unaudited condensed consolidated income statements, and the change in fair value was included in AOCI as a component of equity. Realized gains and losses during the period have been reclassified from AOCI to interest expense. The following table presents the effects of derivatives in cash flow hedging relationships on the Company’s AOCI and earnings (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Classification 2024 2023 2024 2023 Unrealized (loss) income recognized AOCI $ ( 5,062 ) $ 4,490 $ 3,077 $ 11,082 Loss reclassified from AOCI into earnings Interest expense, net ( 5,118 ) ( 4,447 ) ( 15,357 ) ( 11,006 ) Net change in AOCI $ ( 10,180 ) $ 43 $ ( 12,280 ) $ 76 In the 12 months following September 30, 2024 , the Company estimates that an additional $ 9.5 million will be reclassified as a reduction to interest expense. As of September 30, 2024 and December 31, 2023 , the fair value of the Company’s interest rate swap agreements reflected an asset balance of $ 12.8 million and $ 25.1 million , respectively. The following table presents the fair value of the Company’s interest rate swap agreements as recorded in the unaudited condensed consolidated balance sheets (in thousands): Classification September 30, 2024 December 31, 2023 Other current assets $ 9,530 $ 15,966 Other assets 3,310 9,100 Fair value $ 12,840 $ 25,066 6. Income Taxes The Company’s tax provisions for the three months ended September 30, 2024 and 2023 were income tax expense of $ 11.1 million , which equates to an effective tax rate of 19.4 % , and $ 7.3 million , which equates to an effective tax rate of 15.8 % , respectively. The Company’s tax provisions for the nine months ended September 30, 2024 and 2023 were income tax expense of $ 37.0 million , which equates to an effective tax rate of 18.9 % , and $ 24.6 million , which equates to an effective tax rate of 17.2 % , respectively. The Company follows the provisions of ASC 740, Income Taxes , regarding uncertain tax positions. At September 30, 2024 and December 31, 2023 , the Company had a liability for uncertain tax positions of $ 12.1 million . The Company believes that it is reasonably possible that the reserve for uncertain tax positions will change in the coming 12 months as a result of being within the applicable statute of limitations with respect to uncertain tax positions. As of September 30, 2024 , the Company had no ongoing or pending federal examinations for prior years. The Company has outstanding federal income tax refund claims for the 2016 and 2018 tax years. Since the total amount of refund claims is equal to $ 10.0 million , which was classified within other current assets on the Company’s unaudited condensed consolidated balance sheet at September 30, 2024 , the refund claims are subject to ongoing Joint Committee on Taxation reviews. The Company’s tax years from 2021 through 2023 remain open to examination by federal and state taxing authorities. 19 Table of Contents 7. Self-Insured Liabilities The liabilities for professional, general, workers’ compensation and occupational injury liability risks are based on actuarially determined estimates. Such liabilities represent the estimated ultimate cost of all reported and unreported losses incurred through the respective balance sheet dates. The Company provides an accrual for actuarially determined claims reported but not paid and estimates of claims incurred but not reported. Professional and General Liability The total costs for professional and general liability losses are based on the Company’s premiums and retention costs, and were $ 15.6 million and $ 13.7 million for the three months ended September 30, 2024 and 2023 , respectively, and were $ 50.5 million and $ 40.9 million for the nine months ended September 30, 2024 and 2023 , respectively. Workers' Compensation and Occupational Injury Liability The total costs for workers’ compensation liability insurance are based on the Company’s premiums and retention costs, and were $ 2.4 million and $ 2.5 million for the three months ended September 30, 2024 and 2023 , respectively, and were $ 5.7 million and $ 7.6 million for the nine months ended September 30, 2024 and 2023 , respectively. 8. Employee Benefit Plans Defined Contribution Plan The Company maintains defined contribution retirement plans that cover its eligible employees. The Company incurred total costs related to the retirement plans of $ 11.2 million and $ 10.3 million for the three months ended September 30, 2024 and 2023 , respectively, and $ 36.2 million and $ 33.5 million for the nine months ended September 30, 2024 and 2023 , respectively. Employee Health Plan The Company maintains a self-insured medical and dental plan for substantially all of its employees. Amounts are accrued under the Company’s medical and dental plans as the claims that give rise to them occur and the Company includes a provision for incurred but not reported claims. Incurred but not reported claims are estimated based on an average lag time and experience. Accruals are based on the estimated ultimate cost of settlement, including claim settlement expenses. The total costs of employee health coverage were $ 47.2 million and $ 40.7 million for the three months ended September 30, 2024 and 2023 , respectively, and $ 133.9 million and $ 122.9 million for the nine months ended September 30, 2024 and 2023 , respectively. 9. Commitments and Contingencies Litigation and Regulatory Matters From time to time, claims and suits arise in the ordinary course of the Company’s business. The Company has been, is currently, and may in the future be subject to claims, lawsuits, qui tam actions, civil investigative demands, subpoenas, investigations, audits and other inquiries related to its operations. In certain of these actions, plaintiffs request punitive or other damages against the Company that may not be covered by insurance. These claims, lawsuits, and proceedings are in various stages of adjudication or investigation and involve a wide variety of claims and potential outcomes. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material adverse effect on the Company’s results of operations, financial position or liquidity. 20 Table of Contents The Company records accruals for such contingencies to the extent that the Company concludes it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company does not believe that it is party to any proceeding that, either individually or in the aggregate, in the opinion of management, could have a material adverse effect on the business, financial condition, results of operations or liquidity. As a result of the Cybersecurity Incident that occurred in November 2023, three putative class actions were filed against the Company in the U.S. District Court for the Middle District of Tennessee: Burke v. AHS Medical Holdings LLC, No. 3:23- cv-01308; Redd v. AHS Medical Holdings, LLC, No. 3:23-cv-01342; and Epperson v. AHS Management Company, Inc., No. 3:24-cv-00396. These cases were consolidated by the District Court on April 24, 2024, under the caption Hodge v. AHS Management Company, Inc., No. 3:23-cv-01308 (M.D. Tenn.). The complaint for the consolidated class action, filed on behalf of approximately 38,000 individuals who allege their personal information and protected health information were affected by the Cybersecurity Incident, generally asserts state common law claims of negligence, breach of implied contract, unjust enrichment, breach of fiduciary duty, and invasion of privacy with respect to how the Company managed sensitive data. On October 4, 2024, the Company executed a settlement agreement to resolve the consolidated class action litigation. On October 9, 2024, the District Court preliminarily approved the settlement and set the hearing for the District Court’s final approval of the settlement for August 1, 2025. Settlement of the consolidated case on the agreed terms will require the Company to make cash settlement payments that will not have a material impact on the Company’s results of operations, financial position or liquidity. Acquisitions The Company has acquired, and plans to continue to acquire, businesses with prior operating histories. Acquired companies may have unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations, such as billing and reimbursement, fraud and abuse and anti-kickback laws. The Company has from time to time identified certain past practices of acquired companies that do not conform to its standards. Although the Company institutes policies designed to conform such practices to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for the past activities of these acquired facilities that may later be asserted to be improper by private plaintiffs or government agencies. Although the Company generally seeks to obtain indemnification from prospective sellers covering such matters, there can be no assurance that any such matter will be covered by indemnification or, if covered, that such indemnification will be adequate to cover potential losses and fines. 10. Earnings Per Share Basic net income per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted net income per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding plus the dilutive effect of outstanding securities, and such dilutive effect is computed using the treasury stock method. For the purposes of determining the basic and diluted weighted-average number of common shares outstanding during the periods presented that are prior to the Corporate Conversion and ALH Contribution, the Company retrospectively reflected the effects of the Corporate Conversion and the ALH Contribution. As such, the basic and diluted weighted-average number of common shares outstanding for those periods reflect the conversion of the Company's membership units into common stock on the date of the Corporate Conversion and ALH Contribution, assuming that all common stock issued in conjunction with the Corporate Conversion and ALH Contribution was issued and outstanding as of the beginning of the earliest period presented. 21 Table of Contents The following table sets forth the computation of basic and diluted net income per share (in thousands, except share and per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Basic: Net income attributable to common stockholders $ 26,322 $ 20,838 $ 96,139 $ 58,057 Weighted-average number of common shares 137,107,595 126,115,301 129,877,510 126,115,301 Net income per common share $ 0.19 $ 0.17 $ 0.74 $ 0.46 Diluted: Net income attributable to common stockholders $ 26,322 $ 20,838 $ 96,139 $ 58,057 Weighted-average number of common shares 137,542,995 126,115,301 130,022,643 126,115,301 Net income per common share $ 0.19 $ 0.17 $ 0.74 $ 0.46 The following table sets forth the components of the denominator for the computation of basic and diluted net income per share for net income attributable to Ardent Health Partners, Inc. stockholders: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Weighted-average number of common shares - basic 137,107,595 126,115,301 129,877,510 126,115,301 Effect of dilutive securities (1) 435,400 — 145,133 — Weighted-average number of common shares - diluted 137,542,995 126,115,301 130,022,643 126,115,301 (1) The effect of dilutive securities does not reflect 370,579 and 123,526 weighted-average potential common shares from restricted stock awards and restricted stock units for the three and nine months ended September 30, 2024 , respectively, because their effect was antidilutive as calculated under the treasury stock method. 22 Table of Contents