Ardent Health, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (this "Quarterly Report") and our annual financial statements for the year ended December 31, 2023 included in our final prospectus dated July 17, 2024, filed with the Securities and Exchange Commission (the "SEC") on July 18, 2024 pursuant to Rule 424(b) (the "Final Prospectus") under the Securities Act of 1933, as amended (the "Securities Act"). The following discussion includes forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in the section titled “Risk Factors” included elsewhere in this Quarterly Report and our Final Prospectus. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this Quarterly Report or implied by past results and trends. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period. Unless otherwise indicated, all relevant financial and statistical information included herein relates to our consolidated operations. Additionally, unless the context indicates otherwise, Ardent Health Partners, Inc. and its affiliates are referred to in this section as “we,” “our,” or “us.” Forward-Looking Statements This Quarterly Report may contain certain “forward-looking statements,” as that term is defined in the U.S. federal securities laws. These forward-looking statements include, but are not limited to, statements other than statements of historical facts, including, among others, statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs, the industry in which we operate and other similar matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should” and the negative of these terms or other comparable terminology often identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risk factors and other cautionary statements described under the heading “Risk Factors” included in this Quarterly Report and those included within our Final Prospectus. Factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those contemplated include, among others: (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 consolidation 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 who 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 23 Table of Contents 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 ("EHR") 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 SEC. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements in this Quarterly Report are based on management’s current beliefs, expectations, and projections about future events and trends affecting our business, results of operations, financial condition, and prospects. These statements are subject to risks, uncertainties, and other factors described in the “Risk Factors” section and elsewhere in this Quarterly Report. We operate in a competitive and rapidly changing environment where new risks and uncertainties can emerge, making it impossible to predict all potential impacts on our forward-looking statements. Consequently, actual results may differ materially from those described. The forward-looking statements pertain only to the date they are made, and we do not undertake any obligation to update them to reflect new information or events unless required by law. You are advised not to place undue reliance on these statements and to consult any additional disclosures we may provide through our other filings with the SEC, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Overview Ardent is a leading provider of healthcare services in the United States, operating in eight growing mid-sized urban markets across six states: Texas, Oklahoma, New Mexico, New Jersey, Idaho and Kansas. We deliver care through a system of 30 acute care hospitals and more than 200 sites of care with 1,808 employed and affiliated providers as of September 30, 2024 , an increase of 3.3% compared to September 30, 2023 . Affiliated providers are physicians and advanced practice providers with whom we contract for services through a professional services agreement or other independent contractor agreement. We hold a leading position in a majority of our markets, and we believe we are one of the leading healthcare systems based on market share and our integrated network of hospitals, ambulatory facilities, and physician practices. We operate either independently or in partnership with premier academic medical centers, large not-for-profit hospital systems, community physicians, and a community foundation through our well-established and differentiated JV model. Collectively, we operate as a unified organization with a consumer-centric approach to caring for our patients and our communities. Our strategic JV partners offer us significant advantages, including expanded access points, clinical talent availability, local brand recognition, and scale that enable us to accelerate market penetration. We believe that we help our partners enhance their network and regional presence through our operational acumen. We strive to strengthen clinical services, drive operating improvements, and centrally manage operations to optimize hospital performance and enhance patient care. In each of these partnerships, we are the majority owner and serve as the day-to-day operator. 24 Table of Contents Recent D evelopments Term Loan B Facility Repricing On September 18, 2024, we executed an amendment to reprice our Term Loan B Facility credit agreement (the "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. Initial Public Offering and Corporate Conversion On July 19, 2024, we completed an initial public offering of 12,000,000 shares of our common stock (the "IPO"), at a public offering price of $16.00 per share 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 IPO provided the underwriters with an option to purchase up to an additional 1,800,000 shares of our common stock, which was fully exercised by the underwriters, and, on July 30, 2024, we 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 underwriting discounts and commissions of approximately $1.6 million . Our 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 our registration statement on Form S-1, we converted from a Delaware limited liability company into a Delaware corporation by means of a statutory conversion (the “Corporate Conversion”) and changed our 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"), contributed all of its outstanding common stock in AHP Health Partners, Inc. ("AHP Health Partners"), our direct subsidiary, to Ardent Health Partners, Inc. in exchange for 5,178,202 shares of common stock of Ardent Health Partners, Inc. (the "ALH Contribution"). 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. Our 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. ABL Credit Agreement Amendment and Term Loan B Facility Prepayment On June 26, 2024, we executed an amendment to our ABL Credit Agreement to increase the revolving commitment by $100.0 million to $325.0 million and extend the maturity date to June 26, 2029. Concurrent with the execution of this amendment on June 26, 2024, we also prepaid $100.0 million of the outstanding principal on our Term Loan B Facility. The $100.0 million prepayment was applied in direct order of maturities of future payments, and no modification was made to the Term Loan B Facility as a result of this prepayment. 2024 Supplemental Payment Program Updates A new Oklahoma directed payment program (the “Oklahoma DPP”) became effective on April 1, 2024. Under the Oklahoma DPP, hospitals receive directed payments in accordance with Oklahoma’s new Medicaid managed care delivery system, resulting in reimbursement near the average commercial rate. The existing upper payment limit component of Oklahoma’s Supplemental Hospital Offset Payment Program will remain in place for certain categories of Medicaid patients that continue to be enrolled in Oklahoma’s traditional Medicaid Fee for Service program. We have recognized total revenue of $48.6 million under the Oklahoma DPP from the April 1, 2024 effective date through September 30, 2024. In March 2024, New Mexico’s Healthcare Delivery and Access Act (the “New Mexico HDA Act”) was signed into law. Subject to approval by the Center for Medicare & Medicaid Services (“CMS”), the New Mexico HDA Act would provide directed payments for hospitals that serve patients in New Mexico’s Medicaid managed care delivery system, resulting in reimbursement near the average commercial rate, and once approved, is expected to represent a material rate uplift for us. 25 Table of Contents The directed payment program under the New Mexico HDA Act was submitted to CMS for approval on August 5, 2024, with a requested effective date of July 1, 2024. The program is still under CMS review. We believe the preliminary estimate of our net benefit under the Oklahoma DPP and the New Mexico HDA Act to be in excess of $150 million on an annualized basis, subject to change, non-recurrence, and adjustment for potential quality performance requirements. Cybersecurity Incident In November 2023, we determined that a ransomware cybersecurity incident had impacted and disrupted a number of our operational and information technology systems (the “Cybersecurity Incident”). Upon detecting the ransomware, we quickly activated our incident response protocols and implemented a series of containment and remediation measures, including engaging the services of cybersecurity experts and incident response professionals. We also promptly launched an investigation, engaged external counsel to support the investigation and involved federal and state law enforcement. During this time, our hospitals remained operational and continued to deliver patient care utilizing established downtime procedures; however, we advised local EMS systems and other providers to divert emergency ambulance transports to other facilities for a few days until the Cybersecurity Incident had been contained. As a result of our investigation, we determined that the unauthorized actor acquired a copy of certain personal information and protected health information of a limited number of our patients and personal information of certain of our employees, but did not gain access to our EHR platform. We have cooperated with law enforcement authorities that have made inquiries into the Cybersecurity Incident, and we have been in contact with, and complied with, the requirements of various governmental authorities that require notification of such incidents. Additionally, because of the time taken to contain and remediate the Cybersecurity Incident, our online electronic billing systems were not functioning at their full capacities and certain billing, reimbursement and payment functions were delayed. We estimate the Cybersecurity Incident had an adverse pre-tax impact of approximately $74 million during the year ended December 31, 2023. This estimate includes lost revenue from the associated business interruption and costs to remediate the issue, net of insurance proceeds. For the three months ended December 31, 2023, we also experienced decreases in admissions, surgeries (both inpatient and outpatient) and emergency room visits of 2.5%, 2.1% and 5.7%, respectively, compared to the three months ended December 31, 2022, which, prior to the Cybersecurity Incident, were estimated to have increased by 4.1%, 5.5% and 3.3%, respectively, compared to the same period in 2022. While our operations were no longer materially disrupted as of September 30, 2024 , we continued to experience delays in billing claims and obtaining reimbursements and payments through the first quarter of 2024 , and will incur certain expenses related to the Cybersecurity Incident, including expenses to defend claims brought by individuals and other expenses related to the Cybersecurity Incident. On October 4, 2024, we executed a settlement agreement to resolve the consolidated class action litigation. On October 9, 2024, the Court preliminarily approved the settlement and set the hearing for the Court’s final approval of the settlement for August 1, 2025. Settlement of the consolidated case on the agreed terms will require us to make cash settlement payments that will not have a material impact on our results of operations, financial position or liquidity. Pure Health Equity Investment On May 1, 2023, an affiliate of Pure Health Holding PJSC (“Pure Health”) purchased an equity interest representing 25.0% of the total combined voting power of Ardent Health Partners, LLC from the unit holders at the time for approximately $500 million. 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, our direct subsidiary. Ventas, a common unit holder that beneficially owned a percentage of our outstanding membership interests and maintained a seat on our board of managers, making Ventas a related party, exercised its tag-along right to sell its proportionate share of interest in both Ardent Health Partners, LLC and AHP Health Partners. Ventas sold approximately 24% of its ownership interest in Ardent Health Partners, LLC for $24.2 million in total cash proceeds. Additionally, to fulfill Ventas’ right to sell its proportionate share of noncontrolling ownership interest in AHP Health Partners, we exercised our right to repurchase those shares from Ventas for $26.0 million concurrent with Pure Health’s purchase of a minority interest in Ardent Health Partners, LLC. The carrying value of Ventas’ 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 noncontrolling interest was adjusted recognized in equity attributable to Ardent Health Partners, LLC. As of September 30, 2024 , following the consummation of the IPO and the underwriters' 26 Table of Contents exercise of their option to purchase additional shares, Pure Health and Ventas beneficially owned approximately 21.2% and 6.5% , respectively, of our outstanding common stock. Key Factors Impacting Our Results of Operations Staffing and Labor Trends Our operations are dependent on the efforts, abilities and experience of our management and medical support personnel, such as nurses, pharmacists and lab technicians, as well as our physicians. We compete with other healthcare providers in recruiting and retaining qualified management and support personnel responsible for the daily operations of each of our hospitals and other facilities, including nurses and other non-physician healthcare professionals. At times, the availability of nurses and other medical support personnel has been a significant operating issue for healthcare providers, including at certain of our facilities. The impact of labor shortages across the healthcare industry may result in other healthcare facilities, such as nursing homes, limiting admissions, which may constrain our ability to discharge patients to such facilities and further exacerbate the demand on our resources, supplies and staffing. We contract with various third parties who provide hospital-based physicians. Third-party providers of hospital-based physicians, including those with whom we contract, have experienced significant disruption in the form of regulatory changes, including those stemming from enactment of the No Surprises Act, challenging labor market conditions resulting from a shortage of physicians and inflationary wage-related pressures, as well as increased competition through consolidation of physician groups. In some instances, providers of outsourced medical specialists have become insolvent and unable to fulfill their contracts with us for providing hospital-based physicians. The success of our hospitals depends in part on the adequacy of staffing, including through contracts with third parties. If we are unable to adequately contract with providers, or the providers with whom we contract become unable to fulfill their contracts, our admissions may decrease, and our operating performance, capacity and growth prospects may be adversely affected. Further, our efforts to mitigate the potential impact on our business from third-party providers who are unable to fulfill their contracts to provide hospital-based physicians, including through acquisitions of outsourced medical specialist businesses, employment of physicians and re-negotiation or assumption of existing contracts, may be unsuccessful. These developments with respect to providers of outsourced medical specialists, and our inability to effectively respond to and mitigate the potential impact of such developments, may disrupt our ability to provide healthcare services, which may adversely impact our business, financial condition and results of operations. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. In some of our markets, employers across various industries have increased minimum wages, which has created more competition and, in some cases, higher labor costs for this sector of employees. Seasonality We typically experience higher patient volumes and revenue in the fourth quarter of each year in our acute care facilities. We typically experience such seasonal volume and revenue peaks because more people generally become ill during the winter months, which in turn results in significant increases in the number of patients we treat during those months. In addition, revenue in the fourth quarter is also impacted by increased utilization of services due to annual deductibles, which are not usually met until later in the year, and patient utilization of their healthcare benefits before they expire at year-end. Inflation The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. In addition, our suppliers pass along rising costs to us in the form of higher prices. We have implemented cost control measures to curb increases in operating costs and expenses. We have generally offset increases in operating costs by increasing reimbursement for services, expanding services and reducing costs in other areas. However, we cannot predict our ability to cover or offset future cost increases, particularly any increases in our cost of providing health insurance benefits to our employees. 27 Table of Contents Geographic Data The information below provides an overview of our operations in certain markets as of September 30, 2024 . Texas . We operated 13 acute care hospital facilities (including one managed hospital that is owned by The University of Texas Health Science Center at Tyler, an affiliate of The University of Texas System) with 1,436 licensed beds that serve the areas of Tyler, Amarillo and Killeen, Texas. For the nine months ended September 30, 2024 , we generated 36.4% of our total revenue in the Texas market. Oklahoma . We operated eight acute care hospital facilities with 1,173 licensed beds that serve the area of Tulsa, Oklahoma. For the nine months ended September 30, 2024 , we generated 24.8% of our total revenue in the Oklahoma market. New Mexico . We operated five acute care hospital facilities with 619 licensed beds that serve the areas of Albuquerque and Roswell, New Mexico. For the nine months ended September 30, 2024 , we generated 14.6% of our total revenue in the New Mexico market. New Jersey . We operated two acute care hospital facilities with 476 licensed beds that serve the areas of Montclair and Westwood, New Jersey. For the nine months ended September 30, 2024 , we generated 10.2% of our total revenue in the New Jersey market. Other Industry Trends The demand for healthcare services continues to be impacted by the following trends: • A growing focus on healthcare spending by consumers, employers and insurers, who are actively seeking lower-cost care solutions; • A shift in patient volumes from inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; • The growing aged population, which requires greater chronic disease management and higher-acuity treatment; and • Ongoing consolidation of providers and insurers across the healthcare industry. Additionally, the healthcare industry, particularly acute care hospitals, continues to be subject to ongoing regulatory uncertainty. Changes in federal or state healthcare laws, regulations, funding policies or reimbursement practices, especially those involving reductions to government payment rates or limitations on what providers may charge, could significantly impact future revenue and operations. For example, the No Surprises Act prohibits providers from charging patients an amount beyond the in-network cost sharing amount for services rendered by out-of-network providers, subject to limited exceptions. For services for which balance billing is prohibited, the No Surprises Act includes provisions that may limit the amounts received by out-of-network providers from health plans. Any reduction in the rates that we can charge or amounts we can receive for our services will reduce our total revenue and our operating margins. Results of Operations Revenue and Volume Trends Our revenue depends upon inpatient occupancy levels, ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charges and negotiated payment rates for such services. Total revenue is comprised of net patient service revenue and other revenue. We recognize patient service revenue in the period in which we provide services. Patient service revenue includes amounts we estimate to be reimbursable by Medicare, Medicaid and other payors under provisions of cost or prospective reimbursement formulas in effect. The amounts we receive from these payors are generally less than the established billing rates, and we report patient service revenue net of these differences (contractual adjustments) at the time we render the services. We also report patient service revenue net of the effects of other arrangements where we are reimbursed for services at less than established rates, including certain self-pay adjustments provided to uninsured patien ts. We also record estimated implicit price concessions (based primarily on 28 Table of Contents historical collection experience) related to uninsured accounts to record self-pay revenue at the estimated amount expected to be collected. Total revenue for the three months ended September 30, 2024 increased $72.1 million , or 5.2% , compared to the same prior year period. The increase in total revenue for the three months ended September 30, 2024 consisted of an increase in adjusted admissions of 3.8% and an increase in net patient service revenue per adjusted admission of 0.9% . The increase in adjusted admissions was primarily driven by growth in admissions of 6.4% compared to the same prior year period. Outpatient surgeries increased 0.2% compared to the same prior year period. Outpatient surgery growth was limited, in part, by ongoing service line optimization efforts that resulted in strategic reallocation of resources from high volume, low margin procedures, such as certain dental, otolaryngology and ophthalmology procedures, to alternate higher margin service lines. The increase in net patient service revenue per adjusted admission was attributable to a combination of a favorable payor mix and improved service mix as a result of ongoing service line optimization efforts, partially offset by a decrease in supplemental funding as compared to the same prior year period. Total revenue for the nine months ended September 30, 2024 increased $296.3 million , or 7.3% , compared to the same prior year period. The increase in total revenue for the nine months ended September 30, 2024 consisted of an increase in adjusted admissions of 3.5% and an increase in net patient service revenue per adjusted admission of 3.6% . The increase in a djusted admissions reflected growth in admissions of 5.6% , partially offset by a decrease in outpatient surgeries of 1.7% compared to the same prior year period, driven, in part, by ongoing service line optimization efforts that resulted in strategic reallocation of resources from high volume, low margin procedures, such as certain dental, otolaryngology and ophthalmology procedures, to alternate higher margin service lines. The increase in net patient service revenue per adjusted admission was attributable to a combination of a favorable payor mix, improved service mix as a result of ongoing service line optimization efforts, and an increase in supplemental funding as compared to the same prior year period. A key competitive strength and a significant component of our growth strategy has been our well-established and differentiated JV model, which has resulted in partnerships with premier academic medical centers, large not-for-profit hospital systems, community physicians, and a community foundation. During the three months ended September 30, 2024 and 2023 , total revenue related to these JVs was $429.9 million and $394.8 million , respectively, which represented 29.7% and 28.7% , respectively, of our total revenue for such periods. During the nine months ended September 30, 2024 and 2023 , total revenue related to these entities was $1,281.0 million and $1,203.4 million , respectively, which represented 29.4% and 29.6% , respectively, of our total revenue for such periods. The following table provides the sources of our total revenue by payor: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Medicare 38.7 % 39.0 % 39.3 % 39.6 % Medicaid 10.2 % 11.0 % 10.6 % 11.3 % Other managed care 43.3 % 42.7 % 43.0 % 42.2 % Self-pay and other 5.5 % 5.5 % 5.2 % 5.1 % Net patient service revenue 97.7 % 98.2 % 98.1 % 98.2 % Other revenue 2.3 % 1.8 % 1.9 % 1.8 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 % 29 Table of Contents Operating Results Summary for the Three Months Ended September 30, 2024 The following table sets forth the consolidated results of our operations expressed in dollars and as a percentage of total revenue for the periods presented. Three Months Ended September 30, (Unaudited, dollars in thousands) 2024 2023 Amount % Amount % Total revenue $ 1,449,817 100.0 % $ 1,377,727 100.0 % Expenses: Salaries and benefits 635,223 43.8 % 595,580 43.2 % Professional fees 274,223 18.9 % 246,540 17.9 % Supplies 251,862 17.4 % 249,548 18.1 % Rents and leases 26,410 1.8 % 24,506 1.8 % Rents and leases, related party 37,249 2.6 % 36,413 2.6 % Other operating expenses 117,700 8.2 % 124,642 9.1 % Interest expense 14,629 1.0 % 19,041 1.4 % Depreciation and amortization 36,771 2.5 % 35,488 2.6 % Loss on extinguishment and modification of debt 1,490 0.1 % — 0.0 % Other non-operating gains (2,807) (0.2) % — 0.0 % Total operating expenses 1,392,750 96.1 % 1,331,758 96.7 % Income before income taxes 57,067 3.9 % 45,969 3.3 % Income tax expense 11,062 0.7 % 7,261 0.5 % Net income 46,005 3.2 % 38,708 2.8 % Net income attributable to noncontrolling interests 19,683 1.4 % 17,870 1.3 % Net income attributable to Ardent Health Partners, Inc. $ 26,322 1.8 % $ 20,838 1.5 % 30 Table of Contents Operating Results Summary for the Nine Months Ended September 30, 2024 The following table sets forth, for the periods indicated, the consolidated results of our operations expressed in dollars and as a percentage of total revenue for the periods presented. Nine Months Ended September 30, (Unaudited, dollars in thousands) 2024 2023 Amount % Amount % Total revenue $ 4,359,783 100.0 % $ 4,063,449 100.0 % Expenses: Salaries and benefits 1,880,790 43.1 % 1,785,939 44.0 % Professional fees 810,820 18.6 % 715,111 17.6 % Supplies 769,034 17.6 % 743,713 18.3 % Rents and leases 76,251 1.7 % 73,230 1.8 % Rents and leases, related party 111,413 2.6 % 108,914 2.7 % Other operating expenses 354,851 8.2 % 342,026 8.3 % Government stimulus income — 0.0 % (8,463) (0.2) % Interest expense 52,050 1.2 % 55,854 1.4 % Depreciation and amortization 108,434 2.5 % 104,860 2.6 % Loss on extinguishment and modification of debt 3,388 0.1 % — 0.0 % Other non-operating gains (3,062) (0.1) % (522) 0.0 % Total operating expenses 4,163,969 95.5 % 3,920,662 96.5 % Income before income taxes 195,814 4.5 % 142,787 3.5 % Income tax expense 36,997 0.9 % 24,591 0.6 % Net income 158,817 3.6 % 118,196 2.9 % Net income attributable to noncontrolling interests 62,678 1.4 % 60,139 1.5 % Net income attributable to Ardent Health Partners, Inc. $ 96,139 2.2 % $ 58,057 1.4 % 31 Table of Contents The following table provides information on certain drivers of our total revenue: Three Months Ended September 30, Nine Months Ended September 30, 2024 % Change 2023 2024 % Change 2023 Operating Statistics Total revenue (in thousands) $1,449,817 5.2 % $1,377,727 $4,359,783 7.3 % $4,063,449 Hospitals operated (at period end) (1) 30 (3.2) % 31 30 (3.2) % 31 Licensed beds (at period end) (2) 4,287 (0.8) % 4,323 4,287 (0.8) % 4,323 Utilization of licensed beds (3) 46% 4.5 % 44% 46% 2.2 % 45% Admissions (4) 39,568 6.4 % 37,191 116,995 5.6 % 110,754 Adjusted admissions (5) 86,833 3.8 % 83,643 254,909 3.5 % 246,298 Inpatient surgeries (6) 8,871 0.5 % 8,826 26,829 0.3 % 26,751 Outpatient surgeries (7) 23,220 0.2 % 23,164 69,201 (1.7) % 70,417 Emergency room visits (8) 161,343 2.6 % 157,182 475,212 3.7 % 458,160 Patient days (9) 182,023 4.8 % 173,687 540,196 2.6 % 526,634 Total encounters (10) 1,482,655 7.5 % 1,378,599 4,304,097 4.7 % 4,109,144 Average length of stay (11) 4.60 (1.5) % 4.67 4.62 (2.7) % 4.75 Net patient service revenue per adjusted admission (12) $16,312 0.9 % $16,174 $16,784 3.6 % $16,206 (1) “Hospitals operated (at period end).” This metric represents the total number of hospitals operated by us at the end of the applicable period, irrespective of whether the hospital real estate is (i) owned by us, (ii) leased by us or (iii) held through a controlling interest in a JV. This metric includes the managed clinical operations of the hospital at UT Health North Campus in Tyler, Texas (“UT Health North Campus Tyler”), a hospital owned by The University of Texas Health Science Center at Tyler (“UTHSCT”), an affiliate of The University of Texas System. Since we only manage the clinical operations of UT Health North Campus Tyler, the financial results of such entity are not consolidated under Ardent Health Partners, Inc. On April 30, 2024, we closed UT Health East Texas Specialty Hospital, a long-term acute care hospital (the “LTAC Hospital”) in Tyler, Texas. The LTAC Hospital's inventory and fixed assets were transferred or repurposed to be used by our other hospitals. The LTAC Hospital had 36 licensed patient beds and accounted for approximately $0.0 million and $2.2 million of total revenue and a pre-tax loss of $0.2 million and $0.5 million for the three months ended September 30, 2024 and 2023 , respectively, and approximately $2.4 million and $8.0 million of total revenue and a pre-tax loss of $0.8 million and $0.5 million for the nine months ended September 30, 2024 and 2023 , respectively. (2) “Licensed beds (at period end).” This metric represents the total number of beds for which the appropriate state agency licenses a facility, regardless of whether the beds are actually available for patient use. (3) “Utilization of licensed beds.” This metric represents a measure of the actual utilization of our inpatient facilities, computed by (i) dividing patient days by the number of days in each period, and (ii) further dividing that number by average licensed beds, which is calculated by dividing total licensed beds (at period end) by the number of days in the period, multiplied by the number of days in the period the licensed beds were in existence. (4) “Admissions.” This metric represents the number of patients admitted for inpatient treatment during the applicable period. (5) “Adjusted admissions.” This metric is used by management as a general measure of combined inpatient and outpatient volume. Adjusted admissions provides management with a key performance indicator that considers both inpatient and outpatient volumes by applying an inpatient volume measure (admissions) to a ratio of gross inpatient and outpatient revenue to gross inpatient revenue. Gross inpatient and outpatient revenue reflect gross inpatient and outpatient charges prior to estimated contractual adjustments, uninsured discounts, implicit price concessions, and other discounts. The calculation of adjusted admissions is summarized as follows: Adjusted Admissions = Admissions x ( Gross Inpatient Revenue + Gross Outpatient Revenue) Gross Inpatient Revenue (6) “Inpatient surgeries.” This metric represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management, c- sections, and certain diagnostic procedures are excluded from inpatient surgeries. (7) “Outpatient surgeries.” This metric represents the number of surgeries performed on patients who have not been admitted to our hospitals. Pain management, c- sections, and certain diagnostic procedures are excluded from outpatient surgeries. (8) “Emergency room visits.” This metric represents the total number of patients provided with emergency room treatment during the applicable period. (9) “Patient days.” This metric represents the total number of days of care provided to patients admitted to our hospitals during the applicable period. (10) “Total encounters.” This metric represents the total number of events where healthcare services are rendered resulting in a billable event during the applicable period. This includes both hospital and ambulatory patient interactions. (11) “Average length of stay.” This metric represents the average number of days admitted patients stay in our hospitals. (12) “Net patient service revenue per adjusted admission.” This metric represents net patient service revenue divided by adjusted admissions for the applicable period. Net patient service revenue reflects gross inpatient and outpatient charges less estimated contractual adjustments, uninsured discounts, implicit price concessions, and other discounts. 32 Table of Contents Overview of the Three Months Ended September 30, 2024 Total revenue for the three months ended September 30, 2024 increased $72.1 million , or 5.2% , compared to the same prior year period. The increase in total revenue for the three months ended September 30, 2024 consisted of an increase in adjusted admissions of 3.8% and an increase in net patient service revenue per adjusted admission of 0.9% . The increase in adjusted admissions was primarily driven by growth in admissions of 6.4% compared to the same prior year period. Outpatient surgeries increased 0.2% compared to the same prior year period. Outpatient surgery growth was limited, in part, by ongoing service line optimization efforts that resulted in strategic reallocation of resources from high volume, low margin procedures, such as certain dental, otolaryngology and ophthalmology procedures, to alternate higher margin service lines. The increase in net patient service revenue per adjusted admission was attributable to a combination of a favorable payor mix and improved service mix as a result of ongoing service line optimization efforts, partially offset by a decrease in supplemental funding as compared to the same prior year period. Total operating expenses increased $61.0 million for the three months ended September 30, 2024 compared to the same prior year period due to higher patient volumes but decreased 0.6% as a percentage of total revenue. The decrease in total operating expenses, as a percentage of total revenue, was driven by decreases in other operating expenses and supplies, as percentages of total revenue, compared to the same prior year period. The decrease in other operating expenses, as a percentage of total revenue, was primarily attributable to reduced provider assessments associated with various governmental supplemental revenue programs during the three months ended September 30, 2024 compared to the same prior year period. The decrease in supplies expense, as a percentage of net revenue, was driven by ongoing service line optimization efforts. The decrease in total operating expense, as a percentage of total revenue, was partially offset by an increase in professional fees, as a percentage of total revenue, due to higher costs for hospital-based providers as well as increased costs for revenue cycle management services due to increased cash collections during the three months ended September 30, 2024 , compared to the same prior year period. Overview of the Nine Months Ended September 30, 2024 Total revenue for the nine months ended September 30, 2024 increased $296.3 million , or 7.3% , compared to the same prior year period. The increase in total revenue for the nine months ended September 30, 2024 consisted of an increase in adjusted admissions of 3.5% and an increase in net patient service revenue per adjusted admission of 3.6% . The increase in a djusted admissions reflected growth in admissions of 5.6% compared to the same prior year period, partially offset by a decrease in outpatient surgeries of 1.7% compared to the same prior year period, driven, in part, by ongoing service line optimization efforts that resulted in strategic reallocation of resources from high volume, low margin procedures, such as certain dental, otolaryngology and ophthalmology procedures, to alternate higher margin service lines. The increase in net patient service revenue per adjusted admission was attributable to a combination of a favorable payor mix, improved service mix as a result of ongoing service line optimization efforts, and an increase in supplemental funding as compared to the same prior year period. Total operating expenses increased $243.3 million for the nine months ended September 30, 2024 compared to the same prior year period due to higher patient volumes but decreased 1.0% as a percentage of total revenue. T he decrease in total operating expenses, as a percentage of total revenue, was driven by decreases in salaries and benefits and supplies, as percentages of total revenue, compared to the same prior year period. The decrease in salaries and benefits, as a percentage of total revenue, was primarily due to a decrease in contract labor expense of $26.0 million d uring the nine months ended September 30, 2024 compared to the same prior year period . The decrease in supplies expense, as a percentage of total revenue, was driven by ongoing service line optimization efforts during the nine months ended September 30, 2024 compared to the same prior year period. The decrease in total operating expense, as a percentage of total revenue, was partially offset by an increase in professional fees, as a percentage of total revenue, driven by higher costs for hospital-based providers and an increase in costs for revenue cycle management services due to increased cash collections during the nine months ended September 30, 2024 , compared to the same prior year period. Comparison of the Th ree Months Ended September 30, 2024 and 2023 Total revenue — Total revenue for the three months ended September 30, 2024 increased $72.1 million , or 5.2% , compared to the same prior year period. The increase in total revenue for the three months ended September 30, 2024 consisted of an increase in adjusted admissions of 3.8% and an increase in net patient service revenue per adjusted admission of 0.9% . The increase in adjusted admissions was primarily driven by growth in admissions of 6.4% compared to the same prior year 33 Table of Contents period. Outpatient surgeries increased 0.2% compared to the same prior year period. Outpatient surgery growth was limited, in part, by ongoing service line optimization efforts that resulted in strategic reallocation of resources from high volume, low margin procedures, such as certain dental, otolaryngology and ophthalmology procedures, to alternate higher margin service lines. The increase in net patient service revenue per adjusted admission was attributable to a combination of a favorable payor mix and improved service mix as a result of ongoing service line optimization efforts, partially offset by a decrease in supplemental funding as compared to the same prior year period. Salaries and benefits — Salaries and benefits, as a percentage of total revenue, were 43.8% for the three months ended September 30, 2024 compared to 43.2% for the same prior year period. The increase in salaries and benefits, as a percentage of total revenue, was driven by an increase in equity-based compensation of $8.0 million . Professional fees — Professional fees, as a percentage of total revenue, were 18.9% for the three months ended September 30, 2024 compared to 17.9% for the same prior year period. The increase in professional fees, as a percentage of total revenue, reflected higher costs for hospital-based providers as well as increased expenses for revenue cycle management services due to increased cash collections during the three months ended September 30, 2024 . Supplies — Supplies, as a percentage of total revenue, were 17.4% for the three months ended September 30, 2024 compared to 18.1% for the same prior year period. The decrease in supplies, as a percentage of total revenue, was attributable to ongoing service line optimization efforts and execution on various supply chain cost reduction initiatives, including improved inventory management, standardized surgical supply procurement and strategic sourcing. Rents and leases — Rents and leases were $26.4 million and $24.5 million for the three months ended September 30, 2024 and 2023 , respectively. Rents and leases, related party — Rents and leases, related party, consists of lease expense related to the Master Lease with Ventas ("Ventas Master Lease"), under which we lease 10 of our facilities, and other lease agreements with Ventas for certain medical office buildings. Rents and leases, related party were $37.2 million and $36.4 million for the three months ended September 30, 2024 and 2023 , respectively. Other operating expenses — Other operating expenses, as a percentage of total revenue, were 8.2% for the three months ended September 30, 2024 compared to 9.1% for the same prior year period. Other operating expenses are comprised primarily of repairs and maintenance, utility, insurance (including professional liability insurance) and provider assessments. The change in other operating expenses, as a percentage of total revenue, was primarily driven by a decrease in provider assessments associated with various governmental supplemental revenue programs during the three months ended September 30, 2024 , compared to the same prior year period. Interest expense — Interest expense was $14.6 million and $19.0 million for the three months ended September 30, 2024 and 2023 , respectively. Loss on extinguishment and modification of debt — On September 18, 2024, we executed an amendment to our Term Loan B Credit Agreement . In connection with this transaction, we incurred a loss on the debt extinguishment of $0.3 million related to the write-off of existing deferred financing costs and original issue discounts and transaction costs of $1.2 million related to the modification of debt during the three months ended September 30, 2024 . Other non-operating gains — Other non-operating gains were $2.8 million and $0.0 million for the three months ended September 30, 2024 and 2023 , respectively. The increase in ot her non-operating gains was primarily due to the recognition of insurance recovery proceeds of $2.9 million during the three months ended September 30, 2024 related to the Cybersecurity Incident. Income tax expense — We recorded income tax expense of $11.1 million , which equates to an effective tax rate of 19.4% , for the three months ended September 30, 2024 compared to income tax expense of $7.3 million , which equates to an effective tax rate of 15.8% , for the same prior year period. The increase in income tax expense was primarily driven by an increase in income before income taxes attributable to Ardent Health Partners, Inc., which resulted in an increase in taxes at the federal statutory rate during the three months ended September 30, 2024 compared to the same prior year period. Additionally, the effective tax rate was further impacted by permanent differences resulting from the disallowance of certain equity-based compensation incurred during the during the three months ended September 30, 2024 . 34 Table of Contents N et income attributable to noncontrolling interests — Net income attributable to noncontrolling interests of $19.7 million for the three months ended September 30, 2024 compared to $17.9 million for the same prior year period consisted primarily of $19.7 million and $17.0 million of net income attributable to minority partners’ interests in hospitals and ambulatory services that are owned and operated though limited liability companies and consolidated by us for t he three months ended September 30, 2024 and 2023 , respectively. Income from operations before income taxes related to these limited liability companies was $68.6 million and $60.3 million for t he three months ended September 30, 2024 and 2023 , respectively. The remaining portion of net income attributable to noncontrolling interests for the three months ended September 30, 2023 consisted of net income attributable to ALH Holdings, LLC’s (a subsidiary of Ventas, a related party) minority interest in AHP Health Partners, our direct subsidiary. Comparison of the Nine Months Ended September 30, 2024 and 2023 Total revenue — Total revenue for the nine months ended September 30, 2024 increased $296.3 million , or 7.3% , compared to the same prior year period. The increase in total revenue for the nine months ended September 30, 2024 consisted of an increase in adjusted admissions of 3.5% and an increase in net patient service revenue per adjusted admission of 3.6% . The increase in a djusted admissions reflected growth in admissions of 5.6% compared to the same prior year period. The growth in admissions was partially offset by a decrease in outpatient surgeries of 1.7% compared to the same prior year period driven, in part, by ongoing service line optimization efforts that resulted in strategic reallocation of resources from high volume, low margin procedures, such as certain dental, otolaryngology and ophthalmology procedures, to alternate higher margin service lines. The increase in net patient service revenue per adjusted admission was attributable to a combination of a favorable payor mix, improved service mix as a result of ongoing service line optimization efforts, and an increase in supplemental funding as compared to the same prior year period. Salaries and benefits — Salaries and benefits, as a percentage of total revenue, were 43.1% for the nine months ended September 30, 2024 compared to 44.0% for the same prior year period. The decrease in salaries and benefits, as a percentage of total revenue, was primarily attributable to a decrease in contract labor expense of $26.0 million due to a combination of reduced contract labor rates and lower utilization, driven by ongoing recruiting and retention initiatives. Total contract labor expenses, as a percentage of total salaries and benefits, were 4.2% and 5.9% for the nine months ended September 30, 2024 and 2023 , respectively. Professional fees — Professional fees, as a percentage of total revenue, were 18.6% for the nine months ended September 30, 2024 compared to 17.6% for the same prior year period. The increase in professional fees, as a percentage of total revenue, reflected higher costs for hospital-based providers as well as increased expenses for revenue cycle management services due to increased cash collections during the nine months ended September 30, 2024 . Supplies — Supplies, as a percentage of total revenue, were 17.6% for the nine months ended September 30, 2024 compared to 18.3% for the same prior year period. The decrease in supplies expense, as a percentage of total revenue, was attributable to ongoing service line optimization efforts and execution on various supply chain cost reduction initiatives, including improved inventory management, standardized surgical supply procurement and strategic sourcing. Rents and leases — Rents and leases were $76.3 million and $73.2 million for the nine months ended September 30, 2024 and 2023 , respectively. Rents and leases, related party — Rents and leases, related party, consists lease expense related to the Ventas Master Lease, under which we lease 10 of our hospitals, and other lease agreements with Ventas for certain medical office buildings. Rents and leases, related party were $111.4 million and $108.9 million for the nine months ended September 30, 2024 and 2023 , respectively. Other operating expenses — Other operating expenses, as a percentage of total revenue, were 8.2% for the nine months ended September 30, 2024 compared to 8.3% for the same prior year period. Government stimulus income — Government stimulus income was $0.0 million and $8.5 million for the nine months ended September 30, 2024 and 2023 , respectively. Interest expense — Interest expense was $52.1 million and $55.9 million for the nine months ended September 30, 2024 and 2023 , respectively. 35 Table of Contents Loss on extinguishment and modification of debt — On June 26, 2024, we executed an amendment to our ABL Credit Agreement and prepaid $100.0 million of the outstanding principal on our Term Loan B Facility. Additionally, on September 18, 2024, we executed an amendment to our Term Loan B Credit Agreement . In connection with these transactions, we incurred a loss on the debt extinguishment of $1.8 million related to the write-off of existing deferred financing costs and original issue discounts and transaction costs of $1.2 million related to the modification of debt during the nine months ended September 30, 2024 . Other non-operating gains — Other non-operating gains were $3.1 million and $0.5 million for the nine months ended September 30, 2024 and 2023 , respectively. The increase in o ther non-operating gains was primarily due to the recognition of a gain on insurance recovery proceeds of $2.9 million during the nine months ended September 30, 2024 related to the Cybersecurity Incident. Income tax expense — We recorded income tax expense of $37.0 million , which equates to an effective tax rate of 18.9% , for the nine months ended September 30, 2024 compared to income tax expense of $24.6 million , which equates to an effective tax rate of 17.2% , for the same prior year period. The increase in income tax expense was primarily driven by an increase in income before income taxes attributable to Ardent Health Partners, Inc., which resulted in an increase in taxes at the federal statutory rate during the nine months ended September 30, 2024 compared to the same prior year period. Additionally, the effective tax rate was further impacted by permanent differences resulting from the disallowance of certain equity-based compensation incurred during the nine months ended September 30, 2024 Net income attributable to noncontrolling interests — Net income attributable to noncontrolling interests of $62.7 million for the nine months ended September 30, 2024 compared to $60.1 million for the same prior year period consisted primarily of $59.8 million and $57.5 million of net income attributable to minority partners’ interests in hospitals and ambulatory services that are owned and operated though limited liability companies and consolidated by us for t he nine months ended September 30, 2024 and 2023 , respectively. Income from operations before income taxes related to these limited liability companies was $207.0 million and $198.4 million for t he nine months ended September 30, 2024 and 2023 , respectively. The remaining portion of net income attributable to noncontrolling interests consists of net income attributable to ALH Holdings, LLC’s (a subsidiary of Ventas, a related party) minority interest in AHP Health Partners, our direct subsidiary, prior to the ALH Contribution in July 2024. 36 Table of Contents Supplemental Non-GAAP Information We have included certain financial measures 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: Performance Measure • “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. See “Supplemental Non-GAAP Performance Measure.” Valuation Measure • “Adjusted EBITDAR” is defined as Adjusted EBITDA further adjusted to add back rent expense payable to real estate investment trusts ("REITs"), which consists of rent expense pursuant to the Ventas Master Lease, lease agreements associated with the MOB Transactions (as defined below) and a lease arrangement with Medical Properties Trust, Inc. ("MPT") for Hackensack Meridian Mountainside Medical Center. See “Supplemental Non- GAAP Valuation Measure.” Supplemental Non-GAAP Performance Measure 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 Quarterly Report 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 the non-GAAP measure 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 the non-GAAP measure 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. 37 Table of Contents The following table presents a reconciliation of Adjusted EBITDA, a performance measure, to net income, determined in accordance with GAAP: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Net income $ 46,005 $ 38,708 $ 158,817 $ 118,196 Adjusted EBITDA Addbacks: Income tax expense 11,062 7,261 36,997 24,591 Interest expense, net 14,629 19,041 52,050 55,854 Depreciation and amortization 36,771 35,488 108,434 104,860 Noncontrolling interest earnings (19,683) (17,870) (62,678) (60,139) Loss on extinguishment and modification of debt 1,490 — 3,388 — Other non-operating losses (gains) (a) 47 — (208) (522) Cybersecurity Incident recoveries, net (b) (4,976) — (4,976) — Restructuring, exit and acquisition-related costs (c) 3,796 1,511 11,694 11,473 Epic expenses (d) 485 437 1,500 1,415 Equity-based compensation 8,135 181 8,873 723 Loss (income) from disposed operations 3 3 1,989 (65) Adjusted EBITDA $ 97,764 $ 84,760 $ 315,880 $ 256,386 (a) Other non-operating losses (gains) include gains and losses realized on certain non-recurring events or events that are non-operational in nature, including gains realized on certain asset divestitures. (b) Cybersecurity Incident recoveries, net represents insurance recovery proceeds associated with the Cybersecurity Incident, net of incremental information technology and litigation costs. (c) Restructuring, exit and acquisition-related costs represent (i) enterprise restructuring costs, including severance costs related to work force reductions of $3.2 million and $1.3 million for t he three months ended September 30, 2024 and 2023 , respectively, and $10.1 million and $10.6 million for the nine months ended September 30, 2024 and 2023 , respectively, (ii) penalties and costs incurred for terminating pre-existing contracts at acquired facilities of $0.2 million and $0.1 million for t he three months ended September 30, 2024 and 2023 , respectively, and $0.6 million and $0.6 million for the nine months ended September 30, 2024 and 2023 , respectively, and (iii) third-party professional fees and expenses, salaries and benefits, and other internal expenses incurred in connection with potential and completed acquisitions of $0.4 million and $0.1 million for t he three months ended September 30, 2024 and 2023 , respectively, and $1.0 million and $0.3 million for the nine months ended September 30, 2024 and 2023 , respectively. (d) Epic expenses c onsist of various costs incurred in connection with the implementation of Epic, our health information technology system. These costs included professional fees of $0.5 million and $0.4 million for t he three months ended September 30, 2024 and 2023 , respectively, and $1.5 million and $1.4 million for the nine months ended September 30, 2024 and 2023 , respectively. Epic expenses do not include the ongoing costs of the Epic system. 38 Table of Contents Liquidity and Capital Resources Liquidity Our primary sources of liquidity are available cash and cash equivalents, cash flows from our operations and available borrowings under our ABL Facilities (as defined below). Our primary cash requirements are our operating expenses, the service of our debt, capital expenditures on our existing properties, acquisitions of hospitals and other healthcare facilities, and distributions to noncontrolling interests. We believe the combination of cash flow from operations and available cash and borrowings will be adequate to meet our short-term liquidity needs. Our ability to make scheduled payments of principal, pay interest on, or refinance, our indebtedness, pay distributions or fund planned capital expenditures will depend on our ability to generate cash in the future. This ability is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. At September 30, 2024 , we had total cash and cash equivalents of $563.1 million and available liquidity of $851.2 million . Our available liquidity was comprised of $563.1 million of total cash and cash equivalents plus $288.1 million in available capacity under the ABL Credit Agreement, which is reduced by outstanding borrowings and outstanding letters of credit. In June 2024, we amended the ABL Credit Agreement to increase commitments available thereunder by $100.0 million and extended its maturity date to June 26, 2029. See "Senior Secured Credit Facilities" for additional information. At September 30, 2024 , our net leverage ratio, as calculated under our ABL Credit Agreement and Term Loan B Credit Agreement, was 1.6 x, and our lease-adjusted net leverage ratio was 3.5 x. Our lease adjusted net leverage is calculated as net debt as of September 30, 2024 , plus 8.0x trailing twelve month REIT rent expense as of the end of the third quarter of 2024 , divided by the trailing twelve month Adjusted EBITDAR as of September 30, 2024 . During the nine months ended September 30, 2024 and 2023 , we received and recognized $0.0 million and $8.5 million , respectively, of cash distributions from the Public Health and Social Services Emergency Fund (“Provider Relief Fund”), a provision of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), and other state and local programs. For additional information regarding distributions from the Provider Relief Fund and the CARES Act, refer to Note 2 to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024 . Cash Flows The following table summarizes certain elements of the statements of cash flows (in thousands): Nine Months Ended September 30, 2024 2023 Net cash provided by operating activities $ 195,457 $ 154,199 Net cash used in investing activities (115,016) (81,277) Net cash provided by (used in) financing activities 45,124 (84,370) Operating Activities Cash flows provided by operating activities for the nine months ended September 30, 2024 totaled $195.5 million compared to $154.2 million for the same prior year period. The increase in operating cash flows during the nine months ended September 30, 2024 was primarily attributable to an increase in net income of $40.6 million . Investing Activities Cash flows used in investing activities for the nine months ended September 30, 2024 totaled $115.0 million com pared to $81.3 million for the same prior year period. Capital expenditures for non-acquisitions were $106.2 million and $80.0 million for the nine months ended September 30, 2024 and 2023 , respectively. Financing Activities Cash flows provided by financing activities for the nine months ended September 30, 2024 totaled $45.1 million compared to cash flows used in financing activities of $84.4 million for the same prior year period. Cash flows provided by financing activities for the nine months ended September 30, 2024 included IPO proceeds, net of underwriting discounts and 39 Table of Contents commissions, of $208.7 million , proceeds from insurance financing arrangements of $10.8 million , and proceeds from long- term debt of $3.6 million . Cash flows provided by financing activities were partially offset by payments of principal on long- term debt of $106.3 million , which included a prepayment of $100.0 million on the $877.5 million outstanding borrowings under our Term Loan B Facility, and payments of principal on insurance financing arrangements of $7.4 million . Cash flows provided by financing activities for the nine months ended September 30, 2024 were partially offset by distributions paid to noncontrolling interests of $53.1 million . Cash flows used in financing activities for the nine months ended September 30, 2023 totaled $84.4 million and included distributions paid to noncontrolling interests of $50.7 million , redemption of equity attributable to non-controlling interest of $26.0 million , payments of principal on long-term debt of $10.5 million , and payments of principal on insurance financing arrangements of $15.9 million , which were partially offset by proceeds from insurance financing arrangements of $24.7 million . Capital Expenditures We make significant, targeted investments to maintain and modernize our facilities, introduce new technologies, and expand our service offerings. We expect to finance future capital expenditures with internally generated and borrowed funds. Capital expenditures for property and equipment were $106.2 million and $80.0 million for the nine months ended September 30, 2024 and 2023 , respectively. Ventas Master Lease Effective August 4, 2015, we sold the real property for ten of our hospitals to Ventas, which is a related party as, prior to our IPO, it was a common unit holder of Ardent Health Partners, LLC and owned shares of common stock of AHP Health Partners and had a representative serving on our board of managers. Concurrent with this transaction, we entered into a 20- year master lease agreement that expires in August 2035 (with a renewal option for an additional ten years) to lease back the real estate. We lease ten of our hospitals pursuant to the Ventas Master Lease. As of September 30, 2024 , following the consummation of the IPO and the underwriters’ exercise of their option to purchase additional shares, Ventas beneficially owned approximately 6.5% of our outstanding common stock. The Ventas Master Lease includes a number of significant operating and financial restrictions, including requirements that we maintain a minimum portfolio coverage ratio of 2.2x and a guarantor fixed charge coverage ratio of 1.2x and do not exceed a guarantor net leverage ratio of 6.75x. In addition, the Relative Rights Agreement entered into by and among Ventas, the 5.75% Senior Notes trustee and the administrative agents under our Senior Secured Credit Facilities (as defined below) in connection with the series of debt transactions completed during the year ended 2021 to refinance our then-existing debt, among other things, (i) sets forth the relative rights of Ventas and the administrative agents with respect to the properties and collateral related to the Ventas Master Lease and securing our Senior Secured Credit Facilities, (ii) caps the amount of indebtedness incurred or guaranteed by our subsidiaries that are tenants under the Ventas Master Lease ("Tenants") (together with such Tenants’ guarantees of the notes and the Senior Secured Credit Facilities and all other indebtedness incurred or guaranteed by such Tenants) at $375.0 million and (iii) imposes certain incurrence tests on the incurrence of additional indebtedness by such Tenants and by us. We recorded rent expense of $37.2 million and $36.4 million for the three months ended September 30, 2024 and 2023 , respectively, and $111.4 million and $108.9 million for the nine months ended September 30, 2024 and 2023 , respectively, related to the Ventas Master Lease and other lease agreements with Ventas for certain medical office buildings. Senior Secured Credit Facilities Effective July 8, 2021, we entered into the ABL Credit Agreement, which was amended most recently on June 26, 2024. The ABL Credit Agreement (as so amended) consists of a $325.0 million senior secured asset-based revolving credit facility with a five year maturity, comprised of (i) a $275.0 million non-UT Health East Texas borrowers tranche (the “non-UT Health East Texas ABL Facility”) and (ii) a $50.0 million UT Health East Texas borrowers tranche available to our AHS East Texas Health System, LLC subsidiary and certain of its subsidiaries (the “UT Health East Texas ABL Facility” and, together with the non-UT Health East Texas ABL Facility, the “ABL Facilities”), each subject to a borrowing base. Effective as of June 26, 40 Table of Contents 2024, we amended the ABL Credit Agreement to increase the commitments available under the non-UT Health East Texas ABL Facility from $175.0 million to $275.0 million and to extend the maturity of the ABL Facilities to June 26, 2029. Effective August 24, 2021, we entered into the Term Loan B Facility. The credit agreement governing the Term Loan B Facility provided funding up to a principal amount of $900.0 million. The Term Loan B Facility has a seven year maturity with principal due in 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. Effective June 8, 2023, we amended the Term Loan B Credit Agreement to replace LIBOR with Term SOFR (each as defined in the amended Term Loan B Credit Agreement) as the reference interest rate and establish further successor rates. On June 26, 2024, we prepaid $100.0 million of the $877.5 million outstanding borrowings under the Term Loan B Facility using cash on hand. Additionally, on September 18, 2024, we executed an amendment to reprice our 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. We refer to the ABL Facilities and the Term Loan B Facility collectively herein as the “Senior Secured Credit Facilities.” Subject to certain exceptions, the ABL Facilities are secured by first priority liens over substantially all of our and each guarantor’s accounts and other receivables, chattel paper, deposit accounts and securities accounts, general intangibles, instruments, investment property, commercial tort claims and letters of credit relating to the foregoing, along with books, records and documents, and proceeds thereof (the “ABL Priority Collateral”), and a second priority lien over substantially all of our and each guarantor’s other assets (including all of the capital stock of the domestic guarantors and first priority mortgage liens on any fee-owned real property valued in excess of $5,000,000) (the “Term Priority Collateral”). The obligations of the UT Health East Texas ABL Facility are not secured by the assets of the subsidiaries that are also Tenants and certain other subsidiaries related to the Tenants. The obligations under the Term Loan B Facility and the ABL Facilities in excess of the maximum aggregate dollar cap amount permitted to be guaranteed by the Tenants are not secured by the assets of the Tenants. The Term Loan B Facility is secured by a first priority lien on the Term Priority Collateral and a second priority lien on the ABL Priority Collateral. Certain excluded assets are not included in the Term Priority Collateral or the ABL Priority Collateral. The obligations under the Term Loan B Facility and the ABL Facilities in excess of the maximum aggregate dollar cap amount permitted to be guaranteed by the Tenants are not secured by the assets of the Tenants. Borrowings under the Term Loan B Facility bear interest at a rate per annum equal to, at our option, either (i) the base rate determined by reference to the highest of (a) the federal funds effective rate plus 0.50%, (b) the “Prime Rate” in the United States for U.S. dollar loans as publicly announced by Bank of America from time to time, and (c) Term SOFR plus 1.00% per annum, in each case, plus an applicable margin, or (ii) Term SOFR (not to be less than 0.50% per annum) for the interest period selected, plus an applicable margin. Under the Term Loan B Facility, the applicable margin is 2.50% for base rate borrowings and 3.50% for Term SOFR borrowings. Following the completion of the IPO, the applicable margin for the remaining outstanding borrowings under the Term Loan B Facility was automatically reduced by 0.25% per annum. Principal under the Term Loan B Facility is due in quarterly installments of 0.25% of the $900.0 million initial 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. The ABL Facilities do not require installment payments. At the election of the borrowers under the applicable ABL Facility loan, the interest rate per annum applicable to loans under the ABL Facilities is based on a fluctuating rate of interest determined by reference to either (i) the base rate plus an applicable margin or (ii) Term SOFR (not to be lower than 0.00% per annum) for the interest period selected, plus an applicable margin. The applicable margin is determined based on the percentage of the average daily availability of the applicable ABL Facility. For the non-UT Health East Texas ABL Facility loan, the applicable margin ranges from 0.5% to 1.0% for base rate borrowings and 1.5% to 2.0% for Term SOFR borrowings. The applicable margin for the UT Health East Texas ABL Facility loan ranges from 1.5% to 2.0% for base rate borrowings and 2.5% to 3.0% for Term SOFR borrowings. Subject to certain exceptions (including with regard to the ABL Priority Collateral), thresholds and reinvestment rights, the Term Loan B Facility is subject to mandatory prepayments with respect to: 41 Table of Contents • 100% of net cash proceeds of issuances of debt by AHP Health Partners or any of its restricted subsidiaries that are not permitted by the Term Loan B Facility; • 100% (with step-downs to 50% and 0%, based upon achievement of specified senior secured net leverage ratio levels) of net cash proceeds of certain asset sales; • 50% (with step-downs to 25% and 0%, based upon achievement of specified senior secured net leverage ratio levels), net of certain voluntary prepayments and secured indebtedness, of annual excess cash flow of AHP Health Partners and its subsidiaries commencing with the fiscal year ended December 31, 2022; and • net cash proceeds received in connection with any exercise of the purchase option of the loans by Ventas under the Relative Rights Agreement. 5.750% Senior Notes due 2029 AHP Health Partners, our direct wholly-owned subsidiary, issued the 5.75% Senior Notes in an exempt offering pursuant to Rule 144A and Regulation S under the Securities Act that was completed on July 8, 2021. The terms of the 5.75% Senior Notes are governed by an indenture, dated as of July 8, 2021 (the “Indenture”), among AHP Health Partners, us and certain of AHP Health Partners' wholly-owned domestic subsidiaries, as guarantors, and U.S. Bank Trust Company, National Association, as trustee. The Indenture provides that the 5.75% Senior Notes are general senior unsecured obligations of AHP Health Partners, which are unconditionally guaranteed on a senior unsecured basis by us and certain subsidiaries of AHP Health Partners. The 5.75% Senior Notes mature on July 15, 2029 and bear interest at a rate of 5.750% per annum, payable semi-annually, in cash in arrears, on January 15 and July 15 of each year, commencing on January 15, 2022. AHP Health Partners may redeem the 5.75% Senior Notes, in whole or in part, at any time and from time to time, (1) prior to July 15, 2024, at a redemption price equal to 100% of the principal amount of the 5.75% Senior Notes, plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium as set forth in the Indenture and the 5.75% Senior Notes; and (2) on and after July 15, 2024, at the redemption prices set forth below, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions: Date (if redeemed during the 12 month period beginning on July 15 of the years indicated below) Percentage 2024 102.875% 2025 101.438% 2026 and thereafter 100.000% In addition, prior to July 15, 2024, AHP Health Partners could have redeemed on one or more occasions up to 40% of the original aggregate principal amount of the 5.75% Senior Notes with the net proceeds of one or more equity offerings, as described in the Indenture, at a redemption price equal to 105.750% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, provided that at least 50% of the aggregate original principal amount of the 5.75% Senior Notes issued under the Indenture remained outstanding after each such redemption and the redemption occurred within 180 days after the closing of such equity offering. 42 Table of Contents Contractual Obligations and Contingencies The following table provides a summary of our commitments and contractual obligations for debt, minimum lease payment obligations under non-cancelable leases and other obligations as of September 30, 2024 (in thousands): Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years After 5 Years Long-term debt obligations, with interest $ 1,464,532 $ 25,332 $ 179,197 $ 933,820 $ 326,183 Deferred financing obligations, with interest 15,449 2,601 11,456 1,392 — Operating leases 3,014,528 49,452 384,184 361,894 2,218,998 Estimated self-insurance liabilities 185,073 40,976 39,439 61,618 43,040 Total $ 4,679,582 $ 118,361 $ 614,276 $ 1,358,724 $ 2,588,221 Outstanding letters of credit are required principally by certain insurers and states to collateralize our workers' compensation programs and self-insured retentions associated with our professional and general liability insurance programs. As of September 30, 2024 , we maintained outstanding letters of credit of approximately $40.1 million , which included interest of $3.2 million . Supplemental Non-GAAP Valuation Measure 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 the non-GAAP measure 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 the non-GAAP measure 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. 43 Table of Contents The following table presents a reconciliation of Adjusted EBITDAR, a valuation measure, to net income, determined in accordance with GAAP: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2024 Net income $ 46,005 $ 158,817 Adjusted EBITDAR Addbacks: Income tax expense 11,062 36,997 Interest expense, net 14,629 52,050 Depreciation and amortization 36,771 108,434 Noncontrolling interest earnings (19,683) (62,678) Loss on extinguishment and modification of debt 1,490 3,388 Other non-operating losses (gains) (a) 47 (208) Cybersecurity Incident recoveries, net (b) (4,976) (4,976) Restructuring, exit and acquisition-related costs (c) 3,796 11,694 Epic expenses (d) 485 1,500 Equity-based compensation 8,135 8,873 Loss from disposed operations 3 1,989 Rent expense payable to REITs (e) 40,056 119,826 Adjusted EBITDAR $ 137,820 $ 435,706 (a) Other non-operating losses (gains) include gains and losses realized on certain non-recurring events or events that are non-operational in nature, including gains realized on certain asset divestitures. (b) Cybersecurity Incident recoveries, net represents insurance recovery proceeds associated with the Cybersecurity Incident, net of incremental information technology and litigation costs. (c) Restructuring, exit and acquisition-related costs represent (i) enterprise restructuring costs, including severance costs related to work force reductions of $3.2 million and $10.1 million for t he three and nine months ended September 30, 2024 , respectively, (ii) penalties and costs incurred for terminating pre-existing contracts at acquired facilities of $0.2 million and $0.6 million for t he three and nine months ended September 30, 2024 , respectively, and (iii) third-party professional fees and expenses, salaries and benefits, and other internal expenses incurred in connection with potential and completed acquisitions of $0.4 million and $1.0 million for t he three and nine months ended September 30, 2024 , respectively. (d) Epic expenses consist of various costs incurred in connection with the implementation of Epic, our health information technology system. These costs included professional fees of $0.5 million and $1.5 million for t he three and nine months ended September 30, 2024 , respectively. Epic expenses do not include the ongoing costs of the Epic system. (e) R ent expense payable to REITs consists of rent expense of $37.2 million and $111.4 million related to the Ventas Master Lease and lease agreements associated with the MOB Transactions with Ventas for t he three and nine months ended September 30, 2024 , respectively, and rent expense of $2.8 million and $8.4 million related to a lease arrangement with MPT for the lease of Hackensack Meridian Mountainside Medical Center for t he three and nine months ended September 30, 2024 , respectively. Critical Accounting Policies and Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates. We consider our critical accounting estimates to be those that (i) involve significant judgments and uncertainties, (ii) require estimates that are more difficult for management to determine, and (iii) may produce materially different outcomes under different conditions or when using different assumptions. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates and our audited consolidated financial statements a nd notes thereto as of and for the year ended December 31, 2023 included in our Final Prospectus for a complete and comprehensive discussion of the accounting policies and related estimates we believe are most critical to understanding our consolidated financial statements, financial condition and results of operations and that require complex management judgment and assumptions or involve uncertainties. These critical accounting estimates include revenue recognition, risk management and self-insured liabilities, income taxes, and 44 Table of Contents unit-based compensation. There have been no changes to our critical accounting policies or their application since the date of our Final Prospectus. 45 Table of Contents