Ardent Health Partners, Inc.(ARDT) - 2025 Q2 - Quarterly Report

Item 1. Financial Statements This section presents the company's condensed consolidated financial statements, including income statements, comprehensive income, balance sheets, cash flows, and equity changes, along with detailed explanatory notes Condensed Consolidated Income Statements The condensed consolidated income statements show a significant increase in total revenue and net income attributable to Ardent Health, Inc. for both the three and six months ended June 30, 2025, compared to the prior year, with basic and diluted EPS also rising Condensed Consolidated Income Statements (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenue | $1,645,280 | $1,470,920 | $3,142,514 | $2,909,966 | | Net income attributable to Ardent Health, Inc. | $72,950 | $42,770 | $114,333 | $69,817 | | Basic EPS | $0.52 | $0.34 | $0.82 | $0.55 | | Diluted EPS | $0.52 | $0.34 | $0.81 | $0.55 | Condensed Consolidated Comprehensive Income Statements The condensed consolidated comprehensive income statements reflect net income along with other comprehensive loss, primarily driven by changes in the fair value of interest rate swaps, resulting in an increase in comprehensive income attributable to Ardent Health, Inc. for both periods Condensed Consolidated Comprehensive Income Statements (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $95,701 | $66,961 | $154,666 | $112,812 | | Other comprehensive loss (Change in fair value of interest rate swap) | $(5,850) | $(3,051) | $(13,711) | $(2,100) | | Comprehensive income attributable to Ardent Health, Inc. | $68,626 | $40,515 | $104,200 | $68,265 | Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show an increase in total assets and total equity as of June 30, 2025, compared to December 31, 2024, while total liabilities slightly decreased. Cash and cash equivalents experienced a minor decrease Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------- | :--------------------------- | :------------------------------- | | Total assets | $5,027,254 | $4,956,100 | | Total liabilities | $3,380,879 | $3,433,743 | | Total equity | $1,648,126 | $1,521,199 | | Cash and cash equivalents | $540,629 | $556,785 | | Goodwill | $877,681 | $852,084 | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows indicate a decrease in net cash provided by operating activities for the six months ended June 30, 2025, compared to the prior year. Net cash used in investing activities remained relatively stable, while net cash used in financing activities significantly decreased Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :---------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $92,703 | $105,749 | | Net cash used in investing activities | $(69,369) | $(70,507) | | Net cash used in financing activities | $(39,490) | $(138,281) | | Net decrease in cash and cash equivalents | $(16,156) | $(103,039) | Condensed Consolidated Statements of Changes in Equity The condensed consolidated statements of changes in equity show an increase in total equity and equity attributable to Ardent Health, Inc. from December 31, 2024, to June 30, 2025, driven by net income and equity-based compensation, partially offset by other comprehensive loss and distributions to noncontrolling interests Condensed Consolidated Statements of Changes in Equity (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------------------- | :--------------------------- | :------------------------------- | | Equity attributable to Ardent Health, Inc. | $1,254,586 | $1,131,376 | | Total equity | $1,648,126 | $1,521,199 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information on the company's business, significant accounting policies, related party transactions, debt, interest rate swaps, income taxes, self-insured liabilities, employee benefits, commitments, segments, and earnings per share, offering crucial context to the financial statements 1. Description of the Business and Basis of Presentation This section outlines Ardent Health, Inc.'s operations, including its hospital network across six states, and details its recent Initial Public Offering (IPO) and corporate conversion - Ardent Health, Inc. operates 30 acute care hospitals, including two rehabilitation and two surgical hospitals, across six states (Delaware, Texas, Oklahoma, New Mexico, New Jersey, Idaho, and Kansas) as of June 30, 2025[24] - The company completed an Initial Public Offering (IPO) on July 19, 2024, issuing 12,000,000 shares at $16.00 per share, generating net proceeds of approximately $181.4 million. An additional 1,800,000 shares were issued on July 30, 2024, for approximately $27.2 million in net proceeds[27] - In connection with the IPO, the company converted from a Delaware limited liability company to a Delaware corporation on July 17, 2024, and changed its name to Ardent Health Partners, Inc. (later Ardent Health, Inc.)[28] 2. Summary of Significant Accounting Policies This section details the company's significant accounting policies, including the evaluation of new accounting standards, consolidation of Variable Interest Entities (VIEs), revenue recognition by payor and state, and the accounting for recent acquisitions and debt fair values - The company is evaluating the impact of new accounting standards: ASU 2023-09 (Income Taxes) effective after December 15, 2024, and ASU 2024-03 (Disaggregation of Income Statement Expenses) effective after December 15, 2026[31][32] - Nine of the company's hospitals are owned and operated through LLCs that are determined to be Variable Interest Entities (VIEs) and are consolidated, with total VIE assets of $1.3 billion as of June 30, 2025[40] Total Liabilities of VIEs (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Current installments of long-term debt | $2,883 | $2,266 | | Accounts payable | $88,973 | $89,428 | | Accrued salaries and benefits | $38,858 | $37,713 | | Other accrued expenses and liabilities | $52,688 | $45,250 | | Total current liabilities | $183,402 | $174,657 | | Long-term debt, less current installments | $11,591 | $8,192 | | Long-term operating lease liability | $105,917 | $108,897 | | Long-term operating lease liability, related party | $9,370 | $9,423 | | Self-insured liabilities | $680 | $676 | | Other long-term liabilities | $4,750 | $4,595 | | Total liabilities | $315,710 | $306,440 | Total Revenue by Payor (Three Months Ended June 30, in thousands) | Payor | 2025 Amount (in thousands) | 2025 % of Total Revenue | 2024 Amount (in thousands) | 2024 % of Total Revenue | | :------------------------ | :------------------------- | :---------------------- | :------------------------- | :---------------------- | | Medicare | $643,757 | 39.1% | $578,163 | 39.3% | | Medicaid | $159,733 | 9.7% | $155,334 | 10.6% | | Other managed care | $724,053 | 44.0% | $634,476 | 43.1% | | Self-pay and other | $92,104 | 5.6% | $77,914 | 5.3% | | Net patient service revenue | $1,619,647 | 98.4% | $1,445,887 | 98.3% | | Other revenue | $25,633 | 1.6% | $25,033 | 1.7% | | Total revenue | $1,645,280 | 100.0% | $1,470,920 | 100.0% | - Estimated costs of care provided under charity care programs were $35.6 million for the three months ended June 30, 2025, and $43.8 million for the six months ended June 30, 2025[53] Revenue by State as Percentage of Total Revenue (Six Months Ended June 30) | State | 2025 % | 2024 % | | :--------- | :----- | :----- | | Texas | 36.1% | 36.0% | | Oklahoma | 23.5% | 24.8% | | New Mexico | 17.2% | 15.1% | | New Jersey | 10.1% | 10.2% | | Other | 13.1% | 13.9% | | Total | 100.0% | 100.0% | - On January 1, 2025, the company acquired 18 urgent care clinics in New Mexico and Oklahoma for a combined purchase price of $27.5 million, with most of the price recorded as goodwill[61][62] Carrying Amounts and Fair Values of Debt (in thousands) | Debt Type | June 30, 2025 Carrying Amount | December 31, 2024 Carrying Amount | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :------------------------ | :---------------------------- | :-------------------------------- | :----------------------- | :--------------------------- | | Senior secured term loan facility | $774,292 | $773,772 | $777,195 | $779,575 | | 5.75% Senior Notes | $299,641 | $299,596 | $287,655 | $289,110 | 3. Related Party Transactions This section describes the company's leasing arrangements with Ventas, a related party, under the Ventas Master Lease, and details the associated rent expenses - The company leases 10 hospitals and certain medical office buildings from Ventas, a related party, under the Ventas Master Lease, which is a 20-year agreement with a renewal option[70] Related Party Rent Expense (in thousands) | Period | 2025 Amount | 2024 Amount | | :-------------------------- | :---------- | :---------- | | Three Months Ended June 30, | $37,819 | $36,965 | | Six Months Ended June 30, | $75,869 | $74,164 | 4. Long-Term Debt and Financing Matters This section details the company's long-term debt structure, including the Senior Secured Term Loan Facility, 5.75% Senior Notes, and ABL Credit Agreement, along with their terms, repricing, and future installments Long-Term Debt (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Senior secured term loan facility | $774,292 | $773,772 | | 5.75% Senior Notes | $299,641 | $299,596 | | Finance leases | $28,650 | $20,907 | | Other debt | $20,140 | $15,672 | | Deferred financing costs | $(13,000) | $(14,895) | | Total debt | $1,109,723| $1,095,052 | | Less current maturities | $(19,333) | $(9,234) | | Long-term debt, less current maturities | $1,090,390| $1,085,818 | - The Term Loan B Facility, initially $900.0 million, was repriced on September 18, 2024, reducing the applicable interest rate by 50 basis points to Term SOFR plus 2.75% or base rate plus 1.75%. A $100.0 million prepayment on June 26, 2024, eliminated all remaining required quarterly principal payments[73] - The ABL Credit Agreement was amended on June 26, 2024, increasing the revolving commitment to $325.0 million and extending its maturity date to June 26, 2029[74] - The 5.75% Senior Notes due 2029 are unsecured, senior obligations of $299.6 million, bearing 5.75% interest payable semi-annually, and are subordinate to the Senior Secured Credit Facilities[85] Future Installments of Long-Term Debt (in thousands) | Year | Amount | | :------------------------ | :------- | | 2025 (remaining six months) | $9,444 | | 2026 | $13,979 | | 2027 | $7,801 | | 2028 | $782,274 | | 2029 | $303,790 | | Thereafter | $9,002 | | Total | $1,126,290 | 5. Interest Rate Swap Agreements This section describes the company's use of pay-fixed interest rate swaps to hedge floating rate borrowings, detailing the notional amounts, fixed rates, and fair values of these agreements - The company uses pay-fixed interest rate swaps to hedge against floating rate borrowings, with unrealized gains/losses deferred in accumulated other comprehensive income (AOCI)[88] - October 2021 Agreements: Notional amounts of $399.8 million as of June 30, 2025, with fixed rates ranging from 1.47% to 1.48% and floating rates based on one-month Term SOFR, expiring June 30, 2026[91] - February 2025 Agreements: Executed with an effective date of June 30, 2025, and expiring June 26, 2029. Notional amounts totaled $0.6 million as of June 30, 2025, accreting up to $400.4 million by June 30, 2026. Fixed rates range from 3.97% to 3.98%[92] - An estimated $7.3 million will be reclassified as a reduction to interest expense in the 12 months following June 30, 2025[95] - The fair value of interest rate swap agreements was a net liability of $0.5 million as of June 30, 2025, compared to a net asset of $13.2 million as of December 31, 2024[96] 6. Income Taxes This section provides details on the company's income tax expense, effective tax rates, and outstanding federal income tax refund claims Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in thousands) | Effective Tax Rate | | :-------------------------- | :------------------------------ | :----------------- | | Three Months Ended June 30, 2025 | $26,291 | 21.6% | | Three Months Ended June 30, 2024 | $15,222 | 18.5% | | Six Months Ended June 30, 2025 | $41,524 | 21.2% | | Six Months Ended June 30, 2024 | $25,935 | 18.7% | - The company has outstanding federal income tax refund claims totaling $10.0 million for the 2016 and 2018 tax years, included in other current assets[100] 7. Self-Insured Liabilities This section details the company's professional and general liability costs, as well as workers' compensation and occupational injury liability costs, reflecting its self-insured programs Professional and General Liability Costs (in thousands) | Period | 2025 Amount | 2024 Amount | | :-------------------------- | :---------- | :---------- | | Three Months Ended June 30, | $24,300 | $16,400 | | Six Months Ended June 30, | $41,300 | $34,900 | Workers' Compensation and Occupational Injury Liability Costs (in thousands) | Period | 2025 Amount | 2024 Amount | | :-------------------------- | :---------- | :---------- | | Three Months Ended June 30, | $(1,800) | $900 | | Six Months Ended June 30, | $500 | $3,300 | 8. Employee Benefit Plans This section outlines the costs associated with the company's defined contribution retirement plan and employee health coverage for the reported periods Defined Contribution Retirement Plan Costs (in thousands) | Period | 2025 Amount | 2024 Amount | | :-------------------------- | :---------- | :---------- | | Three Months Ended June 30, | $13,200 | $11,800 | | Six Months Ended June 30, | $27,800 | $25,000 | Employee Health Coverage Costs (in thousands) | Period | 2025 Amount | 2024 Amount | | :-------------------------- | :---------- | :---------- | | Three Months Ended June 30, | $45,500 | $42,900 | | Six Months Ended June 30, | $90,000 | $86,700 | 9. Commitments and Contingencies This section addresses the impact of a November 2023 ransomware cybersecurity incident, including a class action lawsuit settlement and business insurance recovery proceeds - A ransomware cybersecurity incident in November 2023 disrupted operations and IT systems, leading to delayed billing and payments[110] - A consolidated class action lawsuit related to the Cybersecurity Incident, affecting approximately 38,000 individuals, was settled in October 2024, with settlement payments not expected to materially impact financial results[111] - The company received $21.5 million in business insurance recovery proceeds related to the Cybersecurity Incident during the six months ended June 30, 2025[112] 10. Segments This section clarifies that the company operates as a single reportable segment, healthcare services, with all long-lived assets and revenue located and earned in the United States - The company operates as a single reportable segment: healthcare services, which includes hospitals, ambulatory facilities, and physician practices[115] - All of the company's long-lived assets and revenue are located and earned in the United States[118] 11. Earnings Per Share This section presents the basic and diluted net income per share and the weighted-average common shares outstanding for the reported periods Basic and Diluted Net Income Per Share | Period | Basic EPS | Diluted EPS | | :-------------------------- | :-------- | :---------- | | Three Months Ended June 30, 2025 | $0.52 | $0.52 | | Three Months Ended June 30, 2024 | $0.34 | $0.34 | | Six Months Ended June 30, 2025 | $0.82 | $0.81 | | Six Months Ended June 30, 2024 | $0.55 | $0.55 | Weighted-Average Common Shares Outstanding (Diluted) | Period | 2025 Shares | 2024 Shares | | :-------------------------- | :------------ | :------------ | | Three Months Ended June 30, | 141,517,661 | 126,115,301 | | Six Months Ended June 30, | 141,111,732 | 126,115,301 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operational performance, key influencing factors, and liquidity, including a discussion of non-GAAP measures and critical accounting policies Overview Ardent Health, Inc. is a leading healthcare services provider operating 30 acute care hospitals and approximately 280 sites of care across six states. The company employs a differentiated Joint Venture (JV) model, partnering with academic medical centers and other systems, where it serves as the majority owner and day-to-day operator - Ardent operates 30 acute care hospitals and approximately 280 sites of care with 1,875 employed and affiliated providers across six states: Texas, Oklahoma, New Mexico, New Jersey, Idaho, and Kansas[130] - The company utilizes a strategic Joint Venture (JV) model, partnering with premier academic medical centers, large not-for-profit hospital systems, community physicians, and a community foundation, acting as the majority owner and day-to-day operator[130] Recent Developments Recent developments include the passage of the OBBBA, which may significantly impact Medicaid funding and eligibility, the acquisition of 18 urgent care clinics, the repricing of the Term Loan B Facility, the completion of an IPO and corporate conversion, and an amendment to the ABL Credit Agreement with a concurrent prepayment on the Term Loan B Facility - The One Big Beautiful Bill Act (OBBBA), passed July 4, 2025, may reduce federal Medicaid expenditures, tighten eligibility requirements (e.g., work requirements, 6-month redeterminations), and restrict provider assessments and directed payment programs, potentially negatively impacting the company's financial performance[131][132][133][134] - On January 1, 2025, the company acquired 18 urgent care clinics in New Mexico and Oklahoma for $27.5 million[136] - On September 18, 2024, the Term Loan B Facility credit agreement was repriced, reducing the applicable interest rate by 50 basis points[137] - The company completed an IPO on July 19, 2024, raising approximately $181.4 million in net proceeds, and underwent a corporate conversion on July 17, 2024[139][140] - On June 26, 2024, the ABL Credit Agreement was amended to increase the revolving commitment to $325.0 million and extend its maturity, concurrent with a $100.0 million prepayment on the Term Loan B Facility[141] Key Factors Impacting Our Results of Operations The company's operating results are influenced by staffing and labor trends, including shortages and rising costs for medical personnel, seasonal fluctuations in patient volumes, inflationary pressures on wages and supplies, and ongoing regulatory changes in the healthcare industry, particularly those affecting reimbursement and billing practices - Staffing and labor trends, including shortages of nurses and medical support personnel, and increasing costs for hospital-based physicians due to regulatory changes (No Surprises Act), labor market conditions, and consolidation, significantly impact operations[142][143] - The company experiences seasonality with higher patient volumes and revenue typically in the fourth quarter due to increased illnesses during winter months and patient utilization of annual deductibles and benefits before year-end[145] - Inflationary pressures lead to increased wages and supply costs, which the company attempts to offset through higher reimbursement rates, service expansion, and cost reduction initiatives[146] Revenue Concentration by State (Six Months Ended June 30) | State | 2025 % | 2024 % | | :--------- | :----- | :----- | | Texas | 36.1% | 36.0% | | Oklahoma | 23.5% | 24.8% | | New Mexico | 17.2% | 15.1% | | New Jersey | 10.1% | 10.2% | | Other | 13.1% | 13.9% | | Total | 100.0% | 100.0% | - Other industry trends include a growing focus on lower-cost care solutions, a shift from inpatient to outpatient settings, the increasing aged population requiring more chronic disease management, and ongoing consolidation among healthcare providers and insurers[151] Results of Operations The company experienced robust revenue growth for both the three and six months ended June 30, 2025, driven by increased net patient service revenue per adjusted admission and higher adjusted admissions. Operating expenses increased in absolute terms but decreased as a percentage of revenue, leading to significant improvements in net income attributable to Ardent Health, Inc Revenue and Volume Trends This section highlights the company's revenue growth for the three and six months ended June 30, 2025, driven by increases in net patient service revenue per adjusted admission and adjusted admissions, with Joint Venture entities contributing significantly to total revenue Total Revenue and Growth (in thousands) | Period | 2025 Total Revenue (in thousands) | % Change YoY | | :-------------------------- | :-------------------------- | :----------- | | Three Months Ended June 30, 2025 | $1,645,280 | 11.9% | | Six Months Ended June 30, 2025 | $3,142,514 | 8.0% | - For the three months ended June 30, 2025, revenue growth was driven by a 10.2% increase in net patient service revenue per adjusted admission and a 1.6% increase in adjusted admissions (6.6% growth in admissions, 0.2% in emergency room visits, partially offset by a 0.2% decrease in total surgeries)[153] - For the six months ended June 30, 2025, revenue growth was driven by a 5.7% increase in net patient service revenue per adjusted admission and a 2.2% increase in adjusted admissions (7.1% growth in admissions, 1.3% in emergency room visits, partially offset by a 0.4% decrease in total surgeries)[154] - Joint Venture (JV) entities contributed 28.0% of total revenue for the three months ended June 30, 2025, and 28.3% for the six months ended June 30, 2025[155] Operating Results Summary for the Three Months Ended June 30, 2025 This section provides a detailed summary of the company's operating results for the three months ended June 30, 2025, highlighting significant increases in total revenue and net income, alongside changes in operating expenses and interest expense Key Financials (Three Months Ended June 30, in thousands) | Metric | 2025 Amount (in thousands) | 2025 % of Total Revenue | 2024 Amount (in thousands) | 2024 % of Total Revenue | % Change YoY | | :-------------------------------------- | :------------------------- | :---------------------- | :------------------------- | :---------------------- | :----------- | | Total revenue | $1,645,280 | 100.0% | $1,470,920 | 100.0% | 11.9% | | Total operating expenses | $1,523,288 | 92.6% | $1,388,737 | 94.4% | 9.7% | | Income before income taxes | $121,992 | 7.4% | $82,183 | 5.6% | 48.4% | | Net income attributable to Ardent Health, Inc. | $72,950 | 4.4% | $42,770 | 2.9% | 70.6% | - Salaries and benefits decreased to 40.8% of total revenue (from 42.4%) primarily due to an increase in supplemental program revenue, partially offset by an $11.0 million increase in equity-based compensation[170] - Other operating expenses increased to 10.0% of total revenue (from 7.9%) mainly due to higher provider assessments associated with supplemental government programs[174] - Interest expense decreased to $14.7 million (from $18.2 million) due to a reduction in the average outstanding principal of the Term Loan B Facility[175] - A $1.9 million loss on extinguishment and modification of debt was incurred in Q2 2024 due to the ABL Credit Agreement amendment and Term Loan B Facility prepayment[176] Operating Results Summary for the Six Months Ended June 30, 2025 This section provides a detailed summary of the company's operating results for the six months ended June 30, 2025, showing strong revenue growth, improved net income, and changes in expense categories, including a significant non-operating gain from insurance proceeds Key Financials (Six Months Ended June 30, in thousands) | Metric | 2025 Amount (in thousands) | 2025 % of Total Revenue | 2024 Amount (in thousands) | 2024 % of Total Revenue | % Change YoY | | :-------------------------------------- | :------------------------- | :---------------------- | :------------------------- | :---------------------- | :----------- | | Total revenue | $3,142,514 | 100.0% | $2,909,966 | 100.0% | 8.0% | | Total operating expenses | $2,946,324 | 93.8% | $2,771,219 | 95.2% | 6.3% | | Income before income taxes | $196,190 | 6.2% | $138,747 | 4.8% | 41.4% | | Net income attributable to Ardent Health, Inc. | $114,333 | 3.6% | $69,817 | 2.4% | 63.7% | - Supplies expense decreased to 16.8% of total revenue (from 17.8%) due to service line optimization, improved inventory management, standardized surgical supply procurement, and strategic sourcing[185] - Other operating expenses increased to 9.5% of total revenue (from 8.1%) primarily due to higher provider assessments associated with supplemental government programs[188] - Interest expense decreased to $28.9 million (from $37.4 million) due to a reduction in the average outstanding principal of the Term Loan B Facility[189] - Other non-operating gains were $20.7 million (H1 2025) compared to $0.3 million (H1 2024), including $21.5 million from business interruption insurance proceeds related to the November 2023 cybersecurity incident[191] Supplemental Non-GAAP Information The company provides Adjusted EBITDA and Adjusted EBITDAR as non-GAAP measures to offer additional insights into its financial performance and valuation, excluding certain non-cash, non-recurring, or capital structure-related items to facilitate industry comparisons Supplemental Non-GAAP Performance Measure (Adjusted EBITDA) This section defines Adjusted EBITDA as a non-GAAP performance measure used by management and external users to evaluate financial performance by excluding non-cash, unusual, or non-recurring items - Adjusted EBITDA is a non-GAAP performance measure used by management and external users to evaluate financial performance by excluding non-cash, unusual, or non-recurring items[197][198] Adjusted EBITDA (in thousands) | Period | 2025 Adjusted EBITDA | 2024 Adjusted EBITDA | | :-------------------------- | :------------------- | :------------------- | | Three Months Ended June 30, 2025 | $169,873 | $122,302 | | Six Months Ended June 30, 2025 | $268,074 | $218,116 | Supplemental Non-GAAP Valuation Measure (Adjusted EBITDAR) This section defines Adjusted EBITDAR as a non-GAAP valuation measure that includes rent expense payable to REITs, facilitating enterprise value comparisons by treating rent similarly to interest expense due to the company's capital structure - Adjusted EBITDAR is a non-GAAP valuation measure used to compare enterprise value by adding back rent expense payable to REITs, which management views as similar to interest expense due to the company's capital structure[229] Adjusted EBITDAR (in thousands) | Period | 2025 Adjusted EBITDAR | | :-------------------------- | :-------------------- | | Three Months Ended June 30, 2025 | $210,547 | | Six Months Ended June 30, 2025 | $349,635 | Rent Expense Payable to REITs (in thousands) | Period | 2025 Amount | | :-------------------------- | :---------- | | Three Months Ended June 30, | $40,674 | | Six Months Ended June 30, | $81,561 | Liquidity and Capital Resources The company's liquidity is supported by cash, operating cash flows, and available ABL Facilities. While operating cash flows decreased, financing activities saw a significant reduction in cash usage. The company continues to invest in capital expenditures and manages its debt obligations, including the Ventas Master Lease and Senior Secured Credit Facilities Liquidity This section details the company's liquidity position as of June 30, 2025, including cash and cash equivalents, available ABL capacity, and key leverage ratios - As of June 30, 2025, the company had $540.6 million in cash and cash equivalents and $835.0 million in available liquidity (cash plus $294.4 million in available ABL capacity)[207] - The net leverage ratio was 1.2x and the lease-adjusted net leverage ratio was 2.7x as of June 30, 2025[207] Cash Flows This section summarizes the company's cash flow activities for the six months ended June 30, 2025, highlighting a decrease in operating cash flows primarily due to working capital changes and a significant reduction in cash used in financing activities Summary of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 Amount | 2024 Amount | | :---------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $92,703 | $105,749 | | Net cash used in investing activities | $(69,369) | $(70,507) | | Net cash used in financing activities | $(39,490) | $(138,281) | - The decrease in operating cash flows for H1 2025 was primarily due to a $70.1 million change in net working capital, influenced by elevated cash collections in the prior year following a cybersecurity incident and increased receivables from supplemental reimbursement programs[209] - The significant decrease in cash flows used in financing activities for H1 2025 was mainly due to a $100.0 million debt prepayment in H1 2024 that did not recur[212] Capital Expenditures This section reports an increase in capital expenditures for property and equipment for the six months ended June 30, 2025, reflecting ongoing investments - Capital expenditures for property and equipment increased to $69.1 million for the six months ended June 30, 2025, from $62.8 million in the prior year, reflecting ongoing investments[213] Ventas Master Lease This section describes the company's 20-year master lease agreement with Ventas, a related party, for 10 hospitals, including financial covenants and Ventas's beneficial ownership - The company leases 10 hospitals from Ventas, a related party, under a 20-year master lease agreement expiring in August 2035, with an annual rent escalator[215] - The Ventas Master Lease includes financial covenants requiring a minimum portfolio coverage ratio of 2.2x, a guarantor fixed charge coverage ratio of 1.2x, and a guarantor net leverage ratio not exceeding 6.75x[216] - Ventas beneficially owned approximately 6.5% of the company's outstanding common stock as of June 30, 2025[215] Senior Secured Credit Facilities This section details the company's Senior Secured Credit Facilities, including the ABL Credit Agreement and Term Loan B Facility, outlining their terms, maturity, repricing, and collateral arrangements - The ABL Credit Agreement provides a $325.0 million senior secured asset-based revolving credit facility, maturing on June 26, 2029[218] - The Term Loan B Facility, initially $900.0 million, was repriced on September 18, 2024, reducing the interest rate. A $100.0 million prepayment on June 26, 2024, eliminated all remaining quarterly principal payments[219] - The Senior Secured Credit Facilities are secured by first and second priority liens on various assets, with specific collateral arrangements for the ABL Priority Collateral and Term Priority Collateral[220][221] 5.75% Senior Notes due 2029 This section describes the company's 5.75% Senior Notes due 2029, which are unsecured, senior obligations with semi-annual interest payments, and their subordination to the Senior Secured Credit Facilities - The 5.75% Senior Notes are general unsecured, senior obligations maturing on July 15, 2029, bearing interest at 5.75% per annum, payable semi-annually[224][225] - The notes are redeemable at 101.438% in 2025 and 100.000% in 2026 and thereafter, and are subordinate to the Senior Secured Credit Facilities[227] Contractual Obligations and Contingencies This section provides a summary of the company's contractual obligations and contingencies as of June 30, 2025, including long-term debt, operating leases, and estimated self-insurance liabilities Contractual Obligations and Contingencies (June 30, 2025, in thousands) | Obligation Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | After 5 Years | | :---------------------------------- | :----------- | :--------------- | :----------- | :----------- | :------------ | | Long-term debt obligations, with interest | $1,393,523 | $47,777 | $173,485 | $1,156,863 | $15,398 | | Deferred financing obligations, with interest | $7,295 | $3,642 | $3,189 | $464 | — | | Operating leases | $2,925,337 | $99,331 | $384,494 | $354,275 | $2,087,237 | | Estimated self-insurance liabilities | $189,608 | $34,845 | $17,953 | $90,060 | $46,750 | | Total | $4,515,763| $185,595 | $579,121| $1,601,662| $2,149,385| - Outstanding letters of credit totaled approximately $33.4 million as of June 30, 2025, primarily to collateralize workers' compensation and self-insured liability programs[228] Critical Accounting Policies and Estimates The company's critical accounting policies and estimates, including revenue recognition, risk management and self-insured liabilities, and income taxes, involve significant judgments and uncertainties. There have been no material changes to these policies since the last Annual Report - Critical accounting estimates include revenue recognition, risk management and self-insured liabilities, and income taxes, which require complex management judgment and assumptions[237] - No material changes to critical accounting policies or their application have occurred since the Annual Report for the year ended December 31, 2024[237] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk from interest rate fluctuations on its variable-rate debt, primarily the Term Loan B Facility and ABL Facilities. To mitigate this, it utilizes interest rate swap agreements. A 1% change in interest rates would result in a $3.8 million change in annual interest expense - As of June 30, 2025, the company had $767.0 million in outstanding variable rate debt[238] - The company uses interest rate swap agreements with notional amounts totaling $399.8 million (expiring June 30, 2026) and $0.6 million (expiring June 26, 2029, accreting to $400.4 million by June 30, 2026) to manage interest rate exposure[239][240] - A one percent change in the interest rate would result in a $3.8 million increase or decrease in the company's annual interest expense[241] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the period Evaluation of Disclosure Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025 - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2025[243] Changes in Internal Control over Financial Reporting There were no material changes in the company's internal control over financial reporting during the three months ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[244] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, and a list of exhibits filed with the report Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from the 'Litigation and Regulatory Matters' section of Note 9 to the condensed consolidated financial statements - Information on legal proceedings is incorporated by reference from Note 9, 'Commitments and Contingencies'[246] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those previously disclosed in its Annual Report - No material changes to risk factors have occurred since the Annual Report[247] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2025, the company purchased 25,815 shares of its common stock to satisfy tax obligations related to the vesting of restricted stock unit awards, with no publicly announced repurchase programs in place - The company purchased 25,815 shares of its equity securities during the three months ended June 30, 2025[249] - These shares were withheld to satisfy tax obligations related to the vesting of restricted stock unit awards[249] - There were no publicly announced plans or open market repurchase programs for common stock during this period[250] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[251] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[252] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2025[253] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and XBRL data files - Exhibits include the Certificate of Incorporation, Amended and Restated Bylaws, certifications of principal executive and financial officers, and Inline XBRL documents[254]