The Ardent Health Breakdown

There’s a new kid (hospital operator) in town by the name of Ardent Health. The health system debuted on the public markets in mid July 2024, creating a new publicly traded hospital operator comparable for the first time in a while.

But who is Ardent? What’s their strategy, what markets is the hospital operator in, what’s the backstory, and what challenges might lie ahead? We’ll get into all of that in this piece on Ardent Health Partners.

Let’s dive in!

Who is Ardent Health Partners?

Starting off as the Behavioral Healthcare Corporation, Ardent Health Services (and now known as Ardent Health Partners) has an interesting history and is a product of hospital consolidation, real estate investment trust (REIT) involvement, UAE minority investment, and now an IPO in 2024.

The firm began as an owner and operator of psychiatric hospitals. Then, in 2001, Welsh, Carson, Anderson & Stowe (WCAS) bought a majority stake in the company, which set now-Ardent down its present day path.

With fresh capital from going public and a new CEO David T. Vandewater at the helm (who retired in 2020), Ardent went on an acquisition spree, scooping up hospitals in the greater Albuquerque, New Mexico area (Lovelace Health System & Health Plan for $209.4M; St. Joseph Healthcare System for $97.2M) and Tulsa, Oklahoma area (Hillcrest Healthcare System for $332.8M).

After these and smaller acquisitions, Ardent made a major strategic pivot. It divested its psychiatric hospitals in mid 2005 to Psychiatric Solutions (which was eventually bought by…Universal Health Services for $3.1B!). Along with going private once again with WCAS in 2005, Ardent from this point forward focused exclusively on growth in the acute care space, targeting mid-size (under 2M people) MSAs.

A Timeline of Ardent’s Notable Moves

Fast forward to implementation of the ACA, and Ardent was involved in the flurry of activity happening over the last decade. Based on my research, here’s a timeline of how Ardent got to today:

• May 2011: Ardent acquires New Mexico-based MedCath Heart Hospital, to integrate into its Lovelace Health System based in Albuquerque and add to Ardent’s 220,000-member health plan in the region.
• September 2011: Ardent acquires 2 Oklahoma hospitals from CHS to integrate into its Hillcrest HealthCare System based in Tulsa
• October 2012: Ardent acquires 80% stake in Amarillo-based BSA Health System
• April 2015: Healthcare REIT Ventas acquires Ardent for $1.75B in an all-cash transaction from WCAS. Ardent was previously owned by Welsh, Carson, Anderson & Stowe and at the time, generated around $2B in annual revenue.
  • As part of the transaction, Ventas separated Ardent’s owned real estate from its hospital operations, entering into sale-leaseback arrangements on a triple-net basis with the 10-hospital footprint. Ventas also retained upside in future Ardent hospital acquisitions to own the associated land and building. The healthcare REIT also spun off Ardent’s existing skilled nursing footprint.
  • It’s interesting to note the value props Ventas laid out for its investors at the time in justifying the Ardent purchase, many of which are still present today including aging population demographics, relatively favorable CMS payment updates, a pipeline for growth assuming more Ardent hospital acquisitions, and more.

• July 2015: The next significant move in Ardent’s journey – Equity Group Investments acquires the Ardent hospital operations from Ventas (Ventas retains real estate and ~10% ownership in OpCo) **
  • Equity Group purchased Ardent in 2015 and since then has added to its holdings and more than doubled its revenue—to $4.4 billion in 2020, according to its website…EGI bought a majority stake in Ardent in 2015 for $475 million from real-estate investment trust Ventas Inc., which acquired it earlier that year and retained the real estate and a 9.9% stake in the operating company. Ardent named a new chief executive officer in July after its former CEO announced his retirement around a year ago.
• May 2016: Ardent announces plans to implement single Epic instance across all Ardent facilities, a $150M project – replacing 80 disparate systems
• October 2016: LHP Hospital Group merges with Ardent, creating the second largest privately owned for-profit health system in the U.S. by number of hospitals at the time.
• May 2017: Ardent forms JV with University of Kansas Health System to acquire St. Francis Health
• September 2017: Ardent Health and UT Health form a JV to acquire East Texas Medical Center Regional Healthcare System – at the time, 9 hospitals and 39 clinics – in Ardent’s most significant M&A move to date.
• December 2018: Ardent files for IPO (2018 S-1)
• January 2020: Ardent withdraws its IPO registration
• Early 2021: Apollo-owned LifePoint (which, itself is a private, for-profit health system taken private in 2018 for a $5.6B EV) was in talks to buy Ardent in early 2021, which reportedly would have valued Ardent at over $2B including debt. 3 years later, Ardent’s enterprise value sits at ~$4.7B in July 2024.
• February 2022: Ardent conducts a sale-leaseback with Ventas, its related party REIT shareholder, selling 18 medical office buildings to Ventas for $204M and entering into long-term lease arrangements with the now-minority shareholder.
• May 2022: Ardent expands RCM relationship with Ensemble Health Partners, with the initial term set at 7 years and renewed for two successive two year terms provided Ensemble executes its duties well. Total fees paid to Ensemble are based on a % of net cash collected and comprise less than 5% of Ardent’s overall revenue.
• September 2022: Ardent receives a $500M minority equity investment from UAE-based Pure Health as deal between Alpha Dhabi Holdings and Equity Group Investments. Following the transaction, Pure Health and Ventas own 25% and 7.5% of the combined voting power of Ardent Health Partners
• January 2023: Ardent launches an innovation studio with SwitchPoint Ventures to build and scale new solutions across its portfolio and eventually spin them off as standalone companies.
• November 2023: Ardent gets hit with a system-wide ransomware attack, quantifying the pre-tax impact at $74M
• May 2024: Ardent appoints several new ambulatory services and compliance leaders, overseeing Ardent’s ambulatory strategy including physician alignment, clinical operations, ASC growth and network development, and value-based care evolution
• July 2024: Ardent prices IPO at $16 / share (previous share range was $20 – $22 and a $3B+ implied market cap, signaling low investor appetite)
• July 2024: Ardent raises $192M in smaller than expected IPO – as the hospital operator was shooting for $300M
  • What will it do with the raised cash? Working capital, paying down debt, and I would assume based on the recent appointments that Ardent would put some of the capital to work on network development (ASCs, physician alignment, urgent care acquisitions, ED buildout, and innovation)

Footprint: Where does Ardent Operate Today?

This was Ardent’s geographic footprint as of the end of 2018:

And this is Ardent’s geographic footprint today (note the omission of the market share metric in the updated version – sad days. Ardent still says they’re 1 or 2 in market share in all of its markets):

At the time, Ardent was the 4th largest privately held for-profit hospital operator in the U.S. (based on number of hospitals). In the trailing twelve months ended March 31, 2024, Ardent generated about $5.5B in net revenue. Ardent operates in 8 mid-sized urban markets / regions across 6 states: Texas, Oklahoma, New Mexico, New Jersey, Idaho, and Kansas

• 30 acute care hospitals. Stats as of the end of Q1 2024:
  • Texas: 14 (Tyler, Amarillo, Killeen) – 36.4% of total Ardent revenue. 1,472 licensed bets (Ardent manages one hospital owned by the UT Health Science Center of Tyler – UTHSCT)
  • Oklahoma: 8 (Tulsa, Oklahoma) – 24.2% of total Ardent revenue. 1,173 licensed beds
  • New Mexico: 5 (Albuquerque, Roswell) – 15.5% of total Ardent revenue. 619 licensed beds
  • New Jersey: 2 (Montclair, Westwood) – 10.3% of total revenue. 476 licensed beds
  • 200 sites of care
    • 146 primary care and specialty care clinics
    • 3 ASCs
    • 22 urgent care centers
    • 2 freestanding EDs
    • 10 diagnostic imaging centers
  • 1,700 affiliated providers as of March 31, 2024
    • 380 PCPs
    • 1,340 specialists
  • Participation in several ACOs
  • Ardent holds leading market share in a majority of its markets

Ardent focuses on a JV model and called it out as a differentiator, saying pursuing joint ventures allows it to scale more efficiently and effectively while establishing new access points within its desired markets

• 18 of its 30 hospitals operate under JVs
• 9 owned and operated through variable interest entities (VIEs)
• 9 majority owned with material minority interest from nonprofit medical systems, universities, academic medical centers, foundations, and/or a combination of these entities
• 9 hospitals associated with UT Health East Texas JV are wholly owned by the JV’s members and are not VIEs
• Dollars tied to JV’s include $1.6B of net revenue and $213.7M of net income (a very significant portion of earnings but also a potential source of strength given diversification)

Ardent holds 80 contracts containing some form of quality or value-based component across 220,000 covered lives (mostly in New Mexico)

Notably, Ardent uses a single instance of Epic across all of its facilities, leading to data uniformity and better care coordination across sites

• We believe Epic makes us a more attractive partner for emerging technology providers and facilitates physician use of novel technology.

So in summary, Ardent holds a nice little portfolio of market-leading hospital and ambulatory assets across multiple markets. The hospital operator has benefited from use of private investors, public markets, the UAE, and a real estate investment trust as sources of capital to acquire hospitals and develop its network within its markets.

Despite the positive attributes and private investor interest, the public markets turned a bit of a cold shoulder to Ardent – why? I have some thoughts around supplemental payment dollars, growth expectations, valuation metrics against peers, and more.

I’ll dive into those thoughts with a little bit of commentary and analysis in part 2 next Thursday, so stay tuned for that. Board Room community members will get full access to all of my Excel data books and visuals.

I also encourage you to dive into Ardent’s most recent S-1, linked at the bottom below. It’s a really good overview of hospital economics, regulatory considerations, supplemental payment dollars, key performance indicators, its joint venture strategy, and more.

Diving into Ardent’s Growth Strategy, Financials, and Perceived Strengths

Ardent’s self identified TAM is $800B, calculated by studying all 350 MSAs in the US, filtering out any MSAs over 2 million individuals, then multiplying those populations by per capita spending for both hospitals ($4k) and physician and clinical services ($2.1k) as seen in the example above. Ardent as a growth strategy purposefully targets mid-sized urban areas. The firm also projected this TAM to grow to a whopping $1.4T (5.7% CAGR) over the coming decade as population ages. It’s a numbers game!

Along with targeting this mid-market segment, Ardent benefits from industry-wide macro tailwinds like most other larger hospital operators, including:

• General growth in hospital spend in the US (5.9% growth vs. 4.6% projected growth for overall GDP)
• Demographic trends, including an aging population
• Outpatient migration (given Ardent’s JV-heavy model)

As far as growth strategy is concerned, Ardent follows a pretty typical hospital growth model:

• Invest in high acuity service lines, digital front door and other tech implementations to simplify complex processes or enhance patient engagement, and bolster its outpatient footprint to maintain the integrity of its ambulatory network across core markets.
• Recruit and retain top specialist physicians (goes hand in hand with investing in high acuity service lines)
• Invest and prepare for a potential value-based care future (Ardent participates in several ACOs and risk programs)
• Generally grow Ardent’s provider network and focus on physician alignment (1,723 aligned providers today)
• Evaluate and consider entering new mid-sized markets with similar characteristics to existing Ardent markets. Enter via inorganic acquisition or partnerships.

Final note on growth: I imagine given the language around value-based care, population health, and ambulatory care throughout Ardent’s S-1 (along with some recent leadership appointments mentioned in part 1) you should start to see some of that capital invested into M&A or de-novos to build out ambulatory networks in existing markets, or enter new, attractive markets: “We have identified a robust pipeline of ambulatory opportunities, including ASCs, urgent care centers, imaging centers, and freestanding emergency rooms, which will create additional access points to attract and retain patients within our markets.”

Ardent Health Financial Overview

Here’s a look at Ardent’s income statement. In 2023, Ardent generated $5.4B in revenue. Through the trailing-twelve month period ended March 31, 2024, revenue bumps up to over $5.5B.

Moving to year-over-year growth trends (with the compound annual growth rate, or CAGR, calculated over a 2.25 year period from 2021-TTM Q1 2024), Ardent struggled with the broader inflationary pressures during 2022 and 2023:

Here’s a look at Ardent expenses on a common-sized, percentage of revenue basis, where you can see Ardent’s operating income, adjusted EBITDA, and net income profitability figures declining, then recovering slightly in TTM 2024:

Looking at per-unit metrics like revenue and expenses per adjusted admission or patient day, the trend is easier to see: along with most every other hospital in 2024, Ardent is getting squeezed on professional fees – namely, inflationary pressures on finding coverage for hospitalists stemming from higher patient volumes.

There’s also a bit of noise in the professional fees number you should keep in mind. Stemming from inflation, Ardent probably decided to outsource both its revenue cycle and environmental / dietary services to vendors (Ensemble and Sodexo, respectively) over the past couple of years. As a result, these costs shifted from Salaries & Wages to Professional Fees. Combining the two line items gives you a better picture of the overall expense trend, which is still not great.

From 2021 through today, Ardent has seen expenses rising faster than revenues, and this trend includes a $133M Covid relief fund offsetting expenses in 2021. For fear of being too reductionist, at the end of the day, you simply have to generate more revenue than expenses, and Ardent is still in a bit of margin recovery mode overall.

Ardent Health: There’s Strength in Numbers

Despite being in a bit of recovery mode financially, Ardent holds plenty of attractive qualities. Here are just a few I want to point out:

Market Share Leader:

Within its current market footprint, Ardent holds leading market shares in most of its operating regions. The emphasis on scale and density within mid-size markets puts Ardent in a sticky position. Holding the #1 or #2 position in a market – with strong physician presence to boot – affords you with pricing leverage over payors and less heartburn over what your competition is up to. Adding to market positioning, all or most of Ardent’s market populations are growing, with stable job markets and good commercial payor mixes – key for health system margin outperformance.

This table below is from an Ardent filing in 2018 (they didn’t update market share for the 2024 go-around), but I’d be surprised if the market share figures were materially different from these:

A Joint-Venture Heavy Model:

Ardent called out its joint venture model a differentiator, saying pursuing joint ventures allows it to scale more efficiently and effectively while establishing new access points within its desired markets. I completely agree, and any health system pursuing joint ventures, while more complex from a governance and control perspective, helps to diversify your business and share labor and capital resources, or leverage better rates.

Overall, as mentioned, 18 of Ardent’s 30 hospitals operate under JVs. JV partners include material minority interests from nonprofit medical systems, universities, academic medical centers, foundations, and/or a combination of these entities.

• 9 hospitals are owned and operated through variable interest entities (VIEs)
• 9 hospitals are associated with UT Health East Texas JV are wholly owned by the JV’s members and are not VIEs

Dollars tied to JV’s for Ardent include $1.6B of net revenue and $213.7M of net income.

With hospitals and healthcare operating in an increasingly outpatient environment, Ardent’s joint venture friendly model affords it more flexibility in its business model. Ardent can leverage existing and future joint ventures to find the right partners and focus on future value creation through avenues including ASC network development, urgent care / freestanding ED buildout, or population health initiatives. Sorry fam – I think that was the most consulting buzz-word heavy sentence I’ve ever used. The bottom line is JVs = best of both worlds for health systems (when done well).

Ardent Partnerships and Health Tech: Centralization = Competitive Advantage

I’m channeling my inner Health API Guy on this one. Ardent is on one single instance of Epic across all of its facilities, and the health system called this fact out as a key differentiator for its organization when rolling out new tech or processes enterprise-wide.

• “We believe we are currently the only large investor-owned company that has embraced Epic and expect this platform will be highly beneficial to us as the industry moves further into value-based care models, and we believe Epic makes us a more attractive partner for emerging technology providers and facilitates physician use of novel technology” – Ardent S-1

Adding to this advantage, Ardent is actively investing in new and emerging areas, and partnered with SwitchPoint Ventures recently to find, incubate, and scale AI-enabled solutions within Ardent. As far as priorities for Ardent, the health system called out virtual visits, RPM, chronic care management, patient engagement, and partnerships with firms like BioIntelliSense – an FDA-approved wearable device used for continuous monitoring of vital signs, leading to a decrease in length of stay of ~9 hours and a broader rollout in Ardent facilities.

To give you a sense for what Ardent is focused on in the tech and process improvement arena, here’s a non-exhaustive laundry list of notable investments, moves, and partnerships Ardent has made:

Winnow – a predictive analytics platform developed with SwitchPoint Ventures focused on clinician recruitment and retention (which was acquired by Aya Healthcare in late 2023, by the way)

Polaris, also developed in partnership with SwitchPoint Ventures, focused on AI-enabled patient volume predictability

BioIntelliSense, as mentioned, which helps address length of stay and improves continuous patient monitoring

Ardent also seems to be piloting or using HealthCast to a similar end to monitor patient vitals under a deterioration index

Signify Health (CVS-owned) on population health and transitional care solutions

Cadence for remote patient monitoring and virtual care rollout

EvidenceCare for real-time clinical decision support

Finally, Ardent has notably rolled out a slew of services focused on strengthening its clinical talent and workforce: revamping health benefits (Quantum Health and Imagine360), new scheduling, payroll, and attendance features (Accenture / UKG Dimensions) workforce training and development (WeLearn and HealthStream), burnout reduction (Care.ai’s virtual nursing program), and patient engagement (Loyal)

Ardent Health’s Competitive Strengths: Wrapping up

In its S-1 Ardent argues the above factors I’ve laid out, including significant investment in tech, a centralized EMR instance, and flexibilities afforded by its lighter JV model puts the health system in good position to transition to wherever healthcare is headed – whether that’s value-based care, fee-for-service, or something in between.

• “We believe that healthcare providers with leading capabilities and expertise in both fee-for-service and value-based care models will emerge as the long-term winners because the reimbursement landscape continues to evolve as third-party payors navigate the shift to value-based care models.” Ardent Health S-1

Ardent argues its investments into its workforce and workflows, a centralized operating model, and its differentiated company culture leads to better clinician satisfaction stemming from easier care coordination, less burnout, and more efficiency / productivity. As an outsider to Ardent, I can’t answer as to whether or not any of that is true (really only the operators and clinicians can).

From a qualitative perspective, during my research, I read plenty of positive stories around Ardent’s culture and the health system as an excellent place to work – the Ardent Way. Ardent’s S-1 and PR is full of references to the quality and safety of its facilities. These factors are basically impossible for me to vet or analyze so I’m just going to take the word of these journalists and awards/designations at face value!

While Ardent has some questions it needs to answer as a public company (and I’m sure investors will ask them), it’s nice to read about a health system that seems to be engaging in health system transformation.

Ardent Health: Risks, Headwinds, and Comps

Not everything is rosy for Ardent. They have several significant risk factors, and I think these are the main reasons why investors passed on the IPO. As always, these are my opinions of the business and not investment advice. But the risk factors identified below shouldn’t be ignored and are actually pretty material headwinds to the overall business and perceived invest-ability. They include:

• Exposure to supplemental payments volatility
• REIT related party (Ventas) involvement and potential effects of this arrangement
• Weak margin and profitability profiles relative to peers (and in a rosy hospital operating environment in 2024)
• Lack of an ASC footprint, reliance on a few large employers, and tougher labor dynamics within mid-sized MSAs
• Poor hospital M&A environment may stunt growth or ability to enter new markets

Volatility of Supplemental Payment Programs Can Materially Alter Ardent’s Future Profitability

Ardent receives disproportionate benefits from supplemental government payment programs directed via Medicaid and other state/federal funds (e.g., Medicaid 1115 waivers). This funding is, relatively speaking, volatile and hard to predict.

• “Over the last several years, most states in which we operate have implemented or enhanced Medicaid reimbursement through supplemental payment programs. And while these supplemental programs are growing, it is important to put them in context. They can be complex, variable in their impact from quarter-to-quarter and when taken together with historical Medicaid reimbursement, are still well short of covering the cost to treat Medicaid patients. We believe it is important to understand this backdrop when discussing these programs.” – HCA Healthcare Q2 2024 earnings call

Supplemental payment programs are a big unknown question mark for hospital revenues. They tend to vary quite a bit depending on state budgets or priorities at any given moment. When I worked on valuations including nonprofits where we saw significant supplemental dollars, we would ask our clients for their expectations on how these might trend over the coming years. They never had an answer for us, and that’s all you need to know. Supplemental payments are impossible to predict. Look at HCA, for example: HCA noted supplemental payments as a headwind in 2023, but a nice $100M+ tailwind in the second quarter 2024. That’s a massive delta.

Why am I getting into all of this? Because Ardent receives material revenue from supplemental payments. Ardent specifically calls out two major state program changes starting or in effect in the near future, effectively giving the hospital operator commercial-level reimbursement rates for Medicaid patients:

• A new Oklahoma directed payment program (the “OK DPP”) became effective on April 1, 2024. Under the OK DPP, hospitals will receive directed payments under Oklahoma’s new Medicaid managed care delivery system, resulting in reimbursement near the average commercial rate.
• *In March 2024, New Mexico’s Healthcare Delivery and Access Act (the “HDA Act”) was signed into law. Subject to CMS approval, the HDA Act provides 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…*we believe [the program] will be approved by early 2025

Under the OK DPP and the directed payment program pursuant to the HDA Act, the preliminary estimate of our net benefit is in excess of $150 million on an annualized basis

Adding to this, given its significant presence in east Texas, Ardent recognized $208M in revenue related to Texas’ Waiver Program in 2024. In fact, ~60% of Ardent’s total revenue and licensed bed footprint resides in Oklahoma and Texas. So any negative changes to these programs in particular would be devastating. On the other hand, any positive changes would boost Ardent. But in general, the fluctuation introduces risk to cash flow and affects profitability in a material way, which I wouldn’t like if I were an investor.

So adding these expected dollars together, Ardent could receive up to $350M in additional revenue from supplemental dollars, which would have comprised almost 6.5% of net revenue in 2023. This amount is the entirety of Ardent’s adjusted EBITDA margin. And you’re saying it could be up in the air every year? Yeah…risky.

Ventas Involvement and REIT Related-Party Transactions Creates Noise

Ardent has some related party lease stuff going on with Ventas, where Ventas, a healthcare REIT, owns shares in the Ardent parent company and also owns most of the land & building Ardent operates on. Ventas also owns~6.5% of Ardent having recently sold some of its stake to Pure Health as described in part 1 I published on here two weeks ago.

That’s not the only thing Ardent has been up to with Ventas. The two parties have engaged in a few sale-leasebacks, first in 2015 then in 2022. More context:

Then in February 2022, Ardent and Ventas conducted another sale-leaseback, selling 18 medical office buildings (”MOBs”) to Ventas for $204 million. Ardent then leased the space back from Ventas through a 12-year term with renewal options thereafter.

3 months later in May 2022, Ardent declared a special cash dividend, distributing $174.8 million in proceeds. Ardent distributed $17.1M to Ventas and $148.8 million to its majority shareholder, Equity Group Investments. Presumably Ardent retained the remaining ~$27 million but as an investor I would immediately question why they’re going public now – raising $192M in an IPO to pay down debt – after declaring a $175 million special dividend on the heels of raising $200M in capital via a related party sale-leaseback. Is it me, or is this some financial engineering nefariousness going on behind the scenes? I’ll withhold judgment unless someone from Ardent or Ventas wants to correct the record. But unless I’m misinterpreting the below, it’s a huge turnoff.

Anyway, while this REIT ownership setup exists elsewhere (most notoriously lately with Steward Health Care and Medical Properties Trust, which also has involvement in Steward-run Hackensack Meridian Mountainside Medical Center, or in post-acute facilities like SNFs), the model differs from other publicly traded hospital operators.

Like I mentioned above, we can get into some weird financial territory with a related party owning shares in Ardent but also owning the land and building underneath the hospital operations. You can move money around, or burden cash flows with high fixed costs. Notably, that’s why Ardent presents adjusted EBITDAR as a key non-GAAP financial/valuation metric for its company and argued it should be valued based on EBITDAR and not EBITDA – therefore not comparable with peers. A quick look at the adjusted EBITDA addbacks introduces some

Right or wrong here, simply put, this related-party environment introduces noise for investors, and it would turn me off to buying shares of Ardent.

Keep this dynamic in mind as Ardent navigates the public markets. Engaging in a sale-leaseback introduces business risk. You’re adding fixed costs (triple net leases) to your expense structure, which prevents Ardent from operating as nimbly as they might be able to otherwise, and this dynamic could have a serious dampening effect on its ability to grow, or health system transformation efforts, or even its willingness to engage in things like ASC network development/buildout or population health initiatives that may bolster bottom lines in the coming years.

Again, this is a ‘tread carefully’ situation, not a death knell. But take a look at what REIT exposure and sale-leasebacks did to the SNF industry for an example of what can go wrong QUICKLY for stakeholders and outside investors.

How Ardent Stacks up to Peers

Valuation, Revenue Growth, Operating Performance, and Profitability.

As you can see in the charts and tables I’ve pulled together below, Ardent is trading generally at a discount to other hospital operators (and I believe there’s some non-controlling interest causing noise understating the Tenet multiple that I’d need to double-check – I just pulled these from the stock screener TIKR). This data is as of 8/7/2024, and financials are as of Q1 2024 given this was Ardent’s most recently available financial data through its S-1.

Ardent is a significantly smaller operator than its publicly traded peers across multiple dimensions. It has also seen the most adjusted EBITDA margin decay from FYE 2021 through Q1 2024, though all hospital operators have seen margin recovery starting in 2022. Combined with the dynamics described above, you can probably see why investors are discounting Ardent – a mid-sized health system if you look across both for-profit and nonprofit entities – when more attractive players like HCA, Tenet, and UHS are firing on all cylinders.

Here’s another view looking at trended revenue and adjusted EBITDA performance over the past 2.25 years. It paints a similar picture and the contrast in size and performance is even more apparent. As the labor market and inflation dynamics struck hospitals hard in 2021, Ardent experienced the heaviest hit to margins. I’d speculate this is because its pool of clinical talent isn’t as strong, and it likely had to pay premiums to staff its hospitals.

Share Performance.

How has Ardent fared in the public markets so far, and how is it trading vs. its peers? Albeit on an unbelievably small sample size and with its peers having reported solid Q2 earnings results across the board, Ardent is significantly lagging behind HCA, Tenet, UHS, and CHS on share price performance since its debut on 7/18/2024.

This may turn around once Ardent reports its second quarter – its first quarterly earnings as a publicly traded company on August 14. Given the results of its peers, I’d expect to see better performance in Q2 and margin expansion.

The Ardent Verdict

Alright, hopefully this breakdown provided you with a pretty fair and balanced perspective on Ardent Health – the latest hospital operator to hit the public markets.

We talked about Ardent’s history, how it rose to become a market leader across multiple states in mid-sized MSAs, its growth strategy, its financial backers, its M&A, its investment into technology (single Epic instance) and tech partnerships.

We also discussed Ardent’s operating strengths and tailwinds, including a JV-heavy model, historical financial trends, and other competitive advantages.

Finally today, we wrapped up the Blake Madden Hospitalogy take on Ardent by stacking up Ardent against its publicly traded peers and talked about some of the challenges or risks they might face as an operator, or investors may face in holding shares in the company.

I hope you found the write-ups over the last 3 weeks valuable! If you did, please consider passing it along to colleagues and other healthcare folks as that helps me continue to do this whole newsletter and community thing for you guys.

As always, if you have any commentary about any of the above, feel free to reach out.

Until next time!