Executive Summary

Q3 revenue beat consensus while EPS was mixed on GAAP vs S&P definitions: revenue $1.58B vs $1.55B consensus (+1.8%); S&P “Primary EPS” $0.83 vs $0.42 consensus, but GAAP diluted EPS was a loss of $0.17 on one‑time items and higher professional fees and payer denials . Estimates marked with * are from S&P Global.*
Management cut FY25 Adjusted EBITDA guidance to $530–$555M (from $575–$615M) on persistent professional fee growth and elevated payer denials; revenue guidance unchanged at $6.20–$6.45B .
Demand remained robust: admissions +5.8% Y/Y, inpatient surgeries +9.7% Y/Y, NPSR/adjusted admission +5.8% Y/Y; cash from operations was $154M in Q3 (vs $90M last year), with lease‑adjusted net leverage improving to 2.5x from 2.7x in Q2 .
Non‑recurring items: a $43M revenue reduction from a revenue cycle model change (excluded from Adj. EBITDA), and a $54M professional liability reserve tied to prior‑period New Mexico cases (excluded from Adj. EBITDA) .
Near‑term catalysts/tone: guidance reset, payer denial remediation (appeals, demand letters, contract renegotiations), and IMPACT cost program (labor, supply chain, revenue cycle) expected to start benefiting 4Q and ramp in 2026 .

What Went Well and What Went Wrong

What Went Well
- Demand strength and mix: admissions +5.8% Y/Y; inpatient surgeries +9.7% drove total surgeries +1.4% (first positive print this year); NPSR/adjusted admission +5.8% Y/Y . CEO: “Admissions grew 5.8%… total surgeries turned positive… revenue and adjusted EBITDA increased 9% and 46%” .
- Cash flow and leverage: operating cash flow $154M in Q3 (vs $90M prior year); lease‑adjusted net leverage improved to 2.5x from 2.7x QoQ; liquidity $904M .
- Execution on mitigation: workforce optimization, payer and agency labor contracts renegotiated; initiatives in precision staffing, supply chain discipline, and OR excellence; management targets >$40M annualized benefits as programs ramp .
What Went Wrong
- Professional fees re‑accelerated: up 11% Y/Y in Q3 (vs high‑single‑digit plan); key driver of EBITDA shortfall; radiology cited as a 2025 pressure point .
- Payer denials worsened in Q3: final denials up 8% vs 1H25; CFO expects elevated levels near term; company escalating appeals/demand letters (60 letters in 90 days; ~$15M expected benefit) .
- One‑time headwinds: $43M revenue reduction from a revenue cycle estimate change (Kodiak platform), and a $54M malpractice reserve—both excluded from Adj. EBITDA; GAAP diluted EPS −$0.17 vs +$0.19 prior year .

Financial Results

Metric	Q1 2025	Q2 2025	Q3 2025
Total Revenue ($B)	$1.50	$1.65	$1.58
Net Income Attributable to ARDT ($M)	$41.4	$73.0	$(23.5)
Diluted EPS ($)	$0.29	$0.52	$(0.17)
Adjusted EBITDA ($M)	$98.2	$169.9	$143.0
Adjusted EBITDA Margin (%)	6.6% (calc)	10.3%	9.1%
Cash from Operations ($M)	$(24.8)	$117	$154

Operating KPIs

KPI	Q1 2025	Q2 2025	Q3 2025
Admissions	41,389	41,535	41,862
Adjusted Admissions	84,536	87,167	89,328
Total Surgeries	30,962	32,700	32,545
Inpatient Surgeries	9,250	9,840	9,732
Outpatient Surgeries	21,712	22,860	22,813
ER Visits	161,249	156,622	161,198
NPSR per Adjusted Admission ($)	$17,402	$18,581	$17,252

Notes: Q3 revenue includes a $43M reduction from a change in accounting estimate; excluded from Adj. EBITDA . Q3 other operating expenses include a $54M professional liability reserve; excluded from Adj. EBITDA .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue	FY 2025	$6.20–$6.45B	$6.20–$6.45B	Maintained
Adjusted EBITDA	FY 2025	$575–$615M	$530–$555M	Lowered
Net Income Attrib. to ARDT	FY 2025	$245–$285M	$121–$146M	Lowered
Diluted EPS	FY 2025	$1.73–$2.01	$0.85–$1.03	Lowered
Adjusted Admissions Growth	FY 2025	2.0%–3.0%	2.0%–3.0%	Maintained
NPSR per Adjusted Admission Growth	FY 2025	2.1%–4.4%	2.1%–4.4%	Maintained
Capex	FY 2025	$215–$235M	$215–$235M	Maintained
Rent Expense Payable to REITs	FY 2025	$164M	$164M	Maintained

Management attributed the EBITDA guidance cut primarily to higher professional fees and payer denials; the AR estimate change and NM liability reserve did not drive the guidance reduction .

Earnings Call Themes & Trends

Topic	Q1 2025 (Q-2)	Q2 2025 (Q-1)	Q3 2025 (Current)	Trend
Professional fees	Moderation noted vs prior year	Still elevated; planning for moderation	Re‑accelerated to +11% in Q3, a key headwind	Worsening in 2H25
Payer denials	Not highlighted	Ongoing headwinds	Final denials +8% vs 1H; broadened across managed products; appeals/demand letters ramped	Worsening; active remediation
Cost/IMPACT program	Operating discipline (supplies -60 bps Y/Y)	Virtual nursing, AI scribes; leverage to 2.7x	Workforce optimization; payer/agency renegotiations; >$40M annual run‑rate benefits targeted	Accelerating
Surgical volumes	Inpatient +3.4%; total −0.7% Y/Y	Inpatient +9.2%; total −0.2% Y/Y	Total +1.4% Y/Y; inpatient +9.7%	Improving
Liquidity/leverage	Lease‑adjusted ~3.0x	2.7x; liquidity $835M	2.5x; liquidity $904M	Improving
Revenue cycle	—	—	Kodiak platform change; $43M one‑time revenue reduction; earlier reserve recognition	Transition complete

Management Commentary

“Our third quarter results reflect a continuation of the strong demand trends… revenue and adjusted EBITDA increased 9% and 46%… operating cash flow of $154 million” — Marty Bonick, CEO .
“Professional Fee growth accelerated to 11% in the third quarter… payor denials were more pronounced… updating 2025 adjusted EBITDA guidance to $530–$555 million” — Bonick .
“We’ve renegotiated an exchange plan… completed a targeted reduction in workforce… revised agency labor contract… expected annual benefit of more than $40 million” — Bonick .
“Change in accounting estimate… transition to the Kodiak RCA net revenue platform… $43 million adjustment reduced total revenue but is excluded from Adjusted EBITDA” — Alfred Lumsdaine, CFO .
“We recorded… $54 million [professional liability] reserve… fully attributable to our New Mexico market… excluded from Adjusted EBITDA” — Lumsdaine .

Q&A Highlights

Magnitude/timing effects: Q3 included ~$15–$20M of earnings that had been expected in Q4 (including DPP), implying a slightly larger 4Q headwind as payer/pro fee pressures persist .
Payer denials and response: Denials up broadly across managed Medicare/Medicaid and exchanges; appeals up ~60%, appeal turnaround −25%; 60 demand letters sent, expected ~$15M benefit; company tightening contract terms for yield .
Contracting outlook: ~75% of 2026 contracts completed; headline rate increases “edged down,” with focus on net yield protections (denial policies/terms) vs just top‑line rate .
Professional fees drivers: Radiology a 2025 step‑up; management expects moderation as renewals cycle through preferred partners .
Capital allocation: Too early to discuss buybacks; board will evaluate options to optimize shareholder value; strong liquidity supports growth pipeline .

Estimates Context

Metric	Q1 2025	Q2 2025	Q3 2025	FY 2025
Revenue Consensus Mean ($B)*	$1.50	$1.53	$1.55	$6.35
Revenue Actual ($B)	$1.50	$1.65	$1.58	—
Primary EPS Consensus Mean ($)*	$0.206*	$0.322*	$0.424*	$1.86*
Primary EPS Actual ($)*	$0.192*	$0.545*	$0.831*	—
EBITDA Consensus Mean ($M)*	$95.0*	$103.8*	$144.5*	$542.0*
EBITDA Actual ($M)*	$103.3*	$176.6*	$55.6*	—

Values marked with * retrieved from S&P Global. Note: S&P’s “Primary EPS” and “EBITDA” definitions may differ from company GAAP diluted EPS and company-reported Adjusted EBITDA; use caution when comparing across definitions.*

Implications: Q3 revenue beat consensus by ~1.8% ($1.577B vs $1.549B*). S&P Primary EPS beat by ~$0.41; however, GAAP diluted EPS was −$0.17 due to one‑time items and cost/delivery pressures . Company Adjusted EBITDA of $143M compares to S&P EBITDA metrics with different methodologies .

Key Takeaways for Investors

Demand fundamentals remain strong (admissions, inpatient surgeries, NPSR/adj. admission), supporting stable revenue growth despite a tough payer environment .
The FY25 EBITDA reset (−$55–$60M at the midpoint) centers on persistent professional fees and higher denials; revenue guidance intact, signaling headwinds are cost/yield, not volume .
Multiple self‑help levers are in flight (labor optimization, agency rate resets, precision staffing, supply chain, OR excellence, contract renegotiations); management targets >$40M annualized run‑rate benefits with ramp beginning in Q4 and into 2026 .
Revenue cycle change (Kodiak) creates a cleaner, earlier reserve recognition process; $43M Q3 impact is one‑time and excluded from Adj. EBITDA .
Denials mitigation is intensifying (60 demand letters; appeals up ~60%); progress here is a key upside swing factor for 2026 margin recapture .
Balance sheet/liquidity are strengths (2.5x lease‑adjusted net leverage; $904M liquidity), providing flexibility to invest in outpatient growth and selective M&A through the cycle .
Near‑term trading: post‑reset, delivery against denial/pro fee mitigation and any incremental guidance color in Q4/early 2026 contracting will likely drive sentiment; watch 4Q run‑rate, exchange plan contract yields, and denials trajectory .

Appendix: Additional Detail on Q3 Non‑Recurring Items and Cash/Liquidity

Q3 one‑time revenue estimate change: −$43M (reflected in revenue; excluded from Adj. EBITDA) .
Q3 professional liability reserve: +$54M recorded in other operating expenses; tied to 2019–2022 cases in NM for a former provider; excluded from Adj. EBITDA .
Cash and liquidity (9/30/25): cash $609M; total debt ~$1.1B; net leverage (credit agreements) 1.0x; lease‑adjusted net leverage 2.5x; available liquidity $904M .

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