Prepared remarks
Hello, and thank you for standing by. My name is Lacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ardent Health Second Quarter 2026 Earnings Conference Call. Thank you. I would now like to turn the call over to Dave Styblo, Senior Vice President of Investor Relations. You may go ahead.
Thank you, operator, and welcome to Ardent Health's Second Quarter 2026 Earnings Conference Call. Joining me today is Ardent's President and Chief Executive Officer, Dave Caspers; and Chief Financial Officer, Alfred Lumsdaine. Dave and Alfred will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Dave, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures, including adjusted EBITDA. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and supplemental earnings presentation, which were both issued yesterday evening after the market closed and are available at ardenthealth.com. With that, I'll turn the call over to Dave.
Thank you, and good morning. I want to begin by thanking our 25,000 team members for the way they continue to adapt, improve how we operate and deliver high-quality care to the patients and communities we serve. To frame today's discussion, I'll focus my comments on three areas: first, where we stand, including the strength of our current platform; second, where we're going, including my priorities and the opportunities ahead; and third, what you can expect from me. Let's start with where we stand. The Ardent platform is built on a strong foundation with clear opportunities to improve our performance. With 30 hospitals and over 280 sites of care, attractive markets growing two to three times faster than the U.S. average and strong joint venture partners, we are well positioned to capture market share. Over the past two years, we have broadened our access points and strengthened partnerships by acquiring and/or building over 25 urgent care and ambulatory surgery center facilities. These investments expand our ability to care for patients across the most appropriate setting while also targeting volume growth. In addition, strategic partnerships, specifically with Ensemble and Epic, are strengthening our revenue cycle and clinical capabilities. In short, we are well positioned, but there is more work ahead. Since transitioning into this role, I've leaned into areas where I see the greatest opportunity to optimize and accelerate performance, and I want to share the progress already underway. I'm encouraged by the momentum of our IMPACT program. On the cost side, I'm pleased with improvements in salaries, wages and benefits, which grew just 0.7% year-over-year as we reduced contract labor spend by 42%. We have taken deliberate action to build a more efficient enterprise by intentionally redesigning our structure and standardizing how we operate. IMPACT is more than a savings program. It's also designed to increase our agility and transform care. We accomplished that in part by leveraging technology with our strong clinical engine. That engine is a strategic collection of assets, including our partnership with Epic and Ensemble, our virtual care platform and our growing AI capabilities. It's the backbone that makes standardization and efficiency possible while empowering our people to deliver consistent, high-quality personalized care across the network. Our virtual care rollout with hellocare.ai is an early proof point. In Texas and Idaho, our first markets to go live, virtual nurses completed 58% of discharges in June, and we reduced the hours spent monitoring patients by 18%. Looking ahead, it positions us to capture additional volume and better manage capacity so we can deliver the right care at the right time in the right setting. In supplies, we are beginning to harvest gains by consolidating vendors, renegotiating contracts and streamlining physician preference items. On the IT front, we are rationalizing our application portfolio to eliminate redundancy and reduce waste. Turning to revenue, we are taking a more disciplined data-driven approach to payer contracting, using price transparency data to identify where our rates lag the market as we work through our contract portfolio. In many instances, our rates rank below the 50th percentile, and we believe we can drive them higher given our strong market positions while improving contract terms and yield. We're already seeing evidence this strategy is creating meaningful improvement. An early proof point is a June renewal with a key payer in one market where outpatient payments were materially below market benchmarks. The new contract improved both rate and terms, and we now expect stronger economics from this agreement. We estimate this will add between $5 million and $10 million to this year's adjusted EBITDA that wasn't in our previous guidance. We've also brought greater structure and dedicated leadership to how we grow, organizing around our highest value service lines, such as cardiology and women's and children's. This work is guided by Capacity IQ, the framework we introduced last quarter to match demand with capacity across our system, directing capital, physician recruitment and assets to where we see the strongest growth and returns. It's an area you'll hear more about going forward. That's where we stand. Now this is where we're going. My focus is on delivering more consistent financial results, growing EBITDA, deploying capital effectively and executing against our targets in a way that supports long-term shareholder value. At a high level, our three-part growth strategy is unchanged. It remains focused on, number one, strengthening EBITDA margins through operational excellence; two, accelerating strategic growth in core markets and services, including new ways to optimize how we reach and engage customers at scale; and three, pursuing disciplined M&A. Within this strategy, sharper operational execution is my highest priority. We will continue to manage through the health care head and tailwinds. But as an operator, I am laser-focused on the performance that we can directly influence, how we staff, how we contract, how we allocate capital, how we standardize and how we hold ourselves accountable. As part of that, we are building a culture that works as one team aligned around one plan and delivering with one standard. While we have made meaningful progress standardizing operations across the enterprise, I see additional opportunity to reduce variation and strengthen consistency in our execution. As such, I am keenly focused on executive-level KPI-driven decision-making, reducing unwanted variation and strengthening our accountability. Carrying forward our IMPACT savings momentum is a top priority. IMPACT is not a one-year project. It's a multiyear strategic imperative, and it is building momentum. We have increased our 2026 savings target twice from $40 million originally to the $55 million target established in the fourth quarter of 2025 earnings call to now over $70 million expected to be realized this year. We will continue to evaluate our portfolio and take action where we see opportunities to sharpen our focus and improve our margins. That will entail assessing and evaluating all aspects of our operations. And if an asset or service line is not the right long-term fit, we will act thoughtfully and with discipline. An example of this is our intentional service line rationalization work in the second quarter. We moved lower-margin procedures, including ENT and ophthalmology, out of the hospital to free up capacity for higher-margin service lines. As we wrap up, I want to be clear about what you can expect from me. First, we will push Ardent to be more nimble and faster while maintaining our strong commitment to patient care, quality and safety. We will measure what matters, focus on fewer but more important priorities and pivot quickly as necessary when circumstances change. Our response to the second quarter volumes is a testament to this approach. We quickly flexed staffing and implemented additional nonclinical actions that support our confidence to reaffirm our 2026 adjusted EBITDA guidance. That agility reflects the strength of our team and our ability to execute consistently with speed. Secondly, I recognize the importance of delivering on our financial commitments to the investment community. Consistency and credibility matter, and you can expect us to remain focused on disciplined execution and accountability. And third, you can expect me to bring steady leadership and rigorous operational discipline with consistency, which ultimately supports long-term shareholder value creation. We have the right leadership team, operating model and market positions to advance our strategy. And now our focus is delivering consistency over time. I'm enthusiastic about the opportunity ahead and look forward to working with our team members, providers, partners and the investment community. With that, I'll turn the call over to Alfred.
Thanks, Dave, and good morning, everyone. Thank you for joining us on the call today. I'm very pleased with how our team responded to a challenging volume environment in the second quarter. Surgeries were down materially in April and May before rebounding with modest growth in June. Our leaders managed through these dynamics with discipline, focusing on the controllables and as a result, delivered strong results and cash flow. As I'll discuss later, we've taken the necessary actions to maintain our full year 2026 adjusted EBITDA guidance despite a softer volume outlook. I'll begin with second quarter results. We reported revenue of $1.62 billion and adjusted EBITDA of $115 million. In early June, we indicated that the business experienced broad-based volume softness during April and May, with surgeries and admissions down 5% and 2%, respectively, compared to the prior year. These trends improved in June with surgeries and admissions returning to modest growth. For the full second quarter, surgeries and admissions declined 2.9% and 1%, respectively. And although July volumes are still below our original expectations entering this year, like June, they are improved from April and May volumes. During the second quarter, we executed two initiatives that are already beginning to benefit our financial results. First, as Dave mentioned, we successfully negotiated a key payer contract renewal in one of our markets effective June 1 that is now expected to generate earnings above our original 2026 plan. Importantly, the improved rate and terms are part of our broader strategy to enhance our revenue yield through payer contracting. Second, we streamlined our structure to reduce managerial layers at both corporate and field locations. We expect these actions to generate $15 million to $20 million of additional savings this year with a full annualized impact of $30 million to $35 million. As a result, we're increasing our 2026 IMPACT program savings target to at least $70 million, up from $55 million communicated previously. These actions are almost entirely nonclinical in nature and are intended to improve accountability and speed our execution. Collectively, the payer contracting and structural actions helped mitigate some of the volume-related earnings pressure in the second quarter, and the associated earnings improvement will be at full run rate as we enter the third quarter. In terms of the other key metrics, second quarter adjusted admissions increased 2.5% year-over-year. Net patient service revenue per adjusted admission decreased 3.9%, reflecting the benefit in the second quarter of 2025 from recording two quarters' worth of the New Mexico DPP program as well as the surgery decline that produced a lower acuity service mix. From a payer standpoint, our exchange admissions declined 8% year-over-year, and we saw a corresponding increase in self-pay, but these trends were manageable and largely contemplated in our original guidance. As Dave also noted, we managed our labor expense very well during the second quarter with salaries, wages and benefits growing a modest 0.7% year-over-year. In addition, we reduced our contract labor spend by 42% year-over-year and contract labor as a percentage of SWB improved to 2.2% in the second quarter from 3.8% a year ago. As expected, year-over-year professional fee growth slowed to 10.4% compared to 12.9% in the first quarter and supplies increased 3.3% year-over-year. Payer denial trends were consistent with the previous two quarters. We continue to work closely with our revenue cycle partner, Ensemble, to drive targeted denial management and recovery efforts, and we see additional opportunities to improve yield going forward. Moving on to cash flow and liquidity. We're pleased with the robust operating cash flow of $197 million generated in the second quarter compared to $117 million a year ago. Our first half 2026 operating cash flow was $137 million, up 47% from $93 million in the first half of 2025. Capital expenditures during the second quarter were $39 million, and we expect that to ramp through the year. Additionally, we repurchased $13 million of stock in the second quarter, leaving the company with a remaining authorization of $34 million at June 30, 2026. We ended June with total cash of $724 million and total debt outstanding of $1.1 billion. Our total available liquidity at the end of the second quarter was $992 million, and we finished the quarter with total net leverage of 0.8x and lease-adjusted net leverage of 2.6x. Our strong balance sheet gives us flexibility, and our capital deployment approach remains return-driven and disciplined with a clear preference for high-margin service line, ambulatory growth and operational investments. Turning to our guidance. We're maintaining our outlook for full year 2026 revenue and adjusted EBITDA, and I'll provide some additional context around each of those. For revenue, we're now biased towards the lower end of our $6.4 billion to $6.7 billion range. This view reflects the weaker second quarter volumes and assumes these trends remain below our original expectations in the second half of the year despite the volume improvements in June and July. We remain confident in our adjusted EBITDA guidance range of $485 million to $535 million. Our outlook now incorporates a headwind of approximately $25 million from lower volumes in the second quarter and lower volume expectations for the rest of this year. We expect to fully offset this headwind with $20 million to $30 million from the two actions I discussed earlier. Just to reiterate those actions, we expect $15 million to $20 million of higher IMPACT program savings this year from workforce reductions and $5 million to $10 million of higher-than-expected earnings from payer recontracting. We have full visibility into both of these items since they were both executed during the second quarter. From a timing standpoint, we recognized only a small amount of the $20 million to $30 million of expected impact in the second quarter. Since the associated earnings benefit will be at full run rate entering the third quarter, we expect to be able to fully offset the projected earnings impact of lower volumes in the second half of the year. As a result, we would expect third quarter adjusted EBITDA to improve from the $115 million in the second quarter and approach the first quarter adjusted EBITDA of $124 million. Finally, we're reaffirming our original $35 million exchange headwind for this year. So far, actual development compared to key assumptions has been encouraging. Volume declines have been less pronounced than expected, and our data indicates that those losing exchange coverage are not all moving to self-pay. Instead, we're seeing some trends that indicate a material portion of impacted individuals are finding other insurance coverage. We're continuing to monitor these dynamics, of course. But overall, we remain confident in the $35 million net impact for the year. So as I wrap my prepared remarks, it's clear this industry has been through some overall very fluid dynamics this year. Navigating industry crosswinds requires discipline, planning and decisive execution. This leadership team will continue to take swift and deliberate actions to position Ardent to deliver in the near term while also building a stronger company for the long term. With that, I'll turn the call back to Dave for concluding remarks.
Thank you, Alfred. I want to leave you with three key takeaways. First, operational execution and consistency are our top priorities. We moved quickly to respond to a softer volume environment and have taken actions that position the company to deliver on our commitments. Second, we have a strong platform with attractive markets, leading positions and meaningful opportunities to improve performance as we continue to standardize operations and drive growth. Third, we have the right team, strategy and financial strength to execute on our plan and create long-term value for shareholders. With that, I'll turn the call over to the operator for the question-and-answer session.
Questions and answers
Your first question comes from Ann Hynes of Mizuho Securities.
Just on the payer contract changes on the outpatient side, how many more markets do you think you have opportunities to get to market rates?
This is Alfred, Ann. Good question. It's difficult to give a uniform answer. I would say we have opportunity across most of our markets. Historically, our revenue integrity function was somewhat siloed and the revenue cycle management component was not fully integrated with contracting. We have integrated those functions, brought in new leadership, taken a much more data- and market-driven approach and been more thoughtful and assertive in saying we need to be paid fairly in our markets. So I would say that there is opportunity across most of our markets for improvement.
And just as a follow-up on the surgery, your inpatient surgeries declined much more than outpatient, which is kind of the opposite of what we're seeing with other hospitals. What was driving that decline?
A couple of things. This is Alfred again. Yes, clearly our inpatient decline was steeper. The inpatient-only list did have an impact. When we look across our markets, we saw a majority of the inpatient decline was a shift from inpatient to outpatient. A majority of that shift was procedures coming off the inpatient-only list. The good news embedded in that is when we quantify the economics underlying that shift, it's actually a modest impact from the move. We would put it in the quarter at maybe between $1 million and $2 million of net impact. So overall, very modest.
Our next question comes from the line of Jason Cassorla with Guggenheim.
Great. Maybe just a follow-up on the volume side. Obviously, it's great to hear that you had some recovery in June and July. Was that broad-based? Or was that recovery within selected service lines? And then the second half expectation, are you assuming that for the second half, you're running at like the second quarter run rate or where you ended up in June and July? And then, I guess it's difficult to predict the macro, but based on how you're seeing pressures on visit conversions into procedures and surgeries, would you consider 2026 as effectively an easy comp or more of a baseline for you to grow off of?
Got you. Jason, this is Alfred. Regarding whether the recovery was broad-based, I would say absolutely. Essentially across all of our volume metrics, we saw improvement in the June and July timeframe compared to April and May. So very broad-based across our volume metrics. In terms of how we think about the rest of the year, we're taking the quarter volumes and projecting that out rather than taking June and July in isolation. We're cautiously optimistic; we'd love to see the June and July improvement extend through the year, but we want to take a prudent approach as we work on our cost structure. As I mentioned earlier, we were very quick to take decisive action after the weakness in April and May to ensure we have the appropriate cost structure regardless of the volume environment. I apologize, I forgot the third part of your question.
Yes. Just if you think given what you've seen volume trends this year, is this representing more of an easy comp for you? Or do you think this is like the new baseline for which you normally grow off of? So any thoughts there for next year?
It's really tough to say. We're in a very fluid environment from a volume standpoint. Underlying that is economic uncertainty and changes with exchange subsidies as one example. So it's difficult to predict volume going forward. Again, I come back to ensuring we have the position for success regardless of the volume overlay. We'll be hopeful for the future but prepared for the current.
Jason, this is Dave. I want to build upon what Alfred mentioned. We are pleased with our team's agility and their action around IMPACT. We will and do continue to plan to have the right projects and opportunities lined up to ensure success either way. We are somewhat encouraged by what the top of the funnel holds. The conversion language you mentioned is very accurate. It's important for us to meet the consumer where they are with solutions that help them at this time to keep their trust. When they are ready to get care, we're ready to take care of them.
If there's good news, Jason, it's that we are firm believers you can't defer care forever and that there would be pent-up demand built for the future.
Got it. Very helpful. Maybe just as a follow-up. It sounds like professional fees and denial trends were in line with your expectations in the quarter. I know you'll comp the big step-up in those headwinds, so to speak, next quarter. But looking back over the past couple of years, you've seen step-ups in both denials and professional fees developing around the second or third quarter time frame. So in that context, are there any benchmarking, contracting or other indicators that give you visibility or confidence that you won't see further stepped-up pressure for professional fees or denials at this point?
Thanks. Very difficult to predict the future. Starting with professional fees, we are seeing those in line with our expectations this year. We expect the year-over-year trend of increase to decrease in the back half relative to the front half. We've seen a full reset of essentially all of those contracts, so we'd expect that rate of increase to slow. In terms of denial trends, that's a bit harder to predict and depends a lot on payer behavior. We're working on payer contracting to strengthen contract terms to improve our ability to enforce and improve denial trends and working closely with Ensemble on initiatives, strengthening our joint operating committees and payer governance. We're leveraging AI to help identify denial patterns and prioritize high-value opportunities. There's a broad set of work we're doing together to position us to improve from our current baseline. We have not seen this year any evidence of escalation of those denial trends; they have been stable so far.
Adding on, you heard specific language around operational rigor in our prepared comments. That rigor and the results in professional fees represent the work we've had underway. An example of keeping pro fees well under control is tightly managing operating rooms and the costs associated with them. The balancing act between managing the right volume and managing professional fees is critical, and that represents operational excellence and rigor.
Your next question comes from the line of Matthew Gillmor with KeyBanc.
Maybe starting off on the service line rationalization. I was hoping you could help us think through the broader strategy there and just the service lines that you are targeting and what the opportunity is as you're moving some of the lower-value service lines away from your hospitals? And Alfred, could you give us a sense for how we should expect that to impact the surgical metrics, especially on the outpatient side as you execute that rationalization?
We've stood up a team called Products and Services who are leveraging tools we referred to last quarter called Capacity IQ. That team includes individuals who have led service lines, real estate, construction and M&A. They use tools at the system and market level to ensure we look at every asset and service line to optimize margin and meet customer and market needs where the margin opportunity is. It's early to quantify the exact value and changes, but we're getting clarity on key service lines, such as cardiology and women's and children's. We'll focus on those areas, strengthen service lines, improve the consumer journey and manage standardization across the financials. We'll continue quarter-by-quarter to shape exactly what those actions are. We're excited to have that team in place and are seeing some early results.
Matt, on how we think this will impact surgical volumes in the back half of the year: we're really not baking significant improvement into our assumptions beyond what we saw in the second quarter. So you can think of surgical decline in the low single-digit range, similar to Q2. As Dave indicated, a lot of work is happening to optimize service lines and focus on higher profitability lines. We have a number of physician starts slated: over 20 specialists scheduled to start in one market in the back half of the year. It takes time to wind down and wind up services, so you can end up with some disassociation like we saw in Q2, but we remain confident in the strategy.
Great. And then on the exchange topic, it sounded like you're trending better than the $35 million you baked in, at least for the first half. What would cause the exchange headwind to grow in the back half? Is there conservatism in the $35 million assumption?
Thanks, Matt. We always expected the trends to grow throughout the year. We didn't foresee some macroeconomic pressures that might cause someone to come off and not pay their premium and lose coverage, but we saw that growth from Q1 to Q2 and remain comfortable with our original assumption set and the $35 million impact. There could be some conservatism in there; we're trying to be thoughtful and planful because this is an area that is developing as we speak.
Your next question comes from the line of Ben Hendrix with RBC Capital Markets.
I was hoping you could provide a little more detail on some of the payer mix dynamics that you saw in the quarter. You mentioned migration from exchanges to uninsured, which is consistent with peers. Were you able to pick up a notable number of members in other group employer plans or other types of coverage?
Ben, obviously we're not immune from the exchange pressure and growth in self-pay volumes that peers have reported. Potentially, in the markets we're in, there's been a little less pressure on the loss of exchange lives than some other peers. As we look at our data, a material number of individuals who lost exchange coverage moved into other forms of coverage, both commercial and government programs. That gives us a bit of optimism. Most pressure this year has been in coverage areas that carry higher copays and deductibles, which points to economic pressure. When we look at the top of the funnel—urgent care visits and physician clinic visits—we're seeing very nice growth in those areas, but it's not translating into higher-acuity procedures, most pronounced in the payer categories with higher deductibles. That suggests macroeconomic pressure and potential pent-up demand.
Great. Appreciate that. Quick follow-up on your outpatient contracting commentary: you noted opportunities for continued contracting benefits in other markets. How much of a gating item is that for continued ASC development and build-out of those capabilities in other markets?
It goes hand-in-hand. As you change the mix of sites of care, you must coordinate tightly with your payer contracting strategies. So yes, it very much goes hand-in-hand.
Your next question comes from the line of Kevin Fischbeck with Bank of America.
I want to follow up on the volume commentary. Is there a good theory for why April and May were so weak and then June and July came back? It seems like a significant move. Is there anything else that points to why it was so weak and why the quarter-level assumption might be conservative relative to June and July?
Kevin, we have a number of theories. It strikes us there's macroeconomic pressure as we look at payer mix: coverage areas like Medicare and Medicaid, which don't carry the same levels of deductibles and copays, showed more consistent demand across those months, which gives us some optimism for the back half. But we're cautious and don't want to bake optimism into the guide. It's a volatile backdrop and we could see acceleration of exchange lives lost. So while we can posit reasons, the trend was pronounced.
Building on Alfred's point, this is why headwinds and tailwinds matter and why operational rigor and the IMPACT program matter. Some things are hard to predict, but we have control over staffing, resource utilization and facility utilization. We're laser-focused on the IMPACT program to deliver value through top-line improvement or expense reduction. The power of IMPACT is identifying projects, intentional redesign of work, speed of implementation, weekly follow-through and measurement to ensure we can deliver our financials and consistency.
Okay. And on the repricing dynamic, the $5 million to $10 million pickup seems large for one market, and you mentioned opportunities across multiple markets. Should we expect that size across multiple markets, or was that unusually large? Over what period can you capture that?
Kevin, that was one contract in one market, and it was a large contract. Not all contracts carry the same level of opportunity. Renewal cycles are generally two to three years, so think of a similar two- to three-year period. Negotiations are hard. We're taking a more data-driven approach. With transparency data telling a meaningful story, we believe we have a great opportunity to have data-driven conversations and partner with certain payers for better outcomes. If we're wildly underpriced in a market, it doesn't serve the payer to take us out of network. Negotiations are never easy; we have seen examples this year where letters went out to members about potential disruption. That's not where we want to go, but if it takes that to be paid fairly, we're willing to have those conversations.
Your next question comes from the line of Scott Fidel with Goldman Sachs.
Dave, a strategy question. When the company went public, there was a lot of focus on the JV opportunity with major health systems. Over the last couple of years, that narrative quieted down and the company has talked more about outpatient strategy and service line enhancements. Could you walk us through how those line up now? On capital, if JV is key you might retain capital; if not, you might deploy capital more aggressively. How do you view that and the balance sheet dynamics?
Thanks, Scott. We still believe in our existing growth strategy. The right markets matter, and growth should outpace U.S. averages. The Products and Services team is focused on using Capacity IQ to ensure disciplined decisions around assets and service lines, and that plays a critical role in our markets and M&A discipline. The JV opportunity remains part of our toolbox. We are pleased with many JV relationships; for example, UT Tyler in Texas is an important relationship improving results and business. We'll stay focused on our existing strategy and are taking a deeper look at every asset and service line to ensure long-term fit. Over the next few quarters you'll see more specific plans. We are organizing the team to advance further and will make disciplined capital decisions that are best long term.
On capital deployment, we're taking a balanced and opportunistic approach. We like having a strong balance sheet for flexibility. In Q2 we repurchased $13 million of stock and have $34 million remaining under the repurchase authorization as of the start of Q3. The Board and management believe there's value in the stock and repurchases can be an effective use of capital. If there's dislocation between price and underlying value, there would be a bias to repurchase shares.
Follow-up: peers have talked about the ratio of exchange attrition members going uninsured, sometimes close to 1:1. Have you been tracking that? If so, what percentage are going uninsured versus finding other coverage?
We track it in multiple ways working with Ensemble, which has broad industry data. There are multiple cohorts to consider—members who showed up last year and again this year, versus the entire population. For the cohort where we have the most visibility—people we saw last year and saw this year—there is a material number that found incremental coverage. So while there's some movement to uninsured, a meaningful portion is finding other coverage.
Your next question comes from the line of A.J. Rice with UBS.
I wanted to ask about other expense areas where you did well—salaries and benefits and supplies up modestly year-to-year. Supplies might have benefited from weaker surgery cases. Anything to call out in either of those metrics and any initiatives around them?
Thanks, A.J. We're satisfied with overall expense management. Controlling the controllables and operational rigor in a lower volume environment positions us well if volumes accelerate. SWB is where we had the strongest response to weaker volumes early in the quarter. We reduced spans and layers across managerial functions to be more nimble and accountable, and that will endure regardless of environment. We believe there is more opportunity in supply chain to drive savings; it takes a bit longer to create that impact.
Follow-up: are you allowing for a seasonal pickup later in the year when people hit their deductibles and start to come back? Remind us how comparisons look versus last year—did you see that activity in Q3 and Q4 last year? Is it an easier or tougher comp?
We would expect a normal seasonal pickup, though off a lower base, so it would still be lower. Typically the second half is stronger than the first, and I don't fully expect a normal pickup to offset all of the current headwinds. There is a scenario where seasonal dynamics could be stronger than historically because of economic uncertainty and deferred care, but that's not incorporated into our outlook.
To A.J.'s point about being positioned if surgical volume comes back: our rigor and standardization efforts show up across areas including SWB. For example, we opened a singular patient logistics command center we call CORE this fall. The command center influenced reductions in SWB cost and improves standardization and efficiency. CORE helps handle transfers and patient logistics more effectively. IMPACT is not just an expense program; it is care transformation. As we standardize and improve efficiencies with CORE, we'll be able to see more patients at scale with an improved expense structure.
Your next question comes from the line of Craig Hettenbach with Morgan Stanley.
Dave, going back to your comments about the top of funnel and 25 urgent care and ASCs, can you talk about the pipeline and any updated stats in terms of driving activity from that top of the funnel?
Specifically, the top of funnel I'm focused on involves referrals and patient transfers. We've seen low double-digit growth in referrals and transfers. Maximizing inbound patient flow is critical and gives us positive signals about potential business. Those channels matter a lot because, per Capacity IQ, the patients we acquire via referrals and transfers are critical to our financial formula and are patients who need care.
Got it. Building on the AI commentary: I saw uptake for Ambient scribe technology in the industry. How are you approaching that from an ROI perspective? Physicians like it, but how are you thinking about rollout and implications for the business?
I'll focus on hellocare.ai because the economics are quite straightforward. Leveraging hellocare.ai, which will be deployed in over 2,000 hospital rooms, is ROI positive through our ability to handle virtual sitting appropriately. This lets us take better care of patients and reduce unnecessary patient falls by improving virtual sitting and allowing fewer team members to provide better oversight through technology. The rest is bonus, including patient experience improvements. For Ambient Listening, we reached the 1 million mark last month and are seeing substantial time savings for providers. Translating that time savings into additional visits is something we're still working through because there's a balance between provider workload and quality of documentation. Providers feel positive about it; we're seeing mid-single-digit improvements in productivity. Now it's about how to best use that productivity gain.
Operator, I think we've got time for one more question since we're at the top of the hour.
Our final question comes from the line of Benjamin Rossi with JPMorgan.
Regarding the IMPACT program, as you're adding savings under this scheme of operational rigor, do you think the incremental benefit realization is largely a pull-forward of other initiatives that were further in the pipeline? Or do you see opportunity opening up as surgical volumes were softer? How do you frame the additional savings opportunities being presented here?
Ben, for the most part what we saw in June was a pull forward. This is a multiyear strategic imperative to ensure the cost structure is aligned. We intentionally went further and faster; faster implies a pull forward compared to the past. We have the leadership team assembled weekly to track, improve and expand the potential of IMPACT initiatives. The inventory of opportunity is expanding, but what we've executed so far this year is largely a pull forward.
On inpatient surgery, adding on: there's a powerful dynamic between Products and Services clarifying service lines and the IMPACT program optimizing operations. Those two together allow us to be clear on what we stand for and to optimize what we don't. That helps shape our SWB intentional redesign—where we need to be at our best and how we want to design for it. One team, one plan, one standard: as we reduce spans and layers, design and execution are brought closer together, increasing our nimbleness. As we go forward, you'll see us implement with speed, execute with speed and ensure design matches execution.
This concludes today's question-and-answer session. Ladies and gentlemen, thank you for joining today's conference call. You may now disconnect.