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Alfred Lumsdaine

Thanks, Marty, and good morning to everyone on the call today.
As Marty indicated, Q1 of 2025 represented a very solid start to the year, and we expect to maintain our operating momentum throughout 2025. At a high level, we continue to execute across numerous key strategic initiatives during the first quarter that helped set the stage for attractive long-term growth.
We captured incremental supply chain cost savings, improved transfer center operations and integrated the Nextcare urgent care acquisition.
Additionally, while our earnings exposure from tariffs is minimal for 2025, we're working proactively to mitigate potential future impacts. Like many peers, we benefit from a strong relationship with our GPO partner Health Trust and have fixed pricing for a large majority of our supplies this year.
Recognizing that the tariff outlook is fluid, we estimate the 2025 EBITDA impact is no more than a mid-single digit million-dollar amount based on the current tariffs in place. That said, I'll move on to first quarter results, which excluded any financial benefit from the 2025 New Mexico DPP program. While CMS has not approved the renewal yet, we're encouraged by signs of a typical program approval process between the state and CMS.
First quarter revenue increased 4% to $1.5 billion compared to the prior year driven by adjusted admissions growth of 2.7% and net patient service revenue per adjusted admission growth of 1.2%. Excluding the infusion and oncology transfer that Marty mentioned, growth rates for revenue and net patient service revenue per adjusted admission were 4.7% and 1.9% respectively.
From a volume standpoint, demand remains durable. Emissions growth was a very strong 7.6% and adjusted emissions increased 2.7% year over year, which we believe speaks to our strong market position and growth opportunities within our current markets.
Inpatient surgery growth was a solid 3.4% in the first quarter while outpatient surgeries declined 2.3%. Overall, we estimate year over year surgical volume was impacted by approximately 1.5% from the timing of leap year. Adjusted EBITDA increased 2.5% in the first quarter to $98 million which is consistent with our expectation towards achieving full year 2025 guidance.
The growth rate was impacted by a notable increase in payer claim denials when compared to the first quarter of 2024. To be clear, we aren't seeing a significant increase in denials compared to the back half of 2024, but it does create a year over year headwind. That said, we expect underlying EBITDA growth to accelerate as we lap this dynamic in the back half of the year.
Turning to some specific line items, salaries and benefits expense as a percentage of revenue increased 70 basis points on a reported basis, but virtually all of that increase was driven by post-IPO stock compensation.
We're pleased with our operational improvement around contract labor, which declined 60 basis points year over year to 3.8% as a percentage of total salaries and benefits. We continue to see strong nursing retention rates and a stable contract labor rate environment. Marty already covered our improving trends in professional fees and supplies, so I won't rehash those.
Moving on to cash flow and liquidity, we ended the first quarter with total cash of $495 million and total debt outstanding of $1.1 billion. Our total available liquidity at the end of the first quarter was $790 million. Cash used in operating activities during the first quarter was $25 million compared to $15 million used in the first quarter of 2024. As a reminder, Q1 is traditionally our weakest cash flow quarter, largely due to payment timing related to year-end accruals. Capital expenditures during the first quarter were $23 million and we expect that to ramp throughout the year. Our total net leverage as calculated under our credit agreements was 1.4 times and our least adjusted net leverage was three times.
On a related note, I'm pleased to share that late last month, S&P upgraded our credit rating to B plus from B, reflecting our improved net leverage and cash flow profile. This action affirms the results of our fiscal and operating strategies and will help strengthen any future financing opportunities.
Overall, we remain firmly on track to achieve our 2025 financial outlook which we are reaffirming today. With that, I'd like to turn the call back to Marty for a few final comments on the quarter before we open the call to questions. Marty.

Marty Bonick

Thank you, Alfred.
In summary, we continue to make substantial progress as we execute on our strategic growth initiatives and leverage the consumer-focused platform we have built to create long-term stockholder value.
We are pleased with our solid start to 2025 underscored by strong demand trends. We continue to sharpen our focus on market share growth, taking a disciplined approach to evaluating opportunities in both the ambulatory space as well as acute care hospitals. With leverage of three times and ample cash, we will continue to assess opportunities to execute on this strategy.
Finally, we remain focused on operational excellence initiatives to drive marginal expansion over the next several years. I want to close by thanking our 25,000 team members and more than 1800 employed and affiliated providers who continue to deliver exceptional care to patients across the communities we serve. Together we are focused on making healthcare better and advancing our purpose of caring for our patients, our communities, and one another. With that operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Your first question is from the line of Ann Hynes from Mizuho.
And your line is open.
There's no response from that line. We'll go to the next question.
Your next question is from Whit Mayo with Leerink Partners.

Whit Mayo

Hi, thanks. I'm still trying to get a feel for the seasonality of this business, and when I exclude the supplemental payments from the fourth quarter of last year, it looks like I may have decline, call it 20% or so. Is that a normal sequential decline and you referenced stronger flu and the volumes look really good, so I would have expected to see, better than normal sequential growth. So, I'm trying to put this sort of in perspective with normal seasonal patterns to the way your earnings develop. Thanks.

Alfred Lumsdaine

Sure, thanks for the question with this is Alfred. Yes, I would say it's not, abnormal. There's obviously any number of puts and takes, from our perspective, the strength of the flu season is not a particular tailwind to the business. It certainly drives higher volumes but also comes with some lower acuity and some incumbent higher cost premium pay as we care for those patients.
So, yes, I would not. That into the tailwind or into the tailwind category, clearly, we mentioned para denials, but again on a sequential basis we didn't really see that as a as a sequential. It was more of a year over year impact than a sequential impact. So, again with some amount of normal puts and texts, I think you can put that into, the bounds of a normal type of seasonality with the strength of year end.
And then the reset of deductibles and copays at the start of the year and then other kind of timing things like reset of payroll taxes, etc. You have a little bit of a cost burden in Q1 that happens as well, and our races go into effect in Q1. So again, there's just a little bit of a sequential dynamic there, but I would not call out anything outside of the bounds of normal.

Whit Mayo

Okay, and maybe just to follow up on the Elevated denials. I presume that that's MA and what I'm hearing I guess is this is a continuation of what you saw from last year or are there new changes in payer behavior or dispute resolution, any changes with length of stay on MA just any additional color might be helpful, thanks.

Alfred Lumsdaine

I think what you're hearing is very consistent with, what we're experiencing. Yes, it's a continuation of last year, we really saw that step up happen in the middle of the year, a couple of things we would call out there, I would say. There has been a continuation of a slowdown in payments even on clean claims. That's maybe again while denials have not accelerated, there's maybe been a bit of an acceleration from just a length of time to pay a clean claim, and that's certainly showing up impacting our cash flow numbers. But no, we're not, you're again, how you frame the question is consistent with what we're saying.

Operator

Ann Hynes - Mizuho Securities Co., Ltd.

Ann Hynes

Hi, I'm sorry about that. I have some technical difficulties, maybe just on the supply chain initiatives. Can you tell us like why you actually have so much opportunity versus your peers. Are you involved in the GPO and maybe if you really can dig into like the type of opportunities you have that will create that type of margin expansion, that would be very helpful.

Marty Bonick

Yes, and this is Marty. Thanks for the question.
We do participate with Health Trust as our GPO partner and very similar to our peer group, and so that helps us with our day to day contracting, but the utilization within our service lines is where we still see opportunity for improvement. This is an ongoing journey that we have and have continued to see. As we've gone through both as well as I'm looking at physician preference items and most notably the action we took last summer by partnering with one of our academic institutions to move some of our oncology infusion services.
The drug costs for those services have varying reimbursements based upon the geographies and markets that we're in and so we continue to see opportunities to further, address those drug costs in concert with our partners as well as just general physician preference items that we're continuing to negotiate across key service lines as we're seeing volumes improve.

Ann Hynes

I'm great, and then it sounds like the underlining emission growth was better than your expectations. Besides flu, were there any other areas that you would call out. Thanks.

Marty Bonick

Yes, this is smart.
So, we've had a big focus around our transfer centers and making sure both from an internal efficiency that we've got good bed turnover through length of stay initiatives and optimizing.
The transfer centers that we have regionalized across the company and so I think you are seeing that the strong impact of the flu is the principal reason that we have coming through there. But as we've gone through service line rationalizations that helped lead to an increase in our inpatient surgeries and again the focus on the transfer centers of bringing in cases from across our regions into our tertiary centers. So, the combination of those activities is what's driving that growth.

Alfred Lumsdaine

This is Alfred and I would just add that. Again, we believe it's also a representative of the strength of the markets we're in and the underlying growth of those markets.

Operator

Craig Hettenbach, Morgan Stanley.

Craig Hettenbach

Thank you, Marty, can you just build on the commentary of just durability of demand, any areas of care where you're seeing that most pronounced and anything to note in terms of how broad based this is versus market specific.

Marty Bonick

Yes, Craig, this is Marty. So just as building on what Alfred said, we've referenced before the strength of our markets growing on average, about 3% a year, and so we see that as very durable. We know that there's some commentary between the payers and the providers in terms of whether there's pent up demand. We don't subscribe to that theory. The strength of our markets, coupled with the strength of our performance gives us strong conviction that we will continue to see. A strong volume growth, we accentuate that by the operational improvements we're making to be able to service that growth, but the strength of the markets that we're in, gives us good conviction that these volumes are durable to from a positive growth rate perspective.

Craig Hettenbach

Got it. And then just as a follow up on the COO hire, just any areas of strategic focus for him and then also kind of experience he brings to the organization as you continue to look to scale the business.

Marty Bonick

Yes, Dave's about one month on the job with us and is doing a great job of really just helping to again complement the existing executive team that we've put together. We've got great subject matter expertise across our hospitals, our health services, and our corporate services.
Dave's background with both the consumer and retail focus will accentuate our consumer growth strategies as we go through the markets and just to focus on a continued focus on integration and optimization of the entire platform. We've talked about the centralized services that we've created in the years leading up to the IPO last summer, but we also said that we know that we've got 100 basis points to 200 basis points of margin expansion to achieve over the next several years, and Dave will be a key focus in driving that performance improvement coupled with the expected growth that we will see in new market or new hospital growth complementing existing markets, that integration activity will be paramount to making sure we can extract value from any transactions and making this accreted for the company and so he'll have purview over the execution of our ongoing initiatives as well as that integration of new activity and growth into the system.

Operator

Ben Hendrix, RBC Capital Markets.

Ben Hendrix

Great, thank you very much. Just wanted to get an update on the expansion initiatives or the strategic initiatives you called out specifically expanding your outpatient and acute footprint. Just any update on how conversations are going with.
New market opportunities and sellers in those markets. How are they thinking about valuation and the amid the uncertainty on the Medicaid policy changes and kind of just what you're seeing in terms of seller appetite.

Marty Bonick

Thanks.
Yes, Ben, this is Marty again. Thanks for the question. We continue to focus on a multi-part growth strategy. The first we always said was going to be inside of our markets. While we've got very strong inpatient market share, we know that there's still a lot of outpatient development work to be captured. Again, the acquisition we did with the Next Care urgent care assets in our Albuquerque and Tulsa markets, the 18 urgent care centers we bought as a great indicator of that continued focus that we're going to have of strengthening the access points in our markets, strengthening our positions in those markets and building out a more robust footprint first and foremost.
On the second part, in terms of new markets or new hospital growth, I would say the pipeline continues to build. Since going public, our visibility, has taken a new stage, and we've got more inbound calls coming from academic partners in particular that have taken note of the model that we have and have a desire to grow inside of their respective regions but may not have the balance sheet or the integrating operating experience to expand into new regions and see Ardent as a good target partner.
So, I'll say the conversations in the pipeline are growing, which is the reason that we're focusing on bringing in a dedicated Chief Development Officer into the company to be able to capitalize on those opportunities in terms of evaluations, you've certainly seen some headline valuations that are above historic norms and averages. I would characterize those as largely sort of one-off strategic acquisitions for certain existing systems in a given geography.
We believe that the overall valuations will continue to trade somewhere in the normal sense of where this industry has historically been, and any acquisition that we focus on is going to have to be something that we see as a creative to the company in the near term call the first 24 months where we can see, absent purchase price synergies that will help us to deliver a transaction and make it accreta for shareholders.

Ben Hendrix

Great, thanks for the call.

Operator

Joanna Gajuk, Bank of America.

Joanna Gajuk

Hi, good morning. Thanks so much for taking the question. So, I guess a follow up on that comment around I guess related to the prior question, so you mentioned that there's interest to it sounds like receiving from the non-profits and academic centers to partner. So, can you give us a sense of those preliminary, are these. Systems waiting essentially to see what's going to happen or they're kind of ready to kind of, do something right now. So, essentially what I'm asking is that sort of, are you close to getting something done. Should we expect something this year or is it more kind of like next year when the dust sells, any kind of indication, I guess would be helpful.
Thank you.

Marty Bonick

Yes, Joanne, this is Marty, and I offered to chime in if there's additional, but we've been pretty open that, we went public with the expectation of growth. We believe we've got a strong operating model that would be valuable to enter into new markets where we could create a partnership and create something more valuable for that target seller that they were able to achieve on their own.
We don't have anything definitive to announce today, obviously and we will appropriately message that when there is, but I would say that there's a mix of conversations going on with potential near term opportunities as well as exploratory conversations about what future growth can look like in a given geography.
We are focusing on a mix of hospital acquisitions that would be both complementary to our existing markets or state footprints or in as well as new and so. We're just encouraged by that, the pipeline of growth and again the reason why we're bringing on a dedicated Chief Development Officer to help, nurture those relationships, conversations, and bring those to fruition. But we've been saying we've been hopeful that we will see some type of a transaction whether that's a tuck in or a new market, still in this calendar year.

Joanna Gajuk

Okay, if I may, on the New Mexico DPP, like you said, no approval yet, but there's some approvals coming out. So, any indication, like would you assume to get this finalized by the end of Q2. I mean, we already in May. Thank you.

Marty Bonick

Yes, this is smart again on the DPP programs we are starting to see a number of analysts noting the renewals of other states happening. We remain convicted that these programs are durable, from our conversations at Washington DC with elected officials, they know the importance of these programs to the states. Again, these DPPs were started under the first Trump administration, and I think the sense that we're seeing these new other state approvals come through are consistent with our conversations that we're having with the elected officials both in the state and CMS that it's just a matter of processing through these. And you know we are expecting approval, but the timing we are hopeful for to see a Q2 approval, but obviously we can't control that.

Alfred Lumsdaine

And this is Alfred. The only thing I would add is that, we stay close to our contacts in New Mexico, and I think we've been clear that all of the indications are that, things are progressing as you would expect and a very normal tracking towards an approval.

Operator

Matthew Gilmore, Keybank.

Matthew Gilmore

Hey, thanks. I wanted to ask about exchange volumes and payer mix. I think the presentation made reference to strength with exchange volumes. Can you provide some details in terms of the magnitude of the growth in the quarter and maybe update us in terms of the percent of revenue that's tied to exchanges versus, I think the 3.6% you talked about for '24.

Alfred Lumsdaine

Sure Matt, this is Alfred. Like, all of our peers, we are seeing very strong exchange growth.
For example, emissions in the quarter grew 40% in Q1. That's a combination of improvement in our additional enrollment in exchanges as well as new plans that we have that are ramping. So, our exchange volume growth was significant and today Q1 we're operating in the mid-single digits of the percent of revenue.

Matthew Gilmore

Got the help and then following up on the comment around the moderation and professional expenses, I was hoping you could sort of unpack that a little in terms of the hospital-based physician expense, where are you seeing improvement and, are you confident and comfortable that'll be sort of a durable moderation any additional details there would be great.

Marty Bonick

Thanks.
Yes, Matt, this is Marty. We have Expecting to see, as we, get guidance earlier in the year that this was still going to be an inflation that was north of, sort of general inflation, and you know we've modeled that as such, and we are seeing, that continue and we are encouraged that it is, monitoring from, the peak in '23, the rates came down a bit in '24, the growth, I should say came down a bit in '24. We expect that to continue to moderate '25 but still be above normal inflation levels. So, while and was slightly ahead of where we thought things might be.
We know just given some of the uncertainty specialties, radiology is one that has been a bigger growth area as well as continued pressures in anesthesiology that we expect to see some continuation of this trend building throughout the end of the year as we had forecast and guided early in the year.

Operator

(Operator Instructions)
Benjamin Rossi, J.P. Morgan.

Benjamin Rossi

Great, thanks for the question. So, with 12 revenues per just an admission at about 1.2% on the respiratory drug with acuity and more challenging you over you.
To start there, is there anything else from a pa mix or a QD perspective that we aren't seeing within there, such as additional drag from your efforts for rationalizing your outpatient surgery offerings. And then in reaffirming your guide, what puts and takes are you factoring into reaching the lower end or upper end of your 2025 pricing guidance of 2.1% to 4.4% year over year. Thanks.

Alfred Lumsdaine

Hey Ben, it's Alfred. I'll start with the first part of your question on the NPR for AA growth, 1.2%. You touched on, a piece of it, the service mix and acuity, clearly that was, on a year over year basis a drag, we continue to see good, the year over year commercial rate increases have been very consistent with our expectations.
The other item that were dragged on a year over year basis. We talked about the denials, which we will lap in the middle of the year, so you'll get a more normalized, growth rate on a year over year basis. And then the last thing is that transfer and Marty touched on it in his comments, the transfer of the oncology services, that was about 70 basis points as well. So, really those three items were the were the drag on a European basis.

Benjamin Rossi

Great. And then as a follow up on the transfer center operations, you mentioned the improvements to trying to transfer center more broadly on a regional basis. Could you just walk us through those efforts and your approach more broadly to inpatient capacity and related patient throughput during this elevated patient utilization backdrop.

Marty Bonick

Yes, this is Marty. So, we have regionalized our transfer center operations and as you all know, we have one instance of Epic as our electronic health record and really our clinical operating system that helps us drive and have visibility in terms of where we have capacity opportunities. Taking the technology and the organization of those services, it's allowed us to have a very, seamless process for outlying rural regional hospitals to be able to transfer patients into our networks and help us to drive that volume to the most appropriate setting. So not only are we trying to maximize volumes coming into our tertiary hospitals, but our secondary hospitals, which may not have gotten the original call, we're able to relocate those patients.
Where we've got the appropriate clinical mix of physicians and services to service those patients and manage capacity and demand across a broader network. And so before that was all happening, on a one-off basis and if you call Hospital X and they had availability they'd accept it. Now you're calling the market and the market is helping to distribute those patients more effectively across our footprint, which is helping us to see increased pull through in those transfers getting placed in one of our hospital beds.

Alfred Lumsdaine

And Ben, this is Alfred. I want to go back to the first part of your question because you asked about the, kind of what are the range of outcome in terms of the items that would affect the range from the top end to the bottom end of our guidance. Obviously, we're very pleased with the start of the year and the solid key one that we had. I would just point you back to the things we've talked about the pressure of professional fees, the pairer behaviors and denials is their variances to those expectations and then of course tariffs we've touched on relatively minor in terms of the overall exposure, but certainly not something that we had anticipated in our guide.

Operator

At this time there are no further questions. I will now have a call back over to management for closing remarks.

Marty Bonick

Thank you everybody for your time and attention. We appreciate the support of Ardent and our performance. If there's any follow up questions, please refer those to Dave Styblo, head of investor relations for Ardent.
Thank you, everybody.