• Ardent is +19%

• Health Care Select Sector SPDR ETF is +5%

• S&P 500 is +7%

On a year to date basis, ARDT is +24% and has outperformed comparable peers. A recent CEO change shook up the share price at June 1st and promptly bounced back. Needless to say from the chart, Ardent’s price action has not been enjoyable and I expect it to continue to remain volatile given it’s volume and market cap. Original post below:

Context

I am writing this as I prepare for 2Q earnings to be released next Tuesday. I thought a couple of notes about how I’m thinking about the print would be helpful, especially with THC, UHS, HCA, and CYH having reported already.

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• EPS raise is due to Masimo acquisition closing early (not op performance, imv).

• Bioprocessing revenue impacted by “customer project timing.”

• They’re reporting sales ex respiratory, so another non-GAAP metric. Diagnostics -1% 6mo ended YOY, total co is 2%. Respiratory impact was 5% so they’re releasing “Core sales growth ex-respiratory.” Seems like another game they want to play so they can show MSD core sales growth.

• OCF/Net Earnings & FCF/Net Earnings conversion both fell fairly materially (1.75x to 1.50x 6mo ended YOY, 1.43x to 1.24x 6mo ended YOY, respectively).

• Feels to me like core biz struggling. Need to digest a bit more.

• TLDR, growth rekt.

Here is a link to that post:

Some brief financial highlights.

Price: $178.00

Shares out: 707.77mm

Market Cap: $142.3B

Cash: $5.7B

Debt: $19.68B

Enterprise Value: $156B

Below are my thoughts.

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Quick Pitch

Titan America is the kind of business I buy once and then try very hard to forget I own, a vertically integrated cement and building-materials producer that has a presence in two coastal markets on the US East Coast: Florida and the mid-Atlantic. It carries roughly 31% cement share in Florida, 28% across the Virginia and North Carolina corridor, and 24% in Metro New York.

These types of businesses can earn a low teens ROIC for decades. The balance sheet is close to spotless at 0.58x net leverage, the business threw off $295 million of operating cash last year. The clearest recent proof of that is the $310 million Keystone acquisition, where they acquired a kiln for about $313 per ton of clinker capacity. I believe this acquisition, if operated at industry standard utilization, was acquired at an attractive $/st (short ton) valuation.

It’s my view that this is an opportunity to buy a multi decade asset at an attractive valuation following the acquisition of Keystone, purchased at a discount to comps (at capacity). I believe the market is anchoring to Keystone’s trailing 10% margin and quietly ignoring the obvious, which is that inside Titan’s network, next door to Essex and Roanoke, a 10% margin + increased capacity will be accretive to cash generation.

To my point regarding multi decade asset, too often on X (and elsewhere) people are way too short sighted. Buying this type of business hoping for the stock price increasing or capital returns for the next few quarters makes no sense to me and I would caution against it. This article is meant to be a not-so-long introduction to the business, some of my math/assumption, and a foundation for further coverage as time goes on.

Below is an image from the recent investor deck just to give a sense of geography and where their assets are located.

Corporate History

Titan America was spun out of Titan Cement (TITC, listed in Athens) and listed on the NYSE in February of last year. It operates 141 sites and roughly 2,550 people across three regions (Florida, the Mid-Atlantic, and Metro New York/New Jersey) and the full vertical stack: cement, ready-mix, aggregates, concrete block, and fly-ash processing.

The 2025 numbers were solid and unspectacular, which is the correct register for a business like this: $1,664 million of revenue, $390 million of adjusted EBITDA at a 23.4% margin, $185 million of net income, $1.01 of EPS, and $132 million of free cash flow. For Q1 of 2026 net debt fell to $227 million, taking leverage to 0.58x.

One detail worth holding onto: management’s full-year guidance, low-single-digit revenue growth with modest margin expansion, explicitly excludes Keystone. Whatever Keystone becomes is incremental to the business.

Why Cement, Why Titan

Cement is heavy, low-value relative to its weight, and miserable to ship by land. Because of this dynamic, many have begun to refer to these cement operations as “Local Monopolies.” I would highly recommend reading this thoughtful piece by Gabelli: Gabelli: Global Cement Industry.

That dynamic turns the business into a collection of regional near-monopolies. Titan is vertically integrated, they own the raw materials, clinker, SCMs (supplementary cementitious materials), grinding, logistics, and downstream channels to market. They own three cement plants, three multi-material marine import hubs, eight aggregate/clay quarries, 83 ready-mix plants, eight concrete block plants, seven fly ash plants, and 21 rail distribution terminals that serve a total of 13 states, albeit management classifies seven of those states as “core.”

Its regions are, in the company’s own phrasing, “book-ended” by an upstream plant on one side and a multi-product marine import hub on the other, stitched together with rail terminals and logistics layer. Part of my “why?” for Titan America is the difficulty of reproducing this type of asset base in the United States of America. As you may know, permitting is a contentious issue, it is objectively hard to build large infrastructure projects quickly. You need the permitting, the time, the capital and most importantly the wherewithal to get this done.

Florida threw off $279 million of segment EBITDA on roughly $1.02 billion of revenue last year. The consolidated business runs at a 23% EBITDA margin with a balance sheet that ended last year at 0.6x net leverage, down from over 1.2x the year before because the management team spent the post-IPO period paying down debt and paying a dividend.

“Overall, the U.S. cement industry and market continued to be constrained by closed or idle plants, underutilized capacity at others, ongoing plant upgrades, and the ready availability of imported cement.” - USGS Mineral Commodity Summary, Cement

Keystone Cement Company

Keystone Cement is a single integrated plant at Bath, Pennsylvania, in the Lehigh Valley. It has 990,000 short tons of annual clinker capacity, more than fifty years of permitted limestone reserves, and about 125 employees. Titan bought it for $310 million from a consortium of Fortaleza, Uniland and Tritadura, funded with cash and financing. The plant sits inside a 6.2 million ton addressable market across Pennsylvania, Maryland, Delaware and Ohio, and it is right next door to Titan’s existing Essex import-grind operation, its Roanoke cement plant, and its fly-ash network. The value here is not just in Keystone’s standalone economics, but in folding the kiln into the surrounding network. Importantly, and to reiterate my previous point, Titan’s own full-year guidance excludes Keystone entirely.

For assets that are capacity constrained, such as a cement plant, I find it useful to look at valuation through the lens of capacity, not just EBITDA. I do this because certain operators can operate and manage assets better than others and in the case of Keystone, I believe that is what’s happening here. The comp is dollars per short ton of clinker, not the finished cement grinding capacity, which you can pad cheaply with imported clinker and additives. Titan paid about $313/st of clinker for Keystone: $310 million for 990,000 tons.

Keystone's clinker figure is disclosed by Titan. Tehachapi is a single plant at a disclosed price. The two platforms do not disclose total clinker anywhere, so I rebuilt them from the individual plants, anchored to the kilns with public capacity figures and bounded by company-level totals, and those two numbers are my estimates, labeled as such in the model. The estimate cuts against me, not for me: grinding capacity always exceeds clinker capacity, since grinding adds gypsum, SCMs, and in Argos's case imported clinker, so the true cost per clinker ton at the platforms is higher than any cement-based shortcut suggests, which makes Keystone's discount wider than the table shows, not narrower. This is the floor under the position. Permitted clinker capacity in the populated Northeast has not been built from scratch since Holcim's Ste. Genevieve plant came online around 2009, after a six-year permitting slog through eight agencies. It gets bought, and Titan bought some below what anyone has paid for it in a decade.

Keystone Valuation

The May deck discloses Keystone’s 2025 revenue at roughly $97 million at about a 10% EBITDA margin. That is $9.7 million of trailing EBITDA, which makes the $310 million price roughly 32x trailing. On the asset’s actual recent economics, this deal is expensive, not cheap. The reason is utilization. Back the implied volume out of $97 million at a market cement price and the kiln was running near 53% of its capacity under its prior owners. A healthy modern kiln runs in the high 80s to 90s. Keystone was producing a little more than half of what it is built to produce, and the trailing multiple is ugly precisely because the denominator is half-sized.

The $313 a ton is priced on capacity, so it holds no matter how little the kiln currently produces. The 32x is priced on output, which is depressed because the kiln is half-idle. It’s cheap on the capacity basis, but not on the earnings basis. The opportunity here is for Titan America to close this gap, especially given that these figures are not currently baked into management projections. Titan says as much in its own deck: the first operational synergies listed are increased onsite storage and logistics to “substantially improve capacity utilization and throughput” and “improved reliability and output.” Management is telling you the asset was under-run. In my view, it would be safe to say that management purchased this asset for the capacity rather than the current economics and they believe they can operate this in a much better manner than prior management.

Keystone Levers

Closing that distance takes two levers: first is volume, increase kiln utilization from 53% toward 90% utilization. The second is margin: lift Keystone’s 10% toward the 23% Titan’s own network earns, through logistics, alternative fuels, and routing the output through Essex and Roanoke. I model utilization at 53/65/78/90% across 2025 to 2028 and the margin at 10/11/15/19%. Run both and Keystone’s EBITDA roughly triples, from $9.7 million to about $31 million by 2028, while the multiple paid on it falls from 32x toward 10x. Roughly $7 million of the uplift is the kiln filling and about $15 million is the margin converging. The 2025 baseline and the 10% starting margin are the company’s numbers. This is an estimate/assumption.

Keystone Impact to WholeCo.

At the consolidated level the deal is small in year one and builds. Keystone contributes only eight months in 2026 at a still-depressed margin, so pro-forma EBITDA lands around $411 million and the deal is modestly dilutive to EPS, on the order of 3%. By 2027 the dilution is roughly gone and by 2028, with the kiln filling, pro-forma EBITDA reaches about $477 million and the math turns to a couple points of accretion. Impact to the balance sheet is negligible: leverage steps up to about 1.0x at the end of 2026 and Titan’s free cash flow, around $170 million pro-forma and growing, chews the acquisition debt down toward 0.2x by 2028. Meaning, there is room for another acquisition if an opportunity arises.

I want to emphasize again how I view this investment, it’s not something that will magically go up 50% tomorrow. All of this work goes back to my original commentary about this being a cash generative amalgamation of local monopolies that own assets that aren’t easily replaced by greenfield development.

What Could Go Wrong

If utilization and margin problems are structural, plant configuration, freight, the cost of running an aged line, rather than the fixable kind, the synergy story weakens and the asset is worth roughly what was paid, no more. Keystone never reported publicly, its economics arrive secondhand through Titan’s deck, and my ramp cannot be checked against post close results yet. The margin path and the utilization recovery are my own estimates. I do believe there is a margin of safety here however in just the raw asset values of the property plant and equipment as well as the fact it’s a vertically integrated operation.

Not to state the obvious, but the Strait of Hormuz remains an issue to global commodity pricing. It is unclear how this will impact Titan America, I can see a world in which the next few quarters see some pressure due to energy costs. That remains to be seen.

Conclusion

Titan is a cash-generative vertically integrated cement and building materials business trading around 8x EBITDA that just bought a scarce, permitted clinker asset below replacement cost and below every relevant precedent, in a region where capacity has not been built in decades. The market is anchored to a 32x trailing multiple on a half-utilized plant and management’s own guidance excludes Keystone entirely. The path forward for their Keystone acquisition is two pronged: utilization increase and margin expansion at Keystone. The balance sheet is healthy and permits them to acquire further cement operations in the United States.

As always, @KarstResearch on X/Twitter. DMs open and happy to chat. I implore all readers to conduct their own diligence, this article is meant to spark further diligence. I own shares of Titan America .

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Financials

Let’s get the financials out of the way first. Keweenaw posted a net loss of ($49,031) in FY2025 compared to net income of $262,499 in FY2024. Before you react to the word “loss,” understand that the swing is almost attributable to the absence of one-time items that inflated 2024 income. In 2024, the company recognized $366,250 of “other income” primarily from a mineral lease termination settlement ($85,200) and a gain on the mineral exchange with the Michigan DNR ($265,000). In 2025, other income was just $60,700 from a small mineral rights sale and real estate transaction. Stripping out these non-recurring items, the underlying operations were remarkably similar year-over-year.

Revenue grew to $487,001 from $372,552, a 31% increase. That growth came from new lease and option agreements layering onto the Copperwood base. Copperwood lease payments were $349,700, and the three new exploration agreements signed during the year contributed $100,810 in incremental top-line revenue. The base is small but it’s growing, and more importantly, every dollar of new lease income represents a partner committing capital and work programs to Keweenaw’s land.

Cost of sales increased to $183,192 from $103,125. This reflects real activity: lease applications and acquisitions from the State of Michigan, contract geologists, mineral title work, surface sampling, prospecting, lab analysis, and notably, organizing and digitizing data acquired from their mineral acquisitions. SG&A was $616,328 versus $539,167, with the increase driven by digitization of legacy data and non-recurring legal costs tied to the new agreements. Stock-based compensation remained $87,946, consistent with the graded vesting schedule of the January 2023 option grant.

The balance sheet remains pristine: zero debt, $14.3 million in stockholders’ equity, and total assets of $14.7 million. Mineral rights on the books are carried at $7,978,390, up modestly from $7,972,030 after a small $6,360 acquisition (2,120 gross acres). Exploration and evaluation assets remain at $306,420 with no impairment. The company has federal NOL carryforwards of $1,535,434 and state NOL carryforwards of $2,459,811, both indefinite, which will shelter income if revenue scales.

Shares outstanding are 1,126,284. At the recent price of roughly $49, the implied market capitalization is approximately $55 million. That’s up from the $45 million level when I wrote the original piece. On a per-acre basis, using the new 1.3 million+ acre footprint (owned, managed, and alliance), the implied value per acre is now approximately $42. Using only the roughly 1,095,000 net acres of owned and leased mineral rights as reported in the annual report, the figure is roughly $50/acre. Still a modest figure for mineral rights in a region with demonstrated copper, nickel, gold, and platinum group elements.

Acreage Acquisitions

The most significant development over the past year is the acceleration of Keweenaw’s land assembly strategy. When I wrote the original piece, total owned and managed acreage was approximately 1,077,455. Today, following the March 9, 2026 strategic mineral alliance announcement, Keweenaw’s combined owned, managed, and alliance acreage exceeds 1.3 million acres, including approximately 1.25 million in Michigan alone.

The growth has come through a series of capital-light transactions:

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On the back of their recent earnings release, I felt like it would be timely to discuss some of the dynamics that I think are impacting the provider space broadly, specifically focusing on the DSH payment cuts, ACA exchange subsidy expiration, and OBBBA Medicaid eligibility tightening.

Current Policy Dynamics

In this section I’m going to discuss the three dynamics that I’m thinking about as we head into the midterms, but also as we think about years after Trump.

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This company is value-based care platform. Just closed a transformative acquisition that roughly doubled its size. Record revenue, adjusted EBITDA, and free cash flow in 2025. Guiding to 24% revenue growth and 29% EBITDA growth in 2026. Trading at extremely attractive multiples (6x NTM EV/EBITDA).

Being a healthcare company in the US that has caused some short term noise on a name that is otherwise performing exceptionally well and continues to do so. Management is repurchasing shares at attractive prices and has been able to grow and accelerate cost synergies following a large acquisition.

The company trades at 6x NTM EV/EBITDA and around a 10% FCF yield. The guidance for 2026 is is excellent.

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Previously, the governance of the royalty company was a disaster. That changed recently when an activist family office successfully nominated five new directors to the board in a proxy fight that flew almost entirely under the radar.

• Royalty owner: publicly listed royalty company

• Mine operator: A private resources company

• Offtake counterparty: A global commodity trading giant

An activist entity has taken control, turning around the entire governance of the company, and no one seems to be paying attention. So now you have: a freshly reconstituted board with shareholder-aligned leadership, a hard asset generating real cash flows, and a blue-chip offtake counterparty — all wrapped in a sub-$150M market cap entity that no one is paying attention to.

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This one is small, really small. It trades on appointment. The average volume is less than 1,000 shares and it has taken me some time to build a position and I’m still not done. The beauty of this is that, unlike Itafos, the company doesn’t operate. They are strictly a land business leasing and collecting royalties on their owned assets and rights. The beauty of this business is that it’s low intensity. I recently posted the following on my Substack feed:

The story behind this company is land and mineral royalties. The company owns an enormous acreage of mineral rights and has been in existence in some form since the late 1800s. For most, of its history there was a large emphasis placed on its forestry assets. In 2021 these were sold and what remains is more than 1 million acres of land in a geography with extensive and known mineralogy for some of the most important minerals in the world.

The company owns more than one million net acres of mineral rights (as of last semi-annual report). Their ownership of mineral rights equates to around 10% of the total mineral rights in their geography, making them the dominant mineral in the both their specific region as well as their state.

My interest in this company comes off the back of some personal business interests. At one point I had been researching this region given my interest in a potential private venture. Because of this, I have some pretty interesting maps of the region’s mineralogy that I will share below. I view this investment really as an “option” more than anything. It presents the ability to buy an economic interest in a finite and necessary resource, namely copper. The firm has already leased land to a copper miner that will transition to a royalty arrangement if the mine comes to production, the beauty of this mine is that it is currently fully permitted with 79 million inferred tons and a decade long LOM.

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Ticker: OMDA

Price: $16.29

Diluted Shares: 57,908,047 (as of last quarter)

Market Cap: $943 million

Cash: $198 million

Debt: None.

Enterprise Value: $744 million

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What is it?

Omada Health is what’s known as a point solution. It’s a targeted solution for specific medical issues that operates as another layer of a healthcare plan or policy. Point solutions are typically carrier agnostic, meaning members of different health plans can still access the point solution if it’s being offered by their plan sponsor. Certain point solutions may even be integrated at the health plan level. There are plenty of point solutions available across the United States: Hinge Health, Livongo, Omada, Progyny, etc.

I should mention that the term “point solution” tends to imply a narrow focus on a specific offering. Omada has a few focuses: musculoskeletal (MSK), hypertension, diabetes, and obesity. Omada’s goal is to be a virtual-first care provider and to try and effectively “bend the cost curve.” What does that mean? If you can successfully intervene on a member of a health plan and get them treatment they abide by, and thus improve clinically, the cost of that member to the plan will go down along with the added bonus that the member is now healthier and happier. In short, if claims are down materially after intervention, your renewal may be more favorable as less claims have been paid and chronic conditions that the underwriter was previously concerned about abate.

History

Omada Health was founded by Sean Duffy in San Francisco in 2011. They raised private capital along the way from USVP, A16Z, Kaiser Permanente Ventures, Sanofi, Cigna Ventures, and dRx Capital (backed by Novartis and Qualcomm) amongst others. Omada raised a reported $450 million prior to the IPO to fund operations and grow. The valuation was north of $1 billion in the last round ($192 million Series E).

Omada Health IPO’d in June of 2025, the offered 7.9 million shares at $19.00/sh raising $150 million. The shares on IPO day rose double digits with a subsequent decline and then rose over the summer and into October. Since then, Omada has been in a nearly 40% draw down.

Care Model

The model that Omada puts forward is virtual first with human led care teams. Each member has access to licensed specialists that can assist them with their specific course of care.

In the diabetes and hypertension service, members are provided with a kit that includes glucose monitors, blood pressure cuffs, and smart scales. This hardware allows for automatic tracking of their relevant biomarkers, no manual logging is required. A key and important part of any point solution is member education and engagement, taking the burden off of the member and making it automatic is good for protocol adherence. Members also receive a care team that has access to their data, allowing the member to have tailored plans relevant to their specific needs.

In the GLP-1 Support service Omada is actually able to prescribe GLP-1s directly in all 50 states via their licensed provider network. The service includes nutritional guidance, behavioral coaching, and exercise specialists. All virtually. The focus is on keeping the weight off and 2/3 of Omada members that utilize GLP-1 Support maintained or kept losing weight after medication cessation. There is a unique angle to this GLP-1 Support that feeds into their other segment, MSK. GLP-1’s can cause rapid reduction in weight, but also muscle loss. In that event, they can integrate with their MSK Care segment.

The MSK Care segment is coined as a “virtual physical therapy clinic.” Licensed providers will virtually interact with their clientele to help diagnose their MSK issue. MSK is a major point of concern when it comes to health care claims (as is obesity, hypertension, and diabetes). I wrote a post about how high-cost claimants here:

In that post I highlighted that for a specific Stop Loss carrier, MSK reimbursements totaled $476M in their block of business alone from 2021-2024. If you think across the entirety of the United States both self-funded, fully insured, level funded, ACA, Medicare, Medicaid, etc. you can get a sense of how expensive MSK is for our healthcare system and to the employer sponsored plans or insurance carriers that may hire Omada or even Hinge Health as a service. The MSK Care team is able to advise on PT routines, integrate with primary care and specialty care, and track progress. Omada estimates that there is a $14,000 average savings per case if you appropriately treat back pain with surgery (sometimes this is not feasible). Below is from their site:

Product Distribution

Product distribution occurs in a few ways, namely brokerage channels such as Mercer, Aon, Gallagher, Brown & Brown, etc. This channel grants them access to employer sponsored plan clientele. These plans are either traditional integrated, fully insured arrangements or self-funded. Omada utilizes the brokerage partners as a distribution channel to these buyers. Omada can also go directly to the clients, but a distribution channel like a broker is far easier given the scale of clients in each brokerage house. Another means of distributions is through true channel partner relationships. This arrangement is with health plans, PBMs, or other resellers directly.

The contractual distribution channel arrangement with health plans, PBMs, or resellers is extremely important to Omada. Specifically, due to the commercial arrangement that it has with Cigna. Cigna owns more than 5% of the shares outstanding through their venture arm. Omada has agreements with Cigna and their affiliate Evernorth.

The program with Cigna started as a pilot program where Cigna, following their investment, introduced Omada’s prediabetes solution to Cigna ASO clients. The program was a resounding success and the program was expanded into a strategic partnership. During that pilot, participants sustained weight loss of 3.5% to 5% of their body weight beyond one year, improved claims costs resulted in $424 to $972 in net medical cost savings over two years compared to non-participants (an ROI of 1.5x to 2x for employers), and 83% of the participants would recommend the program. The partnership now has evolved into a full Diabetes Prevention Program with expanded savings and bodyweight reductions vs the original pilot program. The partnership also includes Omada’s hypertension, GLP-1, and MSK programs as well. They were named the preferred providers for Evernorth’s “Digital Health Formulary.” Evernorth launched EncircleRx, a “cardiodiabesity” program for monitoring obesity, diabetes, and cardiovascular disease with Omada as the key partner. This program was also a success, with a reported 4.8% decrease in BMI in six months for the participants.

So, what’s the rub? Well, there certainly is one and it’s not immaterial, at least in my view. There’s customer concentration that comes along with distribution channels such as Cigna. In the 9 months ended 2025, Cigna affiliates represented 31 and 32% of the revenue, yes separately, meaning total exposure to Cigna is 63% of revenues. Accounts receivable between the two affiliates counted for 70%.

For that reason alone, I am staying clear for now and keeping it on a watchlist. What I would ideally see, is A/R flat, and customer concentration being reduced as the firm builds brand awareness amongst the brokers and integrates into other smaller health plans nationally.

There’s a few ways to read this in my opinion.

1. Partner B is having such success with the offering that their share of consolidated revenues has increased from 18% to 32% and because of the volume increase their A/R has increase in a proportional way.

2. Sales are increasing, but cash conversion is weak. If cash conversion is weak, FCF is hindered.

   1. In fact, this can be seen, even without accounting for SBC their FCF is negative, with SBC being accounted for it’s even lower. Their change in cash during the Q3 period is a result of their IPO proceeds.

Financials & Results

Prior to getting too deep into modeling potential growth, I gathered their historical results. Those results were unaudited, but filed in their S1. On a margin basis, I actually do like this business, but I want another quarter or two of being a public company to decide before I take a position.

The services business is what you would actually engage with, that’s Omada’s actually work product that guides people through each of their programs and helps reduce medical spend at the plan level. The hardware business is some of the materials I mentioned previously – smart scales, glucose monitors, etc.

The business has a nice gross margin profile. Consolidated gross margins are growing, from 48% to 61% 2023-2025. In 2025, that margin continued. They’ve had great top line growth and are definitely inflecting to be profitable in 2026. Their LTM PBT is a loss of $26 million, in FY24 they had a $47 million PBT loss. In their preliminary results for Q4 they highlighted 50% top line growth. They are definitely growing and my guess in FY 2026 it’s possible they become profitable.

The inflection is key to me, it’s clearly there and with the growth in Q4 to topline, barring any excess costs incurred by the company, it will feed into EBIT and PBT.

Conclusion

Their model seems to work. They have the tailwind of increased appetite for GLP-1 assistance from the membership as well as strong integration within a major managed care organization. I have concerns about the accounts receivable, however. It may be me nitpicking, but with a recent IPO like this I think it’s prudent to wait.

It’s tough to generate ideas often, if you’re finding “great investments” constantly, you’re probably not doing that good of a job actually analyzing those companies. At least that’s my view. I thought it would be helpful to share how I go about thinking of these types of companies and why I may or may choose to pass on taking a position. I used to get frustrated that I would do work on a specific stock only to end up passing on it, now it doesn’t bother me. You learn something each time and you can act when it becomes too “cheap” to pass up, if that ever occurs.

As always, DMs open, @KarstResearch on X.

Ardent Health (ARDT) operates healthcare facilities, specifically hospitals. They are headquartered out of Nashville, Tennessee. They currently operate 30 acute care hospitals in Idaho, New Jersey, Kansas, New Mexico, Oklahoma, and Texas. These thirty hospitals are comprised of 280 “sites of care” and they employ nearly 2,000 people. Ardent Health operates their hospitals on both an independent and joint venture basis. Ardent’s JV model is structured so that when a JV is formed, they retain the majority stake and their partner retains the minority stake. Some of these JVs do qualify as VIEs. Many of these JVs are partnerships with academic institutions, community hospitals, large not-for-profits, etc.

Ardent receives reimbursement from the traditional payor channels: Medicare, Medicaid, Group Medical Insurers, HMOs, PPOs, etc. Each of the hospitals operated by Ardent are eligible to participate in both Medicare and Medicaid.

Unlike many of its counterparts that operate hospitals, Ardent does not own the real estate, they instead lease their facilities.

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History

Ardent Health has existed in some form since the 90s. Originally a behavioral health focused company, the firm was named “Behavioral Health Corporation.” As the company evolved, they divested their behavioral health operations in 2005. The focus of the company following the divestment was on acute care hospitals.

In 2015, Ardent structured a deal with Ventas (VTR) and Equity Group Investments (EGI), a firm founded by Sam Zell. The deal was structured in such a way that EGI would be the majority owner of Ardent’s operating hospital company and Ventas would retain Ardent’s real estate as well as a 9.9% interest in the hospital operating company. The transaction valued Ardent at $475 million. Following the transaction, Ardent’s real estate was leased to them by Ventas on a long term (20 year) triple-net lease, expiring in 2035. The deal was a success for EGI as prior to their investment, Ardent operated 14 hospitals in three states with $2 billion of revenues. By YE 2020 Ardent operated 30 hospitals in six states with $4.3 billion in annual revenues.

In 2022, Ardent received a $500 million equity investment from a UAE based firm, Pure Health.

The company went public on July 19, 2024 offering 12,000,000 shares at $16.00/sh for gross proceeds of $192 million (net $181.4 million). Since the IPO shares are down ~50% to approx. $9.00/sh today.

Facilities & Operating Model

Ardent Health facilities are located in Idaho, New Jersey, Kansas, New Mexico, Oklahoma, and Texas. This includes their 30 acute care hospitals and the 280 sites of care that are contained within those hospitals. For the uninitiated, Pontneuf Medical Center is an acute care hospital, but there is a Pontneuf Surgical Specialist site of care within the hospital system.

Below is a map I color coded mapping their acute care hospitals. Orange is Texas, green is Oklahoma, brown is New Mexico, black is Kansas, yellow is New Jersey, and blue is Idaho. These are the systems that house the centers of care.

Of the 30 hospitals that Ardent operates, 18 of those are joint ventures. Majority of these joint ventures are with UT Health East Texas with all of the facilities Ardent operates subject to their joint venture agreement. Idaho, Kansas, and New Jersey, are states where Ardent’s presence is entirely via joint ventures.

Below is the JV’s, as of the 2024 10-K.

The Ardent JV model retains majority control and equity ownership. Each of these joint ventures are governed by a Board of Directors. There are two classes of directors, one class appointed by Ardent and one class appointed by the JV partner. The JV board is responsible for capital and operating budgets, continuance of the JV, issuance of membership units to prospective members of the JV, merger and acquisition activity of JV assets, indebtedness, etc. Voting procedure is done by block voting, any action that requires approval requires a majority of both classes of directors to approve. I would implore all readers to read page 4 and 5 of the 2024 10-K, which highlights the governance nuances of this joint venture model.

JV Impact on Financial Reporting

The JV’s do impact financial reporting. There are certain line items that are consolidated with the JVs. In Q3 of 2025, Ardent booked $1.576 billion in revenues. This figure includes JV partner interest. As a quick example of this, if you look at the income statement, everything above the line item “Net income attributable to noncontrolling interests” is consolidated with their JV partner’s proportionate share.

Example from the Q3 10Q:

The third column is the nine months ended September 30, 2025. The EPS figure of $0.65/sh is calculated using the income attributable to Ardent Health, Inc. of $90.8 million and the basic share count of 140,569,409 shares.

However, when you go to the statement of cash flows the net income figure that is used for net income is $155.8 million, which includes noncontrolling interest earnings:

Forgive the poor formatting of the 10-Q.

If you are trying to calculate FCF from the cash flow statement it’s important to understand that the figure you’re using will include the NCI earnings and you must account for this. The adj. EBITDA figure that Ardent reports quarterly is net of noncontrolling earnings share

Ventas Master Lease

The Ventas Master Lease came about in 2015 alongside the Equity Group Investments deal. Ventas purchased ten of Ardent’s hospitals from them and Ardent leased back the facilities under a 20-year master lease expiring in 2035 (known as the Ventas Master Lease). As part of the IPO, Ventas exercised their options and beneficially owns 6.5% of Ardent Health.

The Ventas Master Lease has some covenants that Ardent must remain in compliance with. Notably:

1. Minimum portfolio coverage ratio of 2.2x

2. Guarantor fixed charge coverage ratio of 1.2x

3. Maximum guarantor net leverage ratio of 6.75x

Ardent has spent $114 million in rent expense to the Ventas Master lease for the nine months ending 2025. Additional rent and lease expense for the same period is $81.9 million for a total of $195.9 million. This figure includes consolidated rent and lease expenses with the JV partners.

Payor & Geographic Mix

Briefly, because I have seen someone misunderstand what a payor is:

Payors are the actors that pay claims on behalf of an insured. In the case where an individual forgoes insurance or pays claims independently, they are classified as “self-pay.” It is extremely important to understand this distinction, I saw someone one time write “70 million payors” when discussing a certain health insurance company. This is incorrect. Payors are not the insureds or members of a health plan; they are the institutions that are responsible for paying claims.

Understanding payor mix is crucial as healthcare insurance in the US is heavily regulated. Reimbursement rates for government programs are set by CMS or state regulators depending on the program and legislation can drastically impact the economics of the program. As an example, Medicaid programs often involve CMS, the respective state’s Department of Health and Human Services (or the like), and a managed Medicaid company (payors such as Molina, Centene, United, etc.). The state will take federal dollars allocated to the state’s Medicaid program alongside their own general funds and cover Medicaid eligible individuals.

Below is the payor mix for Ardent Health:

Medicare and private payors (the BUCAs) make up the brunt of Ardent’s revenue. Medicaid is approximately 10% of the revenue.

The geographic make up for Ardent’s revenue below:

Financials & Results

Starting with the balance sheet, Ardent is well capitalized and the balance sheet is is not concerning. As mentioned previously, given the nature of their JV model, a portion of the assets and liabilities will include the proportionate share of their JV partners. This is fine as these funds are commingled for operational purposes.

Ardent currently has a market capitalization of $1.26 billion. Currently, Ardent has $609.4 million in cash and cash equivalents on its balance sheet and carries total long term debt of $1.1 billion along with $1.17 billion of operating lease liabilities ($908 million of which are related party – Ventas Master Lease). Ardent’s enterprise value is $2.9 billion.

The long-term debt is made up predominantly of Senior Secured Credit Facilities and the 5.75% senior notes.

The senior secured facility is made up of the Term Loan B Facility and ABL facility, collectively referred to as Senior Secured Credit Facilities in the filed reports. In September 2025, Ardent refinanced their Term Loan B facility which reduced the interest 50bps to Term SOFR plus 2.25% and the base rate to 1.25%. The refinance extended the maturity to September 18, 2032. The total principal refinanced was $777.5 million.

The ABL Credit Agreement is $325 million maturing June 26, 2029. There are two tranches to this ABL, one tranche is $275 million non-UT Health East Texas borrowers’ tranche and the remaining $50 million UT Health East Texas borrowers’ tranche specifically available to the East Texas Health System, LLC subsidiary. This is a revolving credit facility available to

The 5.75% senior notes were issued in July of 2021 and mature July 15, 2029 with a principal amount of $300 million payable semi-annually.

The maturity profile of Ardent’s debt is favorable even when you consider the Ventas Master Lease operating lease liabilities, which doesn’t mature until 2030. The bulk of the debt matures after 2029 with favorable interest rates following the 5.75% Senior Note issuance in 2021 and the refi of the Term Loan B facility in September of 2025.

In the nine months ended September 30, 2025, Ardent and its JV partners earned $155.8 million in net income. $90.8 million of which is attributable to Ardent. The stock currently trades at about 6-7x LTM P/E multiple. Ardent reports an adjusted EBITDA figure, but I am not a fan of it as it stripped out certain key figures such as their New Mexico Professional Liability Accrual, change in accounting estimate, and expenses related to Epic. I went through their adj. EBITDA addback and calculated EBITDA on a standalone basis. Below is Ardent’s LTM EBITDA:

Ardent’s LTM EBITDA was $478 million. With an enterprise value of $2.9 billion Ardent trades at a 6x LTM EV/EBITDA. This includes worse than expected third quarter 2025 results. Regarding what I expect from the firm over the next twelve months, I believe there are a few promising trends. Admissions have steadily grown 5.8% YoY, keeping in line with their historical result of mid-single digit admissions growth and surgery growth turned positive in the third quarter. Revenues continue growing at a high single digit rate. If I look out over the next twelve months I believe EBITDA, including headwinds from certain regulatory actions, namely DSH payment reductions, could grow low double digits. I am typically cautious with projections and couple that with DSH payment headwinds I want to underestimate. I believe 10% EBITDA growth is possible, despite their adj. EBITDA growth being consistently 25%-40%, I prefer to be prudent and pare down my expectations. If Ardent is able to grow EBITDA 10% they will be trading at 5x EV/EBITDA, this figure even includes the one time charges to self insurance and revenue cycle adjustments, which won’t persist in the following quarters.

Headwind

The One Big Beautiful Bill Act (OBBA) includes language regarding a government program called Disproportionate Share Hospital (DSH) payments. These payments began in the 1980s to support hospitals that provide care to uninsured/low-income patients. DSH payments are being reduced by $24 billion over the next three years in equal increments. $8 billion each year until 2028, at which point DSH payments will be around $16 billion annually.

The states most impacted by DSH payment reductions are New York, Texas, Louisiana, and California. New Jersey is also impacted by these reductions, but less so than the aforementioned states. The geographic impact of these payment reductions matters quite a bit, it’s $24 billion over the next 3 years being removed as a potential source of revenue from Medicaid providers. Note the map below from KFF:

The silver lining for Ardent with DSH payment reductions is that even though they occupy a few states that will be impacted, only 10% of their payor mix is Medicaid with half of their revenue being sourced from states other than Texas and New Jersey. There have also been Directed Payment Programs stood up by states such as New Mexico to buffer federal cuts to Medicaid providers.

The more persistent headwind that I am focusing on is elevated payor denials. Management at Ardent called out on the call that payor denials are becoming more pronounced. There’s a bit of a game being played with coding and billing between the payors and providers currently, with new technologies assisting providers chart, code, manage/identify HCCs (Hierarchical Condition Categories), etc. Denial rates have seen an uptick across the industry.

Third Quarter Stock Decline

In the third quarter, Ardent’s shares fell 40%. This was due to a few things. Ardent adjusted their revenue cycle accounting after implementing their new revenue cycle platform, Kodiak RCA. This caused a $43 million change in accounting estimates. Professional fee growth had been expected to moderate, but accelerated to 11% in the third quarter. Payor denials were more pronounced across the industry.

In New Mexico, Ardent booked an increase to their professional liability reserves due to adverse period development of $54 million, due to a single provider from 2019-2022, this provider is no longer employed at Ardent. This item is non-recurring and in their adj. EBITDA figure, Ardent removes this impact. In my valuation assessment, I used EBITDA, not the reported adj. EBITDA so my valuation includes this for LTM EBITDA. Ardent self insures their professional liability.

Conclusion

In my view, Ardent is undervalued. Prior one-time charges such as the New Mexico professional liability accrual and change in accounting estimate should not weigh on current valuation. If you remove these true one-time charges Ardent is trading at 5x LTM EV/EBITDA, if you include these one-time charges it’s trading at 6x LTM EV/EBITDA, which I also find attractive. Exposure to Medicaid DSH cuts are real, but not cause for concern in my view. Ardent recently authorized a $50 million share repurchase, however, “authorized” means nothing to me, it’s nice to know there is that option however. I think Ardent is attractive at this price.

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See disclaimer. I own shares of Ardent Health, ARDT.

I am not a bio/pharma investor (usually), it’s something I’m genuinely not good at. I want to make clear from the outset that I am not writing about the economics of these drugs from the manufacturer’s perspective. The portion on gene therapies is specifically about what they are and how they are contributing to large claims and their total cost to payors.

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Codes and Claims Form

Gene therapies and HCCs are reimbursed by payors to the provider that rendered the care as a function of the billing codes that are submitted to payor. This is not unique to gene therapies or HCCs; codes are used for every service rendered during care. If you are uninterested in reading about medical billing codes, you can skip this.

There are five code sets as defined by HIPAA and can be found on CMS Code Sets Overview

There are five code sets as defined by HIPAA and can be found on CMS CMS Code Sets Overview (2024):

1. ICD-10 – International Classification of Diseases, 10^th Edition

2. HCPCS – Health Care Common Procedure Coding System

   1. HCPCS Level I

      1. CPT Codes

   2. HCPCS Level II

      1. Standardized system for services not included in CPT codes

3. CPT – Current Procedure Terminology

   a. Maintained by the AMA, HCPCS Level I

4. CDT – Code on Dental Procedures and Nomenclature

5. NDC – National Drug Codes

   1. Drugs administered via traditional means

Focus will be on HCPCS Level I and II and NDC codes. The codes outline what the service is, whether it was diagnostic or preventive, and in certain cases, the setting in which it was administered. Here’s why this is important for gene therapies. Gene therapies are drugs, they are developed by pharmaceutical companies in the same way that a generic, preferred brand name, non-preferred brand, or specialty drug might (these are referred to as tiers 1, 2, 3, 4 depending on the formulary structure). The key difference, however, is that gene therapies are almost always administered in a provider setting, whereas many traditional drugs are self-administered after being purchased via prescription at a pharmacy. Later on we will look at direct examples of the difference between gene therapies vs traditional drugs, but first, claims forms.

Now in practice, how would this information be submitted to a payor? It can be submitted both by paper or electronically. The two primary forms are UB-04 CMS-1450 and CMS-1500. UB-04 CMS-1450 is used by institutional healthcare providers to submit claims to payors (Medicare, Medicaid, and occasionally private payors) while the CMS-1500 is used for non-institutional healthcare providers. Both UB-04 and CMS-1500 are paper forms, the electronic equivalents are 837I and 837P, respectively.

Below is an example of what would qualify as an institutional provider under UB-04 and 837I as well as a sample UB-04 CMS-1450 document:

When someone asks, why is healthcare billing so complicated, imagine this form in both paper and electronically being submitted to payors for reimbursement for a variety of conditions. Now imagine that even with all of the standardized ICD-10, CPT, and HCPCS codes the level of billing detail has historically been manually input in an EHR. The second document is the instructions which highlight each field that needs to be filled, what it means, and the instructions.

Below is a sample of CMS-1500:

If you notice, on both forms, you can find a place to input ICD-10 codes, CPT codes, and HCPCS codes. This is critical for reimbursement rates.

For more information on NDC codes and the pharmacy chain from manufacturer, to wholesaler, to pharmacy here is a prior piece:

Gene Therapies

So, what is a gene therapy? Well, take it from the FDA

Human gene therapy seeks to modify or manipulate the expression of a gene or to alter the biological properties of living cells for therapeutic use.

Gene therapies are a relatively new innovation. The FDA approved the first gene therapy in 2017, since then the pipeline has expanded materially with many revolutionary drugs brought to market. There’s primarily two means of administering, but I’m going to mention a third called “in-situ.”

1. Ex Vivo

   1. Cells removed from body and modified then re-infused back in body.

2. In Vivo

   1. Therapy is introduced directly into the whole body via blood circulation or cerebrospinal fluid.

3. In-Situ

   1. Specifically administered to an organ, tumor, or area.

These drugs are revolutionary and the pharma companies that develop them deserve immense praise. Keeping in mind everything laid out regarding HCPCS Codes, CPT Codes, ICD-10, etc. The goal for this section is to understand how a gene therapy is classified.

Hemgenix

Hemgenix (etranacogene dezaparvovec-drlb) is a gene therapy for the treatment of Hemophilia B, developed by uniQure $QURE and then purchased by CSL Behring in 2020 (yes, that is the same uniQure you’re thinking of regarding Huntington’s Disease drug results that is making waves recently). There’s plenty of other details I could add, but then I’ll never finish this article. The main point is that it is a treatment is for Hemophilia B. The ICD-10 code associated Hemgenix is D67, with the description “Hereditary Factor IX Deficiency.” When Hemgenix was first administered it had a few HCPCS codes:

• J7199 – Not otherwise classified Hemophilia Clotting Factor

• J3590 – Not otherwise classified Biologic

• C9399 – Unclassified Drugs or Biologics – Hospital Outpatient Setting

These codes are and were a stop-gap until there was a unique and branded code for the drug. The current code is: J1411 – Injection, etranacogene dezaparvovec-drlb, per therapeutic dose. Note how it’s specific to injection, if there are infusions then the CPT codes 93635 and 93666 are used depending on the situation. Hemgenix is administered in the provider’s location, typically a qualified administration center. This is not a drug that you can simply get at a pharmacy. In fact, this is one reason the reimbursement rates can be so high for this drug, despite being a pharmaceutical, the claim is administered procedurally at a medical facility.

If you were to take a drug such as generic Atorvastatin or the brand name Lipitor, this would be dispensed at a pharmacy and the claim would be qualified as an Rx claim.

High Cost Claimants

This section will be using real examples from a stop-loss carrier. It will contain the average cost, number of users, total costs, and much more for some of the highest cost injectable drugs. It will also discuss the incredible rise in million-dollar claims since 2021.

Before that, I want to give a sense of what these drugs cost. A single user on Hemgenix can cost upwards of $3.5 million. Zolgensma, a gene therapy for spinal muscular atrophy can cost upwards of $2.5 million. Kimmtrak, an immunotherapy for a type of eye cancer (metastatic uveal melanoma) can be upwards of $1.15 million. There usually are not many claims for these types of drugs, but given the cost can be exceptionally high, a single claim can fundamentally destroy the medical loss ratio for an insured group.

In fact, I’d recommend visiting the sites for these gene therapies, they have almost all of the information you could ever want available for download, including prior-auth checklists, reimbursement guides, start forms, etc.

Hemgenix Site

Zolgensma Site

Kimmtrak Site

The key point here is that despite how expensive these drugs are, there is a real opportunity to administer them and save on healthcare costs over the life of the patient for both the insured and the insurer. In fact, hemophilia, cancers, and various historical high cost claims (such as cystic fibrosis, muscular dystrophy, high cost specialty drugs) are all reasons that an insurer would apply a “load” to the rates, decline to quote, or laser these individuals specific deductibles. Despite the high costs, the insurers are still willing to cover these types of gene and immunotherapies (and other high cost injectables) because the up-front cost really does end up saving money for the system in the long run. Scientific American had a great article on Hemgenix from 2022 where they discussed the treatments costs compared to the savings per person treated, the conclusion was despite the $3.5 million price tag the savings could amount to $5.5 million in total savings per person treated. If you consider the fact treating someone with hemophilia typically costs between $500,000 to $1 million per year, the math makes a lot of sense. This is the case for many of the other conditions that I’ll mention later.

Payor Experience

Using information that’s publicly available from a payor, we can understand and go through the cost trends they’re seeing for both high-cost drugs as well as general higher cost claimants. The last four years have seen a 61% increase in million dollar claims, with a single claim exceeding $12 million for the year 2024.

Below are the Top 20 High-Cost Claim Conditions for this payor:

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There are three divisions: (1) Relocatable Modular Buildings, (2) Portable Storage Containers, and (3) Electronic Test Equipment.

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1. The relocatable modular building division has two segments: Mobile Modular and Enviroplex. Mobile Modular focuses on leasing modular buildings such as offices, construction field offices, restroom buildings, healthcare clinics, etc., while Enviroplex focuses on the manufacturing and sale of modular buildings predominantly used as classrooms in California.

   1. There is a business called “Kitchens To Go,” which is operated by Mobile Modular

2. Portable Storage leases steel containers for two primary uses: storage containers and office containers. The storage containers are ISO certified and the office containers are primarily used for ground level space where a lessee requires design flexibility.

3. Electronic Test Equipment goes under the brand “TRS-RenTelco.” TRS-RenTelco purchases products from companies such as Keysight, Rhode & Schwarz, Tektronix, Anritsu, Viavi, etc. These products are leased to clients in industries such as aerospace, defense, communications, semiconductor manufacturing, etc.

The 10-K states there are three divisions, but for the sake of being thorough, if you go to their website it will tell you there are five divisions. For the purpose of their financial reporting in the 10-K or 10-Q the three divisions are what is broken out from the consolidated results.

Today, the focus is on TRS-RenTelco, but first a little bit of background on recent events.

WillScot Mobile Mini Merger Termination

At the start of 2024 WillScott, $WSC, entered an agreement to acquire McGrath RentCorp, $MGRC, for $3.8 billion in a 60/40 cash and stock transaction. This offered McGrath shareholders $123 per share in consideration and 12.6% ownership in the combined company. The projections from the WillScot management team were great, as the combined 2023 pro-forma would have been $3.2 billion in revenue and $1.4 billion of adj. EBITDA. Twelve months after the close, they believed they would be doing $700 million of free cash flow. Considering that WillScot’s FCF less SBC in FY2024 was $290.3 million and McGrath’s was $201.9 million, a boost of approximately 30% of combined FCF less SBC would be a great result even accounting for organic growth to the figure looking 12 months out.

In September of 2024, WillScot terminated the acquisition citing FTC anti-trust concerns.

“Over the past several months, our team worked tirelessly to meet the continual requests of the FTC, in our pursuit of, what we believe to be, a procompetitive transaction that would provide great value to our customers, employees, shareholders and the communities in which we operate. While we are disappointed with this process, we are confident in our strategy and there are numerous opportunities to continue reinvesting in our business to deliver sustainable growth and returns over time,”

- Brad Soultz, CEO of WillScot

The termination of the agreement was agreed upon on September 17^th of 2024 and officially canceled on September 20^th, 2024, when WillScot Mobile made a cash payment of $180 million to McGrath RentCorp.

Net of transaction costs, McGrath received $116.8 million. One reason why this is significant is the low cash balance that McGrath operates their business with. In FY 2024 net of the termination proceeds they ended the year with a cash balance of $807,000. Their operations are funded via their revolving lines of credit as well as income from their leasing businesses, which offers stable line of sight to future income given the contractual lease terms.

Adler Tank Rentals, LLC Sale

In February of 2023, McGrath RentCorp sold their subsidiary, Adler Tank Rentals to Ironclad Environmental Solutions for a sale price of $268.0 million. The reason for this sale was McGrath’s “strategic shift” to focus on their core modular and storage business.

Note: the language there is important and why I am focusing on TRS RenTelco.

Acquisitions

There are four acquisitions of note that have occurred, all in 2023: (1) Vesta Modular, (2) Brekke Storage, (3) Dixie Storage, and (4) Inland Leasing.

1. Vesta Modular was purchased from Kinderhook Industries for $437.2 million in cash. Vesta Modular operates as Mobile Modular.

2. Brekke Storage was purchased for $16.4 million. Brekke is a regional provider of storage solutions to Colorado and now operates as Portable Storage segment.

3. Dixie Storage was purchased for $4.9 million and predominantly offers storage solutions in South Carolina. Dixie operates under the Portable Storage segment.

4. Inland Leasing was purchased for $3.8 million. Inland offers portable storage in Colorado and operates under the Portable Storage segment.

There’s a pretty clear trend surrounding the divestiture of Adler Tank Rentals and acquisitions of Vesta, Brekke, Dixie, and Inland. Management has stated via their own words during the Adler Tanks sale that the “strategic shift” is to dispose of non-core assets. Core would be anything modular or storage related. TRS-RenTelco as an electronic testing equipment leasing business doesn’t exactly fit the bill anymore. Management has not shied away from divesting non-core assets (clearly) and acquiring core assets. I do not think it is out of the question for TRS-RenTelco to be sold.

McGrath RentCorp also has an outstanding share repurchase authorization of 2,000,000 shares, of which, 2,000,000 shares remain authorized for repurchase. They haven’t taken advantage of any share repurchases. While it’s nice to have, given the fact it’s discretionary, I wouldn’t let this carry much weight given how it hasn’t been used. The repurchase authorization was authorized in September of 2024.

TRS RenTelco Segment

TRS-RenTelco both leases and sells electronic test equipment. They operate this out of two primary facilities: (1) DFW International Airport and (2) Dollard-des-Ormeaux. DFW is the primary operating facility. Both facilities have sales and operations staff, but DFW has calibration laboratories which are important for the testing equipment to be able to operate up to standard. RenTelco equipment inventory is comprised of 79% general purpose electronic test equipment and 21% communications electronic test equipment.

Given the nature of what RenTelco leases, customer experience is paramount. RenTelco has experts in-house that help customers select the right equipment as well as manage their experience. RenTelco uses their DFW facility as a centralized logistics hub to service all customers in North America and internationally. The RenTelco team has logistics professionals on staff that manage the transaction and shipping costs for the end customer as well. Without accurate and precise testing equipment, RenTelco products won’t be leased. The equipment is serviced by an ISO 9001-2015 registered and compliant calibration laboratory that calibrates the off-rent equipment to ensure minimum down time. They own this laboratory. Customers are also supported by a 24/7 customer care specialist.

RenTelco offers lease terms primarily between one and eight months, although it can be longer. Monthly rental rates range between 2%-10% of the current manufacturers list price with a depreciation schedule over one to eight years with no residual value. A key metric for RenTelco is their utilization rate, which is defined as:

The average utilization rate for ending Q2 2025 was 63%, the aggregate cost of RenTelco inventory is $333.1 million.

There’s a seasonality component to this business where business activity declines between December and February, for many of the same reasons as other equipment businesses: weather and holidays.

Valuation

First things first, the WillScot deal, puts an explicit price on the total business and the multiple they were willing to pay. I also believe a prior acquisition from 2016 for a competitor to TRS-RenTelco gives a good view of what the valuation may look like in the event of the segment being sold along with a range of outcomes looking at both EBIT and adj. EBITDA multiples as well as depreciation.

In FY2023, McGrath put up $318.7 million in adjusted EBITDA. WillScot was going to purchase them for $3.8 billion TEV value sticker price for the total company, that implies a 12x adj. EBITDA multiple. With TTM adj. EBITDA of $357 million for the entire company, using the same multiple, 12x, that implies a TEV of $4.28 billion at the end of 2024.

At the end of Q2, McGrath RentCorp had $572 million of debt, comprised of revolving credit facilities and senior notes. The current TEV stands at $3.6 billion, if we use the 12x multiple on TTM adj. EBITDA, that is 15% upside to the TEV and 20% upside to the common stock assuming a party paid the same multiple WillScot was willing to.

Let’s now focus on TRS-RenTelco and some of the math.

One thing you’ll notice first is that RenTelco revenue declined from 2022 to 2024. Revenues decreased 11% from 2022 to 2023 and an additional 9% from 2023 to 2024. On the FY2023 earnings call, management expressed the weakness seen in the computer and semiconductor business and on the FY2024 call they highlighted weakness in the general purpose and communications rental revenues. This was an industry-wide slowdown in T&M (test & measurement) equipment.

It's my belief that the business has stabilized and we’ll see whether or not this is true on the in the Q3 results. The TTM figure looks promising. If the business has stabilized, it should put up $135 million of revenue and ~$25 million in pre-tax income. The business has maintained the gross margin of 40% or so.

One direct comp that I can find is the Platinum Equity acquisition of Electro Rent for $382 million. Platinum Equity closed on Electro Rent on August 10^th, 2016. Electro Rent was on a 6/1 fiscal year.

Here’s where my math gets a bit more interesting, depreciation isn’t inconsequential to this segment, but amortization isn’t broken out. Amortization is however, not overly material to McGrath RentCorp. So I’ve removed depreciation & amortization from the comparable transaction, Electro Rent, to determine the average EBIT for Electro Rent from 2013-2016 before it was purchased by Platinum Equity and using that to determine the EBIT multiple for the transaction.

(Note: MGRC does not amortize much. The majority of their depreciation and amortization is just depreciation of rental equipment.)

The large reduction that occurred in 2016 was due to losing a reseller agreement with Keysight. Sales of new equipment decreased by $55.5 million, or 76.1%. This was a major hit to their business. I normally don’t like averaging something like this, but in this case, I think it makes sense. If we were to base the sale price off of the EBIT multiple in 2016, it would be obscene. The other component is that TRS-RenTelco is predominantly a leasing business where only 20-27% of their business is selling equipment. Again, this is not meant to be concrete, it’s merely a way to frame what a purchase could look like.

Another major data point comes from Houlihan Lokey’s financial analysis in the merger proxy for ELRC.

Houlihan Lokey marked the sales business essentially to zero. This is now a pure play lease business. They projected $12.5 million of EBIT for the 2016 fiscal year (remember, Platinum bought Electro Rent before the first quarter of their fiscal year ended). With $12.5 million of NTM EBIT at a purchase price of $382 million, you have a 30x NTM EBIT multiple for a pure play leasing business. Therefore, I think it’s reasonable to assume that using the average EBIT multiple makes sense as you’re incorporating some of the historical value that the sales business contributed.

With that, here’s a valuation range table:

Current TEV of $3.63 billion, if TRS-RenTelco was sold for a 12x EBIT multiple, you receive 10% of the enterprise value immediately. Additionally, I used EBIT mainly because amortization is miniscule and not broken out by segment. I could have gone and backed into it, but felt like there was sufficient work done on for EBIT. However, just for the sake of being thorough. 2023 adj. EBITDA for TRS-RenTelco was $83.9 million and 2024 adj. EBITDA was $74.5 million. The below is the multiple comp analysis done by Houlihan Lokey for the 2016 ELRC deal:

These groups vary in what they lease and focus on, but the multiples across LTM, NFY (next fiscal year), and NFY+1 (following the next fiscal year) converge at around 6x adj. EBITDA. If you applied a 6x adj. EBITDA multiple on TRS-RenTelco’s reported adj. EBITDA of $74.5 million, the valuation would $447 million, which is very much in line with the EBIT valuation range.

Who could buy TRS-RenTelco? Platinum Equity could purchase them to augment their Electro Rent acquisition from 2016, but there are also a few specific players: Global Test Equipment, Axiom, etc. There are also other lease businesses that may be interested in expanding to a different sector of leasing.

Depreciation of Equipment

Given the nature of their business, there is depreciation for the rental equipment. The rental equipment at cost for Q2 2025 was $333.1 million, with a net book value of $101.8 million. There’s been $231.4 million of accumulated depreciation. TRS-RenTelco depreciates on a straight line basis over 1 to 8 years with no residual value. Given the nature of TRS-RenTelco’s business, the rental equipment is classified as §1245 property being machinery, equipment, furniture, rental, equipment, etc.

Here's how I think about depreciation recapture, it is capped at accumulated depreciation, so $231.4 million. If the allocation to equipment in the event of a sale is less than the net book value of $101.8 million, there is no gain, no recapture. If the allocation to equipment is greater than $101.8 million (book value), but less than $231.4 million (accumulated depreciation) recapture will grow by the difference of the allocation less the book value as a gain. If for whatever reason someone were to purchase the equipment for more than cost they would recapture the full amount and anything above that would be marked as a capital gain under §1231.

In the instance of a sale, the recapture would be paid by TRS RenTelco at the ordinary income tax rate for corporates, 21%.

For Electro Rent, the net book value was $194.6 million of testing and measurement equipment as of May 31, 2016 (they were purchased in August). They had accumulated depreciation of $235.4 million. The deal went through at $15.50/sh and Electro Rent had 24,200,660 shares outstanding. With a net book value of $194.6 million of testing and measurement equipment they had $8/sh of equipment at book value, the remaining $7.50 cents was for the enterprise, which is a quick and dirty way to view this transaction if you assume they purchased the equipment at book value with no recapture and tax obligations.

Conclusion

TRS-RenTelco is “non-core” in managements own words. Their core business is modular and storage.

TRS-RenTelco has struggled the last few years due to industry wide trends in the testing & measurement industry. Management can sell this business for 12x EBIT on the low end for >10% of the TEV and become a pure play modular building and storage business without a serious reduction in their revenue.

TRS-RenTelco 2024 revenues were $135 million while consolidated results were $910.9 million. There would be minimal disruption to the core business as well.

However this shakes out, I believe TRS-RenTelco is worth somewhere between $400 million and $600 million. If McGrath were to sell this business and initiate a buyback there is no doubt in my mind the stock price would move higher.

In another potential piece I will discuss the rest of the business, but wanted to publish my valuation framework on this specific subsidiary given management commentary on what is “core” to them.

How does an insurer “price” stop-loss risk? It’s not as simple and straight forward as pricing fully insured medical business, despite the product being essentially the same. The primary reason is that the individual member, the one accessing the healthcare system, is not insured by the stop-loss insurer. Rather, the organization the member is a part of is insured. The way to think of this is straightforward: the employer insures the member and purchases their own reinsurance in the form of a stop-loss product. This is, in essence, no different than what insurance companies do. What prompts companies to enter this arrangement is control. As I’ve mentioned in previous pieces, organizations can pick and choose which vendors they want to do business with. They can theoretically use Symetra stop-loss paper paired with an independent PBM such as SmithRx, an independent TPA to manage claims, and contract with a large health network via an ASO agreement to access providers.

They get more control over the total cost, but they take on far more primary risk in the form of higher specific deductibles per individual. This is where stop loss insurance comes in.

Part I here:

Despite the perceived complexity of this arrangement, it’s just a deconstructed fully insured contract. The only difference is that with a fully insured contract you are buying a bundled product. I said in the opening to Part 1 of the stop loss series that there is inherent leverage found in this type of insurance, specifically leverage against the stop loss insurer or reinsurer.

In my view, if you understand the dynamics of self-funding and ASO arrangements you will understand fully insured and level-funded arrangements.

Trend

Understanding leveraged trend requires familiarity with regular trend. In health insurance, specifically, trend just refers to inflation. Trend is healthcare cost inflation, if an insurer were to say that there was 9% medical trend and 10% Rx trend on their block of business for a given geography, they’re essentially saying that the cost to cover those services is increasing by that amount. There are a few drivers to medical trend: provider reimbursement rates, utilization rates, medical technology costs, physician pricing, provider overhead increases, etc. Similarly for Rx trend this increase in cost is driven by similar factors, but regarding the prescription drug market: formulary changes, specialty drug usage increasing, new drug launches, etc.

Trend information is publicly available in the form of rate action filings. Looking at Oxford’s (a subsidiary) filing for the 2026 plan year, one can find a great amount of information: requested rate adjustments, historical and projected current/future year MLRs, and as well as historical and projected current/future year claims trend. Here’s Oxford’s trend from their 2026 rate action narrative summary:

Leveraged Trend

For a reinsurer reinsuring a block of fully insured business or a stop loss carrier insuring a self-funded employer plan, trend rates are actually leveraged. Leveraged trend is a key component to managing reinsurance and stop-loss pricing and getting it wrong on the reinsurance/stop-loss side is just as important as a primary insurer managing their trend with respective rate increases.

For the sake of the example, let’s view leveraged trend in the lens of a self-funded employer purchasing stop-loss insurance from a carrier, whether it be Voya, Symetra, HM Life, Tokio Marine, etc.

The employer will purchase the stop-loss insurance with two components an aggregate and specific (ISL) deductible. For the purpose of this example, we are focusing on ISL.

Here’s what happens if the individual stop loss (ISL) limit that a group purchases remains the same over five years, set at $50,00, and trend comes in at 9% the first year? Below is an example with a few assumptions:

1. The condition is chronic; this occurs yearly.

2. The trend figure in the table refers to combined trend, inclusive of medical and Rx.

3. This individual was not lasered (skip more on this later).

Trend comes in at 9% from year zero to year one. The claim cost increases by that amount from $100,000 to $109,000. While trend is 9%, the leveraged trend is actually 18%. This is due to the fact that the ISL, the cost the employer covers, remained the same. The employer is still covering $50,000 in both year zero and year one, but the stop loss insurer is now covering $59,000 of the claim in year one, rather than $50,000 in the prior year.

For the sake of understanding how out of hand leveraged trend can become with respect to the initial claim cost, assume that the trend going from year one to year two, was also 9%, then year two to year three, 12%, and so on.

Starting in year zero and ending in year five, the cost to the stop loss insurer increases 116%. Along the way the stop loss insurer will be raising rates a commensurate amount to cover this increase to claim cost, but what you see is a dynamic that impacts employer sponsored self-funded plans (in our example) as well as a traditional fully insured plan. The only difference being that that leveraged trend for a fully insured plan is a dynamic between the reinsurer and the insurer, whereas self-funded leveraged trend is between the employer and the stop loss insurer. In practice, the employer in a self-funded arrangement is the insurer and the stop loss insurer is the reinsurer.

Here's an example of what happens if the ISL deductible, specific deductible, is shifted to match trend:

In this example, medical trend from year zero to year one is 9%, the employer shifts their ISL up 10% from $50,000 to $55,000. While the claim cost is $9,000 more, the ISL shift of 10% takes a trend of 9% to a trend of 8%. This dynamic is seen in both self-funded and fully insured programs; the only difference is who the parties involved are.

Some considerations from each perspective:

• Stop-Loss Buyer Perspective:

  • The ISL buyer is essentially fixing their ISL limit against the insurer. A lopsided arrangement.

  • The impact of leveraged trend on stop-loss renewal rates is “worse” on lower ISL limits. The higher the limit, the less impact leveraged trend will have as it’s simply harder to reach that limit. There is a commensurate rate reduction with higher ISL limits because of this.

• Stop-Loss Carrier Perspective:

  • The underwriter at the stop-loss carrier is aware of the impact that leveraged trend has on the profitability of a policy.

  • The underwriter tracks the status of claims. If chronic, the impact to leveraged trend is higher due to the life cycle of the condition, leading to higher renewals and loads on the rates.

The importance of this can’t be understated, there’s acknowledgement that eventually an insured may become “permanently unprofitable.” If for whatever reason there’s a catastrophic situation where $1,000,000 of premium received pays out $5,000,000 in claims then there is no renewal cycle that will get you back to profitability for this organization in a reasonable timeframe, especially when you consider that many stop loss carriers offer 60% rate caps at renewal.

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Lasers

Another way to combat excessive claims cost at the stop loss carrier level is through a practice called “lasering.” What this means is that for an individual with a chronic medical condition high acuity the stop loss carrier may increase the specific deductible.

Let’s say company XYZ goes to purchase stop-loss insurance from Symetra, they have never worked with Symetra before and are requesting a stop-loss policy with a $50,000 ISL. During the underwriting process Symetra will request and receive a whole host of information, most importantly historical claims files. If company XYZ has an employee with a chronic condition that costs $700,000 per year each year for the past 5 years, Symetra may choose to laser that specific individual to a higher specific deductible. The rest of the employees will have a specific deductible of $50,000, but this individual may have a specific deductible of $300,000 that is the responsibility of Company XYZ.

Lasering is done exclusively to control known costs. The insurance company does the best underwriting they can to ensure they aren’t onboarding bad risk. Lasering allows the stop-loss insurer to still win business and collect their premium without taking on the excess risk of high acuity chronic conditions with no end in sight. Importantly, most stop-loss insurer business is run through brokers. Many of the larger more professional brokers have Stop-Loss COEs (Centers of Excellence). These COEs usually force the stop-loss carrier to abide by a few things:

1. No new lasers

   1. The stop-loss carrier is only allowed to laser on the first year when the covered organization is brand new. At renewal the stop-loss insurer will not be allowed to laser new individuals.

2. Rate Caps

   1. The stop-loss carrier has to set a clear maximum rate action for renewals (typically 50-60%).

I wrote this piece to highlight stop-loss, trend, leveraged trend, and lasers. All of these, in my experience from talking to others, aren’t well understood by most. From a trend and leveraged trend perspective, the dynamic is best explained through the lens of a self-funded plan, but the same dynamics are at play for a traditional BUCA carrier managing their reinsurance costs and rate actions to beat trend.

At some point in the future I think I’m going to cover:

1. Gene-therapy coverage

2. HMO Reinsurance (or MCO reinsurance more broadly)

3. Underwriting a health plan

4. Network structuring

Please tell me what you would like to see. Healthcare is currently in the spotlight and I’d like to share something I think I know well.

I think the findings here are profound and also an indictment on both the Medicaid/HIX carriers as well as the individual health insurance brokers/agents.

Over the past several months, software engineers collaborated with CMS to examine historical program enrollment data and found that in 2024 an average of 1.2 million Americans each month were enrolled in Medicaid/CHIP in two or more states and an average of 1.6 million Americans each month were enrolled in both Medicaid/CHIP and a subsidized Exchange plan.

As an aside, Oscar Health was at one time a large position for me. I bought it <$3.00/sh and averaged up along the way. My average basis was under $10/sh. That no longer remains true, in fact, I am now short Oscar Health. Not in any serious % of my portfolio, but merely as a way to have exposure to what I foresee as the beginning of a serious period of enrollment audits and further ACA headwinds as the eAPTC sunsets, FTR process changes, and the 150FPL Special Enrollment Period ends. This also comes on the heels of Centene pulling their 2025 guidance and repricing their 2026 rates. Some of the structural ACA headwinds I discussed here:

Karst Research

Center for Medicare and Medicaid Services Final Rule and ACA Proposed Rule

Going to dive into the Advance Notice and Final Rule as well as the Proposed Rule regarding ACA marketplace. I’ll give my thoughts on a few names that I think can benefit, specifically for the Final Rule as well as the impact that the proposed ACA rule may have on a company like Oscar…

Read more

a year ago · Karst Research

The path forward, no matter how you look at it, is a massive headwind. There will, barring any unforeseeable intervention, a marked reduction in the number of people enrolled on an ACA marketplace plan. This will impact everything from where carriers choose to do business to risk adjuster payments. It creates a lot more opacity regarding the earnings that the ACA will provide these payors. Some people have mentioned the short-tail nature of health insurance and how quickly repricing can occur. This is true, undeniably so, but if the denominator (membership) shrinks materially and certain cost pressures remain (Elevance HIX members utilize ER at 2x the rate of commercial members), there is no rate increase that a regulator will approve that can save you on its own. It will need to be coupled with other actions, whether at the carrier level or by a regulator. In fact, many of the individual exchange insurers are already doing exactly that, filing for significant rate increases1.

The individuals relevant to the CMS press release are dual enrolled Medicaid/CHIP and subsidized exchange plans. With the enhanced subsidies ending this year the headwind is tremendous. Relevant to Medicaid carriers, CMS will audit eligibility files with the states and remove those enrolled in multiple states, a headwind for the membership count by states as well as premium. Relevant to HIX carriers, my opinion is there are two problems:

1. If during the Medicaid eligibility audit the member is determined to be Medicaid eligible, Medicaid will be primary. Thereby removing that member from the ACA risk pool and the HIX premium for that member due to the respective insurer terms. (I emphasize “HIX Premium” as it’s possible there are individuals on Medicaid/Marketplace plan by the same carrier.)

2. If during the Medicaid eligibility audit the member is determined to be ineligible for Medicaid, the HIX plan will be their form of coverage. The caveat here is that the subsidies they are currently receiving will likely be ending given the sunsetting of the eAPTC at the end of 2025.

So what does this mean in reality? The ACA membership is going to reduce either by disenrolling Medicaid eligible individuals who are on an exchange plan or by Medicaid ineligible individuals not wanting to pay the increased non-subsidized premium. A serious headwind that, as I said previously, has an impact to the entirety of the ACA risk pool. With respect to Oscar Health, my base case is that they will have to withdraw their 2027E $2.25 EPS guide, Oscar also has the most exposure to improper enrollments per Paragon’s research2

If I were a betting man, the Medicaid and HIX markets aren’t going to simply recover from rate increases. These are profound changes to the various risk pools and eligibility rules. There will be many that will simply forego insurance because of the subsidy reduction.

All of this is merely my speculation. I’m sitting on vacation writing this by a pool, but felt it was important. Frankly, something insidious has occurred here and I do not think it is out of the question that the Federal government begins to wonder why the payors in question didn’t do more to stop improper enrollments. After all, the carriers could easily implement a system that flags dual enrollments, whether across Medicaid/HIX or multi-state Medicaid, there is enough identifying information during enrollment for them to know this. It does beg the question about whether the DOJ begins inquiries at more payors.

At the very least I would imagine many of the individual insurance exchange brokers/agents will be in for a rude awakening. Revenues from HIX commissions will be meaningfully reduced. Many of these firms purposefully dual enrolled individuals when they could in subsidized plans. To those agents: it’s a paycheck, to those members: it’s low/no cost, to the carrier: it’s premium, but to you, the taxpayer, it iss subsidizing all of those parties to the tune of billions of dollars. CMS is estimating the multi-state Medicaid or Medicaid/HIX improper enrollments cost us taxpayers $14 billion annually3. It probably gets more bleak from there, however. Paragon Institute is estimating that approximately 30% of the exchange, 6.4 million people, is improperly enrolled4. There’s a variety of reasons for this and in my article I linked earlier, goes over a few of the ways CMS is looking to end this issue.

My belief is that no matter what way you cut this, the ACA marketplace carriers are in for an exceptionally tough time. Note: I do not have direct access to the Barclay’s note on this topic, but much of their work was derived from Paragon’s.

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See Disclaimer.

Much of this has to do with the increased performance and extended mine life from their flagship and key asset, Conda, the sale of non-core Araxa Project to St. George Mining Limited, and positive market conditions for MAP/DAP. For those unfamiliar with some of these terms, the below is the initial post on Itafos.

Karst Research

Phosphate Mine Opportunity

One fact about me that I believe some may know is that my first “love” when it comes to businesses has always been metals/mineral extraction. Whether it be iron, gold, lead, oil, gas, lithium, phosphate rock, potash, limestone, etc. I have always had an affinity for not only the commodity, but also the businesses that extract the commodity. To me, there are few businesses as real as the ones directly supplying the world with materials and goods to create, well, anything. Everything we touch is a function of someone taking a risk to extract a metal or mineral out of the ground. The computer I am typing on contains copper, the energy that powers our society is oil/gas (amongst others), the walls in my house contain gypsum, and the food I ate was fertilized with phosphate or potash…

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a year ago · 3 likes · Karst Research

Highlights

• Despite improved fundamentals, Itafos trades at ~2.4x 2025E EBITDA, a steep discount to fertilizer peers (avg ~7.3x). At ~$2.4x, Itafos’ multiple is less than half that of Mosaic (~5.5x) and Nutrien (~6.9x) and far below smaller peer Intrepid Potash (~9.6x). The company’s balance sheet (net leverage turned slightly negative in Q1) and cash flows position it to potentially narrow this gap.

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The importance of this bill cannot be understated in current form. This is by no means an exhaustive list pertaining to OBBA impact to US Healthcare, but merely what caught my eye (for an exhaustive list, I direct you to the actual bill):

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Medicaid

Eligibility

• Sec. 44101 – Final Rule published Sept. 21, 2023, titled “Streamlining Medicaid; Medicare Savings Program Eligibility Determination and Enrollment” will NOT be implemented, enacted, administered or enforced prior to 2035.

• Sec. 44102 – Final Rule published Apr. 2, 2024, titled “Medicaid Program; Streamlining the Medicaid, Children’s Health Insurance Program, and Basic Health Program Application, Eligibility Determination, Enrollment, and Renewal Processes” will NOT be implemented, enacted, administered, or enforced prior to 2035.

• Sec. 44103 – Address Verification and Multi-State Enrollment Checks.

  • Establishing a system for the verification of addresses to prevent multiple state enrollment and implementing process to continually monitor address of Medicaid/CHIP recipients.

    • $10 million will be allocated for 2026 until expended.

    • 20 million will be allocated for 2029 until expended.

• Sec. 44104 – Removing Deceased Recipients.

  • Quarterly checks to disenroll Medicaid beneficiaries that have died with protections for those wrongly flagged as deceased.

  • Quarterly purging of the deceased on Medicaid rolls.

• Sec. 44107 – Ending overpayment “good faith” waivers.

  • Currently state Medicaid overpayments are waived if they show a good faith effort, if OBBA is passed the states will face funding restrictions if eligibility or payment errors occur. This effort is to force states to be accountable for improper payments and fraudulent/negligent oversight of claims and eligibility.

• Sec. 44108 & Sec. 44110 – Eligibility Redeterminations and Proof-of-Status.

  • Increases how frequently Medicaid enrollees’ eligibility is rechecked to “redetermine” if that person is eligible for Medicaid benefits.

  • Bars those with unverified immigration status from enrolling or being a beneficiary of Medicaid, states must verify this satisfactorily, or they will absorb the full cost of these beneficiaries.

Costs & Wasteful Spending

• Sec. 44122 – Cutting Retroactive Medicaid Coverage.

  • Currently Medicaid will cover eligible medical claims retroactively for the 3 months prior to qualifying for Medicaid.

  • This section would require states to only cover care from the month before the application. The goal is to incentivize faster enrollment and reduce unpaid care for providers.

• Sec. 44124 – Ending PBM Spread Pricing in Medicaid.

  • Mandates transparent pass-through pricing for PBMs participating in Medicaid managed care.

  • PBMs under this rule must charge the MCO or State the exact amount paid to pharmacies for drugs plus a dispensing fee, net of any spread.

  • PBMs can earn an administrative services fee for services performed in this capacity.

  • PBM must make “available to the State and the Secretary upon request in a form and manner specified by the Secretary, all costs and payments related to covered outpatient drugs and accompanying administrative services […]”

Abusive Financing Practices

• Sec. 44131 – No Enhanced FMAP for New Expansion States.

  • Ends 90% federal match incentive for states that haven’t expanded Medicaid.

  • This will cause majority of the expansion of Medicaid to fall onto the state, current standard federal match is approximately ~55-75% as opposed to the enhanced FMAP of 90%.

• Sec. 44132 – Provider Tax Moratorium.

  • Imposes moratorium on new or increased taxes that states currently use to fund Medicaid.

  • Keeps remaining taxes, however.

Personal Accountability

• Sec. 44141 – Community Engagement Requirement for Applicable Individuals.

  • Requires community engagement for Medicaid enrolled adults that are not pregnant, elderly, or disabled. States offering Medicaid to said able-bodied adults must mandate these adults work or volunteer more than 80 hours per month or a combination of education, work, volunteering for 80 hours or more per month.

  • Non-compliance would result in losing coverage.

Affordable Care Act

• Sec. 44201 – Enrollment Period Changes for Exchanges.

  • Shorter Open Enrollment window fixed on Nov 1 – December 15.

  • Eliminates the Low-Income 150% FPL SEP (previously mentioned in CMS proposed rule in from March 10, 2025.)

  • Tighter income attestation to ensure enrollees are qualifying for the correct amount of subsidy (if any).

Extra Health Related Matters

• Sec. 44304 – Stopping Medicare Physician Fee Reductions.

  • Adjusts Medicare fee conversion factors.

• Sec. 44305 – Modernizing and Ensuring PBM Accountability.

  • Mandates greater transparency and passes savings to consumers/plans.

  • Mandates starting July 1^st, 2028 PBMs shall submit to the PDP sponsor and to the Secretary a report that covers:

    • All covered drugs, including brand name, generic, non-prop, and NDC.

    • Number of enrollees for whom drug was dispensed, total number of Rx claims for the drug, and total dosage units.

    • Dispensing channel metrics for each drug (retail, mail order, spec. pharmacy, home infusion).

    • Average Wholesale Acquisition Cost.

    • Average Wholesale Price.

    • Total out of pocket spending by plan enrollees.

    • Total Rebates paid by manufacturer.

    • All other direct remuneration or indirect remuneration on the drug.

    • Average NADAC (National Average Drug Acquisition Cost)

    • Manufacturer derived revenue attributable to the drug and retained by the PBM or subsidiaries.

    • Etc.

General Thoughts

Increased Medicaid redeterminations labeled in Sec. 44108 will allow for Sec. 44141 – Community Engagement to become a viable strategy. By increasing the quantity of redeterminations and the thoroughness of said engagements it will be easier for States and CMS to redetermine non-compliant individual off the plan.

Nothing regarding the ACA Sec. 44201 should come as a surprise to anyone that pays attention to CMS notices/proposed rules. As covered in my April 3rd post:

Karst Research

Center for Medicare and Medicaid Services Final Rule and ACA Proposed Rule

Going to dive into the Advance Notice and Final Rule as well as the Proposed Rule regarding ACA marketplace. I’ll give my thoughts on a few names that I think can benefit, specifically for the Final Rule as well as the impact that the proposed ACA rule may have on a company like Oscar…

Read more

a year ago · Karst Research

The rules are pretty similar if you scroll to the ACA section of the above article: reducing enrollment period, eliminating the 150% FPL SEP, and tighter income attestation verification.

One thing that strikes me is the mandated reporting in Sec. 44305. It is thorough and for all the right reasons. It’s hard to appreciate if you don’t have familiarity with the underwriting process for medical and pharmacy coverage, but most people would be stunned by how little data there really is for plan sponsors (even those that are self funded). Currently, the process is very cut and dry, if you are eligible you are given a claims feed for the period in question and you can use that when you market your Employer Sponsored Plan to other MCOs, but the level of granularity that Sec. 44305 requires is a huge step in the right direction. Most plan sponsors do not have access to this level of granularity and it will be hugely informative to their process when negotiating with both incumbent carriers as well as competing carriers. For larger plan sponsors who are self-funded under an ASO (administrative services only), having this level of granularity I would expect to see a reduction in ASO and a commensurate increase for to a fully carved out model where the plan sponsor can mix and match networks, stop loss providers, TPAs, and PBMs.

This bill is pretty remarkable, there’s a lot of stuff I like to be frank. There’s no reason we shouldn’t be extremely thorough and frequent with redeterminations, ensure we purge deceased Medicaid recipients from the rolls, force PBMs to be more transparent for plan sponsors, enforce personal accountability.

However, these are absolutely massive cuts, $793 Billion over 10 years estimated by KFF. The work reporting requirements would undoubtedly reduce Medicaid enrollments and the commensurate federal spending associated with those enrollments. The ACA changes probably impact 3-5 million individuals over the next decade, resulting in a loss of health insurance. KFF estimates 22 million people would be impacted by this. KFF. I can’t emphasize enough just how massive this would be to the providers that depend on “payor flow business",” i.e. business that relies on members of health plans to walk through the door and be consumer healthcare services. If you reduce the number of individuals with insurance there will be a reduction in earnings of the providers as well as the insurers that rely on these programs (ACA and Medicaid), of that I have no doubt.

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2025 has been off to an amazing start so far, albeit not without volatility. Below is my performance YTD.

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Marex is a diversified financial services platform specializing in commodities and market access, which really is some of the best corporate jargon I have ever heard. The company has quietly become one of the world’s leading commodity brokers and clearing firms, yet it seems under discussed/appreciated. Marex grew revenue 28% to $1.6 billion and a 25% return on equity. Having IPO’d in 2024 at $19/sh they’ve performed extremely well. Marex was established originally in 2005 and, in their own words, accelerated their business following JRJ Ventures making a significant investment in them in 2010. This is a stock I personally want to own for a long time.

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Founded: 2005

Public IPO Price (April 2024): $19.00

Current Price: $38.96

Market Cap: $2.8 billion

Footprint: Marex is headquartered in London and operates in EMEA, the Americas, and Asia Pacific. The North American Energy business is headquartered in Houston and the North American agricultural business is headquartered in Chicago. The New York office focuses on financial products. The APAC markets are served by offices in Hong Kong, Singapore, Australia and NZ, but there are a growing number of APAC clients served by London and New York. There is a long list of regulated entities that Marex has, I’m not going to copy and paste them in here, if you are so inclined, please see page 59 in the recent 20-F.

Acquisitions: Marex’s growth has been fueled by both organic expansion and M&A. Since 2021 their growth has been 60% organic and 40% inorganic.

• In 2022, Marex completed their acquisition of ED&F Man Capital Markets for ~$220 million​.

• In Dec 2023, Marex purchased Cowen’s prime brokerage and outsourced trading business. This gave Marex a foothold in serving hedge funds with prime services, complementing its clearing and execution offerings.

• Historically Marex also purchased smaller brokers (e.g., Spectron in 2011, X-Change Financial in 2020) to broaden its product capabilities.

• From 2018-2024 Marex acquired 17 companies. There have been two acquisitions completed so far in 2025 with two recently announced acquisitions

  • Hamilton Court Group – UK Fx specialist

  • Aarna Capital – Middle East clearing business

    • Energy, base, and ferrous metals and financial market equities/fixed income/fx (per the PR).

  • Edgemere Terminals – announced in March 2025

    • Warehousing and logistics specializing in non-ferrous metals for the LME.

    • Edgemere was non-compliant with LME capital adequacy for warehouse companies and sought a buyer.

  • Darton Commodities – announced in April 2025

    • Cobalt metal trader

Segments

• Clearing: Teams based in London, New York and Chicago. Clearing activities predominantly concentrated on the LME, CME, and ICE. They are a Category 1 member on the LME allowing them to trade by “open outcry.” Marex earns a commission on executing and clearing trades for their clients as well as earning interest income from the cash balances they hold.

  • Clearing segment has 2,900 active clients interfacing with 60 exchanges. They cleared 1.1 billion contracts, a growth of 30% yoy.

  • Clearing in 2024 did $466 million in revenue, which accounted for 29% of Marex consolidated revenues.

  • Clearing is by far the most profitable on a PBT (profit before tax) basis contributing $247.3 million

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My fascination with commodities didn’t appear recently. In college I studied Geology and Marine Science, with the goal of being an exploration geologist. Long story that I won’t get into here, but life had other plans. I still, to this day, use those skills I learned to look at metals/mineral extraction businesses – albeit I would not say I am an expert, but I know enough to invest, or at least investigate.

Investing in commodities is enough to give one a profound mental disability. It is full of some of the worst actors you could imagine, I even have a tweet about waging war against the TSX.V:

Despite all of that, this sector is full of some of the smartest investors, scientists, and businesspeople I have ever met/studied. They have my admiration. Today I want to talk about a company mining a mineral that many people forget and whose stock has 50% in the past year and more than 700% over the past 5 years. With it’s competitors trading at easily 2x the valuation the below looks to be a bargain.

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Advance Notice and Final Rule

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