PACS (PACS) Q1 2026 Earnings Call Transcript

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DATE

Tuesday, May 12, 2026 at 11:30 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Jason Murray
• Co-Founder and Retiring Chief Financial Officer — Mark Hancock
• Chief Financial Officer — Carey Hendrickson
• President — Joshua Jergensen

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TAKEAWAYS

• Revenue -- $1.42 billion, up 11% year over year due to broad-based portfolio strength.
• Net Income -- $80.7 million, up $52.3 million from the prior-year period, reflecting significant earnings expansion.
• Adjusted EBITDA -- $170 million, a 75% increase driven by operational leverage and improved skilled mix; includes $16.3 million net benefit from California’s discontinued Workforce and Quality Incentive Program (WQIP).
• Adjusted EBITDAR -- $266 million, representing enhanced operating profitability across all facility cohorts.
• Diluted EPS -- $0.50, up from $0.17 in the comparable period, demonstrating accretive earnings momentum.
• Same Store Revenue Growth -- 8% increase for facilities in operation since the start of 2025, driven by higher occupancy and improved skilled mix.
• Systemwide Occupancy -- 90.9%, up from 89.2% a year ago, and outpacing the industry’s roughly 79% average.
• Skilled Mix -- 30.5% overall, a 90 basis-point year-over-year gain, with mature facilities at 33%, and ramping facilities posted improvements.
• Mature Facilities Performance -- 94.8% occupancy and 33% skilled mix, supporting a stable portfolio foundation.
• New Facilities Performance -- Averaged 82.7% occupancy and 26.5% skilled mix, indicating early-stage integration progress from recent expansion across seven new states.
• Quality Ratings -- 222 facilities rated 4 or 5 stars under CMS metrics, up from 207 at year-end 2025; average mature facility CMS rating at 4.4 versus the industry’s 3.6.
• Cost of Services -- $1.07 billion, a 5% increase against 11.2% revenue growth, reflecting efficient cost controls and operating leverage.
• G&A Expense -- Approximately $112 million, tied to investments in systems, infrastructure, and personnel to support scale.
• Operating Expense Growth -- 5.8% year over year, signifying ongoing cost discipline amid organizational expansion.
• Liquidity and Capital Structure -- $800 million unrestricted liquidity, including $250 million cash; net leverage at 0.1x provides flexibility for growth and capital allocation.
• Real Estate Investment -- Deployed $86.5 million in strategic real estate within existing operating footprint to increase ownership.
• Share Repurchase Authorization -- New $250 million share buyback approved, to be executed opportunistically during open trading windows; no set expiration, obligation, or 10b5-1 plan in place.
• Guidance Update -- Raised full-year 2026 adjusted EBITDA outlook to $605 million–$625 million, implying ~22% growth at midpoint; revenue guidance reaffirmed at $5.5 billion–$5.75 billion, now excluding future acquisition revenues.
• Labor Environment -- “significant improvement,” in applicant volumes, and agency labor reduced versus prior years; positive outlook for staffing in key markets such as California.
• Administrator in Training (AIT) Program -- 40 administrators in training, the highest to date, supporting talent pipeline for leadership succession and M&A integration demands.
• Quality Incentive Programs -- $16.3 million WQIP benefit for the quarter; future quality payments in California and Ohio are excluded from guidance due to uncertain timing and amounts.
• Material Weakness Remediation -- Ongoing efforts in internal controls over financial reporting with “substantial progress this year”; enhanced compliance and revenue process controls already enacted.
• Leadership Transition -- New CFO Carey Hendrickson appointed following Mark Hancock’s retirement; continued board service for Hancock as Vice Chairman for ongoing governance, oversight, and strategic input.

SUMMARY

PACS Group (NYSE:PACS) delivered double-digit year-over-year growth in revenue and earnings, driven by occupancy gains, favorable skilled mix, and margin expansion from improved operational leverage. The company executed a material increase in EBITDA guidance for 2026, advancing its disciplined capital allocation strategy with a new $250 million share repurchase authorization while reaffirming revenue targets that now exclude projected acquisition activity. Management highlighted momentum in integrating newly acquired facilities and maximizing value through talent development programs and strategic real estate investments, while also progressing remediation of recent material weaknesses in internal controls. The company confirmed ongoing government investigations are proceeding “through the normal course” and stated confidence in the organization’s resilience and risk management infrastructure.

• Future quality incentive program payments from California and Ohio may provide incremental upside, but are omitted from current financial guidance given the unpredictability of both timing and amount.
• Expansion into seven new states in 2024 broadened the portfolio’s geographic footprint, with successful initial integration of newly acquired facilities seen in both occupancy and skilled mix improvements.
• Operating leverage was demonstrated as a 5% increase in cost of services trailed an 11.2% climb in revenue, underlining improved profitability per incremental dollar of sales.
• The maturing of recently acquired facilities was directly linked to sustained improvements in CMS quality rankings, with nearly all new 5-star upgrades attributed to center maturation and interdisciplinary team development.

INDUSTRY GLOSSARY

• Skilled Mix: Proportion of patient days or revenue derived from higher-acuity (skilled nursing) services within the overall portfolio.
• Workforce and Quality Incentive Program (WQIP): California-specific performance-based reimbursement program tied to clinical quality, workforce investment, and health outcomes for healthcare facilities; discontinued after 2025 program year.
• Adjusted EBITDAR: Earnings before interest, taxes, depreciation, amortization, and facility rent costs, reflecting operational profitability prior to lease expenses.
• Administrator in Training (AIT) Program: PACS Group’s internal leadership pipeline for developing new facility administrators positioned for future management roles.

Full Conference Call Transcript

Unidentified Speaker: Thank you, and good morning, everyone. Thank you for joining us for our conference call. Before we begin the prepared remarks, we would like to remind you that yesterday, Tax Group issued a press release announcing its first quarter 26 results. An investor presentation was published and is available on the Investor Relations section of pax.com. I would also like to remind everyone that during the course of today's conference call, we will discuss certain forward looking information including our expectations for 2026 revenue and adjusted EBITDA that is based on our current expectations, assumptions and beliefs about our business.

Any forward looking statements are subject to risks, uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. You should carefully consider the risk factors that may affect our future results as described in our annual report on Form 10-K for the year ended 12/31/2025, and our other SEC filings. During this call, we will discuss certain non GAAP financial measures. Including adjusted EBITDA, adjusted EBITDAR, and net leverage. These non GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP.

For a reconciliation of non GAAP financial measures discussed during this call to the most directly comparable GAAP measure please refer to the earnings release and the appendix included in the investor presentation are both published and available on the Investor Relations section of Tax Group's website.

Jason Murray: I will now turn the call over to Jason Murray, Chairman and CEO. Thanks, Ryan, and thank you all for joining us this morning. We are very pleased to report a strong start to 2026 with continued operational consistency across our platform and measurable progress across the facilities we have integrated over this past several years. Our performance this quarter reflects both the durability of our operating model, the continued execution of our teams across the organization, as well as the strength of the foundation we built throughout 2025. As we enter 2026, our priorities remain consistent. Drive performance across our existing portfolio continue advancing facilities through their integration lifecycle, allocate capital in a disciplined manner.

We are seeing that play out across the platform. As of 03/31/2026, PACS operates 223 facilities across 17 states with approximately 35 thousand total beds, including roughly 32.7 thousand skilled nursing beds and 2.7 thousand assisted living beds. Across this platform, we are caring for approximately 31.9 thousand patients daily. We believe the scale and geographic diversity of our platform combined with the consistency of our operating model position us to deliver reliable performance while continuing to grow thoughtfully over time. In addition, our density within key markets continues to improve, allowing us to leverage local leadership clinical resources and referral relationships more effectively as we scale.

Believe that localized scale is an important driver of both operational consistency and long term growth. Our mature facilities continue to operate at high levels of occupancy and clinical consistency. Providing a stable base of strong performance. While ramping facilities are progressing as expected as they adopt PACS clinical systems and operating processes and move toward mature levels of occupancy and skilled mix. We continue to view this progression from new to ramping to mature as a meaningful and embedded source of organic growth within our existing portfolio.

We recognize that there has been ongoing discussion around managed care providers' potentially reducing admissions into skilled nursing facilities While we continue to monitor the evolving landscape closely, we have not seen those concerns impact our business and our operating metrics, admission trends and skilled mix, includes managed care remained very strong across the portfolio as evidenced in our first quarter results. More importantly, we believe high quality operators with strong clinical outcomes reliable discharge partnerships and proven patient care capabilities will continue to play an essential role in the post acute continuum. Our focus on quality and execution positions us well to continue earning the trust of hospitals, payers, patients and families regardless of broader market noise.

A clinical perspective, we remain encouraged by the consistency of outcomes across our facilities As of the end of the first quarter, 222 of facilities are rated 4 or 5 stars under CMS quality measure ratings. Up from 207 at the 2025. Among our mature facilities, average CMS quality measure star rating remains 4.4. Consistent with the prior quarter and meaningfully above the industry average of 3.6. These improvements may appear incremental at this level of performance, we believe they reflect continued consistency in clinical execution, patient outcomes and operational discipline across a large and growing platform. At the center of that performance remains our locally led centrally supported model.

Our facility leaders are empowered to make decisions at the point of care where they can have the greatest impact on patient outcomes while PAC Services provides the infrastructure, systems and support necessary to drive consistency accountability and compliance across a growing and increasingly complex organization. We believe this structure allows us to deliver both strong and repeatable results even as we continue to scale the platform. A key component of sustaining this performance is our investment in leadership development. Through our administrator and training program, we continue to build a scalable bench of operators prepared to step into leadership roles across both existing and newly acquired facilities.

We currently have 40 AITs in the program, which we believe is an important indicator of our ability to integrate facilities effectively and maintain operational continuity as we grow. Just as importantly, that investment ensures we have the right leadership in place when facilities require focused operational and clinical improvement. Across our portfolio, we continue to see examples of how disciplined leadership supported by operating model can drive meaningful improvement in both clinical and financial performance over relatively short periods of time. To bring that to life, I would like to highlight 1 of our facilities in Arizona. This facility was acquired in 2023 and entered our portfolio with significant operational and clinical challenges.

Subsequently, the facility was designated as a special focus facility after failing a special focus survey with more than 20 deficiencies including high severity findings. New administrative clinical leadership was put in place supported by additional tax clinical resources and PACS services and the team implemented targeted changes across key areas of clinical performance and operational execution. Importantly, this required more than process changes. It required a fundamental shift in culture The team moved from reacting to deficiencies to owning outcomes. With a clear focus on accountability, consistency and system level improvement. The results have been significant. In subsequent surveys, efficiencies were reduced to fewer than 5. All within acceptable thresholds under the special focus program requirements.

As a result of that progress, the facility is now successfully graduated from the special focus facility program. At the same time, the facility has maintained occupancy above 90% and continues to demonstrate improving financial and clinical performance. We believe this example reflects what our model is designed to do, identify operational opportunities install strong local leadership supported by PAC services, and drive measurable improvement over time. Stepping back, we believe the performance we are seeing across the platform reflects the continued maturation of a significantly expanded portfolio combined ongoing investment in our people, systems and infrastructure. We also believe our positioning within the broader skilled nursing landscape remains compelling.

Demographic trends continue to support long term demand and the industry remains highly fragmented which we believe creates opportunities for operators with scale, clinical capability disciplined execution. As we look ahead, we remain focused on continuing to drive performance within our existing portfolio. Advancing our facilities through the integration lifecycle and allocating capital in a disciplined manner. I would like to take a moment to briefly address our previously disclosed government investigations. These matters continue to progress through the normal course. We remain fully cooperative and engaged with the government throughout the process.

While we were unable to estimate the timing of resolution at this stage, we are confident in our ability to navigate these matters responsibly and thoughtfully just as we have navigated other challenges throughout our company's history. Importantly, we believe the work we have done to strengthen our organization enhance our infrastructure and reinforce our compliance and reporting processes has positioned the company well for the future. Our focus remains firmly on executing our strategy, supporting our local leaders and caregivers and continuing to build a stronger more resilient organization for the long term. Before I turn the call over, I would to take a moment to address the leadership transition we announced a few weeks ago.

We are excited to welcome Carey Hendrickson, our new Chief Financial Officer Carrie brings a strong background in healthcare and many years of experience as a public company CFO. We are confident he will play an important role as we continue to scale the organization. At the same time, I want to recognize and thank Mark Hancock, our cofounder and longtime CFO who will be retiring from his role. And I started the company in 2013 with a shared vision. Which was to build a lasting healthcare organization that delivers high quality care supports the people doing the work every day and create long term value across the communities we serve.

What we have built since then is a direct reflection of that vision and of Mark's leadership the early days of the company through the growth and scale we see today, Mark has been instrumental in shaping not just the financial foundation of PACS, but the culture, the discipline, and the long term mindset that define how we operate. On a personal level, incredibly grateful for Mark's partnership we have had over the years for the role Mark has played in building PACS into what it is today.

Mark Hancock: With that, I will turn it over to Mark for a few words. Thanks, Jason. it is truly been an incredible journey building Pax over the past many years. And I am very proud of what this team has accomplished. When we first started this company in 2013, our goal is to build a legacy health care company that provided a better experience for everyone involved. Something within durable, foundational strength that would last far beyond mine or anyone's respective individual involvement.

An organization focused on delivering high quality care supporting our teams and making a meaningful difference in the communities that we serve. it is been rewarding to see that vision take shape and continue to grow over that time. What stands out the most to me is the people. The strength of PACS has always come from the individuals across the organization who show up every day focused on doing the right thing for patients and for each other. that is what has allowed this company to scale while maintaining consistency and discipline. I am confident that PACS is well positioned for continued success. The foundation is strong, The leadership team is in place.

And I have full confidence in Carrie as he steps into the CFO role. I am truly grateful for the opportunity to have been a part of the day to day journey. And look forward continuing to work with PAC's Board of Directors as Vice Chairman. Strong governance, risk management, financial oversight, and strategy are all critically important to me for creating shareholder value that is sustainable over the long term. With that, I will turn it over to Carrie.

Carey Hendrickson: Thank you, Mark. I appreciate the opportunity to step into this role and build on the strong financial foundation that is been established. 1 of the things that attracted me to Pax was the strength of the operating platform and the consistency of outstanding execution and that certainly played out in the first quarter. For 2026, our revenue was $1.42 billion representing 11% growth year over year. Our net income totaled $80.7 million an increase of $52.3 million from $28.5 million in the first quarter of last year. Our adjusted EBITDA was $170 million which was an increase of $72.8 million or 75% over the prior year. And our adjusted EBITDAR of $266 million.

And diluted earnings per share for the quarter was $0.50 up from $0.17 in the prior year. Truly outstanding performance in the first quarter. That performance in the first quarter reflects our continued strength across our portfolio driven by stable occupancy, improving skilled mix and continued progression across our ramping facilities. Importantly, we saw consistent execution across both our mature and our recently integrated operations. Adjusted EBITDA for the quarter included approximately $16.3 million of net EBITDA benefit from payments that we received under California's Workforce and Quality Incentive Program or WQIP which is a direct result of the outstanding performance of our facilities in California.

WQIP is a performance based program focused on quality of care, workforce investment and health outcomes. Even excluding this WQIP benefit, our adjusted EBITDA increased $57 million year over year in the first quarter of the prior year. These payments were not included in our original guidance, due to the uncertainty around the timing and the amount. As a reminder, as it currently stands, the WQIP program has been discontinued as of the 2025 The payment we received in 2026 was the last payment related to the 2024 program year.

We expect 2 additional payments tied to the 2025 program year with at least 1 of those anticipated to be received sometime in 2026 and then the other payment expected in late 26 or early 27. Again due to the uncertainty and timing and the amount the WQIP payments received in 2026 were not included in our original guidance and we will continue to treat these future expected payments in the same way. Excluding them from guidance. While it remains unclear whether WQIP will be continued or replaced, we, along with others in the state of California are actively advocating for a successor program that aligns reimbursement with quality.

Notice in the release that we included same store metrics for the first time, which we believe will provide additional insight into the underlying health of the business and will further highlight the consistency of our operating performance. On a same store basis, which includes 284 skilled nursing facilities in operations since the beginning of 2025, our revenue increased 8% year over year in the first quarter. This growth was driven by occupancy improvement from 89.6% to 90.8% along with gains in skilled mix across both revenue and patient days. Total occupancy for all facilities for the quarter was 90.9% compared to 89.2% in the prior year and continuing to significantly outpace the industry average of approximately 79%.

Our skilled mix increased to 30.5%, which was an improvement of 90 basis points year over year, driven primarily by continued progression within our ramping cohort. Our mature facilities remain highly stable operating at 94.8% occupancy with skilled mix of 33%, which continues to reflect the strength and consistency of our longer tenured operations. Our ramping facilities averaged 88.9% occupancy with skilled mix continuing to improve reflecting ongoing operational progress as these facilities move toward mature performance levels. Importantly, this cohort now includes facilities across 7 new states entered during our 2024 expansion activity. Demonstrating our ability to successfully deploy the PACS operating model across our broader and increasingly diverse geographic footprint.

Our new facilities averaged 82.7% occupancy, with skilled mix of 26.5%, reflecting the early stages of integration and stabilization as these facilities continue progressing toward mature performance levels. Importantly, the progression we are seeing across these cohorts reflects internally driven improvement within our existing portfolio rather than reliance on external growth and we continue to view this as a repeatable driver of performance over time. From a cost perspective, cost of services totaled $1.07 billion up 5% year over year which when compared to 11.2% revenue growth reflects significant operating leverage that we are able to achieve on our incremental revenue.

Our general and administrative expense was approximately $112 million reflects ongoing investment in our infrastructure, systems and personnel to support the scale and complexity of the organization as we continue to grow. Total operating expenses increased approximately 5.8% year over year which reflects disciplined cost management even as we continue to invest in the systems and infrastructure that is required to support a larger growing, more complex organization. From a capital structure standpoint, we continue to maintain a conservative and flexible balance sheet. During the quarter, we deployed $86.5 million in strategic real estate investments within our operating footprint consistent with our long term approach to selectively increasing ownership.

We ended the quarter with approximately $800 million of available liquidity including approximately $250 million of cash and net leverage of just 0.1 times. Our strong balance sheet enables us to support organic growth initiatives, selective acquisition opportunities and to evaluate opportunities to increase real estate ownership within our portfolio aligns with long term value creation. And we will do this all while maintaining financial discipline. As we noted in our release, our Board recently approved a $250 million share repurchase authorization, which provides us with additional capital allocation tool and the flexibility to repurchase shares opportunistically when conditions warrant.

While we remain focused on investing in the business and pursuing disciplined acquisition opportunities, This authorization gives us the ability to act when we believe our shares are undervalued. Our current plan is to repurchase shares opportunistically in the open market during permitted trading windows. The timing and magnitude of repurchases, if any, will depend on a range of factors including our share price, broader capital allocation priorities, requirements under our credit agreement, and overall market conditions. At this time, we do not intend to implement a 10b5-1 plan, an accelerated share repurchase or any other kind of similar structured program.

That said, the authorization allows us the flexibility to pursue those options if we determine they represent the most effective use of capital. Importantly, the authorization has no fixed expiration date, is not obligated to repurchase any specific amount of common stock and may be modified suspended or terminated at the board's discretion. it is worth noting that if this authorization had been in place during the first quarter, there were periods where we believe it would have been appropriate to deploy capital towards share repurchases. Quickly regarding our previously disclosed material weaknesses and internal financial control-- internal control over financial reporting.

That remediation remains ongoing, but we are actively advancing these efforts and expect to make substantial progress this year. We have made meaningful progress already including strengthening our leadership team enhancing our compliance and implementing additional controls across key areas of business, particularly within our revenue processes. Importantly, our financial statements continue to be prepared in accordance with GAAP and we believe the results reported this quarter fairly present the financial position and performance of the company. Turning now to our outlook. For full year 2026, we are significantly increasing our EBITDA expectations based on our first quarter outperformance and we are reaffirming our revenue guidance.

Increasing our adjusted EBITDA guidance to a range of $605 million to $625 million which is the million dollars increase at all levels of the range relative to our prior guidance. At the midpoint of this range, represents approximately 22% growth over 2025. The increase in our guidance is driven by stronger than expected performance in the first quarter including occupancy strength, favorable skilled mix trends, and consistent execution across both our ramping and mature cohorts. Also, as we noted in the release, we are making refinements to our guidance methodology to not include future acquisitions in our guidance. Which we believe will provide greater insight into our expectations related to the underlying performance of the business.

Historically, our outlook is included in the assumption for a nominal level of acquisition activity, which contributed to incremental revenue, but not incremental EBITDA. Beginning with this quarter and going forward, our guidance again will not reflect any contribution from future acquisitions. Our previous guidance included $120 million of revenue related to future acquisitions So despite moving future acquisitions, we are moving them from our guidance. We are reaffirming our revenue guidance range of $5.5 billion to $5.75 billion which implies stronger than expected organic revenue performance across the portfolio relative to our initial expectations entering the year.

While we are eliminating future acquisitions from our guidance, I want to emphasize that this modification does not reflect any change to our acquisition strategy or pipeline. We continue to see a robust and active pipeline of opportunities and are actively evaluating a number of potential transactions that align with our strategic and financial criteria. Based on our current visibility, we expect to remain active on the acquisition front and are engaged in discussions on several opportunities that we could potentially close during 2026. As we have done historically, we will continue to pursue acquisitions selectively and with discipline focusing on opportunities where we believe we can drive meaningful operational improvement and long term value creation.

Overall, our updated outlook reflects strong performance year to date continued confidence in organic growth across our platform, and a disciplined approach to both capital allocation external growth opportunities. With that, I will turn the call back to Jason.

Jason Murray: Thanks, Carey. As you can see, we are very pleased with the start of the year and we continue to remain focused on executing against our priorities. So with that, operator, I believe we are ready for questions.

Operator: Thank you. Your first question comes from Benjamin Rossi with Stephens. Please state your question.

Analyst (Raj Kumar): Hey, good morning. Congrats Mark on the retirement and congrats, Kelly, on the new role. Maybe just focusing on some of the reimbursement dynamics. Appreciate the color on the California quality incentive program. I know there is another state with Ohio where, you know, the state Medicaid department is going through some of the recalculations there. Maybe just any updates on that from that quality incentive program?. And then I guess, as we think about the rest of this year, any kind of moving budgets across, you know, your state of operation on the rate front? Any color there would be helpful.

Joshua Jergensen: Thanks, Ben. This is Joshua. I will take that 1 there. Yeah. You noted Ohio has a quality incentive program and initial indications across the portfolio that we have both the stuff that we have had in Ohio for a long time as well as our new acquisitions that we acquired in the past little bit. All have performed incredibly well across that quality program. So there is been a number of discussions about that. Initially, we believe there is substantive opportunity for us to be paid out in those quality programs, and we are actively having conversations with the state about when that payment is going to take place.

Similar to other quality programs like we mentioned in California, do not provide any guidance because we are not certainly, we are not certain when those payments or the exact quantity of those will come. But just generally across the landscape, when it comes to quality, we always try to encourage and as we evaluate deals that we are looking into, we love states that have a component of reimbursement related to quality. We see ourselves as a high quality provider. And wherever those opportunities exist, we feel that we do incredibly well, much like we have proven in California, Ohio, as you mentioned, Texas, other states that have quality components.

The rates in general, as we look at reimbursement, we have been very active and maybe more active than we ever have in having substantive conversations with legislature and state and federal governments to continue to emphasize how important the post acute continuum is and having quality providers in the space appropriately reimbursed for the higher levels of acuity that have been flowing downstream from the acute providers. We have actually had a lot of success in this and that is why you see across our reimbursement a lot of stability and in many instances improved reimbursement. That recognizes the growing need for post acute services. We are also seeing that interestingly enough in the managed care organizations.

We have had a number of meaningful conversations and rate renegotiations, new contracts, that all emphasize both quality of care but also recognition that there needs to be appropriate for the higher level of acuity that we are starting to see in skilled nursing. And so there is a recognition across our sector that post acute provides an incredibly valuable service and if done well can really save the overall environment, and that is why I believe from a cost perspective, and that is why I believe they continue to emphasize the need to have funds flow to our environment.

Analyst (Raj Kumar): Great. And then maybe as a follow-up just kind of thinking about the remainder of the year, think California is for healthcare staffing, I think the minimum wage is expected to boost. Clearly, direct impact to SNFs because of the non funded component of that. But I guess anything to kind of consider as you kind of think about your workforce and, you know, as you know, kind of pricing increases for the general, you know, population pool How should we kind of be thinking about that from a cost perspective and as, you know, you try to be more competitive with the kind of hospitals or health systems across, you know, some of your markets in California?

Joshua Jergensen: The labor trends in our space are incredibly positive as well. Not only for our company individually, but across the industry post acute care, we are starting to see people come back to the space We are starting to see us become a very viable option. For, you know, both the tenured nurses as well as new nurses who are who are looking to begin a career in the space. And so we have seen significant improvement. We are seeing a number of job applicants that are coming into for jobs and opportunities with us. And California is an area where we seen those numbers certainly increase.

So as we look at the labor environment, we are incredibly encouraged by what we are seeing. We measure kind of premium labor, agency usage, we have seen those numbers remain consistent over the last couple of quarters and down significantly from 2024, 2025. And certainly, you know, decreasing over time, from where we were post COVID. We also have incredible relationships, particularly, as you mentioned, California with labor unions. SEIU is a big 1 there. We have been able to reach out and have very meaningful conversations with them. About how we can work together to position ourselves in our sector as we move forward into the future. And so labor environment, seems great.

And in California, we are very optimistic.

Operator: Thank you. Your next question comes from Benjamin Rossi with JPMorgan. Please state your question.

Analyst (Benjamin Rossi): Hi, all. Thanks for taking my questions here. Just regarding your 2026 outlook, as we think about your revised guidance for the year, you mentioned $120 million of M&A revenue that is no longer expected for the remainder of the year. Can you just walk us through some of your embedded assumptions across rates, occupancy and your 3 cohorts for 2026, and how you are thinking about those trends as the year progresses? And then across pricing, what are you assuming for those Medicaid supplemental programs in those 2 potential remaining payments? And those quality programs like the 1 in California?

Joshua Jergensen: Thanks. Yes. As you look at just kind of the KPIs that we have reported on, we continue to see growth particularly we highlighted the ramping cohort And as we look at kind of this first quarter as we are giving initial guidance, you know, we are always doing the best that we can to look at visibility across how those cohorts, particularly new and ramping, are performing. And we just saw increased occupancies skilled mix, reimbursement rates, which highlights their ability to take a more acute patient and be reimbursed appropriately for those.

And so that is why you have not seen any adjustments to the revenue guidance because revenue came out in Q1 incredibly strong and we would anticipate continuing to see the strength across those KPIs. As it relates to the quality incentive, this is something that becomes very difficult to estimate and that is the reason that we leave it out Even on some of the California numbers, those fluctuate almost all the way until the end. Until the official payments and cash is received. And we have seen similar trends across other quality know, quality incentive payments. And that is why it is difficult.

As I mentioned, the Ohio 1, the remaining California 2 additional payments to anticipate exact what those numbers are when the cash will come in. And so as soon as we receive those numbers, as soon as we can on those and as soon as we get visibility into what those may look like, if there is more clarity on it than there has been historically, we will make sure to report that and update our guidance Benjamin, just to be clear, this is Carrie, by the way.

Carey Hendrickson: Hi. How are you doing, Benjamin? Those payments are not included in our guidance. As an example, last the payment we received in the first quarter of this year, we really would have expected to have that payment made to us in December, but it did not come came in the first quarter this year. it is just unpredictable when those things will come, and that is why we do not include it in there. Because we may include it in the guidance and then it not happen until the beginning of next year. So we just leave it out and we will report on it when we receive it.

Analyst (Benjamin Rossi): Understood. Appreciate that. Additional context there. I suppose as a follow-up on per diem trends, seems like you had good growth during 1Q for managed care and Medicaid. Rates. I guess if Medicaid is mostly from these quality payments in California coming through, can you help me understand the growth in your managed care PPD rates? When you think about the 1Q growth there, any breakdown of how that growth is attributed to rate increases, acuity mix, and maybe additive billing services? Thanks.

Joshua Jergensen: Yeah. This Josh again. We have seen managed care census increase number of admissions increase particularly in Q1 of this year compared to really any quarter of 2025. And so, not only from a volume perspective, perspective, but again, us actually sitting down with a number of managed care plans and having very meaningful conversations about appropriate reimbursement in those contracts. We have renegotiated hundreds of contracts successfully what that points to for us as a provider, not only is the strength of our operating model, the quality of care that we provide, which is certainly something that managed organizations look for.

The high density number of beds that we have, which allow those managed care payers access They are willing to appropriately reimburse if we as a provider not only provide excellent outcomes, but are willing to improve our clinical capabilities and invest in our people, our physical plants, to ensure that their members can get excellent care. And so all of those trends point to us able to increase managed care census with the individual patients that come in, increase our reimbursement. Because we do truly represent the lowest cost setting of institutional care that can be provided. We have talked a lot about how important the post acute continuum is.

We believe we are doing a really good job at this point educating you know, the hospital system, the payers, particularly managed care about how important we are as a provider if we are gonna do it. On a high quality basis. And so I think you can continue to expect to see increased managed care not only from a census perspective, but also continued strength in our reimbursement numbers.

Analyst (Benjamin Rossi): Great. And if I could just squeeze 1 more in here for Mark, just specific to you as you close your time in packs here in an executive capacity. Obviously, you leave a unique legacy with the company. Can you reflect on your journey to this point and describe your thoughts and next steps as you hand over the reins to Carey and the broader team here? Thanks.

Mark Hancock: Yeah. Yeah. Thanks for that, Benjamin. Look. I mean, from day 1, Jason and I, I mean, we really went about trying to build a platform and a system that could support these locally led facilities, meaning you know, we have tried to take as much of the clerical, administrative burden off the plates of our local teams so that they could focus on what they do best, which is delivering care. And we built that kind of service center in a way that truly does support that broader mission. Of delivering care at the very highest level and providing a better experience for everyone involved. You know, the patients, their families, our staff.

Providing an environment where, you know, they can, they are not dreading driving into work, They are actually going to an environment that they feel the love and the healing and caring that happens there. And so you know, we have intentionally built systems and processes and technologies around that. In a sector that you know, we like to say is not historically known for, sophistication and technology. We have invested heavily to the tune of hundreds of millions of dollars over the years in those systems and technologies to take out some of the noise and inefficiencies and really streamline that process of delivering care. So, you know, this is a very high touch model.

The level of acuity that our clinicians take care of is impressive. It truly is, an extension of the hospital. And you see that, manifested in the occupancy in the demand for the services, the acuity to the skilled mix. And that is really where we see trends of moving in this post acute space and continue to move. You know, we would like to say that we have been talking for years about this kinda silver wave, the silver tsunami. That it is it is, you know, we are it is here. it is it is it is not only at our doorstep, but, you know, it is it is it is we are well into it now.

And so you know, we feel like we are well positioned from just an organization from a level of talent through our AIT program that we have infused in a sector that is not, you know, again, historically known for the type of dynamic leaders and leadership teams and interdisciplinary teams that can, support that effort. And so I am just you know, confident in what is in place. I am confident in the executive team and the leadership teams, both you know, at the PAC services level, but certainly at the at the local level. We saw that demonstrated over the last year in 2025, which was, you know, where the model was challenged, and we welcome that challenge.

That was that was our intent when we when we went public was we welcome the scrutiny. We welcomed the challenge of the model and know, we have we have we have proven that it works. And that despite the headwinds and the challenges that the company not only continued to perform, but really thrived. And, you know, we feel like we are just again, beginning to we just scratched the surface on what this what this mission and what this model can do. Right now, we represent about 2% of the market. And so again, I am confident that we have the people, the systems, the process, the platform in place to continue this legacy.

This truly is our life's work. And so, you know, Jason and I are very, very proud of that. And, you know, I feel confident in Jason and the team to continue to lead that. I look forward to continue to focus on, you know, all those elements from a board perspective. In governance and strategy and truly delivering, you know, outpaced results to our shareholders. So yes, thanks for that question, Benjamin.

Analyst (Benjamin Rossi): Yes, of course. Thanks for the additional color. Congrats on the retirement and congrats, Carrie, on the new role.

Operator: Thank you. Your next question comes from Benjamin Hendrix with RBC Capital Markets. State your question please.

Analyst (Benjamin Hendrix): Great. Thank you very much. I will echo congrats to both Mark and Carey. I was wondering if we could also just dig in a little bit deeper on some of the managed care commentary. I was looking at your ramping facility results. Clearly, a lot of growth and mix of nursing patient days. It looks like that might have been slightly offset by a little bit lower skilled rate. Just wanted to see kind of what you are seeing from a contracting perspective there. Is that purely just a function of the new regions coming into the bucket? Or is there, a dynamic there where you are being left some room for quality incentive payments?

Just wanted to see kind of what the contracting environment is with those new newly ramping facilities. Thanks.

Joshua Jergensen: Thanks, Benjamin. When we look at managed care, as we take over new facilities, we have talked about how generally when we are taking on stuff to our portfolio, it has been distressed and is struggling. They are usually not identified in the communities that they are serving as a place that you know, managed care organizations, other payers, hospital systems can truly rely on to provide great care. And so when we come in and deploy our model, it takes time to change that reputation and build the confidence in all of those parties to ensure that they can rely upon us as a provider.

And so when we talk about ramping specifically, that usually is about the time frame that we start to see meaningful conversations and contracts and potential renegotiation of contracts. When we have been able to prove out over the course of 18 or so months that we are a different facility than we were when PACS entered in. And so, you know, those conversations are happening all along the way. Fortunately, with you know, the reputation that we have, you know, nationally, think it gives us an opportunity to have a seat at the table sooner than most.

But as we work through those contract negotiations, as people start to see the actual quality that we are delivering, there is a desire at that point to actually leverage the, you know, the platform that we have, the density, the number of beds that we have, to have contracts. And so it is no surprise to us that as we are moving through that ramping phase, we are starting to see the actual initiation or the renegotiation and the increased volume in patient days and admissions for managed care providers, as well as other high acuity skilled patients are flowing through the model.

And so, you know, that is something that we will continue to see hope that it happens as soon as possible. Some deals come where we are able to just based on need, managed care contracts sooner. But, as we move and you will see it consistently from new, to ramp, to mature, not only the census increase, but so does managed care's willingness to reimburse us more. And we prove out the ability to continue to take higher acuity patients to do it well.

Clinical capabilities as they move from ramping to mature usually even increase and the comfort level of these teams to take a higher acuity patient And so as those facilities mature, should be no surprise-- it is not to us that we see increased numbers both in admissions skilled mix, reimbursement rate as those facilities move from ramping to mature. So I think that is something as you look at your own models as we look at ours, we expect to continue to see those trends that are positive and we are grateful that managed care organizations and others and the communities that we serve are starting to realize the value that we provide.

Analyst (Benjamin Hendrix): Thanks for that color. And then, Carey, just maybe if you can provide maybe some broad observations that you are considering with regard to the capital strategy. I mean, you have talked about the buyback plan there and optionality you have embedded. But maybe early thoughts on the pace of overall M&A and then if there may be a dividend in the future? Thanks.

Carey Hendrickson: Bringing up the dividend question for me already. No. Really, they have tax has a great capital allocation kind of program in place. Certainly, we did we did include the share repurchase authorization this time because I think that is a great kind of good hygiene tool to have in place. And when we see opportunities to take advantage of that in the market, if there are opportunities, then we are going to do that. Provides us the ability to act You know, the company has a $600 million line of credit. We only had $45 million drawn on it. At the end of the first quarter. We have $250 million of cash.

We have plenty of availability for M&A, lots of liquidity. But we are seeing a good pace of M and A, the things we are looking at. And yes, the ones and twos here and there, the tuck ins that we have historically done, but we are also seeing some larger portfolios. And things that would could provide some actual you know, usually, ones 1 and 2 kind of acquisitions, we they do not have EBITDA initially, and we grow that EBITDA as they as they ramp.

But some of the larger opportunities would have more immediate impact and so we are looking at some of those that, but I think we have a capital structure that is, sufficient to do that, but there may be another opportunity to you know, potentially increase that capacity. So we will see as we go forward and look at those kind of opportunities. It kind of depends on the pace of M&A. So I think that is what you will see for us just looking at the pace of M and A, where that comes, what we need to do from a capital structure. The important thing is we have a lot of M&A opportunity.

We wanna be able to support that. We can support it. The company has great relationships with the banks that service us. So we are in a really good position. Hope that helps.

Operator: Thank you very much. Your next question comes from A. J. Rice with UBS. Please state your question.

Analyst (A. J. Rice): Thanks. Hi, everybody. Maybe first off, you mentioned the management pipeline you have put in place and obviously that is an important part of your growth strategy. I think you mentioned in the prepared remarks you got about 40 administrators in training at this point. I wondered over time, is that sort of a steady state type of number? Is that significantly higher than the last year or 2? And do you see that number increasing over time?

Joshua Jergensen: Yeah. This is something we are incredibly proud of. And it is been a strategy that we have talked about a number of times this call. it is been a part of our strategy really since inception of the company is investing in a different level of talent that our sector has ever seen. And I believe that the 40 that we reported on that we currently have is the highest number we have actually reported on in these calls. And a lot of that is because we are seeing a healthy amount of flow through the M&A pipeline. And so we are preparing for that growth.

We believe that kind of foundational to our success has been deploying our leadership model. And that requires a certain level of leader to hold the administrator position. And as the company grows, we promote from within. We have kind of some moving pieces that require us to have back fill of highly talented people to enter the organization. And we want to ensure that, there is never a limiting factor of human capital and quality talent to be able to deploy in these opportunities. And so as we see the M&A pipeline increase, as we see substantive deals that we are looking at currently, that we expect to make movement on over the course of the next couple months.

We wanna be sure that our leadership and level of talent match that.

Analyst (A. J. Rice): Okay. that is interesting. Maybe on talking about uses of capital, I know in the prepared remarks you talked about continuing to evaluate opportunities to increase real estate ownership. Are there boluses of properties that are coming up where you have the option to take on ownership that are within your portfolio, maybe give us some sense about how you are thinking about that relative to other uses of capital and what the pipeline might look like there.

Mark Hancock: Yes, AJ. Mark here. So, we have a number of purchase options that have that are coming due, including 8 immediate that we have the option to exercise on potentially in this year. So, you know, real estate is, does require, you know, a lot of capital. Relative to kind of some of the lease deals that we can we can walk into and just take on the working capital in those types of scenarios. So certainly, as we, you know, look at our cost of capital, as we look at, you know, some of the more chunkier acquisitions that we have alluded to.

You know, we are weighing that balance of, deploying capital in real estate versus some of the lease acquisitions. But, certainly, like we have all shared on this call, you know, the pipeline is strong. And know, we have in a fortunate position from a balance sheet perspective to be able to deploy capital. And we have we have shared over the years that so much of the value in the real estate is driven by the success of the operation.

So as we increase that EBITDAR and those cash flows from the operation, just from a cap rate perspective, it truly multiplies the value of the real estate. that is where we see a lot of the potential in exercising these options, which, you know, we generally try to negotiate options on a fixed price basis. So as we have created value and improved operations, we are we are very often in the money on exercising those options. And so of these that are coming due kind of fall into that category.

Analyst (A. J. Rice): Okay. Thanks a lot.

Operator: Thank you. And we have time for 1 last question that comes from Clark Murphy with Truist. Please state your question.

Analyst (Clark Murphy): Hey, good morning, guys. Congrats on the quarter. Just wanted to come back for a minute spend some time on quality. Just you had a pretty meaningful uptick in the number of facilities rated 4 or 5 stars from the 2025. I think it was up around 500 basis points or so. And nearly all of that increase was in the number of 5 Star facilities. So can you just kind of help us understand the delta there? I am assuming that mostly reflects continued center maturation, but just any additional color there, and if there is anything that you guys are doing from a clinical or operational standpoint that is kind of helping drive those gains? Thanks.

Jason Murray: Yeah. Yeah. You have got it, Clark. Thanks. So this is Jay Jason. I will take that question. So, I think you are right in your assumption that it does represent the continued maturation of our facilities in that the new ramping immature buckets. And, you know, and there is a reason why we have attached timelines to those new and ramping mature cohorts. it is because it does take time in order for us to improve the clinical performance and get it to a point where it is a PAX expectation.

And I think that is exactly what we have seen, you know, this last quarter is seeing a continued maturation of these facilities, clinically, that are in that mature cohort and seeing the, you know, the administrator and the interdisciplinary team take ownership of the clinical processes within the facility and the clinical outcomes as well. And them, you know, really being able to, affect change, you know, over that 3 year period, you know, at the end of 3 years, the expectation is that we do have our facilities, you know, up close to 5 stars.

And, you know, and I think that is exactly what we are seeing here is, you know, as the facility matures, we are seeing, you know, better and more you know, robust clinical performance with our teams, and we are getting the right people in place and, we are providing them with all the tools that they need in order to continue to perform at a high level. And so, you know, again, that is a metric that we are incredibly proud of. You know, we lead with that. The care is the beginning and the end of everything that we do. And it is the it is what really creates the virtuous cycle of our success. Is the care.

And so we are there is there is no do not think it is by accident that we run higher occupancy across our portfolio. Because the quality metrics are there. And when the quality is there, you know, occupancy tends to follow as does, you know, the financial performance of the facility as well. So that will be a strategy that we continue to deploy and something that we are continuously trying to improve. We are never good enough. Even if we are at 5 stars, there is areas that we can improve in, and that is all part of our scorecard system and dashboard system that we use for clinicians and our teams in order to continually improve.

Analyst (Clark Murphy): Got it. that is helpful. And then just 1 more for me. Really strong cash flow quarter especially relative to the EBITDA beat. So just kind of curious, if there was anything timing related in the cash flows and how you are expectations have changed at all potentially for the year on the cash flow front? Next.

Carey Hendrickson: Yes. Thanks for that question, Clark. So there is 1 item if you look at our cash from operating activities, I noticed we had $236 million of cash in the first quarter that we generated for operating activities. That was a little bit of a pull through from the fourth quarter. At the end of the fourth quarter, we prepaid an acquisition we are making in Alaska. And so that was about $50 million and we prepaid it in the in December. So it helps us in our cash from operating activities in the first quarter. But if you look down in financing-- any financing activities that comes out there, the $50 million does.

So it is kind of an offset there. So I would say but even without the $50 million a $186 million of cash generated from operating activities in the first quarter is really strong. And it is even a little bit higher than our EBITDA contribution which is great. And I think you could expect us to be in that level position for much of the year. A good place to be.

Operator: Thank you. I will now hand the floor over to Jason Murray for closing remarks.

Jason Murray: Yes. Thank you, operator. And again, thanks to everyone for joining us today. We are incredibly excited for the quarter that we have had and for the upcoming year. And we hope you all have a nice rest of your day.

Operator: Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.

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