PACS Group, Inc. (PACS) Earnings

Management highlights

- Platform & Operational Structure * As of Q1 end 2026, PACS operates 223 facilities across 17 states with ~35,000 total beds (32,700 skilled nursing, 2,700 assisted living), caring for ~31,900 daily patients * Uses a locally led, centrally supported model: facility leaders are empowered to make care-focused decisions, while corporate provides shared infrastructure, systems, compliance and accountability to support consistent performance as the platform scales * Increasing market density within key regions improves leverage of local leadership, clinical resources and referral relationships, supporting organic growth as facilities progress from new → ramping → mature cohorts - Clinical Quality & Leadership Development * 222 of 223 facilities hold 4 or 5-star CMS quality ratings, up from 207 facilities at the end of 2025; average CMS rating for mature facilities holds at 4.4, far above the industry average of 3.6 * Runs a dedicated Administrator-in-Training (AIT) leadership development program to build a scalable pipeline of facility leaders; currently has 40 AITs in the program, the highest count in company history, to support growth and operational continuity * The operating model is proven to turnaround underperforming acquired facilities: a formerly distressed Arizona facility acquired in 2023 graduated from the CMS Special Focus Facility program after new leadership and operational changes reduced severe deficiencies from over 20 to fewer than 5, while maintaining 90%+ occupancy - Capital Structure & Capital Allocation * Maintains a conservative, flexible balance sheet: ended Q1 with ~$800 million in available liquidity (including $250 million in cash) and net leverage of just 0.1x * Invested $86.5 million in strategic real estate purchases within the existing operating footprint during Q1, aligned with a long-term strategy of selectively increasing property ownership * The Board approved a new $250 million share repurchase authorization with no fixed expiration; repurchases will be opportunistic in open markets during permitted windows, with no current plan for structured repurchase programs - Leadership Transition * Co-founder and long-time CFO Mark Hancock is retiring from the executive role and will move to Vice Chairman of the Board to support governance, risk management and strategy * New CFO Carey Hendrickson, an experienced public company healthcare CFO, has joined the role, building on the strong financial foundation established by Hancock

Guidance

- Full year 2026 revenue guidance is reaffirmed at a range of $5.5 billion to $5.75 billion. Even after removing $120 million in previously assumed future acquisition revenue from guidance, the unchanged range reflects stronger than expected organic revenue performance across the existing portfolio relative to initial 2026 projections. - Full year 2026 adjusted EBITDA guidance is significantly increased to a range of $605 million to $625 billion (a $100 million increase across the entire prior range). At the midpoint, this represents ~22% adjusted EBITDA growth over 2025, driven by Q1 outperformance, stronger than expected occupancy, favorable skilled mix trends, and consistent execution across all facility cohorts. - PACS has updated its guidance methodology to exclude future acquisition contributions, to provide clearer visibility into underlying organic business performance; this change does not reflect any shift in acquisition strategy. - Uncertain California WQIP quality incentive payments (and all similar state quality incentive payments) are excluded from guidance, consistent with past practice, due to unpredictable timing and amounts. Two additional WQIP payments tied to the 2025 program year are expected, with one anticipated in 2026 and one in late 2026 or early 2027. - PACS continues to see a robust pipeline of disciplined acquisition opportunities aligned with its strategic criteria, and expects to remain active in M&A during 2026.

Segment performance

PACS does not break out performance by separate product segments, reporting only aggregated portfolio performance split by operational facility cohorts: (1) Mature facilities: 94.8% occupancy with 33% skilled mix, delivering stable, high-performance base operations. (2) Ramping facilities: 88.9% occupancy with improving skilled mix, including facilities from 7 new states added in 2024 expansion, progressing as expected toward mature performance. (3) New facilities: 82.7% occupancy with 26.5% skilled mix, in the early stages of integration and stabilization. Aggregate Q1 2026 total revenue was $1.42 billion, up 11% year-over-year. Net income totaled $80.7 million, up from $28.5 million year-over-year. Adjusted EBITDA was $170 million, up 75% year-over-year (including a $16.3 million net benefit from California WQIP incentive payments; adjusted EBITDA still grew $57 million year-over-year excluding this benefit). Diluted EPS was $0.50, up from $0.17 year-over-year. Total aggregate occupancy across all facilities was 90.9%, up from 89.2% year-over-year, and far above the industry average of 79%. Skilled mix across the entire portfolio increased 90 bps year-over-year to 30.5%. Same-store revenue (for facilities operating since early 2025) grew 8% year-over-year, driven by occupancy improvement from 89.6% to 90.8% and skilled mix gains. Total cost of services was $1.07 billion, up only 5% year-over-year, creating significant operating leverage against 11% revenue growth. G&A expense was $112 million, reflecting ongoing investment in infrastructure, systems and personnel to support scaled growth.

Risks & headwinds

- Previously disclosed government investigations are progressing through the normal process; the company remains fully cooperative, but cannot currently estimate the timing of final resolution. - Remediation of previously disclosed material weaknesses in internal control over financial reporting is ongoing, though meaningful progress has already been made, including strengthened leadership, enhanced compliance, and new controls for revenue processes; management expects substantial progress on remediation in 2026, and confirms current financial statements are fairly presented in accordance with GAAP. - There is public market discussion of potential managed care provider admission reductions to skilled nursing facilities; while PACS has not seen this impact its business to date, it is an ongoing industry trend that is monitored closely. - California's upcoming healthcare minimum wage increase creates potential cost pressure for skilled nursing facilities, though management notes improving labor supply trends in the state that help offset some pressure.

Analyst Q&A

• Q: What updates are there on Ohio's quality incentive program, and what are broader rate trends across PACS' states of operation?

  A: PACS facilities have performed very well in Ohio's quality incentive program, creating meaningful potential for payout, though the timing and amount of payments remain uncertain so they are excluded from guidance. PACS actively advocates for quality-aligned reimbursement at the state and federal level, and has secured stable or improved reimbursement rates that recognize the higher acuity of patients treated in post-acute care, including successful renegotiated managed care contracts that account for higher acuity levels.

• Q: What assumptions underpin the unchanged 2026 revenue guidance after removing $120 million in assumed M&A revenue, and why are quality incentive payments excluded from guidance?

  A: Q1 performance was much stronger than expected for occupancy, skilled mix, and reimbursement across new, ramping, and mature cohorts, which offsets the removal of M&A revenue from guidance and keeps the full-year range unchanged. Quality incentive payments are excluded because timing and amounts are inherently unpredictable: the Q1 2026 WQIP payment was originally expected in Q4 2025, so including uncertain payments in guidance would create unnecessary volatility.

• Q: Why is skilled mix slightly lower for ramping facilities, and how does managed care contracting work for newly ramping assets?

  A: When PACS acquires distressed new facilities, they typically have not built a reputation for reliable high-quality care with managed care payers and hospital systems, so it takes time (usually ~18 months of proven performance under the PACS model) to renegotiate contracts and increase managed care admissions and reimbursement. This progression is expected: as facilities move from ramping to mature status, managed care census, skilled mix, and reimbursement all consistently improve as payers gain confidence in PACS' clinical outcomes.

• Q: What is the current status of the AIT leadership development pipeline, and how does the number of current trainees compare to historical levels?

  A: The current 40 AITs in training is the highest count PACS has ever reported, and it has grown in line with the increasing M&A pipeline. PACS invests heavily in the program to ensure talent never limits growth, as new acquisitions require trained facility leaders, and internal promotions create backfill needs as the company scales.