Pacs Group Inc (PACS) 2025 Q4 法說會逐字稿

Greetings. Welcome to Pacs Group 4th quarter, full year 2025 earnings conference call.

(Operator Instructions)

Please note, this conference is being recorded. I will now turn the conference over to Mark Hancock, executive Vice Chairman and interim Chief Financial Officer.

Thank you, and you may begin.

Thank you, and good afternoon, everyone. Thank you for joining us for our earnings call.

Before we begin the prepared remarks, we would like to remind you that this afternoon Pacs Group issued a press release announcing its fourth‑quarter and full‑year 2025 results. An investor presentation was also published and is available on the Investor Relations section of Pacs.com.

I’d like to remind everyone that during the course of today’s conference call, we will discuss certain forward‑looking information, including 2026 guidance for revenue and adjusted EBITDA, which is based on our current expectations, assumptions, and beliefs about our business.

Any forward‑looking statements are subject to risks and 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 2025 Form 10‑K and our other SEC filings.

During this call, we will discuss certain non‑GAAP financial measures, including adjusted EBITDA 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 the non‑GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix included in the investor presentation, both of which are published and available on the Investor Relations section of Pacs Group’s website.

I’ll now turn the call over to Jason Murray.

Thanks, Mark, and thank you all for joining us today.

Today marks a very important milestone for Pacs as we report our fourth‑quarter and full‑year 2025 results. This filing reflects a full year of performance as a scaled public company and highlights the significant progress we’ve made across the organization. We’re especially proud to reach this point while delivering record performance, which is a testament to the strength of our platform, the dedication of our teams, and our continued focus on operational excellence.

The past year required significant focus and discipline across our organization as we continued to scale following the transformative growth of 2024. As our footprint expanded, we enhanced our infrastructure, systems, and compliance structure to support a larger and more complex platform.

We believe that work further positions Pacs for sustainable growth as a public company, and as we enter 2026, we do so optimistically and expect a continued steady reporting cadence and disciplined execution that defines our operating model.

Operationally, 2025 was defined by integration and performance. Following the transformative acquisition activity in 2024, our primary focus was successfully assimilating those facilities into the Pacs operating model and driving measurable improvement across our expanded footprint. At the same time, we executed on eight additional strategic acquisitions in 2025, all within our existing markets, further increasing density and deepening local scale.

At the centre of our performance remains our locally led, centrally supported operating model. Our administrators and local leadership teams are empowered to make clinical and operational decisions closest to the patient, where they matter most.

At the same time, Pacs Services provides the centralized support infrastructure including accounting, compliance, HR, IT, and regulatory expertise. This structure allows our teams to remain focused on patient outcomes while maintaining consistency, discipline, and accountability across the company.

From a clinical standpoint, we continue to see encouraging trends in quality ratings, occupancy, and skill mix across the portfolio. Our mature facilities are operating at strong occupancy levels, and facilities acquired in 2024 continue progressing through integration and stabilization as they adopt our clinical systems and operating processes. We view this as a meaningful organic growth opportunity within our existing platform.

As of December 31, 2025, Pacs operates 321 facilities across 17 states, caring for more than 31,700 patients daily and supported by over 47,000 team members. The breadth of our platform provides geographic diversity, payer diversification, and leadership depth.

Our continued investment in our administrator‑in‑training program, along with our regional leadership development, ensures that growth is supported by a scalable bench of highly skilled operators.

Capital allocation remained disciplined throughout the year. After significant expansion in 2024, our focus in 2025 shifted toward optimizing the performance of acquired assets while selectively increasing real estate ownership within our portfolio.

We maintained a strong balance sheet throughout this growth cycle, ending the year with net leverage of approximately 0.3 times. We believe this positioning enhances durability and flexibility, allowing us to invest in organic initiatives, pursue selective acquisitions, and support long‑term shareholder value without compromising financial strength.

We also believe our positioning within the broader skilled‑nursing landscape remains compelling. Demographic trends continue to point toward sustained growth in the aging population and rising demand for post‑acute services.

The industry remains fragmented, with many facilities operated by smaller or independent providers. We believe our scale, operating model, and strengthened infrastructure position us to serve as a responsible consolidator over time while continuing to elevate quality across the communities we serve.

As we look ahead to 2026, our priorities are clear: continue integrating and optimizing our expanded portfolio; invest in our people and clinical capabilities; and allocate capital with discipline as we evaluate a robust pipeline of potential acquisition opportunities.

We believe the foundation we built operationally, financially, and organizationally supports sustainable performance and long‑term value creation. Most importantly, our confidence comes from our people. The dedication of our frontline caregivers, facility leaders, and Pacs Services teams drives our results every day.

We continue to prioritize exceptional clinical outcomes across both our mature and newly integrated facilities, and that focus is reflected in our quality ratings. Based on CMS quality‑measure star ratings, 207 of our facilities representing 73.4% of our skilled‑nursing portfolio are rated four or five stars.

For the full year 2025, the average CMS QM star rating in our mature facilities was 4.4, up from 4.3 in 2024 and meaningfully above the industry average of approximately 3.5.

While a one‑tenth increase may appear modest, at this level it represents measurable improvement in patient outcomes, clinical processes, and consistency of care across hundreds of facilities. These are not abstract statistics they represent people. They represent better recovery rates, improved infection control, stronger care coordination, and a better experience for our residents and families.

We view this sustained improvement as a meaningful indicator of the consistency of our operating model and the effectiveness of our clinical leadership at the local level. To illustrate that progress, we’d like to highlight a couple of examples that demonstrate how our teams execute at the facility level, whether through improvements in CMS QM star ratings or zero‑deficiency surveys.

One example comes from a facility in Kentucky. At the beginning of 2025, this facility held a two‑star CMS QM rating. The local leadership team set a clear objective to materially improve clinical performance. They analysed each component of the CMS QM calculation, identified high‑impact areas, and developed targeted action plans backed by accountability structures.

Their work included strengthened fall‑prevention protocols, enhanced cross‑department communication, and structured performance reviews. They applied similar rigor to pressure‑ulcer prevention, mobility, medication management, and discharge planning. By year‑end 2025, the facility achieved a five‑star CMS QM rating a move from two to five stars within one year.

This progress was driven by empowered local leadership and supported by Pacs Services' resources, reporting tools, and compliance infrastructure. It is our model in action.

A second example relates to our survey performance. In 2025, we completed seven zero‑deficiency surveys across the portfolio. In today's regulatory environment, particularly in skilled nursing, completing a standard survey with zero deficiencies is a meaningful accomplishment.

It reflects strong compliance across clinical practice, operations, documentation, life safety, infection control, and interdisciplinary care coordination.

One example comes from our facility in Oceanside, California a new build that received its certificate of occupancy in January 2024. Before generating revenue, we invested meaningfully in licensing preparation, staffing, equipment, and clinical infrastructure to ensure operational readiness.

In April 2025, the facility completed its initial certification survey with zero deficiencies. Census has steadily increased, and the facility reached profitability within its first year of operation, with more than 250 admissions in 2025 from acute‑care hospital partners.

While acquisitions remain our primary growth strategy, we have now completed eight de novo projects since our inception. Oceanside reflects our long‑term approach: invest ahead of revenue, build the team first, establish clinical excellence, and allow census and profitability to follow.

These outcomes reflect disciplined execution across our platform. Our operating model is intentionally structured to drive measurable improvement over time, and 2025 has provided clear evidence of that execution at scale. Whether newly developed, recently integrated, or long established, our facilities continue progressing across key clinical and regulatory metrics, reinforcing our belief that disciplined local leadership supported by Pacs Services produces sustained results.

We believe our performance in 2025 reflects both sustained operational strength and the continued evolution of a significantly expanded platform. Over the last 15 months, we have integrated numerous facilities acquired in 2024, strengthened our density in key markets, and delivered high occupancy and clinical consistency across our mature portfolio.

At the same time, we have enhanced our systems and processes to support a larger and more complex organization, reinforcing the foundation required to operate at scale as a public company.

Consistent with that approach, during 2025 we deployed capital selectively, completing the acquisition of eight additional facilities, all within existing markets where we have strong operational infrastructure and leadership. Today our portfolio includes 35,379 total operating beds 32,854 skilled‑nursing beds and 2,525 assisted‑living beds across 17 states.

Portfolio performance remains strong. Total occupancy stands at 89.1%, with our mature facilities delivering 94.9% occupancy, up from 94.4% last year. Within our cohort framework, facilities are categorized as new during the first 18 months under ownership and ramping from months 19 through 36 months.

Many acquired facilities entered our portfolio at materially depressed occupancy, often representing communities where others were unable or unwilling to invest in the operational focus required to improve performance. We act opportunistically in these situations, confident in our ability to apply the Pacs operating model, strengthen clinical execution, and rebuild trust within the local healthcare ecosystem.

As these facilities continue integrating and advancing toward mature status, we expect steady improvement in occupancy and skilled mix over time. Our locally led, centrally supported model remains foundational to driving occupancy and clinical performance.

By matching patient acuity with appropriate clinical capabilities at each facility, our teams are positioned to meet the increasing complexity of patients discharged from acute settings. As hospitals continue to rely on skilled‑nursing providers to manage higher acuity populations, we believe our structure and scale position us to serve as a trusted partner.

A critical component of sustaining this performance is leadership development. Through our administrator‑in‑training program, we continue building a scalable bench of highly skilled operators. We currently have 38 AITs in the program, providing leadership depth to support new and existing facilities. Many graduates advance to licensed administrator roles, regional vice president roles, and other senior leadership positions. This consistent investment in leadership remains a key differentiator.

As we close 2025 and look ahead to 2026, we do so with confidence and momentum. We believe the integration work of this past year, the clinical progress across our portfolio, and the strength of our balance sheet collectively position us well for the next phase of growth.

In January, we announced the acquisition of three additional facilities two in Alaska and one in Idaho including the underlying real estate for the two Alaska properties. We view these transactions as a continuation of our disciplined growth strategy, expanding within markets we understand while selectively increasing real‑estate ownership.

With a fully integrated platform, a strong capital position, and a return to a normal reporting cadence, we believe we are well positioned to execute consistently and thoughtfully in 2026. The depth, resilience, and commitment of our people continue to give us a competitive advantage that cannot be easily replicated.

With that, I’ll now turn the call back to Mark to walk through our financial results and guidance in more detail.

Thank you, Jason.

Our fourth‑quarter and full‑year 2025 results reflect the strength of our operating platform and the disciplined execution across a significantly expanded portfolio.

Let me begin with our fourth‑quarter performance. Revenue for the quarter was $1.36 billion, up approximately 12% over the same period in the prior year. Net income totalled $59.8 million for the quarter. Adjusted EBITDA was $237.7 million, while adjusted EBITDA was $142.1 million. Fourth‑quarter performance reflects continued occupancy strength, stable skill‑mix trends, and consistent execution.

Now turning to the full‑year 2025 results. For the year ended December 31, 2025, total revenue was $5.29 billion, representing approximately 29% growth over 2024. Net income for the full year was $191.5 million, with diluted earnings per share of $1.22. Adjusted EBITDA was $883.9 million, and adjusted EBITDA for the full year totalled $505 million. These results represent record performance for Pacs and demonstrate our ability to scale profitably while maintaining operational discipline and investing in quality across our platform.

From a portfolio standpoint, total occupancy for the year averaged 89.1%. Mature facilities continued to perform at a very high level, averaging 94.9% occupancy, which was up 0.5 percentage point from the prior year, reflecting sustained demand and clinical consistency across our established operations.

Ramping facilities averaged 86.3% occupancy, down from over 93% in the prior year. This year‑over‑year change reflects the graduation of facilities within certain cohorts and the corresponding shift between those buckets. As facilities acquired in late 2023 and early 2024 many of which entered our portfolio at lower occupancy levels progressed into ramping status during 2025, they remained in earlier stabilization stages relative to longer‑tenured ramping operations.

We are seeing steady operational improvements as they adopt Pacs clinical systems and processes, and we expect continued growth in occupancy and skilled mix as this cohort moves toward mature status.

New facilities averaged 81.1% occupancy compared to 82.8% in 2024, reflecting the onboarding and stabilization period for the significant number of facilities acquired in the back half of 2024. We continue to view the progression from new to ramping to mature as a durable source of embedded organic growth within the existing platform.

Revenue in 2025 increased 29%, reflecting the full‑year contribution from facilities acquired in 2024, as well as same‑store growth from our core portfolio. Cost of services increased 25% year over year, driven primarily by platform growth and continued clinical and operational investments across all cohorts. General and administrative expenses increased 21%, reflecting the scaling of our Pacs Services and regional infrastructure as we deepen our bench and maturity as a public company with enhanced compliance, risk management, accounting, and technology functions.

Overall, our cost structure remains aligned with revenue growth while supporting margin expansion through the disciplined and methodical approach we have taken in scaling the platform.

Turning to capital structure and real estate ownership. We continued selectively increasing real estate ownership in 2025. As of year‑end, we wholly own or partially own, through joint ventures, the real estate interests in 102 of the facilities we operate. Our lease profile remains stable with average remaining terms of approximately 13 years for operating leases and 22 years for finance leases.

Our strategy of exercising purchase options on leased facilities enables us to reduce lease‑adjusted leverage while improving EBITDA.

Our year‑end cash balance reflects the purchase of several owned properties within our operating footprint including facility real estate across multiple states as well as the acquisition of our new Pacs Services office in Salt Lake City.

We view our new service centre as a significant investment in a permanent home for Pacs, where our teams can grow, collaborate, and support affiliated facilities over the long term. In total, these investments including funds placed in escrow for acquisitions that closed in early January 2026 exceeded $145 million during the quarter and were funded from existing liquidity. Even after this deployment, we maintained a strong and conservatively leveraged balance sheet.

We ended the year with net leverage of approximately 0.3 times. Even after substantial acquisition activity in 2024 and continued capital deployment in 2025, we believe this conservative balance sheet provides meaningful flexibility and positions us to be opportunistic with growth strategies while maintaining sustainability across market cycles.

Now turning to our outlook and guidance for 2026. For the full year 2026, we expect revenue to be in the range of $5.65 billion to $5.75 billion. The midpoint of approximately $5.7 billion represents nearly 8% growth over 2025 revenue. We expect adjusted EBITDA for 2026 to be in the range of $555 million to $575 million, with a midpoint of $565 million. This midpoint represents almost 12% growth over our 2025 adjusted EBITDA results.

This outlook reflects steady organic growth and margin expansion through improved occupancy and skilled mix across the portfolio, stable reimbursement assumptions, and continued disciplined capital allocation to support ongoing acquisition activity. We enter 2026 with a scaled platform, strengthened infrastructure, and a strong balance sheet. We believe these factors position us to deliver consistent performance and expand margins over time while maintaining flexibility for selective growth opportunities.

With that, I’ll turn the call back over to Jason.

Thanks, Mark. And as Mark mentioned, we expect a full year to deliver record revenue and adjusted EBITDA, and our performance year-to-date has already reached record levels for the company. This continual momentum highlights the strength of our model and our teams throughout the country.

We intend to continue proving that strength quarter after quarter. We're energized and moving forward with discipline and focus, and we look forward to demonstrating our ability to execute and deliver results for both patients and shareholders. So with that operator, I believe we're ready for questions.

Thank you.

(Operator Instructions)

David McDonald, Trus.

Yeah, good afternoon, guys. Just a couple of quick questions. I guess for starters, look, we're constantly hearing the conversation around affordability, cost effective, high-quality care. I'm wondering if you guys can just talk a little bit about your payer conversations and potential share gain opportunities just given.

The quality ratings that you guys are putting forth and then if you know kind of you look within post-acute facility based, where you stand in terms of, cost effectiveness.

Yeah, thanks for the question, Ben. This is Josh Jergensen, this has always been part of the company’s strategy. As we go into these facilities upon acquisition, we deploy our operating model, which begins with providing high‑quality care. As you mentioned, as we move those facilities toward the quality metrics that we’ve demonstrated across the new, ramping, and mature cohorts, we become a very attractive partner for insurers looking for high‑quality care, bed availability, and density.

Our ability to sit at the table and negotiate strong contracts is something we’ve begun to see play out, particularly as facilities move from new to ramping to mature. We believe this will continue, and we’ve already seen it in our mature facilities as they increase the percentage of their skilled mix contracted with managed care. Those relationships continue to expand, and as we transition facilities from lower quality at entry into our portfolio to higher quality as they integrate, we expect this model to continue driving margin expansion for us.

And then guys, I guess just a couple of other ones just you mentioned briefly kind of the M&A pipeline. I was wondering if you could provide any more detail there, is, that kind of 20 is type of number how we should still be thinking about it annually, and I would assume we should expect that you guys, where you have the opportunity will look to continue to acquire the real estate along with, the M&A transactions.

Yeah, David. In regard to guidance, consistent with our historical practice, we’ve baked in a nominal number of facilities being acquired in 2026 about five facilities per quarter with nominal revenue as those come on. We typically acquire underperforming assets that are very low occupied, generally 60% to 70% occupied when we take them on, so they come in with nominal revenue and effectively zero margin. That’s what is included in the guidance. I’ll let Josh touch on the pipeline.

The pipeline is very robust right now. We’re starting to see a number of deals come through in very attractive areas. As we continue to mature in how we evaluate opportunities, we feel confident that the due diligence we’re doing aligns well with the types of transactions now coming to market, and we’re very excited about that.

We also remain very strategic in how we approach these deals. We want to be sure that our operating model translates effectively when taking on distressed facilities deploying our model, stabilizing operations, and positioning them for long‑term success. Throughout these acquisitions, we continuously evaluate the real estate. If there’s an opportunity for us to acquire both the real estate and the operations, we will take those opportunities as we strengthen the balance sheet.

At the same time, as an operator willing to partner with capital providers who have access to deals, we feel confident in our position as a high‑quality operator and tenant. We’ve demonstrated an ability to do both: operate facilities directly and partner effectively with real‑estate owners. As we continue to progress, you should expect consistency in both our operating activity and our disciplined use of capital to pursue opportunities that include real‑estate ownership as well.

Okay. And then guys, just last one, you mentioned the San Diego area de novo. I'm just curious, is there potentially a chance that you could see maybe a little bit of de novo activity with a little bit more frequency?

I mean, I'm going to explain to you, California is probably one of the more difficult states. If you look across your footprint, are there are some other states where. Maybe a little bit more, doing a de novo here and there would make some more sense, in terms of on a go forward basis.

Yeah, I think everyone can see that historically the de novo development hasn't been the primary driver of our growth strategies as acquisitions have generally offered a more attractive risk adjusted returns and faster integration into our platform, and that's what makes those incredibly attractive.

That being said, there are many opportunities to add high-quality product into an industry that has a number of assets that are old and dilapidated and need. Investment and so while not opposed to, continuing to do that, if there are states and areas where it makes sense to go through the process and the capital investment to add additional beds, we believe that will be a part of the strategy as we look to the future, we would envision that it would probably look similar to how it has in the past, at least in the short-term, where more of our acquisition will be driven by existing facility acquisition.

Okay, and guys, just one last one for me, just coming back to M&A, anything that you would call out in terms of pricing in terms of, what you're seeing, relative to these opportunities, either, softening or strengthening in the pricing environment in terms of what you're looking at, to have to pay to acquire some of these things.

Yeah David, I mean we have seen price increases over recent years right with inflation and and real estate prices going up and and that being ultimately reflected in some of the the leases that that whether we acquired the just operations or or or even the real estate cost per bed.

So, and so we continue to see that in certain markets, but we also see that also starting to plateau in pricing, versus again kind of the accelerated pricing we've seen in recent years and so you know we, but we see a number of facilities, hundreds of facilities that come through our our potential M&A pipeline and we. Generally, acquire and close on a very small fraction of those, so we're very selective and opportunistic and we have our disciplined and kind of our making sure that those facilities meet our investment profile.

Okay, thanks very much guys.

Ben Hendrix, RBC.

Great, thank you very much and congratulations on the Quarter.

Yeah, thanks man.

You all should be well positioned for some of the changes in the value‑based purchasing program for skilled nursing. I’m wondering if you have any early observations on what you're seeing with the addition of the staffing measures and the infection‑prevention measure in value‑based purchasing for fee‑for‑service Medicare. Thanks.

Yeah, I’ll take that one. Any time we see clinical quality tied to reimbursement, we feel very confident. Our model has always begun with care the way we provide service to our patients. We focus on reducing rehospitalization rates, staffing to acuity, educating and training our staff, and investing in the physical plant so our facilities are positioned to not only accept higher‑acuity patients but deliver excellent care.

You can see that through our clinical results. So, as reimbursement becomes increasingly tied to quality metrics and other clinical indicators, we believe we are positioned as well as if not better than anyone else in the industry to see that become a net positive, rather than something that limits our ability to be financially successful going forward.

Great, thank you for that. And then along the same lines, with the Transforming Episode Accountability Model or TEAM model this also seems like something you would be very well positioned for. I wanted to ask whether you’re seeing any impact in your markets, if it’s affecting your facilities, or if you’re seeing any change in referral sources. Thanks.

We’re in the very early stages of these programs, and as you all know from being around the industry for a long time, a number of similar models have come up over the years. This certainly isn’t the first, and it won’t be the last.

Going back to the way I answered the prior question: any time we have the opportunity to demonstrate that we are the top clinical provider in the communities we serve, we believe it positions us extremely well to be the provider of choice. Hospitals are becoming much more aware of the post‑acute environments they rely on when discharging patients, and health plans are increasingly focused on that as well.

We’ve begun having conversations in a few communities where these TEAM Model pilots are rolling out. Because of our platform, our clinical approach, and our bed density and Jason mentioned the eight acquisitions completed in existing states where we already operate that density gives upstream providers reliable access to beds. That access allows them to place hospitalists, rounding physicians, or nurse practitioners in our facilities where there is sufficient patient volume, which improves quality of care and access to care.

So again, we feel very well positioned as these and future programs roll out because we have always led with care and quality.

Yeah.

There are no further questions at this time. This now concludes our question-and-answer session. I would like to turn the floor back over to Jason Murray for closing comments.

Yeah, thank you, operator, and thank you all for joining us. I believe that's all we have. Have a great day.

Ladies and gentlemen, thank you for your participation. That concludes today's conference. Please disconnect your lines and have a wonderful day.