PACS Group Stock

Hello, and welcome to PACS Group's Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

Speakers on today's call are Jason Murray, PACS Group's Chief Executive Officer; Carey Hendrickson, Chief Financial Officer; Josh Jergensen, President and Chief Operating Officer; and Ryan Welch, Director of Corporate Finance.

The call today is being recorded, and a replay of the call will be available on the PACS Group Investor Relations website an hour after the completion of this call. A replay of the webcast will be available for 30 days. Information to access the replay is listed in yesterday's press release, which is available on our website under the Investor Relations section.

Before we begin, I would like to remind everyone that during today's call, we'll be making forward-looking statements regarding future events and financial performance.

I'd now like to turn the conference over to Ryan Welch, Director of Corporate Finance. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for our earnings call. Before we begin the prepared remarks, we would like to remind you that yesterday, PACS Group issued a press release announcing its second quarter 2026 results. An investor presentation was published and is available on the Investor Relations section of pacs.com.

I'd 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 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 annual report on Form 10-K for the year ended December 31, 2025, and our other SEC filings.

During this call, we will discuss certain non-GAAP financial measures, including adjusted net income, adjusted earnings per share, 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, which are both published and available on the Investor Relations section of PACS Group's website.

I'll now turn the call over to Jason Murray, Chairman and CEO.

Thanks, Ryan, and thanks, everyone, for joining us this morning. We're pleased to report another strong quarter for PACS and to close out the first half of 2026 with continued momentum across the organization.

Building on the strong start we delivered in the first quarter, our second quarter results reflect the sustainability of our operating model, the continued execution of our teams and the meaningful progress we're seeing across facilities at every stage of our maturity cohorts. Throughout the first half of the year, our teams remain focused on strengthening performance across the existing portfolio, advancing recently acquired facilities toward mature operating levels and continuing to invest in the people and infrastructure required to support our growth.

That focus is showing up in our results. Our existing portfolio continues to perform very well. Quality outcomes are improving, and the strength of our leadership bench and balance sheet is allowing us to pursue the next phase of growth from a position of strength.

Revenue increased 9.1% in the second quarter, while adjusted EBITDA grew 25% compared to the prior year. That relationship is important because it demonstrates that the growth we are generating is translating into meaningful margin improvement as our facilities mature, occupancy increases, patient mix strengthens and our teams continue to operate with discipline.

Just as importantly, the performance this quarter was driven by the existing portfolio. Our same-store facilities delivered revenue growth of 5.8%, while same-store occupancy increased by 150 basis points. Across the broader portfolio, overall occupancy increased by 180 basis points, and skilled mix improved by 100 basis points compared to 2025. We believe these results provide continued evidence of the organic growth embedded within our portfolio and the strength of our locally led centrally supported operating model.

As of June 30, PACS operated 324 healthcare facilities across 17 states, with 35,631 total beds, including 32,790 skilled nursing beds and 2,841 assisted living beds. Across this platform, our teams care for more than 31,900 patients each day, supported by approximately 48,000 employees. Our scale provides meaningful geographic diversity, leadership depth and access to clinical and operational resources.

However, we believe the more important differentiator is how that scale is organized. Healthcare is local. Our administrators and facility leadership teams are empowered to make decisions closest to the patient where they can have the greatest impact. PACS Services and our regional teams provide the technology, systems and clinical resources, compliance framework and administrative support that allow these local leaders to operate effectively and consistently.

This structure enables PACS to retain the responsiveness and accountability of a locally operated healthcare organization, while benefiting from the infrastructure and resources of a scaled national platform.

Across the portfolio, facilities continue to progress through our integration life cycle. At the end of the quarter, our skilled nursing portfolio included 184 mature facilities, 100 ramping facilities and 6 new facilities. This mix reflects the significant progress we've made integrating the facilities acquired during our 2024 expansion. As facilities gain tenure within the PACS model, our local and regional teams remain focused on strengthening leadership, implementing our clinical and operating systems and building trusted relationships within their healthcare communities.

We continue to believe that this progression represents an important source of organic growth within our existing portfolio and demonstrates the scalability of our operating model. We are also encouraged by the continued improvement in quality across our facilities. At the end of the second quarter, 239 or 83.6% of our skilled nursing facilities with reported CMS quality measure ratings were rated 4 or 5 stars. Our mature facilities achieved an average CMS quality measure rating of 4.5, meaningfully above the industry average of 3.7.

We are proud of these important clinical measures, which are the product of the disciplined execution of our caregivers, administrators and clinical leaders, and regional teams every day. We believe these results distinguish PACS as a leader in clinical quality and reinforce our long-held view that delivering exceptional patient outcomes is not separate from financial success. It is one of the primary drivers.

When a facility delivers strong clinical outcomes, it builds trust with hospitals, payers, patients and families. That trust supports admissions, occupancy, patient mix and ultimately, the long-term financial performance of the facility. We believe this creates a virtuous cycle centered on delivering excellent care.

To bring that model to life, I'd like to highlight the progress made at one of our facilities in California. PACS acquired this large skilled nursing facility while it was already designated as a Special Focus Facility, a designation reserved for nursing homes with a history of significant quality concerns and regulatory noncompliance. The facility's regulatory history and Special Focus designation were significant enough that many potential operators chose not to pursue what was otherwise a highly attractive portfolio transaction.

PACS viewed the opportunity differently. We believe our operating model is uniquely designed to improve clinically and operationally challenged facilities, allowing us to pursue opportunities that others often cannot. We recognize both the challenge and the importance of preserving access to care for a uniquely vulnerable patient population, and we committed the resources necessary to execute a long-term turnaround.

The facility is specifically designated to serve behavioral health patients and includes a fully secured unit, allowing it to care for some of the most fragile and clinically complex patients in the community. Many residents live with serious mental illness. Only a small percentage have active family involvement and many entered the facility following periods of housing instability or homelessness.

The facility had experienced years of operational instability, repeated leadership turnover and an extensive history of regulatory deficiencies prior to our acquisition. While meaningful improvements have been made over time, it had been unable to demonstrate the sustained performance necessary to graduate from the Special Focus Facility program.

The severity of the situation became clear in March of 2025 when the facility received written notice of the potential termination of its Medicare and Medi-Cal provider agreements. At one point, CMS communicated in writing its intent to decertify the facility, underscoring both the seriousness of the challenges and the amount of work that still remained. Such an action would have displaced more than 250 highly vulnerable residents and created significant uncertainty for the facility's more than 500 employees.

Rather than stepping back, the local leadership team supported by PACS Services intensified its efforts with a clear objective: elevate the quality of care, create organizational stability, preserve this critical community resource and successfully graduate the facility from the Special Focus Facility program. The turnaround required more than new procedures. It required a fundamental cultural transformation. The leadership team aligned employees around a shared purpose, established clear expectations, reinforced accountability and committed to delivering consistent, high-quality care across every department.

With close support from the clinical, operational and regulatory expertise of PACS Services and through ongoing collaboration with CMS and the California Department of Public Health and other technical assistance partners, the team strengthened systems, processes and clinical outcomes across the organization. Those efforts culminated on June 29, 2026, when the facility successfully graduated from the Special Focus Facility program.

This outcome represents far more than a regulatory milestone. It reflects years of commitment from local caregivers and PACS support teams who refused to accept that the facility's challenges were insurmountable. Most importantly, it preserves continuity of care in a highly vulnerable resident population and protected an essential healthcare resource within the community.

We believe this example reflects what our model is designed to accomplish: step into difficult situations, establish strong local leadership, provide the necessary clinical and operational support, create accountability throughout the organization and drive sustainable improvement over time. We are proud of the facilities team and grateful for the discipline, resilience and commitment they demonstrated throughout the process.

The strength of our operating platform and leadership bench also gives us confidence as we return to a more active period of acquisition growth. As previously announced, PACS entered into a definitive agreement to acquire the operations of 34 skilled nursing facilities from Eduro Healthcare. The portfolio includes 3,633 skilled nursing beds across Texas, Montana, South Dakota, North Dakota, New Mexico and Utah. On August 1, we closed on the operations of the first 20 facilities in Texas. We currently expect the remaining facilities to close during the third and fourth quarters.

The transaction adds significant density in Texas, where we can leverage established regional leadership, clinical resources and referral relationships and operating infrastructure. It also expands our presence across several existing and adjacent markets and creates an opportunity to apply the PACS operating model across a meaningful group of facilities.

Our acquisition strategy remains highly disciplined. We focus on opportunities where we can recruit and deploy strong local teams, invest in operational excellence, improve clinical quality and create meaningful long-term value through the support and resources of PACS Services. We believe this transaction is consistent with that approach and provides an opportunity to create additional clinical and financial value over time.

Our existing portfolio remains the primary driver of our earnings growth. The strength of that performance, together with our leadership depth and operating capabilities, positions us to pursue disciplined acquisitions that can create additional clinical and financial value over time.

Before I turn the call over, I'd like to briefly address our previously disclosed government investigations. These matters continue to progress through the normal course, and we remain fully cooperative and engaged with the government throughout the process. While we're unable to estimate the timing of resolution, we remain confident in our ability to navigate these matters responsibly and thoughtfully, just as we have navigated other challenges throughout our history.

Importantly, the investments we've made to strengthen our organization, enhance our infrastructure and reinforce our compliance and reporting processes have positioned the company well for the future. Our focus remains squarely on executing our strategy, supporting our local leaders and caregivers and delivering high-quality care while continuing to build value for our stakeholders.

With that, I'll turn the call over to Carey.

Thank you, Jason. We're very pleased with our second quarter performance and the strong momentum we've maintained throughout the first half of 2026. And importantly, we expect to sustain that momentum through the rest of the year. The consistency of our results reflects the strength of the PACS platform, the disciplined execution of our operations team and the meaningful earnings potential embedded across our portfolio.

Our second quarter results demonstrate continued operational improvement across our existing portfolio, with strong revenue growth translating into meaningful earnings growth and margin expansion. For the second quarter of 2026, our revenue was $1.43 billion, which was an increase of $118.8 million or 9.1% growth year-over-year. Our net income was $76.4 million, an increase of $25.4 million or 50% from the second quarter of last year. Our adjusted EBITDA was $166.8 million, up $32.9 million or 25% from last year, and our adjusted EBITDAR was $261.5 million.

Our adjusted EBITDA margin expanded by 150 basis points year-over-year from 10.2% to 11.7% as our revenue growth outpaced our expense growth due to same-store occupancy improvement, favorable patient mix and disciplined cost management.

Beginning this quarter, you noted in the release that we introduced 2 new non-GAAP measures: adjusted net income and adjusted EPS. These metrics are widely used by our peers in skilled nursing and across the broader healthcare services sector, and we believe they provide investors with additional transparency into the underlying earnings power of the business and enhanced comparability across companies.

Our adjusted net income increased 29.6% year-over-year in the second quarter, and our adjusted EPS increased 34% from $0.47 in the second quarter of last year to $0.63 in the second quarter of this year. We also included a new line below our adjusted EBITDA calculation as additional information, which notes the amount of our noncash lease expense in each period presented. Our adjusted EBITDA includes rent expense on a straight-line accrual basis, which in the second quarter of this year was $10.2 million higher than our actual cash lease expense.

Looking at our same-store operating performance, our same-store portfolio includes 284 skilled nursing facilities that we operated as of the beginning of 2025. Given the significant movement of facilities that have progressed from new to ramping to mature, we believe these same-store results provide the most meaningful year-over-year view of our underlying portfolio performance.

Our same-store skilled nursing revenue increased 5.8% to $1.35 billion compared with $1.27 billion in the prior year. This is consistent with our same-store revenue growth in the first quarter, which was up a similar 6.1%, excluding supplemental WQIP payments from California.

Our same-store occupancy increased to 90.6% from 89.1%, which was an improvement of 150 basis points. And our same-store skilled mix increased to 29.7% from the previous 29.2%. The meaningful improvement in each of these metrics provides a clear view of the underlying strength of the existing portfolio and demonstrates that our growth continues to be supported by internally driven operating improvements.

For the total skilled nursing portfolio, occupancy increased to 90.4% compared with 88.6% in the prior year. This represents an improvement of 180 basis points and remains significantly above the industry average of 79.5%. Our overall skilled mix increased by 100 basis points to 30% compared with 29% in the second quarter of 2025.

As Jason noted, we ended the period with 184 mature facilities, 100 ramping facilities and 6 new facilities. As expected, our occupancy increases as we move across these cohorts, with new facilities occupancy at 78.7%, ramping facilities at 87.7% occupancy and mature facilities at 93.8% occupancy.

Skilled mix was 27.2% for new facilities, 26.9% for ramping facilities and 31.9% for mature facilities. Advancing facilities through this integration life cycle represents an important source for organic growth within our existing portfolio with plenty of upside still to come, particularly from our 106 new and ramping facilities.

From a cost perspective, cost of services totaled $1.09 billion, an increase of 6.7% compared with the prior year. Our general and administrative expense was $114.3 million compared with $100.3 million in the prior year. That increase reflects continued investment in the personnel, systems and compliance infrastructure necessary to support the scale and complexity of our organization, as well as higher stock-based compensation expense.

Taken together, our total operating expenses increased 7.3% year-over-year. We believe these results demonstrate our ability to continue investing in the infrastructure necessary to support long-term growth while generating meaningful operating leverage across the platform.

Turning to cash flow and the balance sheet. We generated $371.8 million of cash from operating activities during the first 6 months of 2026. During the second quarter, we deployed $104.3 million to acquire real estate within our operating footprint, bringing our total real estate investment to $190.8 million for the first 6 months of the year. We've exercised a few other real estate purchase options since the quarter end, and we currently own the underlying real estate associated with 64 of our operated facilities.

As of June 30, we had $756.6 million of available liquidity, including $164.5 million of cash and cash equivalents. We had nothing drawn on our $600 million line of credit at June 30. We ended the quarter with net leverage of 0.1x.

Our conservative leverage profile and substantial liquidity provide meaningful flexibility to invest in our existing facilities, support the integration of our newly acquired operations, selectively increase real estate ownership and pursue acquisition opportunities that meet our clinical, operational and financial criteria. We believe our ability to pursue growth, while maintaining this balance sheet position remains an important strategic advantage.

Regarding our previously disclosed material weaknesses in internal control over financial reporting, we are actively advancing our remediation plan and have made substantial progress, and we expect to have them remediated by the end of the year. We're strengthening our leadership team, enhancing our compliance department and implementing additional controls across key areas of the business, particularly within our revenue processes.

Importantly, our financial statements continue to be prepared in accordance with GAAP, and we believe the results that we reported this quarter fairly present the financial position and performance of the company.

As we look at the back half of the year, we expect to continue to perform at a high level, and therefore, we're increasing both our full year revenue and our adjusted EBITDA guidance. As noted in our earnings release, we're increasing our full year revenue guidance to a range of $5.75 billion to $5.85 billion, which is up $100 million on both ends of the range from our previous range of $5.65 billion to $5.75 billion. At the new midpoint of $5.8 billion, our revenue guidance represents 10% growth in revenue for the full year over 2025.

We're also increasing our adjusted EBITDA guidance to a range of $640 million to $660 million, which is up $35 million on both ends of the range from our previous range of $605 million to $625 million. At the midpoint of the range, this represents a 29% increase in our adjusted EBITDA over the full year 2025.

Our guidance methodology remains consistent with the approach we introduced last quarter, under which we include the expected contribution from transactions that have been completed as of the date of this guidance while excluding transactions that remain pending. Our updated guidance, therefore, includes a modest contribution from the 20 Texas facilities that we acquired from Eduro on August 1, for the portion of the year in which we'll operate those facilities.

However, the remaining 14 facilities associated with the Eduro transaction are not reflected in our current guidance because those acquisitions have not yet closed. We currently expect those facilities to close during the third and fourth quarters, subject to customary closing conditions and regulatory approvals.

We continue to see a robust pipeline of acquisition opportunities and remain actively engaged in evaluating potential transactions that align with our strategic, operational and financial criteria. Beyond the remaining Eduro facilities, we expect to announce and close on other facilities before year-end.

Overall, our updated guidance reflects confidence in the underlying performance of our existing portfolio and in our ability to integrate acquired operations while maintaining financial and operational discipline.

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

Thanks, Carey. We're pleased with our performance through the first half of the year and remain focused on carrying that momentum into the second half.

And so with that, operator, we're ready with questions.

[Operator Instructions] Our first question is from Benjamin Rossi with JPMorgan.

Just regarding the updated guidance outlook, when we think about your 2026 guidance range and outlook for the back half of the year, it sounds like you're incorporating the beat in 2Q and then assuming stronger core trends. On a consolidated basis, it looks like unit costs are in check and rates are developing nicely, particularly for Medicaid.

Can you just walk us through what you're seeing with your business and how trends year-to-date have given you this added confidence in your earnings growth during the back half of the year?

Sure. Yes. Ben, we feel very good about the momentum in our business. But we do want to be disciplined in our guide. So the range reflects the continued strength we saw across all of our cohorts in the first half, including occupancy, skilled mix, quality and cash flow.

We do have -- the second half includes integration activity related to the Eduro transaction. Our guidance only includes a modest contribution from those 20 Texas facilities that we closed on August 1. It doesn't include, as I mentioned, the remaining Eduro facilities that we've yet to close or any other future acquisitions. So we feel good about that guidance range, and we're just accounting for normal execution and integration considerations in that guidance.

Got it. Okay. I guess I just want to spend some time then on the ramping cohort, in particular, during 2Q. Looked like ramping occupancy and skilled mix stood out versus my modeling. I saw some noticeable rate growth on the Medicaid side, too, within ramping that stood out compared to the rest of the group.

Can you just walk through what's changed operationally across this cohort for things like facility mix, clinical programs, staffing and improvements to your referrals or rate design? And then maybe what's expected in the go-forward for this segment for the remainder of the year?

Yes, I'll take that one. This is Josh. Thanks for the question, Ben. I appreciate you recognizing that. This is a cohort we're incredibly proud of. Obviously, the numbers have increased in this cohort. And as we would expect, as facilities mature along those cohorts, they're set up that particular way because we expect as these facilities enter ramping that they have solid facility leadership that, that leadership has started to build a reputation in the community of consistent care outcomes of quality, of customer service. And that reputation, as we often talk about, leads to an increased confidence in the consumers and our partners and our payers.

And so you do see increased activity around executed managed care agreements, and we have those in place in those ramping facilities. We've proven that we can be good partners and they can rely upon us for excellent outcomes. And so you see, again, not only occupancy increase, but skilled mix increase. As those facilities also stabilize, you see stabilization in labor and overtime, double time, agency usage.

And so not only do you see the expansion in revenue, but you also see expanded margin, particularly there in ramping. And so as we've seen the progress in that cohort, we're excited for that to continue as those mature even inside of that cohort. But as they move towards maturity metrics, we still see there to be substantial upside because we've seen these facilities as they get even more established in our portfolio and in their communities, that there's still upside for them to capitalize on, and we would anticipate those ramping facilities as they move towards maturity to continue along those same metrics.

Our next question is from David MacDonald with Truist Securities.

A couple of quick questions. One, Jason, can you just talk a little bit more about when you have conversations with payers and your referral sources, just how critical the quality metrics that you guys are posting right now is in terms of either working on contracting or just kind of securing referral sources? And then I got 1 or 2 quick follow-ups.

Sure. Yes, Dave. Thanks for the question. Yes, it is incredibly important. I think the way that we talk about quality is that it is the fundamental basis behind our entire business thesis, right? Like we need to make sure that we are very good at providing high-quality care and high-quality outcomes.

And the reason that's important is not only for the outcome of the patient, but also, it allows us to be more competitive in the way that we negotiate our managed care contracts and other payer contracts. What we have found is there are many of these different payers who have thresholds of when they will allow providers to participate in their plans, quality thresholds that is.

And so if you are performing below those thresholds, then you typically are excluded from conversations around those new contracts. And so that's why it's very important for us to make sure that we're executing well on that front is because we want to have a seat at the table when we are looking at different payer contracts, and we want to make sure that we're in the best seat available when we are negotiating.

And the best way that you have the ability to negotiate with our payers is, number one, quality. And then I would point to number two being density in the different markets where we operate. And so it all starts and ends with quality, though.

And then guys, just a couple of other ones. One, just on, kind of, automation/AI, can you give us any sense in terms of how you guys are thinking about that, maybe not in the context of direct care, but more in the context of providing more efficiency so you free up your clinical people to spend more time just on direct care?

Dave, I think that's exactly it. There are certainly really good use cases for AI. We have to be mindful of, obviously, the compliance element, as everyone is aware that AI being integrated into healthcare. There's a number of questions around that and how it works.

And so fortunately, with the additional resources we've added to our compliance team, people with specific experience around privacy and other sorts of things that matter as it relates to AI are able to help ensure that the tools that we are exploring, and some of them now using and have integrated into our systems, are keeping the organization away from any of those potential risks.

But we have seen some good use cases where it's doing exactly what you mentioned. It's allowing us to identify what patients need, what level of care they need based on their history and physical that comes from a hospital. To be able to scan that information and ensure not only save time for the clinicians, but ensure that we're capturing every element of care that, that patient needs when they come into our facility.

And as you do that and as you provide the care and have the clinicians that are capable to do it at a high level, your quality measures increase. The return rates to the hospitals decrease. All of the metrics that, as Jason mentioned, these payer sources are looking for, we're able to actually make improvements.

We envision there to be additional ways for us to implement AI as it looks to scrubbing documentation to ensure we're documenting things correctly. And so there's just a number of opportunities and use cases. And I think you'd see consistent with PACS, and one of the things that differentiates us, is that we lean fully into technology and the uses. We've built integrated dashboards, as we've talked about historically. And so there's been a full lean-in where historically, our space hasn't seen people do that.

And we would anticipate with what we've seen so far and what we continue to see into the future, an ability for us to layer these things on and make us more efficient in the way that we operate, hopefully leading to margin expansion as well and to free up clinicians so they can do what they should be doing, which is have as much touch and interaction with the patient as possible.

Okay. And guys, just last question. Look, obviously, the operating environment broadly across healthcare has been fairly dynamic over the last couple of years. I'm just curious, when you look at your pipeline, can you just provide us a little bit more detail? Is the breadth of the pipeline bigger than it's kind of been historically? Any chunkier assets kind of coming into the pipeline? Just any additional detail in terms of what you're seeing would be helpful.

Yes. I think that -- I'll take that question. This is Jason. The -- I think what we're seeing is just, again, another high level of activity with M&A. It's been very busy, especially since getting back in compliance with the SEC with our filings. We've seen more and more activity come our way.

And I would characterize it, Dave, as being kind of a mixed bag of everything, from smaller one-off deals to smaller kind of regional operators to large chunky deals. We really are seeing pretty significant diversity in the types of deals that we're looking at. And so that's encouraging to us because it gives us the optionality that we would want when trying to be disciplined and strategic with -- when we're thinking about our growth.

Our next question is from A.J. Rice with UBS.

Maybe just first to ask you about what you are seeing on the payer side, we know the Medicare rates that have been proposed. But any comment on what you're seeing on a go-forward basis in your discussions with your various states about Medicaid updates? I know in the quarter, you were up 3%. Is that sort of the rate type of dynamic you're seeing?

And then managed care, there's been some discussion about managed care contracting, generally, in the industry. You had a healthy rate increase in this quarter. What are you seeing in contracting there?

Yes. I'll maybe start, A.J., this is Josh. I'll start with just the underwriting process that we go through as we evaluate, particularly to talk about the Medicaid. We specifically identify states that we think that we have an opportunity to make improvements on Medicaid rate reimbursement. And we've been fortunate to enter a number of those states where they incentivize quality, not just in quality payments, but there's an element of the rate that includes your ability to provide quality care to your long-term population, the Medicaid base.

And we've seen those increases. And it's come because of the efforts of our clinical teams, ensuring that we're capturing appropriate care, taking, generally, even on a long-term custodial basis, a more clinically acute patient and being able to be reimbursed appropriately for the services being provided to them. And so it is not a surprise to us that we've seen increase in our Medicaid rates.

We've also been very active, like many other operators, in ensuring that we get in front of the individuals at the state level, making decisions on how they reimburse nursing homes. And we think we've positioned that narrative very well, that we are the lowest-cost institutional setting for people to receive care, and they can receive that care in a very quality setting. And that's what I think PACS has done to differentiate.

And so we're grateful for the recognition that those people at the state level have paid attention to and ensured that they've included appropriate rate reimbursement for the services being provided. And so that 3%, we anticipate continuing to see growth in that regard. And as we underwrite new deals, we look to ensure that on the Medicaid front, we continue to see that rate expansion.

On the Medicare and managed care side, like you mentioned, you see the increase. We've continued to be increased. I think at the federal level, they're seeing that nursing homes can provide care to highly acute patients who are in need of those services, and appropriately are giving us an increase yet again this year, which has been consistent for the sector.

On the managed care front, Jason, I think, nailed it when he said these managed care providers more than ever are paying attention to the people that they are contracting with, the providers they're contracting with. They're looking for a couple of things.

First and foremost, they're looking for quality outcomes. They're basing rate and the willingness to reimburse a certain provider in that contract based on your quality outcomes.

They're also looking at density. And as we talk about growth and strategic growth in areas where we can have density, bed density, bed availability for these providers, they are very interested in ensuring that they have access for their patients with beds. And that's, again, another differentiator for PACS as we go into these contract negotiations, that we're able to negotiate favorably for us when we give them bed density combined with the quality metrics that we've seen historically.

Okay. That was helpful. Maybe also just to ask you on your largest expense item, what the dynamics are around labor, availability of supplies, need to rely on temporary staff and other things, wage updates. Any commentary around there and any initiatives you have underway related to labor?

Yes. The general dynamics of the labor market are continuing to improve. And I know we referenced post-COVID, that was the most recent challenge that the industry have had. And since that point, not only across the nation for all providers, but for us specifically, we've actually seen that numerically have an impact. We don't have a major issue with job postings and responses to those job postings, which we had once upon a time.

As we look at our labor, oftentimes, we measure that as a percentage of revenue. And our contract labor in Q2 was the lowest it had been in any of the past 2 years. And so as we look at those trends, we're incredibly encouraged to see that those labor dynamics are leading to increased margin expansion as our facilities continue to operate at the level that they are.

Our next question is from Raj Kumar with Stephens.

Maybe just trying to, kind of, parse out the 20 Eduro facilities in Texas and kind of the embedded contribution into guidance. Maybe just any helpful color around revenue and earnings contribution here in 2026. And maybe just any qualitative commentary around how those facilities, kind of, compared to your, kind of, existing 5 facilities that you've had in Texas for...

Thank you, Raj. This is Carey. Thanks for the question. Yes, our guidance, as I noted, it includes a modest contribution from the 20 Texas facilities that we've closed so far. And I'd say it's modest because there is some integration that has to occur in the first several months of an acquisition. Revenue is contributing more than EBITDA in our guide. But the Eduro facilities still had a lot of upside, a lot of upside. And I'll let Josh actually talk about where they are now and where we think they can get to.

Yes. This is an acquisition that we were underwriting for a while. And although there's a strong foundation in the Eduro team, maybe different than some of the acquisitions that we've done historically, where you sense more distress when you walk into these facilities, the Eduro team worked hard on prioritizing care and outcomes and actually did have positive EBITDA margins. With that being said, we still recognize that as we underwrote this deal, we saw opportunities for the uniqueness of PACS model to actually add particularly on certain KPIs.

On the quality measure front, we think there's room for improvement. And as we make those improvements in quality measures, we believe that we can see expansion in both occupancy and skilled mix, particularly in these 20 facilities, as example, they run in about the mid-60% occupancy and around 10% to 11% skilled mix.

And so when you compare them to other new facilities that we've taken on, they have similar metrics in that regard. And we believe as they begin to progress with the PACS' specific attention to those areas, we're going to see them move from the new and the ramping and to the mature cohorts. And so as each of you look at that and model it just like we have done, you can count on those facilities following a similar path to what you've seen historically from our acquisitions.

Great. And then maybe as my follow-up, just kind of thinking about or tying the topics of quality and then reimbursement. I think Ohio had finalized the 3 calculations of some prior year quality incentive payments. So curious on any, kind of, sizing color you could kind of provide on that and whether there's

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kind of been baking in for those payments.

Yes. Thank you, Raj. Yes, those payments haven't come yet, so we don't know exactly what they're going to be. We have not been accruing for them because of that very fact. We don't know how much they're going to be and we don't know when we're going to receive them. We've had some -- we thought we might have received them actually before now and the amounts have varied from time to time. So that's why we have not accrued anything for those.

I would say we do expect to receive them in the second half of the year, but we've not included any of that in our guidance. So I think that would be upside to where we are. I know it would be upside to where we are because we've not included any of it in our guidance.

Our next question is from Ben Hendrix with RBC Capital Markets.

Great. Just one more question on the new facilities in the guidance. You mentioned some integration costs. And I imagine there's more expense kind of coming on associated with those facilities. Just wanted to see if we could parse that out a little bit in terms of are we expecting a step-up in agency utilization as we bring those on versus your legacy platform?

Is there any kind of degree that we have additional overhead and administrative costs and then versus costs related to local leadership change? Do you expect to have to put a meaningful portion of or replace a meaningful portion of the local leaders with some of your leaders in training? Any kind of thoughts on the geography of those costs would be great.

Yes. Specifically, Ben, I don't see anything -- you mentioned labor. I don't see any sort of increase in agency labor. When we take on new acquisitions and this transaction, although slightly different, won't be different than how we handle these. We go in, we evaluate the teams in place. I think these teams generally have a little more strength than we've historically seen in some of the more distressed assets that we've taken on.

And we are going to grow those platforms strategically to ensure that whatever we're doing that relates to census or additional labor that may be needed that, that's done very strategically prioritizing care. So we're going to go and assess the teams. We're going to deploy our systems, policies, procedures, things that we would do in any acquisition, and then we will begin building responsibly on top of that.

And so specific costs outside of what Carey mentioned, just the integration of IT network and infrastructure and other things that come with any acquisition, especially large-scale that you do, I would anticipate that the operational metrics aren't going to change on the cost side substantially. I think we're going to see over time, consistent with what you've seen, new moving to ramping, ramping to mature, that these facilities are going to follow a similar track.

And Ben, as a follow-up to your question about the Ohio supplemental payments, just as a reminder, we do expect another -- at least one more California WQIP payment in 2026. We haven't accrued it again, same thing, because we don't know the amount, and we don't know exactly when we're going to receive it. We've started receiving some of that in the third quarter. So I think we will receive some in the third.

And then the second payment related to that will be either late this year or early in 2027. But we -- again, we're not accruing that. It's not in the guidance because we don't know what those amounts will be.

And to be sure, those will be reflected in your same-store revenue growth?

Yes, they will, just like they were in the first quarter.

This now concludes our question-and-answer session. I would like to turn the floor back over to Jason Murray for closing comments.

Yes. Thank you, operator. And again, thanks, everyone, for joining us today. We appreciate your support of PACS. Have a nice rest of your day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

Greetings, and welcome to the PACS Group Q1 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Ryan Welch, Director of Corporate Finance. Thank you. You may begin.

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, PACS Group issued a press release announcing its first quarter 2026 results. An investor presentation was published and is available on the Investor Relations section at pacs.com.

I'd 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 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 annual report on Form 10-K for the year ended December 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, which are both published and available on the Investor Relations section of PACS Group's website.

I'll now turn the call over to Jason Murray, Chairman and CEO.

Thanks, Ryan, and thank you all for joining us this morning. We're very pleased to report a strong start to 2026 with continued operational consistency across our platform and measurable progress across the facilities we've integrated over the past several years. Our performance this quarter reflects both the durability of our operating model and 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 life cycle and allocate capital in a disciplined manner. We are seeing that play out across the platform.

As of March 31, 2026, PACS operates 323 facilities across 17 states, with approximately 35,500 total beds, including roughly 32,700 skilled nursing beds and 2,700 assisted living beds. Across this platform, we are caring for approximately 31,900 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. We believe this 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 our 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, which includes managed care, remain 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. From a clinical perspective, we remain encouraged by the consistency of outcomes across our facilities. As of the end of the first quarter, 222 of our facilities are rated 4 or 5 stars under CMS quality measure ratings, up from 207 at the end of 2025. Among our mature facilities, our average CMS quality measure star rating remains 4.4, consistent with the prior quarter and meaningfully above the industry average of 3.6. While 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 PACS 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-in-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 our operating model can drive meaningful improvement in both clinical and financial performance over relatively short periods of time.

To bring that to life, I'd like to highlight one 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 and clinical leadership was put in place, supported by additional PACS 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, deficiencies were reduced to fewer than 5, all within acceptable thresholds under the special focus program requirements. As a result of that progress, the facility has 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 PACS 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 with 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, and disciplined execution. As we look ahead, we remain focused on continuing to drive performance within our existing portfolio, advancing our facilities through the integration life cycle and allocating capital in a disciplined manner.

I'd like to take a moment to briefly address our previously disclosed government investigations. These matters continue to progress through the normal course, and we remain fully cooperative and engaged with the government throughout the process. While we are 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'd like to take a moment to address the leadership transition we announced a few weeks ago. We're excited to welcome Carey Hendrickson, our new Chief Financial Officer. Carey brings a strong background in health care and many years of experience as a public company CFO, and 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 Co-Founder and long-time CFO, who will be retiring from his role.

Mark and I started the company in 2013 with a shared vision, which was to build a lasting health care 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've built since then is a direct reflection of that vision and of Mark's leadership. From 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, I'm incredibly grateful for Mark's partnership that we've had over the years and for the role Mark has played in building PACS into what it is today.

With that, I'll turn it over for Mark for a few words.

Thanks, Jason. It's truly been an incredible journey building PACS over the past many years, and I'm very proud of what this team has accomplished. When we first started this company in 2013, our goal was to build a legacy health care company that provided a better experience for everyone involved, something with a 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's 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's what has allowed this company to scale while maintaining consistency and discipline. I'm 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 Carey as he steps into the CFO role. I'm truly grateful for the opportunity to have been a part of the day-to-day journey and look forward to continuing to work with PACS 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'll turn it over to Carey.

Thank you, Mark. I appreciate the opportunity to step into this role and build on the strong financial foundation that's been established. One of the things that attracted me to PACS was the strength of the operating platform and the consistency of outstanding execution, and that certainly played out in the first quarter.

For the first quarter of 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 $170.4 million, which was an increase of $72.8 million or 75% over the prior year, and our adjusted EBITDAR was $265.9 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 end of 2025. The payment we received in the first quarter of 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 one 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 in timing and the amount, the WQIP equip payments we received in the first quarter of '26 were not included in our original guidance, and we'll continue to treat these future expected payments in the same way, excluding them from guidance. While it remains unclear whether WQIP will be continued to replace, we, along with others in the state of California, are actively advocating for a successor program that aligns reimbursement with quality.

You noticed 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 operation 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 remained 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 a 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're 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 the 11.2% revenue growth reflects the significant operating leverage that we're able to achieve on our incremental revenue.

Our general and administrative expense was approximately $112 million, which 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's 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 0.1x. 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 where it aligns with long-term value creation. And we'll 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 an 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 kind of other similar structure 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. It is not obligated us to repurchase any specific amount of common stock and may be modified, suspended or terminated at the Board's discretion. It's 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 in internal financial -- internal control over financial reporting. That remediation remains ongoing, but we're actively advancing these efforts and expect to make substantial progress this year. We've 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 adjusted EBITDA expectations based on our first quarter outperformance, and we're reaffirming our revenue guidance. We're increasing our adjusted EBITDA guidance to a range of $605 million to $625 million, which is a $50 million increase at all levels of the range relative to our prior guidance. At the midpoint of this range, this 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're making refinement 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 an 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 approximately $120 million of revenue related to future acquisitions. So despite moving future acquisitions, removing them from our guidance, we're reaffirming our revenue guidance range of $5.65 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're eliminating future acquisitions from our guidance, I want to emphasize that this modification does not reflect any change in 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've done historically, we'll 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 and external growth opportunities.

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

Thanks, Carey. As you can see, we're 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're ready for questions.

[Operator Instructions] Your first question comes from Raj Kumar with Stephens.

Congrats, Mark, on the retirement and congrats, Carey, on the new role. Maybe just focusing on some of the reimbursement dynamics. I appreciate the color on the California quality incentive program. I know there's another state with Ohio where the state Medicaid Department is going through some of the recalculations there. Maybe just any updates on that front from that quality incentive program? And then I guess, as we think about the rest of this year, any kind of moving budgets across your state of operations on the rate front? Any color there would be helpful.

Thanks, Raj. This is Josh. I'll take that one there. Yes, 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. And so there's been a number of discussions about that. Initially, we believe there's substantive opportunity for us to be paid out in those quality programs, and we're 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, we do not provide any guidance because we aren't certainly -- we're 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're 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've proven in California, Ohio, as you mentioned, Texas, other states that have quality components.

The rates in general, as we look at reimbursement, we've 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've actually had a lot of success in this, and that's 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're also seeing that interestingly enough in the managed care organizations, we've had a number of meaningful conversations and rate renegotiations, new contracts that all emphasize both quality of care, but also a recognition that there needs to be appropriate reimbursement for the higher level of acuity that we're starting to see in skilled nursing. And so there's 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's why I believe from a cost perspective, and that's why I believe they continue to emphasize the need to have funds flow to our environment.

Great. And then maybe as a follow-up, just kind of thinking about the remainder of the year, I think California for health care staffing, I think the minimum wage is expected to boost. Clearly, no direct impact to SNFs because of the nonfunded component of that. But I guess, anything to kind of consider as you kind of think about your workforce and as kind of pricing increases for the general population pool, how should we kind of be thinking about that from a cost perspective and as you try to be more competitive with the kind of hospitals or health systems across some of your markets in California?

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're starting to see people come back to the space. We're starting to see us become a very viable option for both the tenured nurses as well as new nurses who are looking to begin a career in the space. And so we've seen significant improvement. We're seeing a number of job applicants that are coming in to apply for jobs and opportunities with us. And California is an area where we've seen those numbers certainly increase. And so as we look at the labor environment, we're incredibly encouraged by what we're seeing.

We measure kind of premium labor, agency usage, and we've seen those numbers remain consistent over the last couple of quarters and down significantly from end of 2024, '25 and certainly 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 one there. We've been able to reach out and have very meaningful conversations with them about how we can work together to position ourselves and our sector as we move forward into the future. And so the labor environment seems great. And in California, we're very optimistic.

Your next question comes from Benjamin Rossi with JPMorgan.

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. Could you just walk us through some of your embedded assumptions across rates, occupancy and your 3 cohorts for 2026 and how you're thinking about those trends as the year progresses? And then across pricing, what are you assuming for those Medicaid supplemental programs and those 2 potential remaining payments from those quality programs like the one in California?

Yes. As you look at just kind of the KPIs that we've 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're giving initial guidance, we're 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 occupancy, skilled mix, reimbursement rates, which highlights their ability to take a more clinically acute patient and be reimbursed appropriately for those. And so that's why we haven't 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 incentives, 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've seen similar trends across other quality incentive payments. And that's why it's difficult, as I mentioned, the Ohio ones, the California 2 additional payments to anticipate exactly what those numbers are and when the cash will come in. And so as soon as we receive those numbers, as soon as we can possibly report on those and as soon as we get visibility into what those may look like, if there's more clarity on it than there has been historically, we'll make sure to report that and update our guidance.

Ben, just to be clear, this is Carey, by the way. Those payments are not included in our guidance as an example, the 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 of last year, but it didn't come. So it came in the first quarter this year. It's just unpredictable when those things will come, and that's why we don't include it in there because we may include in the guidance and then it not happened until the beginning of next year. So we just leave it out, and we'll report on it when we receive it.

Understood. Appreciate that additional context there. I suppose as a follow-up on per diem trends. It 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? And then 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?

Yes. This is Josh again. We've 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, 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've renegotiated hundreds of contracts successfully. And 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 care 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 being able to increase managed care census and 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've talked a lot about how important the post-acute continuum is, and we believe we're doing a really good job at this point, educating the hospital systems, the payers, particularly managed care about how important we are as a provider if we're going to 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.

Great. And if I could just squeeze one more in here for Mark, just specific to you as you close your time in PACS 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 on next steps as you hand over the reins to Carey and the broader team here?

Yes. Yes. Thanks for that, Ben. 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 we've tried to take as much of the clerical administrative burden off the plates of our local team 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, the patients, their families, our staff, providing an environment where they can -- they're not dreading driving into work. They're actually going to an environment that they feel the love and the healing and caring that happens there.

And so we've intentionally built systems and processes and technologies around that in a sector that we like to say isn't historically known for sophistication and technology. We've 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 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 through the skilled mix. And that's really where we see trends of moving in this post-acute space and continuing to move. We like to say that we've been talking for years about this kind of Silver Wave, the silver tsunami. And that it's here. It's not only at our doorstep, but it's -- we're well into it now.

And so we feel like we're well positioned from just an organization from a level of talent through our AIT program that we've infused in a sector that's not, again, historically known for the type of dynamic leaders and leadership teams and interdisciplinary teams that can support that effort. And so I'm just confident in what's in place. I'm confident in the executive team and the leadership teams, both at the PACS Services level, but certainly at the local level. We saw that demonstrated over the last year in 2025, which was where the model was challenged, and we welcome that challenge. That was our intent when we went public was we welcome the scrutiny.

We welcomed the challenge of the model, and we've proven that it works. And that despite the headwinds and the challenges that the company not only continue to perform, but really thrived. And we feel like we're just, again, beginning to -- we just scratched the surface on what this mission and what this model can do. Right now, we represent about 2% of the market. And so again, I'm confident that we have the people, the systems, the processes, the platform in place to continue this legacy. This truly is our life's work. And so Jason and I are very, very proud of that. And I have full confidence in Jason and the team to continue to lead that. I look forward to continue to focus on all those elements from a Board perspective in governance and strategy and truly delivering outpaced results to our shareholders. So yes, thanks for that question, Ben.

Your next question comes from Ben Hendrix with RBC Capital Markets.

I'll 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 in 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're 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're being left some room for quality incentive payments? Just wanted to see kind of what the contracting environment is with those newly ramping facilities?

Thanks, Ben. When we look at managed care, particularly as we take over new facilities, we've talked about how generally when we're taking on stuff to our portfolio, it has been distressed and is struggling. They're usually not identified in the communities that they're serving as a place that 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 timeframe that we start to see meaningful conversations and contracts and potential renegotiation of contracts when we've been able to prove out over the course of 18 or so months that we're a different facility than we were when PACS entered in.

And so those conversations are happening all along the way. Fortunately, with the reputation that we have nationally, I 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're delivering, there's a desire at that point to actually leverage the platform that we have, the density, the number of beds that we have to have contracts. And so it's no surprise to us that as we're moving through that ramping phase, we're starting to see the actual initiation or the renegotiation and the increased volume in patient days and admissions for managed care providers as other -- as well as other high acuity skilled patients are flowing through the model. And so that is something that we will continue to see. We hope that it happens as soon as possible. Some deals come where we're able to just based on need, get managed care contracts sooner.

But as we move, and you'll see it consistently from new ramping to mature, not only does census increase, but so does a managed care willingness to reimburse us more. And we prove out the ability to continue to take higher acuity patients to do it well. The 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, it should be no surprise it isn't to us that we see increased numbers, both in admissions, skilled mix, reimbursement rate as those facilities move from ramping to mature. And so I think that's 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're grateful that managed care organizations and others in the communities that we serve are starting to realize the value that we provide.

And then, Carey, just maybe if you can provide maybe some broad observations that you're considering with regard to the capital strategy. I mean, clearly, you've talked about the buyback plan there and optionality you've embedded. But maybe early thoughts on the pace of overall M&A and then if there may be a dividend in the future?

Bringing up the dividend question for me already. No, really, PACS has a great capital allocation kind of program in place. Certainly, we did include the share repurchase authorization this time because I think that's 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're going to do that. And it provides us the ability to act. 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. So we have plenty of availability for M&A, lots of liquidity. But we are seeing a good pace of M&A, the things we're looking at. And yes, the 1s and 2s here and there, like the tuck-ins that we've historically done, but we're also seeing some larger portfolios and things that could provide some actual -- usually, the 1 and 2 kind of acquisitions, we -- they don't have EBITDA initially, and we grow that EBITDA as they ramp.

But some of the larger opportunities would have more immediate impact. And so we're looking at some of those. But I think we have a capital structure that is sufficient to do that, but there may be another opportunity to potentially increase that capacity. So we'll see as we go forward and look at those kind of opportunities. We're kind of -- it depends on the pace of M&A. So I think that's what you'll see for us, just looking at the pace of M&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 want to be able to support that. We can support it. The company has great relationships with the banks that service us. So we're in a really good position. I hope that helps.

Your next question comes from A.J. Rice with UBS.

Maybe first off, you mentioned the management pipeline you have put in place. And obviously, that's 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?

Yes. This is something we're incredibly proud of. And it's been a strategy that we've talked about a number of times on this call. It's 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 have currently is the highest number we've 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're 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 backfill 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're looking at currently that we expect to make movement on over the course of the next couple of months, we want to be sure that our leadership and level of talent match that.

Okay. That's interesting. Maybe 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're thinking about that relative to other uses of capital and what the pipeline might look like there.

Yes, A.J, Mark here. So yes, 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 -- and real estate is -- does require a lot of capital relative to kind of some of the lease deals that we can walk into and just take on the working capital in those types of scenarios. So certainly, as we look at our cost of capital, as we look at some of these more chunkier acquisitions that we've alluded to, we're weighing that balance of deploying capital in real estate versus some of the lease acquisitions. But certainly, like we've all shared on this call, the pipeline is strong. And we have -- we're in a fortunate position from a balance sheet perspective to be able to deploy capital.

And we've 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. So that's where we see a lot of the potential in exercising these options, which we generally try to negotiate options on a fixed price basis. So as we've created value and improved operations, we're very often in the money on exercising those options. And so most of these that are coming due are kind of fall into that category.

And we have time for one last question that comes from Clarke Murphy with Truist.

On the quarter. Just wanted to come back for a minute and spend some time on quality. Just you had a pretty meaningful uptick in the number of facilities rated 4 or 5 stars from the end of 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. Can you -- so can you just kind of help us understand the delta there? I'm assuming that mostly reflects continued center maturation, but just any additional color there and if there's anything that you guys are doing from a clinical or operational standpoint that's kind of helping drive those gains?

Yes. Yes, you've got it, Clarke. Thanks. And this is Jason. I'll take that question. So I think you're right in your assumption that it does represent the continued maturation of our facilities in that -- the new ramping and mature buckets. And there's a reason why we've attached timelines to those new and ramping mature cohorts. It's because it does take time in order for us to improve the clinical performance and get it to a point where it's a PACS expectation. And I think that, that is exactly what we've seen this last quarter is seeing a continued maturation of these facilities clinically that are in that mature cohort and seeing the administrator and the interdisciplinary team take ownership of the clinical processes within the facility and the clinical outcomes as well and then really being able to effect change over that 3-year period, at the end of 3 years, the expectation is that we do have our facilities up close to 5 stars.

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

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

Got it. That's helpful. And then just one more for me. Really strong cash flow quarter, especially relative to the EBITDA beat. So just kind of curious if there was anything kind of timing related in the cash flows and how your expectations have changed at all potentially for the year on the cash flow front?

Yes. Thanks for that question, Clarke. So there is one item. If you look at our cash from operating activities, I noted we had $236 million of cash in the first quarter that we generated from 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're making in Alaska. And so that's about $50 million, and we prepaid in December. So it helps us in our cash from operating activities in the first quarter. But if you look down in financing activities, it comes out there, the $50 million. So it's kind of an offset there.

So I'd say -- but still, even without the $50 million, $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 of position for much of the year. It's a good place to be.

I'll now hand the floor over to Jason Murray for closing remarks.

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

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

Greetings. Welcome to PACS Group Fourth 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 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 that 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, 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 measures, please refer to the earnings release and the appendix included in the investor presentation, which are both 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 the 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 8 additional strategic acquisitions in 2025, all within our existing markets, further increasing density and deepening local scale.

At the center 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 laser-focused on patient outcomes. This coordinated structure allows us to move with agility at the bedside while maintaining consistency, discipline and accountability across the company.

From a clinical standpoint, we continue to see encouraging trends in quality ratings, occupancy and skilled 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 dedicated team members. The breadth of our platform provides geographic diversity, payer diversification and leadership depth. Just as importantly, our continued investment in our administrator and training program, along with our regional leadership development ensures that growth is supported by a strong and scalable bench of highly skilled operators.

Capital allocation remained disciplined throughout the year. After a period of significant expansion in 2024, our focus in 2025 shifted toward optimizing the performance of those acquired assets while selectively increasing real estate ownership within our portfolio. Importantly, we maintained a strong balance sheet through this growth cycle, ending the year with net leverage of approximately 0.3x. We believe this positioning enhances durability and flexibility as we look ahead, 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 increasing demand for post-acute services. At the same time, the industry remains fragmented, and many facilities are operated by smaller or independent providers. We believe our scale, operating model and strengthened infrastructure positions 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 service teams drives our results every day. Their commitment to delivering high-quality care in every community we serve gives us strong conviction in the path forward.

We continue to prioritize exceptional clinical outcomes across both our mature and newly integrated facilities, and that focus is reflected in our quality ratings across the portfolio. Based on CMS quality measure star ratings, 207 of our facilities, representing 73.4% of our skilled nursing portfolio, are rated 4 or 5 stars in CMS quality measure. For the full year 2025, our 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 1/10 increase may not appear modest numerically, at this level of performance, we believe 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 ultimately, better experience for our residents and families we serve. 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 bring this progress to life, we'd like to highlight a couple of examples that demonstrate how our teams execute at the facility level, whether through measurable improvements in CMS QM star ratings or zero-deficiency surveys. These examples reflect a broader pattern across our organization and reinforce the strength of our clinically driven approach.

One example is from one of our facilities in Kentucky. At the beginning of 2025, this facility held a 2-star CMS quality measure rating. Rather than accept that as baseline, the local leadership team came together at the start of the year and set a clear objective: materially improve clinical performance and elevate the standard of care within the building.

They began by analyzing each component that drives the CMS quality measure star calculation, identifying the areas where focused execution could have the greatest impact. From there, the team developed targeted action plans and accountability structures around those priorities. This was not a broad initiative. It was deliberate, data-driven and owned by the administrator and the interdisciplinary team on site.

For example, to strengthen fault prevention and safety, the team identified residents at high risk, implemented structured rounding protocols, enhanced cross-department communication and instituted daily, weekly and monthly performance reviews to monitor progress and refine processes.

Fault prevention became a constant topic of conversation throughout the facility. The same disciplined approach was applied to pressure ulcer prevention, mobility preservation, medication management and discharge planning. The results reflected measurable improvement across multiple CMS quality measure star categories during the reporting period, including reduction in falls with major injury, pressure ulcers and functional decline, along with meaningful improvement in discharge outcomes and medication management practices.

By the end of 2025, this facility achieved a 5-star CMS quality measure rating, moving from 2 stars to 5 stars within a single year. Importantly, this progress was driven by empowered local leadership, supported by the resources, reporting tools and compliance infrastructure provided by PACS Services. This is our model in action: local teams, owning outcomes with the systems and support necessary to execute consistently and sustainably.

A second example of execution across our platform is reflected in our survey performance. During 2025, we had a number of highly successful surveys across our portfolio with 7 total zero-deficiency surveys. In today's regulatory environment, particularly in skilled nursing, completing a standard survey with zero deficiency is a meaningful accomplishment. It reflects consistent compliance across clinical, operation, documentation, life safety, infection control and interdisciplinary care coordination.

These outcomes are not the result of isolated preparation for survey week. They are the product of disciplined systems, internal auditing and leadership accountability embedded in our operating model. Zero-deficiency surveys signal strong regulatory execution, reduced compliance risk and the culture that prioritizes quality and consistency every day.

One example we would like to highlight is the facility located in Oceanside, California. This facility is a new build that received its certificate of occupancy in January 2024 and represents the first newly built ground-up skilled nursing facility in San Diego County in many, many years. That alone reflects both the regulatory complexity of California and the level of commitment required to thoughtfully add new high-quality capacity to a community.

Before generating revenue, we invested meaningfully in licensing preparation, staffing, equipment and clinical infrastructure to ensure the facility opened with a fully trained team and operational readiness from day 1. In total, we deployed millions of dollars in spending pre-revenue as part of that commitment. In April 2025, this facility completed its initial certification survey with zero deficiencies, an outcome that speaks to the rigor of our preparation and the strength of our clinical systems.

Since opening, census has steadily increased and the facility reached profitability within its first year of operation. In 2025 alone, this facility saw over 250 admissions from acute hospital partners across San Diego County, reflecting both clinical capability and growing trust within the local health care ecosystem.

While acquisitions remain our primary growth strategy, we have now completed 8 de novo projects since the inception of our company. Our facility in Oceanside reflects our long-term approach: invest ahead of revenue, build the team first, establish clinical excellence and allow census and profitability to follow. The fact that this facility achieved a deficiency-free survey following new construction and licensure reinforces the effectiveness of our locally led centrally supported model, even in newly developed operations.

Taken together, 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, including CMS QM star ratings, survey performance and quality measures, 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 a substantial number of facilities acquired in 2024, strengthened our density in key markets and continued delivering high occupancy and clinical consistency across our mature portfolio. At the same time, we've continued enhancing 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 disciplined approach, during 2025, we deployed capital selectively, completing the acquisition of 8 additional facilities, all within existing markets where we believe we have strong operational infrastructure and leadership support. Today, our portfolio includes 35,379 total operating beds, of which 32,854 are skilled nursing beds and 2,525 are assisted living beds, which span across 17 states, reflecting a scaled and geographically diversified footprint. Portfolio performance remains strong. Total occupancy stands at 89.1% with our mature facilities delivering exceptional 94.9% occupancy, up from 94.4% last year.

Within our cohort framework, facilities are categorized as new during their first 18 months under our ownership and as ramping from months 19 through 36 as they progress toward mature status. Occupancy within these cohorts reflects the continued integration and stabilization of facilities acquired over the past several years. A number of those acquisitions entered our portfolio at materially depressed occupancy levels, often representing communities where others were unwilling or unable to invest the operational focus required to improve performance. We act opportunistically in those situations, confident in our ability to apply the PACS operating model, strengthen clinical execution and rebuild trust within the local health care ecosystem.

As those 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 the appropriate clinical capabilities at each facility, our teams are well positioned to meet the increasing complexity of patients being 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 in that continuum.

A critical component of sustaining this performance is leadership development. Through our Administrator in Training or AIT program, we continue building a scalable bench of highly skilled operators prepared to step into leadership roles across both existing and newly acquired facilities. We currently have 38 AITs in the program, reinforcing our ability to integrate acquisitions efficiently and maintain operational continuity as we grow. Importantly, we have strong retention within this program, and many of our AITs go on to serve as licensed administrators, regional vice presidents and in other senior leadership positions within PACS. This consistent investment and leadership depth remains a key differentiator in our model.

Now 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 3 additional facilities, 2 in Alaska and 1 in Idaho, including the purchase of the underlying real estate for the 2 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 in a manner that strengthens long-term alignment and financial flexibility.

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.

So 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 totaled $59.8 million for the quarter. Adjusted EBITDAR was $237.7 million, while adjusted EBITDA was $142.1 million. Fourth quarter performance reflects continued occupancy strength, stable skilled mix trends and consistent execution.

Now turning to the full year 2025 results specifically. For the year ended December 31, 2025, total revenue was $5.29 billion, representing approximately a 29% growth increase over 2024. Net income for the full year was $191.5 million, with diluted earnings per share coming in at $1.22 per share. Adjusted EBITDAR was $883.9 million and adjusted EBITDA for the full year totaled $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 continue to perform at a very high level, averaging 94.9% occupancy, which was up 0.5 from the prior year, reflecting sustained demand and clinical consistency across our established operations.

Ramping facilities averaged 86.3% occupancy, which was down from over 93% in the prior year. This year-over-year change, however, 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 the portfolio at lower starting occupancy levels, those facilities progressed into ramping status during 2025.

While these facilities are still in the earlier stages of stabilization relative to our longer tenured ramping operations, we are seeing steady operational improvements as they adopt PACS clinical systems and procedures. We expect continued growth by way of occupancy and skilled mix as this cohort moves toward mature status.

New facilities averaged 81.1% occupancy compared to 82.8% in 2024, again, 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 the newly acquired facilities 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 of our cohorts.

General and administrative expenses increased 21%, reflecting the scaling of both our PACS Services and regional infrastructures as we deepen our bench and maturity as a public company with enhanced compliance, risk management, accounting and technology. Overall, our cost structure remains aligned with revenue growth while enabling margin expansion through the disciplined and methodical approach we've taken in scaling the platform.

Turning to capital structure and real estate ownership. We continued selectively increasing ownership of certain real estate in 2025. As of year-end, we now wholly own or partially own, through joint ventures, the real estate interest in 102 of the facilities that 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 our leased facilities allows us to reduce lease-adjusted leverage while improving our 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 center as a significant investment in a permanent home for PACS, a place where our teams can continue to grow, collaborate and provide administrative services to our affiliated facilities over the long term.

In total, these investments, including funds placed in escrow for acquisitions that closed in early January 2026, these investments exceeded $145 million during the quarter and were funded from existing liquidity. Importantly, even after this capital deployment, we maintained a strong and conservatively leveraged balance sheet.

In summary, we ended the year with a net leverage of approximately 0.3x, even after the substantial acquisition activity completed in 2024 and the continued capital deployment in 2025. We believe this conservative balance sheet provides meaningful financial flexibility and positions us to be opportunistic with our growth strategies while maintaining sustainability across a variety of 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 an 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 our portfolio, stable reimbursement assumptions and continued disciplined capital allocation to support ongoing acquisition activity.

We entered 2026 with a scaled platform, strengthened infrastructure and a strong balance sheet. We believe these factors position us to deliver consistent performance and expanded 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 the full year to deliver record revenue and adjusted EBITDA, and our performance year-to-date has already reached record levels for the company. This continued 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.

[Operator Instructions] Our first question comes from David MacDonald with Truist.

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, kind of, you look within post-acute facility-based, where you stand in terms of cost effectiveness.

Yes. Thanks for the question. This is Josh Jergensen. This has always been a 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. And as you mentioned, we feel that as we move those facilities toward the quality metrics that we've been able to prove out through the new ramping and mature cohorts, we become a very attractive partner for really any of the insurers in the space that are looking for places to send their patients with high-quality care, access to bed, bed availability, density.

And so our ability to sit at the table and negotiate really strong contracts is something that we've begun to see play out, particularly as we have these facilities moving from new ramping to mature. So we believe this is only going to increase, and we've seen that even in our mature facilities as they continue to increase the percentage of their skilled mix that's contracted with managed care. And those relationships continue to expound, and we look forward to moving those facilities from lower quality, as they enter into our portfolio, to higher quality, and we believe that, that's going to continue to be a model that flows through and creates 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. That kind of 20-ish 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?

Yes, David. So yes, I mean, I think in regards to guidance, consistent with kind of our historical practice, we've baked in kind of a nominal number of facilities being acquired in 2026 to the tune of about 5 facilities per quarter with nominal revenue as those come on because the -- as you know, we typically acquire underperforming assets that are very low occupied, 60% to 70% occupied when you take them on, so with nominal revenue and effectively 0 margin. So that's what's included in the guidance, and maybe I'll let Josh touch on kind of the pipeline.

Yes. Pipeline, I would say, 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 the way that we evaluate deals. We feel really confident as we start to align the due diligence we're doing with deals that we're starting to see come up. And so, we're very excited. We also remain very strategic in the way that we go about these deals. We want to make sure that the model that we have translates well into taking these distressed facilities, deploying our model and have them be successful.

And always, through the course of these acquisitions, we're looking at the opportunity, as you questioned at the end, the way that we evaluate the real estate. If there's an opportunity for us to take on both real estate and operations, we're going to take those opportunities as we strengthen and look to strengthen the balance sheet. But being an operator who's willing to partner with others who have capital to deploy and have access to deals, we also feel confident in our position with each of them as a high-quality operator and tenant of those facilities.

And we've proven the ability to do both of those things. And I would imagine, as we continue to progress, you would see consistency in both operating facilities and the activity and use of capital being used to go out and find opportunities that include real estate 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 don't need to explain to you, California is probably one of the more difficult states. If you look across your footprint, are there 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?

Yes. 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 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?

Yes, David. I mean we have seen price increases over recent years, right, with inflation and real estate prices going up and that being ultimately reflected in some of the leases that -- whether we acquire it via just operations or even the real estate cost per bed. 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 -- but we see a number of facilities, hundreds of facilities that come through our potential M&A pipeline. And we generally acquire and close on a very small fraction of those. So we are very selective and opportunistic, and we are disciplined in kind of our -- making sure that those facilities meet our investment profile.

The next question comes from the line of Ben Hendrix with RBC.

Congratulations on the quarter.

Yes. Thanks, Ben.

You guys will be pretty well positioned for some of the changes in the value-based purchasing program for skilled nursing. But just wondering if you had any early observations on what you're seeing with the addition of the staffing measures and also the infection prevention measure in value-based purchasing for fee-for-service Medicare.

Yes, I'll take that one. This is Josh again. Any time I think, as an organization, we see clinical quality tied to reimbursement, we feel very confident. Our model has always consistently began with care and the way that we provide our service to our patients, focusing on things like rehospitalization rates, focusing on staffing to acuity, educating our staff, training them, investing in the physical plans, which allows our facilities to be in a position to not only accept those patients, but do an excellent job taking care of them.

And you see that through our clinical results. And so as reimbursement is tied to quality metrics and other things, we believe that we're positioned as well, if not better, than anyone else in the industry to actually see that be a net positive rather than something that's going to take away from future ability for the company to be financially successful.

Great. And then also along the same lines, the Transforming Episode Accountability Model or TEAM model, again, I think this -- it seems like this would be something that you all would be very well positioned for, but just wanted to get any -- that in your markets, if it's impacting your facilities or if you're seeing any change in referral sources?

Very beginning stages of these programs, and I think each of you, obviously, been around the industry for a long time, know that a number of these have come up. This certainly is not the first. It won't be the last. Again, kind of back to the way that I answered the first part of the question, as there's an opportunity to identify ourselves as the top clinical provider in each of the communities that we're in, we believe that positions us in a great way to be the primary provider of choice.

And each of these hospitals is becoming a lot more aware of the post-acute environments that they're relying on for discharge of their patients. Health plans are also very aware of what's going on in that regard as well. And we begin to have some of the conversation in a couple of the communities where they're beginning to roll these out.

And because of our platform, because of the way we've gone about doing things clinically, because of the bed density, that's another part, and you heard Jason talk about the 8 acquisitions that we took on in existing states and communities where we already operate, that density gives these upstream providers access to beds.

And that access allows them to put providers, hospitalists, rounding physicians or nurse practitioners in those facilities with higher volume of patients, improving the quality of care, the access to care. And so again, we feel very well positioned as that and other future programs will roll out because we've always led with care and quality.

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.

Yes. 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.

All right. First and foremost, thank you all for joining us here in person and for those who are joining us via webcast. My name is Ben Rossi, and I'm the health care facilities analyst here at JPMorgan. We're excited to welcome PACS Group to the stage as we wrap up another exciting day. With us here today are CEO, Jason Murray; and CFO, Mark Hancock. Thank you both for being here.

Yes. Great. Thanks. Thanks for that, Ben. Appreciate the introduction. And thanks for all of you who are here. We were told that the 5:15 slot was the most desirable slot in the entire conference. And now I can understand why it's the most desirable. But we're excited to be here.

As was said, I'm Jason Murray, one of the co-founders of PACS Group with my business partner here, Mark Hancock, who is the Co-Founder and also CFO. We're looking forward to tell the story about our company, and then we'll transition to some Q&A as well as we get towards the end of this.

But we -- I wanted to start with this slide because I think it encompasses very well who we are as an organization. We like to think that we are revolutionizing the delivery leadership and quality of post-acute care nationally. That is the mission of our company. We are a post-acute health care company. We specialize primarily in the operations of skilled nursing facilities. So we own and operate skilled nursing facilities across the country.

Why I like this slide is because this work is a very important work. It's a work that we're very passionate about as a company. And there are certain attributes that we are looking for in our employees that we're looking for in the work that we do each day that brings a great amount of satisfaction to our efforts. And I'd like to point out not only the mission of revolutionizing, and I'm going to talk more about that as we go throughout the presentation today, but also the values of our organization, what's important to us.

And so when we think about the recruiting of staff, when we think about how we train our staff, when we think about new acquisitions and M&A and growth, it all falls -- we try to direct all of that towards our mission statement and the values of our company to make sure that all of it aligns so that we are feeling comfortable about our growth, that we're not outpacing our culture as an organization.

And so a couple of things I might point out here that are important to us, love. That is -- we recognize that Love is the foundation for providing care. Nursing homes, as you might imagine, I'm hopeful that many of you have been in a nursing home and have an idea of what it feels like, what it smells like. And maybe some of those emotions are not very positive.

Typically, when we start talking about nursing homes, if I try to have a conversation with a stranger that I work in nursing homes, usually, their eyes gloss over and the conversation is pretty short because people don't really want -- it's not the most glamorous type of work, but it's a work that is very important. And we're going to talk about why it's important to us, but it's a very intimate setting that we work in.

So when you think about going from -- when we go from home to work, we go from home to another person's home. Our patients are our family members. And they are there. Many of them are there for the entirety of their lives, and many are there for just a short amount of time as well.

And so it's a very intimate setting when you think about that, post-acute health care, in particular, nursing homes, is the most intimate setting to provide care in our entire health care sector today. And so we're incredibly passionate about that. And we are -- that's what drives us each day is having this opportunity to improve and revolutionize a very important sector of our health care continuum.

So I thought it would be helpful if we talked a little bit about the background of PACS. So we started the company, myself and Mark, my business partner back in 2013. We had both spent a significant amount of time working in the industry. I started off working as a CNA, providing direct patient care, which was, frankly, not a very fun job, but it was one that was very eye-opening to me. We have both spent time working as administrators and facilities as well.

And so we -- when we had the opportunity to go into business together, we had -- we like to think that we had a good idea of what the good, the bad and the ugly of our sector, what it offered. And as we started talking about this opportunity, we started to cobble together ideas that we felt were unique, a unique operating model, a unique clinical model, a unique leadership model that we felt based off of our experience, would be a value add to our sector.

And so as we spent time going through this, we started to get energized and excited about this idea that there is a better way to operate a nursing home. There's a better way to bring joy, to bring light, to bring investment into a nursing home to make the experience and elevate the experience, revolutionize the experience for our patients and for our employees.

And so in late 2012, we created the company that we have today and started with 2 facilities. We purchased 2 facilities in San Diego, California. And from there, took our platform, this operating platform that we felt was unique, and we look to grow.

A couple of things that were unique about this -- I talked about this operating model, this leadership model that was unique. A couple of attributes I'd point to that we felt make it unique is this idea of decentralized leadership. So locally led, centrally supported model. So what that means is every one of our facilities has a local administrator, a leader of that facility and a leadership team. And that leadership team directs the care under the guidance of a physician and clinical licensed professionals to deliver care to patients, depending on whatever their clinical needs might be.

And those administrators are empowered to make decisions locally because we believe strongly that health care is local. So we try to -- the way that we've designed the company is set up in a way that decisions are meant to be made as close to the patient and as close to the -- our employees as possible. So as we've structured the company, that's the way we've been very intentional in that.

And so as we've designed the company that way and allowed our administrators the latitude to make those decisions, we've tried to create also the framework of a back-office support function through a centrally supported model with PACS Services, which is that back-office support to provide the support and guidance that our local administrator and their teams need to make good decisions, to be compliant, to make good decisions to make sure that they're safe in the way that they operate their facility. So that was one attribute that I would say was unique in the way that we were thinking about how we would operate a nursing home.

The next would be this idea of taking underperforming facilities, facilities that were broken in many ways, broken financially, broken clinically, broken operationally. And our business thesis was that we could take this model that we had created and we could find these targets throughout the country, and we would work to purchase them and deploy our model, our operating model into them to add value to elevate the level of care within the facility, the quality of care within the facility.

And as we many times need to bring in new leadership and breathe new life into that facility through the leadership, that's one of the first steps that we take in turning facilities around. So as we target underperforming facilities, we bring in our leadership model, we bring in our operating model, clinical model, and we start to breathe new life into that facility.

And so what that looks like is these underperforming facilities usually are facilities that are depressed in their overall occupancy. And the average occupancy in a nursing home across the country today is around 80%, call it. And many of the targets that we look at are depressed. They're in the 60%, 70%. And the reason that's a function of the facility just being broken.

And so when we come in and we focus on care, that's priority #1 for us is to invest in our people, the resources, the training, the equipment that our teams need to focus on care and to improve the quality of the product in the nursing home that we own. And as we focus on care and start to get that right and as we start to show the clinical outcomes that our facilities need to have through that investment in our people and in our processes, that starts to yield results, quality results.

And then we share those quality results in the markets where we operate. So we share that with the hospitals. We share that with the referring physicians. Those are important metrics, KPIs that we measure every single day. And as we start to do that, the providers in the markets where we operate, our referring partners, they see that there's value that we're bringing to this community, to this market.

So it really does create this virtuous cycle of as we perform well clinically, we start to see more referrals. And the more referrals we see and the better we perform clinically, we start to see better reimbursing referrals, higher acuity in our facilities. So that's the recipe, and that's kind of the business thesis from the beginning was that we would take these underperforming facilities. We'd be very intentional in the way that we targeted our growth and in the markets that where we wanted to grow, that we are finding these facilities where we could add value with our operating model.

And so when we first started, Mark and I, we didn't have much capital. So really, the way that we tried to grow early on was to buy the operating platform of a nursing home. So if we had a target that we were looking at, usually, that's divided up into an operating entity and a property entity, the company that owns the real estate, the company that owns the operations of that real estate.

And early on, we didn't have enough capital to really purchase real estate because that's a pretty capital-intensive endeavor. So early on, the idea was let's buy operations of these facilities. We'll partner with some of our public REITs, and we will have them take down the real estate, and then we will partner with them and have a triple net lease and operate the facility.

With that, that formula works pretty well because when you're targeting underperforming facilities, you might imagine the operations, if these are facilities that are broken, they're not performing well financially. And because they're not performing well financially, the operations are really not valued at anything, really, right, because there's negative cash flow in those situations. So we were fortunate early on to be able to find good deals where we could essentially get in for virtually nothing because we were taking a burden off of a seller and working to improve that.

And so we were very fortunate early on to take some facilities and deploy our model and turn the operations around where we started generating enough cash to where we had the opportunity to start investing in real estate. That was always part of the strategy early on. We like that strategy because it created optionality for us as owner/operators to not only own the real estate but also own the operations so that we had flexibility with our leases and flexibility with CapEx and those sorts of things and just optionality with creating value down the road.

So as you see here on the slide, today, we have leases I call it, 50 -- a little over 50% of our portfolio. And we have ownership interest. We either owner have ownership interest in 27% and we have a path to ownership in another 20%. So within the next couple of years, we have a path to ownership or having ownership interest in roughly just under 50% of our portfolio, which is an important strategy of ours that we'll continue to execute on.

This slide just shows a little more of the trajectory of the company over the years. And so as I mentioned, Mark and I, we started in 2013 with the 2 facilities in Southern California. Over the years, you can see the growth as we grew at a clip of, call it, 8 to 12 facilities a year up until 2021 when we did a larger transaction. I think that was notable because it really did give us -- we, over the years, have been working on this idea of building out the back-office support function, that central support that I talked about earlier.

We've spent a significant amount of time and resource building that up so that we could absorb and assimilate more growth. And 2021 was an important year for us because we did a fairly large transaction that almost doubled the size of the company. And we did that with our new kind of back-office support that we had invested in. And we feel like that went really, really well. So it gave us the confidence really that we could grow at scale with chunkier deals as we think about growth in general.

So I would highlight as well on the slide on the right-hand side, the consolidation within our sector is ripe. And we consider ourselves a consolidator. And of the 15,000 nursing homes in the country today, roughly 15,000, there's -- you can see some of the providers here on the bottom right, the top 9 providers constitute 11% of that count. And so we -- there's ample opportunity for us to continue to grow. And again, the thesis is to find those facilities where we can add value.

And we've been fortunate over the years to -- as we continue to perform well clinically, that is as the virtuous cycle continues, that has strengthened our -- the bottom line and the balance sheet of the company as well. And it's provided ample opportunity for us to continue to invest in new growth. So we're very optimistic about growth and scale moving forward as a company.

I like this slide because it's a nice snapshot of who we are as a company. As I mentioned, we started with the 2 facilities in San Diego back in 2013. As you take a snapshot today, we're at 321 facilities with taking care of roughly 31,000 patients and roughly 47,000 employees.

These last 3 metrics, I just want to touch on briefly. 94.8% of our facility occupancy in our mature facilities. That's significant. And again, as I mentioned earlier, the average occupancy in a nursing home across the United States is around 80%. So this is an important metric for us because it, I think, signals that we are the provider of choice in the markets where we operate. And so we -- this is well above what industry average is. And we're very proud of that because, again, it signals that we're doing a good job in the markets where we operate.

The other one is the 33% average skilled mix for mature facilities. I'll talk more about mature facilities in just a moment. But that is -- that's significant because we think of nursing homes. Today's nursing home is -- the patient in today's nursing home was yesterday's hospital patient. And so that level of acuity is shifting, and it has been shifting for years where hospitals are interested to get the patient into the lowest cost setting possible. And nursing homes happen to be the lowest-cost setting to receive institutional post-acute health care in our health care continuum today. And so that's important. We're positioned very well to take care of a higher acuity patient for less. And that's significant.

So when we have targets that we're looking at to acquire, these are areas where they potentially struggle and usually struggle, where they've had a hard time adapting to this idea that health care is shifting, the acuity level is shifting from the hospital into the nursing home. And so when we take those facilities over, this is a key area for us as we work to not only improve overall occupancy, but we need to invest in our people and the training and the resources and equipment within the facility, the physical plant of the facility to make sure that we can take care of these higher acuity patients.

That investment is critical for us to be able to make that adaptation in that facility so that we can capture more of those higher acuity patients because, again, we feel strongly that's where health care is going. That's where post-acute health care is going. And providers need to make that change and that adaptation if they want to be successful. And it so happens that those skilled patients are the higher reimbursing, the better reimbursing patients for what we do.

And then the last point on this slide would be the mature facilities -- or I'm sorry, the CMS Quality Measure rating of 4.3 across our portfolio. That's a metric we're very proud of. We've worked really hard at this. That's out of a 5.0 star rating.

Again, as you might imagine, as we take underperforming facilities, these facilities are, call it, 1-, 2-star facilities from a QM standpoint. And as we deploy our model over time, we start to see that move. And that's very important for us. As I mentioned in my kind of beginning comments, we're very passionate about what we do. So for every 10 of a point that we can gain here in quality star rating is a life that we're improving or lives that we're improving. And that's important to us, and that's what drives what we do is our ability to add value to our patients' lives.

So this is -- I won't spend much time on this. Just to give you an idea of our overall occupancy, the revenue on a daily rate, skilled mix and by revenue and patient days. What I'll call out on this slide are the cohorts. You'll notice that we have new ramping and mature. That's the way that we cohort our portfolio.

As I mentioned, we grow by acquisition quite a bit. And we have right now about 1/3 of our facilities that are in the new bucket. And that's 0 to 18 months that we've had a facility in the new -- that's how we define new is 0 to 18 months. 18 to 36 months is ramping and then mature is 36 months and beyond.

So once -- the expectation that we have in our company is once a facility after 3 years, a facility really should be transformed. And it should be firing on all cylinders as we think about it. And the team should be in place, the program should be in place, the relationships with referring partners should be in place, and that facility should be performing well.

So that's the way we think about it. And you'll notice the longer we have a facility, the better it becomes. And we like the way that looks on this graph here. We like the way that we talk about that internally as well because it's important to us. It's important that we're able to add value to the facilities where we operate.

And then this last slide before we move on to questions here will be -- this is just the trailing 12-month snapshot. The last 12 months, $5.14 billion in revenue, $456.9 million of adjusted EBITDA. You'll note here as well, $355.7 million in cash. We also have a credit facility around $600 million, which we don't have a lot drawn on. So you put those together, we have a lot of liquidity as an organization to grow and advance our mission as a company.

And then the net leverage of effectively 0, again, hopefully, as you see this, you'll see that we feel very good about where the company sits as it relates to growth moving forward. We have a very strong foundation. The fundamentals of the company are strong, and we're excited about the future and the position that we're in to advance our mission.

So with that, maybe we'll transition to questions.

All right. Thank you for that background and refresher on the company. So to start here, before we talk about your forward outlook, would you mind providing us with a retrospective on 2025 and just walk us through some of the key drivers behind your financial performance during the year?

Yes. So 2025, it was an interesting year for us. We had -- if there's people that have been following the company, there was a short report that was filed against the company in November of 2024. And that -- in that short report, there were some very wide-ranging allegations against the company.

And the -- immediately, the company went to work on investigating those. The Audit Committee and outside counsel spent time investigating all of those allegations in the report. That took quite a bit of time for them to go through the allegations and do a thorough investigation. At the conclusion of that investigation, there was a restatement of just over $60 million of revenue. That was really the only conclusion from the Audit Committee's investigation that impacted the financials of the company.

And so we -- even though it took quite some time to make it through that investigation, we were actually quite encouraged that those were the only findings because it was a very thorough process where rocks were overturned, millions of documents reviewed, hundreds of people, employees interviewed and to have that be the ultimate conclusion, that was important to us.

And so we feel like the company has been pretty well sanitized through that process. And there were very -- there were many, many improvements over 2025 that we made operationally during that time where we did a lot of kind of 360 analysis of our policies, procedures, people just to make sure that we had not only that we were in a position to take care of our current patient load and our employees but also positioning ourselves for future growth. That was important to us.

And so that -- as unfortunate as it was in 2025, we really feel like we came out stronger and it helped kind of accelerate our maturation as a public company since we launched our IPO in 2024. So we didn't have much time as a public company before we were hit with the short report. But we feel like we're in a position of strength as I had time just to talk through some of the metrics of the company. And so that's the overview of '25. We're very optimistic about '26.

Great. I think that's a good segue to go into some of the operating trends. So across your operational and clinical KPIs, you flashed it on the screen, but could you just describe how those are trending as we head into 2026?

Yes. Maybe I'll take that one. We've been talking as a sector for a good decade plus now about this kind of silver tsunami, right, of aging demographic of baby boomers, eventually making their way into our sector. And so we saw kind of the waters recede a little bit with the COVID pandemic as occupancy levels dropped, but now it's come back very strong. And so the tsunami, the silver wave, it's here. And so we're seeing that reflected in our occupancy levels.

And as Jason described, like our mission is to be the best provider of post-acute care. And with that focus on quality measures -- and that is our product, care. And as we focus on the product and good outcomes, then that drives demand for our services. And so this model of taking long-term traditional nursing homes and converting them into more transitional care extensions of the hospital is -- we're seeing that trend manifest in our KPIs. So in our occupancy levels, in our skilled mix, as Jason described, which is those higher acuity patients, higher acuity and higher reimbursing.

And for us, we are the lowest cost setting for institutional care. So those patients that are getting pushed out of the hospital sooner and sooner, but they're not well enough to go home, they need a place. And for us, we take those patients and we transition them for 20-ish days. And then there's just more options for long-term care today. There's assisted living. There's -- the best outcome is to get someone back home, potentially on home health.

So for us, we're seeing those trends from a clinical perspective. As Jason mentioned, our quality measures, 4.3 in our longer tenured facilities out of 5, like these are some of the highest levels of quality care in our industry. And so focus on that, focusing on the coordination of care within the health system, the readmissions, making sure those patients aren't returning back to an acute setting within 30 days. Like those are kind of the key metrics that we constantly monitor. And they continue to trend in spite of kind of the headwinds and the challenges of this kind of internal review that we did this last year.

The fundamentals of the business remained strong, and that was manifest in our most recent filings, where we were up 30% year-over-year top line, where we've assimilated a lot of the cohort of new acquisitions that we had taken on in 2024. And so very positive from a KPI trending perspective across the board.

Great. And just flipping over to the rate side. There's been a lot of noise around reimbursement. What are your expectations for Medicaid rate development in 2026?

Yes. So rates are always a constant source of, I think, handwringing across the health care system, right? So -- but in our sector, we've -- I mean over the last 20, 30 years, we've seen consistent rate increases, both on the federal side with Medicare and managed care reimbursement and then also on the state level of Medicaid. So typically, we've seen that trend with -- consistent with inflation. So nominal, call it, 1% to 3% increases.

Post-pandemic, we did see a couple of years of like accelerated rate increases, which was kind of a catch-up for some of the inflationary pressures that we felt during the pandemic with labor inputs, being more expensive with minimum wage increases, that sort of thing. So there was kind of a catch-up over the last, call it, couple of years in rate. And now we're seeing that kind of plateau and kind of return to more of that kind of nominal tracking with inflation.

Got it. And just thinking about acuity then within that, as part of your broader efforts in maintaining your target skilled mix, could you just walk us through how you -- the past year, how you think about your capturing this higher acuity patient volume? And then can you give us any color on the types of services or specialty areas where you've been seeing the most opportunities within that?

Yes. I mean -- and that's really where the opportunity is for operators like us, where with our focus on clinical complexity and doing everything that Jason described, which is equipping and resourcing and training and developing the local clinical teams to be able -- to be capable of taking that clinical complexity. We -- that's how we enhance our margins and effectively improve our rate organically is by driving the case mix and taking those more clinically complex patients.

So even though we get nominal rate increases, that's how we create value and drive that margin. And again, that's where the demand and the trends are. The demand is for those patients are coming out of the hospital and there's -- the traditional nursing homes aren't equipped to take those. So those of us that focus on that, that are prepared have the benefit of taking a higher fair share of those types of patients.

And so -- and then at the same time, we see both at the federal level and at the state level, trends towards incentivizing quality care. So with supplemental payments at the state level or quality incentive programs that enhance those kind of daily rates, that's where we benefit by being a quality provider.

Great. So I have a multiparter here on capital deployment, so bear with me. But with your cash position north of $350 million exiting 3Q, could you just walk us through your thoughts on capital deployment in 2026 and maybe provide an update on your M&A pipeline? And then within that, is your target of 20 facilities per year still the right way to think about forward M&A?

Yes. So let's start with the first part of that question. How do we think of deploying our capital? I think as we've established, the company is well capitalized right now, and that's a fortunate position to be in.

We also feel very passionate about our ability to add value in underperforming facilities. And so as we think about the best use of our capital, it's to grow. So as we think of 2026 and beyond, we've been anxious to get back to this, call it, normal operating environment where we don't have the overhang of that internal investigation, which is now concluded.

So with that in the rearview mirror, we are excited about the ability to get back to something that's more normal. And that's where we plan to spend most of our capital is in growing. Now to the point on -- or the part of the question about...

20 facilities.

20 facilities a year, that's right. So that is what we've signaled historically. And I think that is still consistent with the way we think about growth. That's a number that we've talked about internally over the years, and I think that's a number we settled on around the IPO. That number is one that we'll continue to evaluate and make sure that it makes sense with our overall kind of strategic goals of the organization.

But we -- yes, we feel good. We feel good that, that 20 number is the right number right now. But we will continue to be opportunistic, meaning that if we go above 20, there will be a reason why we go above 20, and it will be a good reason why we do that. So as it relates to -- so that's the part of the question on the 20 per year.

The pipeline part of the question is the pipeline is very healthy right now. We've -- there was a moment there in 2025 where this figure was turned off just a little bit. It wasn't turned off completely, but just a little bit where the flow was less than what we had seen historically. But now with us -- with the internal investigation concluded and with the company back in compliance with its filings, we -- that's been kind of fully turned back on again.

And so we're seeing a very healthy pipeline, multiple deals, some that are small in size, some that are large in size in different geographies across the country. It's really a mixed bag, but we're very encouraged by the activity that we're seeing there and feel good about our ability to grow into '26.

And I would maybe just layer in that, again, from a leverage perspective. We're effectively 0 net debt today on a lease-adjusted basis. We're, call it, in the mid-3s. And so -- and we constantly evaluate that from a lease-adjusted perspective, from a total debt, net debt. And so we do have capacity and some dry powder to grow. And as we exercise some of the options that Jason identified in the presentation, that moves from kind of that lease adjusted to the other side of the balance sheet as we buy out those properties, and we've got capacity to do that. So again, we've got potential there for growth.

Great. I think as just a follow-up within there, you touched on it a little bit at the end with the real estate purchases. But could you just remind us again about how you're thinking about your broader real estate portfolio within this?

Yes. I mean like -- we create a lot of value in the real estate by driving by the financial performance of the operations effectively drives a cap rate that increases our ability to finance and structure and exercise purchase options on the real estate.

Often, we try to negotiate lease deals. If we're going to do an acquisition via lease, we often try to negotiate a fixed purchase price upfront, knowing that we're going to create value that then we're in the money when we exercise that option in terms of like not requiring a lot of cash down to exercise that option if we're going to implement a mortgage there. But -- and we do benefit from HUD 232/223 financing in our space of being able to get long-term fixed rate, 30-plus year nonrecourse debt.

And so real estate is important, and we've seen other operators in our space create a lot of value through the real estate and generate -- we've seen people spin off REITs over the years. We've seen -- it provides us a lot of optionality in terms of like we can always sale leaseback, we can always -- we can control kind of the escalators if we own the real estate versus -- and we can amortize that down, depreciate it to offset tax and that sort of thing. So a lot of flexibility with the real estate. So it's an important part of moving towards that 50-50 mix gives us a lot of flexibility.

Great. And just as we're going into the closing minutes here, thinking about your 2026 outlook. So given the acquisition activity in 2024, followed by the events of 2025, how have your strategic priorities evolved? And what are your top areas of focus for 2026? And then as a prospective, we always like to close with this, what will investors appreciate about PACS 1 year from now that they don't today?

Do -- you want to go first on that? I mean I think what we've learned over the events of '24, '25 is that the fundamentals of our company are strong. And the people that we have on the front lines and throughout the organization are very, very strong. And that's been reaffirmed to me time and time again over this last year is that as we've been able to emerge from the challenges that we had in '25, to be able to show the performance from an operational standpoint on the overall occupancy, on the bottom line as well like there -- in our revenue, that's remarkable, especially during a time of significant challenge.

And so I think that speaks to how strong the fundamentals of the company are and the fact that we have people that can execute during a time of challenge. And the fact now that we are out of that challenging time from an internal investigation standpoint, we feel very optimistic about our ability to operate in normal circumstances.

And so as I think of 2026, what I hope investors appreciate about us in '26 is consistency. We look forward to being consistent. We look forward to executing. As you've heard us talk about getting back to normal in the way that we think about operating our business, we're looking forward to that and looking forward to just being consistent and executing on our business plan and being able to give good guidance and hit our guidance. That's important to us. So I think that's what I hope as we fast forward to the end of 2026. I hope investors look at that and are pleased to see that.

Yes. And I would maybe just add that the hot topic today is AI, right? And nursing homes, our sector is not a space that's traditionally known for being kind of very sophisticated. But this is absolutely a space that could benefit greatly from all the elements of AI, whether it's allowing our clinicians to spend more time bedside while simultaneously capturing the care and the delivery of services that they're providing from adjudicating billing and claims and -- to even data mining our own kind of population of data and trends and clinical information that we have.

So we've got an AI committee that's evaluating -- I think we're looking at 15-plus solutions right now and including implementing or developing our own solutions in the space. So being a progressive forward-thinking operator in our space, we feel like that could be a differentiator and a competitive advantage and just really something that benefits our industry generally, broadly in improving that ultimate product of quality care.

Excellent. Thank you all for your commentary here. This is all the time we have here today. Thank you all for joining us and listening in. We really appreciate PACS management for joining us on stage. Thank you all.

Thank you.

Hello, and welcome to PACS Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] The speakers on today's call are PACS Group's Chief Executive Officer, Jason Murray; Mark Hancock, Interim Chief Financial Officer; and Josh Jergensen, President and Chief Operating Officer. The call today is being recorded, and a replay of the call will be available on the PACS Group Investor Relations website an hour after the completion of this call.

A replay of this webcast will be available for approximately 30 days. Information to access the replay is listed on today's press release, which is available on our website under the Investor Relations section.

Before we begin, I would like to remind everyone that during today's call, we will be making forward-looking statements regarding future events and financial performance. I'd now like to turn the conference over to Mark Hancock, Interim Chief Financial Officer. Please go ahead.

Thank you, and good afternoon, everyone. Thank you all for joining us for this earnings call. Before we begin our prepared remarks, we would like to remind you this afternoon that PACS Group issued a press release announcing its third quarter 2025 results and other filings. An investor presentation was published and is available on the Investor Relations section of our website at pacs.com.

I'd also like to remind everyone that during the course of today's conference call, we will discuss certain forward-looking information that 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 2024 Form 10-K and our other SEC filings.

During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR. 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 measures, please refer to the earnings release and the appendix included in the investor presentation, which are both published and available on the Investor Relations section of PACS Group's website.

I'll now turn the call over to Jason.

Thanks, Mark, and thank you all for joining us today. Today, as you might imagine, is an exciting day for all of us at PACS Group. I'd like to extend our collective appreciation for your patience and support. We have worked expeditiously over the past several months and are once again current with all of our reporting obligations. We're ready to move forward with a renewed commitment to our mission of delivering high-quality care to our patients and driving value for our shareholders. Our results, which we will detail shortly, demonstrate that our team rose to the occasion. Together, we've navigated through recent challenges and turned those into momentum and motivation.

With the previously announced restatement now completed and our internal controls strengthened in the process, we're operating today from a position of strength, transparency and discipline. I'd like to thank everyone on the PACS team for their hard work, focus and dedication throughout this period. We feel we have the best team in the business, and I'm excited about the opportunities that are ahead.

In November 2024, the company's independent Audit Committee supported by external counsel and advisers began an independent investigation of the allegations made in the short seller report. That work has concluded. The committee's work and its resulting recommendations, which have been or are being implemented, reinforced our commitment to transparency, accountability and strong governance. Now our focus is squarely on the future, executing our strategy, delivering exceptional care and continuing to build trust with our stakeholders. PACS moves forward with confidence, strength and an unwavering commitment to doing things the right way.

In short, today is the start of a new chapter for PACS. As I noted, we remain focused on executing our strategy and our results demonstrate the strong progress we have made. We delivered a tremendous start to fiscal year 2025 and delivered another quarter of growth and execution in the third quarter. In fact, we delivered record revenue and adjusted EBITDA in the first 9 months of 2025. We believe this record performance validates PACS core strengths, our commitment to clinical and operational excellence, our industry-leading talent and a strategy designed for sustainable growth. I'll touch on all of these themes throughout my remarks, and Mark will also provide more specifics on our financial performance and full year 2025 outlook.

But first, I want to take a step back and talk briefly about PACS business and our strategy. We're a leading post-acute health care company, primarily focused on delivering high-quality skilled nursing care through a portfolio of locally operated facilities. Our mission is to be the leading provider of post-acute clinical care across the country and elevate care for America's most vulnerable. This has been our mission since I co-founded the company with Mark, starting with 2 facilities in 2013. Over the last decade, PACS team has worked to create value, trust and confidence for our patients and residents. We are now at 320 facilities across the country, and we feel like our journey is just starting.

We're very thankful for the more than 47,000 employees across the country who provide care to over 30,000 residents each day. We're inspired and driven by their commitment to quality and excellence, and they are the foundation behind our success. We believe that health care is local, and we recognize that every patient, facility and community is unique. For that reason, PACS operates with a locally led, centrally supported model that empowers local leaders to make day-to-day operational and clinical decisions at the facility level, ensuring that care is responsive, personal and community-driven.

At the same time, we maintain robust regional and central support systems that provide resources, oversight and regulatory expertise, establishing clear guardrails to help our local teams remain compliant with local, state and federal requirements. This coordinated model, local leadership supported by strong centralized systems enables us to deliver excellent clinical outcomes, operational consistency and the highest standards of integrity across the organization. Our model is centered on what matters most, which is putting patients first, empowering strong bedside leadership and holding ourselves accountable at every level. It's a simple approach, but it's very powerful. It's what makes PACS different, and it's why we're confident in our ability to deliver exceptional value to our patients and the communities we serve.

We're proud of what this team has built, and we're excited to keep raising the bar of what's possible for PACS. We're applying these competitive strengths to a compelling market opportunity. The skilled nursing industry or SNF, is large and growing, with CMS expecting total industry expenditures to increase to $337.4 billion by 2032. At the same time, America is experiencing a significant demographic shift with estimates showing that nearly 20% of the U.S. population will be aged 65 or older by 2030. This aging curve, driven by the baby boomer generation is expected to meaningfully increase demand for post-acute and long-term care services over the coming decade.

As one of the largest SNF operators in the U.S., we believe that our increasing scale and focus on clinical and operational excellence, coupled with our disciplined and sustainable growth strategy, uniquely positions PACS to capitalize on these demographic trends and drive further growth, both organically and through acquisitions. Taken together, we believe our competitive strengths will continue to drive our growth and success, delivering meaningful value to health care stakeholders, employees and shareholders alike.

Now let's turn to an update on some of our recent operational and clinical advances. We continue to prioritize exceptional clinical outcomes across both our mature and newly acquired facilities, and that focus is reflected in our quality ratings. Based on CMS quality measure or QM star ratings, 192 of our facilities, representing 68.6% of our skilled nursing portfolio are rated 4 or 5 stars. This sustained improvement across the organization underscores the strength of our teams and supports the strong financial performance we continue to deliver. To better illustrate our facility's dedication to quality, I'd like to share a quick anecdote that highlights how our teams consistently rise to meet the needs of the communities we serve.

In Q3 of 2023, we acquired a facility in Colorado. At the time of acquisition, the facility was on CMS' special focus facility list and members of the local community openly shared that it had been considered by some to be the worst skilled nursing facility in the state. For many operators, this combination of reputational and clinical challenges would have been a reason enough to walk away. But for us, it represented exactly the kind of opportunity where our model can make the deepest impact. More importantly, we believe without hesitation that the residents, families and communities deserved better. After many months of focused efforts and dedicated caregivers and leadership team at this facility, supported closely by the regional PACS team, execute a comprehensive operational and clinical turnaround.

By Q3 of 2024, they had passed their second consecutive health inspection survey, meeting the requirements to graduate from the special focus facility program. As of March of this year, the facility officially came off the special focus facility list, and the team has since achieved a 4-star overall CMS rating, which is remarkable, milestone given where the facility started just a couple of years ago at acquisition. This example is just one that reflects a broader pattern across our portfolio. These types of clinical success stories are becoming increasingly common, underscoring the strength of our clinically driven operating model and the dedication of our caregivers in every market.

In fact, through the first 9 months of 2025 alone, 5 additional facilities that were acquired while on the special focus facility candidate list have successfully graduated from the list. Each has its own unique story, it's different challenges, different starting points, different community needs, but all share a common thread, the ability of our teams to restore stability, rebuild trust and deliver meaningful improvements in patient care. These results reinforce what we believe at PACS. When supported with the right structure, leadership and resources, even the most challenged facilities can achieve dramatic sustained improvement. And most importantly, our patients and communities are better served because of it.

These clinical achievements reflect the same operational discipline and team excellence that continue to drive momentum across our broader portfolio, momentum that has been especially evident over the last 15 months as we've expanded our footprint, strengthened operations and integrated a significant number of newly acquired facilities.

Our third quarter performance reflects both sustained operational strength and the growth of the business through the meaningful expansion of our portfolio over the last 15 months. In that time, we've executed a series of strategic acquisitions, strengthened our presence in key markets and continued delivering high occupancy in our mature facilities.

In the second half of 2024 alone, we acquired 94 facilities as part of 106 total acquisitions for the full year. The largest of these was the acquisition of the Prestige portfolio, which added 53 facilities across 8 states, 5 of which were new markets for us, significantly expanding our geographic footprint. In total, the acquisitions completed during the back half of 2024, added 7,424 skilled nursing beds and 1,334 assisted living units, more than 8,700 beds overall. This expansion meaningfully increased our scale and broadened the reach of our operating model.

In 2025, we've continued to deploy capital to fuel growth, rooted in a disciplined approach focused on driving returns from our investments. Year-to-date, we've acquired the operations of 7 additional facilities. Today, our portfolio includes 35,202 total operating beds, 32,677 skilled nursing beds and 2,525 assisted living beds across 17 states, reflecting a significantly expanded geographic footprint. Portfolio performance remains strong. Total occupancy stands at 89% with our mature facilities delivering exceptional 95% occupancy, up from 94% last year. Occupancy in our new facilities, those acquired within the last 18 months, including the large 2024 acquisitions, is 81% compared with 83% in the prior year. This reflects the intentional onboarding period as newly acquired facilities begin adopting PACS operating systems and clinical processes.

As these facilities progress through stabilization and ultimately move into ramping status, we expect to see continued improvement in both occupancy and skilled mix over time. Our locally led centrally supported model is foundational to driving increased occupancy, which prioritizes matching patient acuity with the right clinical capabilities at each facility. As hospitals continue to discharge higher acuity patients into skilled nursing settings, our team remains well positioned to meet that need, which supports both patient outcomes and continued occupancy strength. That means we also continue to invest in leadership development through our administrator and training or AIT program, better equipping local leaders to deliver responsive, personal and community-driven care, which ultimately drives higher occupancy.

Since our founding, we have hired 261 AITs with 203 currently employed in licensed administrator or other leadership roles, reflecting an approximate 78% retention rate. We now have 36 AITs in the program, providing a strong pipeline of leaders to support both existing operations and future growth. We enter the fourth quarter of 2025 with confidence and momentum. But most importantly, the depth and quality of our people gives us a competitive advantage that can't be replicated. Our teams are motivated, they're focused, and they're ready to prove once again that PACS doesn't just adapt to challenges, we turn them into fuel. We're building on strength, executing with urgency and driving toward being the best in our sector.

I'll now turn the time back over to Mark to cover our financial highlights for the quarter.

Thank you, Jason. And I'd like to echo your sentiments in that when we first started PACS, we did it with the intention of building a legacy sustainable company in the post-acute health care sector. This is our life's work. And so I want to express my gratitude to our Audit Committee and advisers for their work and recommendations that have helped accelerate our maturation as a public company. We remain confident that our locally led centrally supported model, coupled with enhanced compliance and controls will increase our ability to deliver high-touch, high-quality care to our patients and strengthen our communities.

With our exceptionally talented team, we are focused on continuing to execute our strategy to drive value for shareholders and the rest of the health care ecosystem. Our third quarter and year-to-date 2025 results reflect the operational and clinical excellence across our portfolio that continues to drive demand for our services.

I will now highlight a few key financial metrics for the 3 months ended September 30, 2025. In the third quarter, we realized $1.3 billion of revenue, a 31% increase over the same period of the prior year. Adjusted EBITDAR for the third quarter was $226.6 million, while adjusted EBITDA was $131.5 million. Net income for the same period was $52.3 million. And lastly, our diluted earnings per share for the quarter was $0.32. In addition to our third quarter performance, I'd like to take a moment to highlight our year-to-date 2025 results. These further demonstrate the consistency of our growth and operating strength throughout the year.

So for the first 9 months ended September 30, 2025, we realized $3.9 billion of total revenue. This represents a 36% increase over the same period in 2024. Year-to-date 2025 adjusted EBITDAR was $646.2 million, while adjusted EBITDA was $363.0 million. Net income for the same period was $131.7 million. And lastly, our diluted earnings per share through the first 3 quarters of 2025 was $0.80.

As Jason noted, total facility occupancy across our portfolio was 89% for the first 3 quarters of 2025, well above the industry average of 79%. A meaningful number of facilities advanced into our mature category this year, and it's encouraging to see occupancy and skilled mix remain strong through that transition. Mature facilities continue to perform exceptionally well, achieving 95% occupancy, up from 94% occupancy last year, while skilled mix increased from 32% to 34% in 2025. Ramping facilities reported 86% occupancy and 23% skilled mix, reflecting the impact of several newer markets such as Colorado that continue to strengthen as operational initiatives take hold.

New facilities ended the third quarter at 81% occupancy versus 83% in 2024, while skilled mix improved to 25% from 22% last year. The slight dip in occupancy reflects the expected transition following the large portfolio integrations completed in late 2024. As Jason mentioned, 2024 was an extraordinary year of growth for us. We completed 106 facility acquisitions, which is more than 4x our historical annual average, including 94 in the second half of 2024 alone.

In comparison, during the first 3 quarters of 2025, we completed 7 acquisitions, all of which were strategic add-ons within the existing footprint of the states we operate in. This lower level of activity in 2025 has provided time to assimilate the significant volume of transactions completed in 2024 and demonstrates our intentional focus on integrating that large cohort. In 2025, our cost of services increased by 32% year-over-year as we continue to invest in staffing and quality initiatives. This increase aligns with our growth and reflects our ongoing efforts to make operational and clinical improvements across our portfolio, including in our newly acquired facilities.

In addition to growing our operations in 2025, we purchased the underlying real estate of 5 facilities, further strengthening our balance sheet and our ownership position within our portfolio. As of the end of the third quarter, we now wholly own or partially own through joint ventures, the real estate interest in 100 of the facilities that we operate. In total, we currently own, have purchase options or have future rights to almost half of the properties that we operate. This continued expansion of real estate ownership achieved while maintaining consistent lease structures and financial terms underscores our disciplined approach to capital allocation and long-term value creation. Of the facilities that we lease, the average remaining tenor of our operating leases and our finance leases is 13 years and 19 years, respectively.

Now turning to guidance. As we look forward to a great fourth quarter and finishing out the year, -- based on our recent results and current expectations, we are providing guidance for the full year 2025 as follows. We expect annual revenue to be between $5.25 billion and $5.35 billion in 2025. The midpoint of this range would be a 30% increase over 2024 revenue. For the full year 2025, we expect adjusted EBITDA to be between $480 million and $490 million.

In summary, we expect these to be record results for the company. I'll now turn the call back over to Jason.

Thanks, Mark. And as Mark mentioned, we expect the full year to deliver record revenue and adjusted EBITDA, and our performance year-to-date has already reached record levels for the company. This continued momentum highlights the strength of our model and our teams throughout the country. We intend to continue proving that strength quarter after quarter, and we're energized and moving forward with discipline and focus and look forward to demonstrating our ability to execute and deliver results for our patients and shareholders.

So with that, operator, I believe we're ready for questions.

Our first question comes from David MacDonald with Truist.

I got a handful of questions. First, guys, can you just talk a little bit about -- you mentioned the momentum in the business a couple of times. If we look at the occupancy and skilled mix opportunity in the new and ramping, can you just spend a minute on that? And then kind of as we head towards 2026, is there any areas that you would call out in terms of areas of disproportionate investment?

Yes. This is Josh. I'll take the first part of that question. As we look at occupancy, I think we refer often to our mature facilities. And as you know, those are facilities that we've had for over 37 months. And as reported, that occupancy has remained incredibly strong, and so has the skilled mix. What we've learned over the process of our acquisitions is that it takes time to implement and deploy our policies, procedures, our model of increasing the clinical capabilities of our facilities and the team's confidence in their ability to provide care to high acuity patients at a level where we can continue to operate and ensure that the patients and their family members are getting exceptional care outcomes.

And so as we look at our ramping and new facilities, we still feel that there's a lot of opportunity for us to strengthen those teams to deploy the appropriate systems that we need. You heard, obviously, the number -- the sheer number of facilities that we took on, creates challenges for us to ensure that those teams are supported in a way that allow them to have the confidence to increase both skilled mix and occupancy. So I still -- and we still feel very confident that as you look at those cohorts of new and ramping that our expectation would be and the history of our company would show that those continue to increase and move towards where our mature facilities are performing, and we would expect that to be the case.

And David, I would just -- this is Mark here. I'd just layer in that to your question about kind of any disproportionate relationships there. Just emphasizing what Josh said about the fact that we grew at over 106 facilities last year, which basically 1/3 of our portfolio represents that new bucket. And so there's a lot of embedded potential for organic growth there.

Okay. And then, guys, just I guess, second question, when you think about some of the changes the company has made relative to controls, what would you call out as the 1 or 2 changes that you view as most impactful?

Yes. That's a good question, David. And I would maybe point to one thing that stands out as I think through that. Number one, there's been a lot of lessons that we've learned through this process. But I would say the one that stands out to me is our ability to continue to develop and strengthen our compliance within the organization. And that's an area that we feel passionate about, and I think it aligns with our mission as an organization as well. And it's something that we, over the last year, have worked tirelessly to improve.

And I think why that's notable is because it allows additional support for our locally led and centrally supported model, where we have administrators making decisions at the local level to support their patients and their staff. Having those additional support mechanisms in place to make sure that they're making good decisions, that's incredibly important to us. And so I'm very proud of the progress that we've made and the advancements that we've made in that area over the last year. And I would say that's probably the most notable in my opinion.

Okay. And then, guys, just last one for me, I guess, a 2-part question. One, if I look at year-to-date cash flow generation, it looked very strong. Anything that you would flag or call out there that's driving that?

And then secondly, if you could just touch quickly on M&A. If you look at the number of facilities that you guys have integrated and you look at the activity year-to-date in '25, just an update on kind of the pipeline, how that's looking and how you guys are thinking about M&A on a go-forward basis?

Yes, David. So I'll take the first part and maybe let Josh take the part about M&A. But on the question about cash, so yes, I mean, cash provided by operations for the first 9 months was $407 million. And we ended the quarter at September 30 with over $350 (sic) [ $355.7 ] million of cash and cash equivalents versus $157 million at the end of 2024. And that included, by the way, paydown of our line of credit throughout this year.

And David, as far as M&A goes, I think Jason said it well as he was talking a little bit about the heavy amount of acquisition that we did at the end of 2024. And if you look historically at our organization, we kind of averaged out and talk about acquisitions around the 20 a year. Those have been somewhat cyclical as we've, in some years, grown a little bit more than that. And certainly, 2024, the second half of it would be one of those years. It's important for us as we grow that those facilities feel supported, that they feel that they are appropriately integrated into what makes our company special, that they get full access to our systems, to policies and procedures and understand how we go about providing training and education to ensure these facilities have the capabilities in order to be strong centers of excellence in the communities that they serve.

And so that was a big part, along with what we've been going through in the investigation and prioritizing that and the recommendations that came from it that led to acquisitions being very strategic with the 7 that we acquired. As we move forward and feel that we are in the strongest position as an organization that we've ever been in, and we have a deep bench, as Jason mentioned, 36 AITs. We are incredibly excited because we're passionate and feel that the work that we do truly makes a difference.

And so as we've continued to evaluate deals during this period and been very selective, I would imagine that we would continue to increase the amount of deals that we're looking at again, assuring that we stay disciplined in our approach, but also resilient in the efforts that we're making to ensure that the communities and people who are underserved right now can have the advantage of having PACS come in and deploy resources that help improve these facilities. And so as we look to what we've done historically, I think that you can look towards those historical numbers and use those as reference what we plan on doing as we move forward.

Our next question comes from Benjamin Rossi with JPMorgan.

So just thinking about long-term growth, with the changes to your baseline revenue and earnings structure and your 2025 outlook now implying that 30% top line growth and EBITDA growing further underneath that, what is the right way to think about your long-term growth algorithm? Is the previous framing of maybe low double digits across revenue and EBITDA still kind of roughly applicable?

And then I think you kind of confirmed it here, but regarding your M&A with the 7 facilities year-to-date, I think you mentioned 20 facilities per year going forward is still the right way to think about inorganic?

Yes. So yes, thanks, Ben. So the growth, I think that the models that you have are in line with our current performance, meaning take out the restatement for 2024, and I think we're tracking according to what you've been analyzing before. So -- but to your question -- to your point about -- we've given guidance of 20 facility acquisitions per year. We have far exceeded that in 2024. And over the years, historically, we've had years of kind of larger chunkier growth and followed by years of kind of a simulation.

So that historical average gets smoothed out a little bit, but we have probably outpace that 20 facility guidance. We're not, at this point, prepared to change that guidance as far as the number of facility counts go. We kind of look to continue to be opportunistic in that. So we never set like goals on that. But as far as the top line guidance of 30%, I think that will be consistent with what previous models have suggested.

Got it. Okay. And then across M&A, I appreciate your comments about activity progressing nicely over the past year. I guess just when thinking about your cohorts, what is the current embedded EBITDA opportunity across your new and ramping cohorts? And then when thinking about the 100-plus facilities you've added since last year, can you give any color on the embedded EBITDA opportunity across those newly acquired facilities?

Yes. We've shared that generally, each acquisition is a little bit different depending on the state, depending on kind of how reimbursement works on the Medicaid side for each of those states. And so sometimes that's difficult to identify exactly, Ben, as we talk about that. One of the things that we have pointed to is kind of a margin number that each of these cohorts generally find themselves historically living in. And we've shared that the new facilities usually find themselves around 2% to 3%.

And then as they kind of graduate into the mature, we see them somewhere in between 6% and 8% margin. And then as they move towards maturity, they usually are in the low double digits and sometimes get as high as the low teens. And what I can share with you is that the historical averages continue to be consistent with what we're seeing as those facilities kind of graduate through those cohorts.

Great. And then if I could just sneak in one last one here. Just on the Medicaid rate development. Just thinking about rate development going into next year, how are you modeling growth relative to your historical trend at maybe 2% year-over-year? And what are any of your maybe embedded assumptions for the Medicaid supplemental program? And then for maybe some of the larger states like California, South Carolina or Washington, are you hearing any updates from your state counterparts on how they're factoring some of the related policy changes from the OBBBA as part of their budgeting?

Yes. Medicaid is something that we keep a very close eye on. And Ben, obviously, you do as well as you're knowledgeable in asking the right questions. One of the things that we do in the acquisition process is we ensure that we're evaluating the states from a number of different perspectives. And one of those is identifying reimbursement associated with the state Medicaid programs and targeting opportunities where we feel like the reimbursement is modeled in a way where our model of taking a higher acuity patient is actually rewarded and appropriately reimbursed.

And so you see from some of the growth in states like Oregon and Washington, California that have quality incentive programs, Texas that has that. There's a number of states that we look at where we're identifying that program, how it's reimbursed. And one of the things that we've identified as well is a case mix component to the Medicaid program, where essentially you're capturing patient acuity levels. So in a state like Kentucky and Ohio, where we've recently done some acquisitions in Ohio, the case mix allows a provider to be rewarded for taking a more clinically acute and complex patient.

And most -- many providers shy away from going into states like that because their model isn't based on educating, training, building confidence in the clinical staff to take on those patients. And so each of the states that we've entered into in this last year, we actually feel incredibly good about the Medicaid basis and programs and our ability to have an impact on those and ensure that not only our skilled patients and revenue flowing to the bottom line, but also on the Medicaid front being rewarded for the patients that we're taking. And so you'll see that in the growth that we had in 2024 that we particularly identified states that we felt strong about their Medicaid programs.

Our next question comes from Ben Hendrix with RBC Capital Markets.

Great. Thanks, guys, and great to have you back. Just a quick question about your local market strategy. You guys have talked extensively about the local market model, the ability to form really strong referral relationships in those models and how that helps with your payer relationships, too. Just wanted to talk a little bit about how those relationships in the various markets kind of fared across the audit process and if there were any changes that you had to make with regard to some key referral sources or key payers in your various markets and how those relationships held up through this process?

Yes. Ben, good to talk with you. So Jason here. So I think that's one of the beauties of the model that we have where it's locally led, centrally supported, that model where administrators and we try to keep health care local, administrators making decisions locally to support their patients and their staff as well. And I think what that means is they also have the ability to adapt to the local needs of that particular market. I think over this last year, we've seen our model shine amidst very challenging times to operate. What I would point to is our census numbers. You look across our portfolio, we have very strong census numbers, and I think that's a key indication that we are the provider of choice in the markets where we operate.

So as we evaluated that very closely and kept track of those KPIs very closely over this last year, it was evident that our model works and that our people are special, and they have the ability to execute even in the challenging times that we were working through. It was inspiring to see, frankly. And so I would say that those relationships continue to be strong in the markets where we operate, and that's something we're very proud of.

In light of some of the operational changes you put into place as a result of the audit, are there any change in thinking about the types of M&A targets you're looking at, specifically how you're thinking about balancing deep turnaround opportunities like what you discussed in Colorado in your prepared remarks versus like another Signature, for example, which may be already performing well. Any thoughts on how you're balancing those opportunities?

So I think the short answer is no. As far as we evaluate deals, we continue to use the same discipline that we've used historically, which is we have a group of team members that consist of our investment committee. And that group meets regularly, and we talk through and evaluate deals. And as we work together as a committee, as we underwrite those opportunities, we ultimately settle on a decision there.

And that structure has been a part of our company for a while now. And I think what that does is it provides the appropriate levels of control to make sure that we're doing good deals and staying disciplined with that. And so as we continue to use that same structure to vet deals, we anticipate that we'll continue to take deep turnarounds. Like I shared in the anecdote in my narrative, we feel very good about who we are as a company. And we like to think that we are very good at what we do. And I think that is an indication in the examples that we provided to take facilities that are struggling clinically and ultimately financially as well and to deploy our model into those and to breathe new life into those facilities and to see them transform and to see the quality metrics improve, that's incredibly rewarding for us. And so we will continue to do that moving forward in a very disciplined manner like we have historically.

That concludes today's question-and-answer session. I'd like to turn the call back to Jason Murray for closing remarks.

Yes. Thank you, operator, and thank you all again for joining us. Have a nice rest of your day.

This concludes today's conference. Thank you for participating. You may now disconnect.