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Operator: 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.

Unknown Executive: 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 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 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.

Jason Murray: 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 this 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 operated 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 PAC Services provides the infrastructure systems and support necessary to drive consistency, accountability and compliance across a growing and increasingly complex organization. We believe this structure allows us to deliver both strong and repeatable results even as we continue to scale the platform. A key component of sustaining this performance is our investment in leadership development. Through our administrator and training program, we continue to build a scalable bench of operators prepared to step into leadership roles across both existing and newly acquired facilities.

We currently have 40 AITs in the program, which we believe is an important indicator of our ability to integrate facilities effectively and maintain operational continuity as we grow. Just as importantly, that investment ensures we have the right leadership in place when facilities required 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 1 of our facilities in Arizona. This facility was acquired in 2023 and entered our portfolio with significant operational and clinical challenges.

Subsequently, the facility was designated as a special focus facility after failing a special focused 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. They 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, and 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 were unable to estimate the timing of resolution at this stage, we are confident in our ability to navigate these matters responsibly and thoughtfully just as we have navigated other challenges throughout our company’s history.

Importantly, we believe the work we have done to strengthen our organization, enhance our infrastructure and reinforce our compliance and reporting processes has positioned the company well for the future. Our focus remains firmly on executing our strategy, supporting our local leaders and caregivers and continuing to build a stronger, more resilient organization for the long term. Before I turn the call over, I’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 in 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, PAUSE I want to recognize and thank Mark Hancock, our Co-founder and longtime 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 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 packs, 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.

Unknown Executive: 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 is 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 really grateful for the opportunity to have been a part of the day-to-day journey and look forward to continuing to work with PAC’s Board of Directors as Vice Chairman. Strong governance, risk management, financial oversight and strategy are all critically important to me for creating shareholder value that is sustainable over the long term. With that, I’ll turn it over to Carey.

Carey Hendrickson: 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 W Equip, which is a direct result of the outstanding performance of our facilities in California. FeviEquip is a performance-based program focused on quality of care workforce investment and health outcomes. Even excluding this W Equipped 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 debit Quick 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 1 of those anticipated to be received sometime in 2026 and the other payment expected in late ’26 or early ’27. Again, due to the uncertainty and timing and the amount the Debbie-quipped payments we received in the first quarter of 2016 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 be EQUIP 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 and operations since the beginning of 2025, our revenue increased 8% year-over-year in the first quarter. This growth was driven by occupancy improvement from 89.6% to 90.8% along with gains in skilled mix across both revenue and patient days.

Total occupancy for all facilities for the quarter was 90.9%, compared to 89.2% in the prior year and continuing to significantly outpace the industry average of approximately 79%. Our skilled mix increased to 30.5%, which was an improvement of 90 basis points year-over-year driven primarily by continued progression within our ramping cohort. Our mature facilities remained highly stable, operating at 94.8% occupancy with skilled mix of 33% and 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 greed 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 towards 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 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 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 the 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 to 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 finalinternal control of our 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 in 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 disciplined 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.

Jason Murray: 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.

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

Raj Kumar: Congrats, Mark, on the retirement, and congrats Carey on the new rule. 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 with the State Medicaid department is going through some of the recalculations there. Maybe just any updates on that from that quality incentive program? And then I guess as you 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.

Joshua Jergensen: Thanks, Raj. This is Josh. I’ll take that 1 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 a 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 and 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.

Raj Kumar: Great. And then maybe as a follow-up, just kind of thinking about the remainder of the year, I think California is 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.

Joshua Jergensen: The labor trends in our space are incredibly positive as well, not only for our company individually, but across the industry, post-acute care, we’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 1 there. We’ve been able to reach out and have very meaningful conversations with them about how we can work together to position ourselves in our sector as we move forward into the future. And so the labor environment seems great. And in California, we’re very optimistic.

Operator: Your next question comes from Benjamin Rossi with JPMorgan.

Benjamin Rossi: Just regarding your 2026 outlook, as we think about your revised guidance for the year, you mentioned $120 million of M&A revenue that is no longer expected for the remainder of the year. Can you 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 in those 2 potential remaining payments from those quality programs like the 1 in California.

Joshua Jergensen: 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 you 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 still 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 one, the Remnalifornia, 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.

Carey Hendrickson: 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 came in the first quarter this year. It’s just unpredictable when those things would 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.

Benjamin Rossi: Understood. Appreciate that additional context there. I suppose a follow-up on Pegintrends. It seems like you had good growth during 1Q for managed care and Medicaid rates. I guess if Medicaid 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.

Joshua Jergensen: 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 your 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.

Benjamin Rossi: Great. And if I could just squeeze 1 more in here for Mark. Just specific to you as you close your time and PACS here in an executive capacity, obviously, you leave a unique legacy with the company. Can you reflect on your day to this point and describe your thoughts on next steps as you hand over the reins to carry in the broader team here?

Unknown Executive: Yes. Yes. 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 teams so that they can 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 still 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 tunes 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 to the skilled mix. And that’s really where we see trends of moving in the post-acute space and continue to move. We’d like to say that we’ve been talking for years about this kind of silver wave, the Silver Saname, 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 the 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 — that was our intent when we went public was we welcomed 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 still 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 process of 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.

Operator: Your next question comes from Ben Hendricks with RBC Capital Markets.

Benjamin Hendrix: 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 and mix of nursing patient days. It looks like that might have been slightly offset by a little bit lower skilled rate. Just wanted to see kind of what you’re seeing from a contracting perspective there. Is that purely just 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.

Joshua Jergensen: 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 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 time frame that we start to see meaningful conversations and contracts and potential renegotiation of contracts.

When we 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’ll 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 the 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.

Benjamin Hendrix: 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.

Carey Hendrickson: We’re going to have the dividend question for me already, Han. No, really, the 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 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 has. So we’re in a really good position. I hope that helps.

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

Albert Rice: 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 and training at this point. I wondered over time, is that sort of a steady-state type of number? Is that significantly higher than the last year or 2? And do you see that number increasing over time?

Joshua Jergensen: 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 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. And we want to be sure that our leadership and level of talent match that.

Albert Rice: 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?

Unknown Executive: Yes, A.J., Mark here. So yes, we have a number of purchase options 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’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 operations just from a cap rate perspective, it truly multiplies the value of the real estate. 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.

Operator: And we have time for 1 last question. That comes from Clarke Murphy with Truist.

Unknown Analyst: Congrats on the quarter. Just 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 50 basis points or so. And nearly all of that increase was in the number of 5-star facilities. So can you just kind of help us understand the delta there I’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.

Jason Murray: Yes. Yes, you’ve got it, Clark. 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 time lines 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 intradiscipli 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 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 — so we’re our clinicians and our teams in order to continually improve.

Unknown Analyst: Got it. That’s helpful. And then just 1 more for me. Really strong cash flow quarter, especially relative to the EBITDA beat. So just kind of curious if there was anything 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.

Jason Murray: Yes. Thanks for that question, Clark. So there is 1 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 operating activities. That was a little bit of a pull-through from the fourth quarter. At the end of the fourth quarter, we repaid an acquisition we’re making in Alaska. And so that is about $50 million. And we prepaid in the — in December. So it helps us in our cash from operating activities in the first quarter. But if you look down in financing activities that comes out there, the $50 million debt. So it’s kind of an offset there. So I’d say, but still, even without the $60 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.

Operator: I’ll now hand the floor over to Jason Murray for closing remarks.

Jason Murray: Yes. Thank you, operator. And again, thanks to everyone for joining us today. We’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.

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

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