PACS 2026Q1

Greetings, and welcome to the PACS Group Q1 2026 Earnings Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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 of pacs.com. I would also like to remind everyone that during the course of today's conference call, we will discuss certain forward-looking information including our expectations for 2026 revenue and adjusted EBITDA that is based on our current expectations, assumptions and beliefs about our business. Any forward-looking statements are subject to risks 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 12/31/2025, and our other SEC filings. During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDAR, and net leverage. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measure please refer to the earnings release and the appendix included in the investor presentation, both published and available on the Investor Relations section of PACS Group's website.

Thanks, Ryan, and thank you all for joining us this morning. We are very pleased to report a strong start to 2026 with continued operational consistency across our platform and measurable progress across the facilities we have integrated over the past several years. Our performance this quarter reflects both the durability of our operating model, the continued execution of our teams across the organization, as well as the strength of the foundation we built throughout 2025. As we enter 2026, our priorities remain consistent: drive performance across our existing portfolio; continue advancing facilities through their integration lifecycle; and allocate capital in a disciplined manner. We are seeing that play out across the platform. As of 03/31/2026, PACS operates 223 facilities across 17 states with approximately 35 thousand total beds, including roughly 32.7 thousand skilled nursing beds and 2.7 thousand assisted living beds. Across this platform, we are caring for approximately 31.9 thousand patients daily. We believe the scale and geographic diversity of our platform combined with the consistency of our operating model position us to deliver reliable performance while continuing to grow thoughtfully over time. In addition, our density within key markets continues to improve, allowing us to leverage local leadership, clinical resources, and referral relationships more effectively as we scale. We believe that localized scale is an important driver of both operational consistency and long-term growth. Our mature facilities continue to operate at high levels of occupancy and clinical consistency, providing a stable base of strong performance, while ramping facilities are progressing as expected as they adopt PACS clinical systems and operating processes and move toward mature levels of occupancy and skilled mix. We continue to view this progression from new to ramping to mature as a meaningful and embedded source of organic growth within our existing portfolio. We recognize that there has been ongoing discussion around managed care providers potentially reducing admissions into skilled nursing facilities. While we continue to monitor the evolving landscape closely, we have not seen those concerns impact our business and our operating metrics. Admission trends and skilled mix, including managed care, remained very strong across the portfolio as evidenced in our first quarter results. More importantly, we believe high-quality operators with strong clinical outcomes, reliable discharge partnerships, and proven patient care capabilities will continue to play an essential role in the post-acute continuum. Our focus on quality and execution positions us well to continue earning the trust of hospitals, payers, patients, and families regardless of broader market noise. 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, the 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 would 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 five, all within acceptable thresholds under the special focus program requirements. As a result of that progress, the facility is now successfully graduated from the Special Focus Facility program. At the same time, the facility has maintained occupancy above 90% and continues to demonstrate improving financial and clinical performance. We believe this example reflects what our model is designed to do: identify operational opportunities, install strong local leadership supported by 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 lifecycle, and allocating capital in a disciplined manner. I would like to take a moment to briefly address our previously disclosed government investigations. These matters continue to progress through the normal course. We remain fully cooperative and engaged with the government throughout the process. While we 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 would like to take a moment to address the leadership transition we announced a few weeks ago. We are excited to welcome Carey Hendrickson, our new Chief Financial Officer. Carey brings a strong background in healthcare and many years of experience as a public company CFO. We are confident he will play an important role as we continue to scale the organization. At the same time, I want to recognize and thank Mark Hancock, our 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 healthcare organization that delivers high-quality care, supports the people doing the work every day and creates long-term value across the communities we serve. What we have built since then is a direct reflection of that vision and of Mark's leadership. In 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 am incredibly grateful for Mark's partnership over the years for the role Mark has played in building PACS into what it is today.

Thanks, Jason. It has truly been an incredible journey building PACS over the past many years, and I am very proud of what this team has accomplished. When we first started this company in 2013, our goal was to build a legacy healthcare company that provided a better experience for everyone involved, something with 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 has been rewarding to see that vision take shape and continue to grow over that time. What stands out the most to me is the people. The strength of PACS has always come from the individuals across the organization who show up every day focused on doing the right thing for patients and for each other. That is what has allowed this company to scale while maintaining consistency and discipline. I am confident that PACS is well positioned for continued success. The foundation is strong, the leadership team is in place, and I have full confidence in Carey as he steps into the CFO role. I am truly grateful for the opportunity to have been a part of the day-to-day journey and look forward to continuing to work with PACS's Board of Directors as Vice Chairman. Strong governance, risk management, financial oversight, and strategy are all critically important to me for creating shareholder value that is sustainable over the long term. With that, I will turn it over to Carey.

Thank you, Mark. I appreciate the opportunity to step into this role and build on the strong financial foundation that has 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 2026, our revenue was $1.42 billion representing 11% growth year over year. Our net income totaled $80.7 million, an increase of $52.3 million from $28.5 million in the first quarter of last year. Our adjusted EBITDA was $170 million which was an increase of $72.8 million or 75% over the prior year, and our adjusted EBITDAR was $266 million. 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 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. 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 was discontinued as of 2025. The payment we received in 2026 was the last payment related to the 2024 program year. We expect two additional payments tied to the 2025 program year, with at least one of those anticipated to be received sometime in 2026 and the other payment expected in late 2026 or early 2027. Again, due to the uncertainty in timing and amount, the WQIP payments received in 2026 were not included in our original guidance and we will continue to treat these future expected payments in the same way—excluding them from guidance. While it remains unclear whether WQIP will be continued or replaced, we, along with others in the state of California, are actively advocating for a successor program that aligns reimbursement with quality. You may notice in the release that we included same-store metrics for the first time, which we believe will provide additional insight into the underlying health of the business and will further highlight the consistency of our operating performance. On a same-store basis, which includes 284 skilled nursing facilities in operations since the beginning of 2025, our revenue increased 8% year over year in the first quarter. This growth was driven by occupancy improvement from 89.6% to 90.8% along with gains in skilled mix across both revenue and patient days. Total occupancy for all facilities for the quarter was 90.9% compared to 89.2% in the prior year and continuing to significantly outpace the industry average of approximately 79%. Our skilled mix increased to 30.5%, which was an improvement of 90 basis points year over year, driven primarily by continued progression within our ramping cohort. Our mature facilities remain highly stable operating at 94.8% occupancy with skilled mix of 33%, which continues to reflect the strength and consistency of our longer-tenured operations. Our ramping facilities averaged 88.9% occupancy with skilled mix continuing to improve, reflecting ongoing operational progress as these facilities move toward mature performance levels. Importantly, this cohort now includes facilities across seven new states entered during our 2024 expansion activity, demonstrating our ability to successfully deploy the PACS operating model across our broader and increasingly diverse geographic footprint. Our new facilities averaged 82.7% occupancy, with skilled mix of 26.5%, reflecting the early stages of integration and stabilization as these facilities continue progressing toward mature performance levels. Importantly, the progression we are seeing across these cohorts reflects internally driven improvement within our existing portfolio rather than reliance on external growth, and we continue to view this as a repeatable driver of performance over time. From a cost perspective, cost of services totaled $1.07 billion, up 5% year over year which, when compared to 11.2% revenue growth, reflects significant operating leverage that we are able to achieve on our incremental revenue. Our general and administrative expense was approximately $112 million, reflecting 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 are required to support a larger, growing, more complex organization. From a capital structure standpoint, we continue to maintain a conservative and flexible balance sheet. During the quarter, we deployed $86.5 million in strategic real estate investments within our operating footprint consistent with our long-term approach to selectively increasing ownership. We ended the quarter with approximately $800 million of available liquidity, including approximately $250 million of cash and net leverage of just 0.1 times. Our strong balance sheet enables us to support organic growth initiatives, selective acquisition opportunities and to evaluate opportunities to increase real estate ownership within our portfolio in a way that aligns with long-term value creation. And we will do this all while maintaining financial discipline. As we noted in our release, our Board recently approved a $250 million share repurchase authorization, which provides us with 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 other similar structured program. That said, the authorization allows us the flexibility to pursue those options if we determine they represent the most effective use of capital. Importantly, the authorization has no fixed expiration date, is not obligated to repurchase any specific amount of common stock and may be modified, suspended or terminated at the board's discretion. It is worth noting that if this authorization had been in place during the first quarter, there were periods where we believe it would have been appropriate to deploy capital towards share repurchases. Regarding our previously disclosed material weaknesses in internal control over financial reporting, that remediation remains ongoing, but we are actively advancing these efforts and expect to make substantial progress this year. We have made meaningful progress already, including strengthening our leadership team, enhancing our compliance, and implementing additional controls across key areas of the business, particularly within our revenue processes. Importantly, our financial statements continue to be prepared in accordance with GAAP and we believe the results reported this quarter fairly present the financial position and performance of the company. Turning now to our outlook: for full year 2026, we are significantly increasing our EBITDA expectations based on our first quarter outperformance and we are reaffirming our revenue guidance. We are increasing our adjusted EBITDA guidance to a range of $605 million to $625 million, which is a $95 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 are making refinements to our guidance methodology to not include future acquisitions in our guidance, which we believe will provide greater insight into our expectations related to the underlying performance of the business. Historically, our outlook 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 will not reflect any contribution from future acquisitions. Our previous guidance included $120 million of revenue related to future acquisitions, and we are removing that from our guidance. We are reaffirming our revenue guidance range of $5.5 billion to $5.75 billion which implies stronger-than-expected organic revenue performance across the portfolio relative to our initial expectations entering the year. While we are eliminating future acquisitions from our guidance, I want to emphasize that this modification does not reflect any change to our acquisition strategy or pipeline. We continue to see a robust and active pipeline of opportunities and are actively evaluating a number of potential transactions that align with our strategic and financial criteria. Based on our current visibility, we expect to remain active on the acquisition front and are engaged in discussions on several opportunities that we could potentially close during 2026. As we have done historically, we will continue to pursue acquisitions selectively and with discipline, focusing on opportunities where we believe we can drive meaningful operational improvement and long-term value creation. Overall, our updated outlook reflects strong performance year to date, continued confidence in organic growth across our platform, and a disciplined approach to both capital allocation and external growth opportunities. With that, I will turn the call back to Jason.

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

Thank you. Your first question comes from Raj Kumar with Stephens. Please state your question.

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

Thanks, Ben. This is Joshua. I'll take that one. Yeah. You noted Ohio has a quality incentive program and initial indications across the portfolio that we have both the facilities that we have had in Ohio for a long time as well as our newer acquisitions have performed incredibly well under that quality program. There have been a number of discussions about that. Initially, we believe there is substantive opportunity for us to be paid out in those quality programs, and we are actively having conversations with the state about when that payment is going to take place. Similar to other quality programs like we mentioned in California, we do not provide guidance because we are not certain when those payments or the exact amounts will come. But generally across the landscape, when it comes to quality, we always try to encourage and as we evaluate deals that we are looking into, we like states that have a component of reimbursement related to quality. We see ourselves as a high-quality provider, and wherever those opportunities exist, we feel that we do incredibly well, much like we have proven in California, Ohio as you mentioned, Texas and other states that have quality components. Regarding rates in general, as we look at reimbursement, we have been very active—perhaps more active than we ever have—in having substantive conversations with legislatures and state and federal governments to continue to emphasize how important the post-acute continuum is and having quality providers in the space appropriately reimbursed for the higher levels of acuity that have been flowing downstream from the acute providers. We have actually had a lot of success in this and that is why you see across our reimbursement a lot of stability and in many instances improved reimbursement that recognizes the growing need for post-acute services. We are also seeing that in the managed care organizations. We have had a number of meaningful conversations and rate renegotiations and new contracts that all emphasize both quality of care but also recognition that there needs to be appropriate reimbursement for the higher level of acuity that we are starting to see in skilled nursing. There is recognition across our sector that post-acute provides an incredibly valuable service and if done well can really save the overall healthcare environment, and that is 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 is forecasting some minimum wage increases for healthcare staffing. Clearly, direct impact to SNFs because of the non-funded component of that. But I guess anything to consider as you think about your workforce and pricing increases for the general population pool? How should we be thinking about that from a cost perspective as you try to be more competitive with hospitals or health systems across some of your markets in California?

The labor trends in our space are incredibly positive, not only for our company individually but across post-acute care. We are starting to see people come back to the space. We are seeing a viable option for both tenured nurses as well as new nurses who are looking to begin a career in the space. We have seen significant improvement and we are seeing a number of job applicants coming into roles with us. California is an area where we have seen those applicant numbers increase. So as we look at the labor environment, we are incredibly encouraged by what we are seeing. We measure premium labor and agency usage; we have seen those numbers remain consistent over the last couple of quarters and down significantly from 2024 and 2025, and certainly decreasing over time from where we were post-COVID. We also have strong relationships, particularly in California, with labor unions such as SEIU. We have been able to reach out and have meaningful conversations with them about how we can work together to position ourselves in our sector as we move forward into the future. So the labor environment seems favorable and in California we are very optimistic.

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

Hi, all. Thanks for taking my questions. 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 three cohorts for 2026, and how you are thinking about those trends as the year progresses? And then across pricing, what are you assuming for those Medicaid supplemental programs in those two potential remaining payments and those quality programs like the one in California?

Thanks. As you look at the KPIs that we have reported on, we continue to see growth, particularly in the ramping cohort. As we look at this first quarter and provide initial guidance, we do our best to analyze visibility across how those cohorts—particularly new and ramping—are performing. In Q1 we saw increased occupancies, skilled mix, and reimbursement rates, which highlights their ability to take a more acute patient and be reimbursed appropriately for those services. That is why you have not seen any adjustments to the revenue guidance because revenue came out in Q1 incredibly strong and we would anticipate continuing to see strength across those KPIs. As it relates to quality incentives, it becomes very difficult to estimate and that is the reason that we leave them out. For example, the California payments fluctuate almost all the way until the official payments and cash receipt. We have seen similar trends across other quality incentive payments, and that is why it is difficult to predict. For things like the Ohio program or the remaining California payments tied to 2025, until we have clarity on exact amounts and timing, we do not include them in guidance. As soon as we receive more clarity we will report and update guidance.

Hi, Benjamin. To be clear, those payments are not included in our guidance. As an example, the payment we received in the first quarter of this year we would have expected to receive in December, but it did not come until the first quarter. It is unpredictable when those payments will be made, and that is why we exclude them. We may include a payment in guidance and then it not happen until the beginning of the next year, so we just leave them out and report on them when they are received.

Understood. Appreciate that additional context. As a follow-up on per diem trends, it seems like you had good growth during Q1 for managed care and Medicaid rates. If Medicaid growth is mostly from these quality payments in California coming through, can you help me understand the growth in your managed care per-patient-per-day rates? For the Q1 growth, any breakdown of how that growth is attributed to rate increases, acuity mix, and maybe additive billing services?

We have seen managed care census increase and number of admissions increase, particularly in Q1 of this year compared to any quarter of 2025. Not only from a volume perspective, but we have been sitting down with a number of managed care plans and having very meaningful conversations about appropriate reimbursement in contracts. We have renegotiated hundreds of contracts successfully. That points to the strength of our operating model, the quality of care we provide, and the high density of beds we have which allows 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 and physical plants to ensure their members can get excellent care. These trends have enabled us to increase managed care census and reimbursement because we represent the lowest-cost setting of institutional care that can be provided. We’ve been educating hospitals and payers about the importance of the post-acute continuum, and we believe that is reflected in the reimbursement improvements and managed care growth you see.

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

Thanks for that, Benjamin. From day one Jason and I really went about trying to build a platform and a system that could support these locally-led facilities. We have tried to take as much of the clerical and administrative burden off the plates of our local teams so that they can focus on what they do best, which is delivering care. We built a service center that truly supports that broader mission of delivering care at the highest level and providing a better experience for patients, their families, and our staff. Providing an environment where staff are not dreading driving into work but are going into an environment where they feel the love and the healing and caring that happens there. We have intentionally built systems, processes and technologies around that in a sector not historically known for sophistication in technology. We have invested heavily—hundreds of millions of dollars over the years—in those systems and technologies to take out noise and inefficiencies and streamline the process of delivering care. This is a very high-touch model. The level of acuity our clinicians take care of is impressive; it is truly an extension of the hospital. You see that manifested in occupancy, demand for services, and the skilled mix. These are trends we have been talking about for years—the so-called silver wave—and it is here. We are well into it now and well positioned organizationally, through our AIT program, to support it. We have infused dynamic leaders and interdisciplinary teams into a sector that historically may not have had them. I am confident in what is in place, the executive team, and the local leadership. We saw that demonstrated over 2025, where the model was challenged and the company not only continued to perform but really thrived. We have proven the model works. Right now, we represent about 2% of the market, so we have just scratched the surface of what this model can do. Jason and the team are well positioned to continue the mission. I look forward to continuing to focus on governance, strategy, and delivering outpaced results to our shareholders from a Board perspective.

Thank you. Your next question comes from Benjamin Hendrix with RBC Capital Markets. Please state your question.

Great. Thank you very much. I will echo congrats to both Mark and Carey. I was wondering if we could dig in a little bit deeper on some of the managed care commentary. 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 lower skilled rate. Wanted to see what you are seeing from a contracting perspective there. Is that purely a function of the new regions coming into the bucket? Or is there a dynamic where you are leaving room for quality incentive payments? Just wanted to see what the contracting environment is with those newly ramping facilities. Thanks.

Thanks, Benjamin. When we take on new facilities, they are often distressed and struggling and typically not identified in their communities as places managed care organizations, payers or hospital systems can reliably refer to. When we deploy our model, it takes time to change that reputation and build confidence with those parties. The ramping phase is generally the period where we start to see meaningful conversations and contract renegotiations once we have shown over roughly 18 months that we are a different facility than when PACS entered. Those conversations happen along the way. Given our national reputation, we often get a seat at the table sooner than most, but as we work through contract negotiations and people start to see the quality we are delivering, there is a desire to leverage our platform and density for contracts. It is not surprising that as facilities move through the ramping phase, we are starting to see initiation or renegotiation, increased volume in patient days and admissions from managed care, and improved reimbursement. So as facilities move from new to ramping to mature, you can expect increases in admissions, skilled mix and reimbursement rate.

Thanks for that color. And then Carey, maybe share some broad observations you are considering with regard to the capital strategy. You talked about the buyback plan and optionality. Early thoughts on the pace of overall M&A and whether there may be a dividend in the future?

Bringing up the dividend question already—no. PACS has a strong capital allocation program in place. We included the share repurchase authorization this time because it is a good capital tool to have in place. When we see opportunities to take advantage of that in the market, we will do so. The company has a $600 million line of credit and only $45 million was drawn at the end of the first quarter. We have $250 million of cash and plenty of availability for M&A. We are seeing a good pace of M&A across the kinds of opportunities we traditionally pursue—tuck-ins and smaller deals—but we are also seeing some larger portfolios that could have more immediate impact. Historically, tuck-ins do not have EBITDA initially and we grow that EBITDA as they ramp; larger opportunities would provide more immediate impact. We have the capital structure to support M&A and strong bank relationships. We may increase capacity if needed depending on the pace and the size of opportunities. The important thing is we have a lot of M&A opportunity and we want to be able to support it when appropriate.

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

Thanks. Hi, everybody. Maybe first, you mentioned the management pipeline and that you have about 40 administrators in training. Over time, is that a steady-state number? Is that significantly higher than the last year or two? Do you see that number increasing over time?

This is something we are incredibly proud of. It has been a strategy since the company's inception to invest in a different level of talent than the sector historically has seen. The 40 AITs we reported is the highest number we've reported on these calls. A lot of that is because we are seeing healthy flow through the M&A pipeline and we are preparing for growth. The leadership model is foundational to our success and requires a level of leaders to hold administrator positions. As the company grows, we promote from within and need backfill of highly talented people. We want to ensure there is never a limiting factor of human capital and quality talent to deploy into new opportunities. As we see the M&A pipeline increase and substantive deals that we expect to act on, we want our leadership and talent to match that.

That is interesting. Regarding uses of capital, you mentioned continuing to evaluate opportunities to increase real estate ownership. Are there clusters of properties coming up where you have the option to take ownership that are within your portfolio? Give us a sense of how you are thinking about that relative to other uses of capital and what the pipeline looks like.

Yes, AJ. We have a number of purchase options coming due, including eight immediately that we have the option to exercise potentially this year. Real estate requires a lot of capital relative to lease deals. As we evaluate larger acquisitions, we weigh deploying capital in real estate versus lease acquisitions. From a balance sheet perspective we are in a fortunate position to deploy capital. Much of the value in the real estate is driven by the success of the operation—when we increase EBITDAR and cash flows from operations, it multiplies the value of the real estate. That is where we see potential in exercising options, which we generally negotiate on a fixed-price basis. As we create value and improve operations, we are often in the money exercising those options, and many of the options coming due fall into that category.

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

Hey, good morning, guys. Congrats on the quarter. Just wanted to spend some time on quality. You had a pretty meaningful uptick in the number of facilities rated 4 or 5 stars since 2025—up around 500 basis points or so—and nearly all of that increase was in the number of 5-star facilities. Can you help us understand the delta there? I assume that mostly reflects continued center maturation, but any additional color on what you are doing from a clinical or operational standpoint that is helping drive those gains?

You are right that much of it represents the continued maturation of our facilities as they move from the new and ramping buckets to mature. There is a reason we have attached timelines to those cohorts—it takes time to improve clinical performance to PACS expectations. This past quarter we saw continued clinical maturation in the mature cohort and administrators and interdisciplinary teams taking ownership of clinical processes and outcomes. Over a roughly three-year period, our expectation is that facilities approach five-star levels, and that is what we are seeing: facilities maturing clinically, better and more robust clinical performance, the right people in place, and the tools they need to perform at a high level. We lead with quality; it is the beginning and the end of everything we do. Quality creates a virtuous cycle—when quality is present occupancy follows, and so does financial performance. That remains a key strategic focus and something we continuously strive to improve.

Got it. That is helpful. One more: a really strong cash flow quarter, especially relative to the EBITDA beat. Anything timing-related in the cash flows and how have your expectations changed for the year on the cash flow front?

Thanks, Clark. If you look at cash from operating activities, we generated $236 million of cash in the first quarter, which included a pull-through from the fourth quarter. At the end of the fourth quarter, we prepaid an acquisition we are making in Alaska of about $50 million and prepaid it in December. That helps in our cash from operating activities in the first quarter, and you will see an offset in financing activities for that $50 million. Even without that $50 million, $186 million of cash generated from operating activities in the first quarter is really strong and a little higher than our EBITDA contribution, which is great. We expect to be in a strong cash generation position for much of the year.

Thank you. I will 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 are incredibly excited for the quarter that we have had and for the upcoming year. We hope you all have a nice rest of your day.

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