PACS Group, Inc. (PACS) September 2026 Conference Transcript

Awesome. Good morning and welcome to the 2026 Jeffries Healthcare Services Conference. I'm Brian Tenkela, Healthcare Services Analyst here at Jeffries. So our next fireside chat is with PAX Group. They're one of the largest operators of skilled nursing facilities in the U.S. And joining us today are Jason, Josh, and Kerry, the company's management team. So maybe I'll start, Jason, if you can just give us a little bit of an overview on PAX and also the state of the union.

Yeah, sure. And thanks, Brian. Thanks, everyone. Yeah, we're excited to be here. So PAX is a post-acute healthcare company, healthcare services company. We operate skilled nursing facilities across the country, as was mentioned. Our business model is one where we target underperforming facilities, facilities that have not reached their full potential operationally, and we have a leadership model, an operational model that we deploy in those facilities, and we work to turn the operations around and add value to those locations. We started in 2014. I'm one of the co-founders of the company, along with my business partner, Mark Hancock. started with two facilities back in 2014 and we've grown today to around 358 and we've done that again largely through that the business thesis of taking underperforming and deploying a new operating model to them. You know the company is as we look at this past year in 2026, or I should say in 26, the first two quarters of 26, we've been performing at a very high level. We continue to execute on the clinical side, which is key to our success as an organization. We like to think of ourselves as one of the best providers in our sector from a clinical standpoint. And the metrics, I think, point to that. And so we believe strongly that everything that we do all the success that we've been able to achieve at our facility level as an organization begins with quality care uh and so as we as we take these underperforming facilities typically they are broken in many ways clinically they they again are not performing at the level that they should and as we invest in those facilities deploy capital and and and probably more importantly uh deploy the the leadership needed for those facilities to turn around we start to see the clinical product improve and the clinical outcomes improve and then that creates a virtuous cycle within the facilities where reimbursement improves the the occupancy levels improve and the referral patterns improve so it all it all begins with care and quality and so that's something that we it's a reputation that we're we're trying to build for ourselves and I think over the last you know several years we've been able to accomplish that So that's kind of a general overview of the company.

That's awesome. Maybe Kerry. So Kerry's a good longtime friend of mine. And when he joined PAX, I was pretty excited. I'll ask you the question, when you joined PAX, why PAX? And then the other thing is, as you think through the performance of the first half of the year versus what you're out with us for the back half of the year, if you can just walk us through how you expect that to progress.

Sure. You bet. So first of all, why did I join PAX? I mean, meeting Jason, his other co-founder, Mark Hancock, Josh, this team, they're an incredible group of people, high character, high integrity people. And then looking at the operating model, that was so important to me. And I've been even more impressed after joining than I was in looking at it previous. This operating team is the finest operating team I've ever had the opportunity to be associated They know what drives results and they focus on those things. and then they produce results. And as a CFO, it's great to have that comfort to know that the operating team is going to come through, particularly when you're talking about guidance. You mentioned guidance. We've been really pleased with how the year has gone so far, as Jason mentioned. We went into the year thinking we'd have about $565 million of EBITDA. That was the midpoint of our initial guidance. And our guidance has improved now to a midpoint of $650 million of EBITDA, so it improved quite a bit. So that means we've had a really strong first and second quarter, And we expect a good third and fourth quarter because we're, you know, about halfway to that 650 mark through the first two quarters of the year, a little less. So we expect a good second half of the year as well. So really pleased to be at PAX, an incredible group of people. And, you know, my finance organization is a real high quality organization as well. And so I'm just trying to make sure I build that finance organization to be able to scale with the growth of the business as we go forward.

Josh, maybe I'll turn to you. So when Jason was describing the strategy and the model of acquiring relatively underperforming locations or facilities, walk us through what you bring to the table to turn these things around and what are the KPIs that you track? What are the levers that you pull to drive that growth and the timeline to get an acquired facility to optimal operations?

Yeah, as mentioned, you know, both for Jason and myself, we're nursing home administrators. That is our background. That's how we spent the early parts of our career. And we understand what a good, high-performing facility looks like and one that's underperforming. And as he mentioned, our strategy has been, and really our mission has been, to take the unfortunate reality that a lot of facilities are underperforming, both clinically and financially, and to be able to go in and to assess what we can do to make improvements. We generally start with assessing the leadership in the facility, at the administrator position. The administrator hangs their license, they're responsible to run the day-to-day operations, and unfortunately in our space, we haven't always attracted the best and the brightest, the most sophisticated operators. And for us, that was a heavy investment that we made early on, was teaching and training, recruiting what I would say is a non-typical nursing home administrator, someone who's entrepreneurial, who's driven, who cares about the business, but understands that there are levers when you're running a business that you must pull in order to have great outcomes and have those outcomes be great clinically and also financially. And so you mentioned KPIs for us as we assess leaders, oftentimes either refine the leader that's in place or make a replacement. And we've mentioned a number of times our administrator and training program we think is the best in the business. We have about 50 AITs at this point. That's grown over time with the growth, having a bench of talented individuals who are coming up, experiencing the day-to-day, understand what a good facility looks like, feels like, runs like, is important. So we have plenty of resource to do that. So as we look at these acquisitions, we're assessing that leadership, and then that leadership is assessing the team, your director of nursing, your director of therapy, other key department managers who are leading people and processes in the facility are essential. And so that administrator, we believe, is capable to do those things. So decisions can stay as close to the patient as possible. And when that happens, you start to see a buy-in. You start to see people who are dedicated and have access to what we offer at PAX, which is systems and technology and live information that they can view in the moment to see how they're performing clinically. What changes they can make, what they can do to train and educate their staff to take a more clinically complex patient, do it well so that they can build a reputation in the community where the people who are either contracting where their patients are going to go or actually referring patients to a facility are picking your facility to do that. So we're tracking quality measures to ensure that we're providing excellent care, and as Jason mentioned, that virtuous cycle is when that goes really well, that becomes noted in the community, and they start sending more patients and more clinically acute patients. So the KPIs, we're usually measuring quality measures, then we're measuring occupancy, which we talked a lot about, how many heads are in the beds, and of those, how many of those are short-term, high-acuity patients that generally reimburse higher but need an additional, you know, level and quality of care that's essential. And so we focus on those metrics, but when we talk about deploying into our model, it's assessing people and leadership, which has been kind of foundational to how we've grown as an organization.

That's awesome. Jason, maybe as I think about just broadly speaking, when we take it up to a 30,000-foot view, when we think through the SNF space, where does it stand today in terms of the regulatory environment and how regulators view the space? Because it has ebbed and flowed over the years, right? When you think of RUGS 3, RUGS 4, right? From back in the day. So how would you pitch that to investors in terms of where the space is, in terms of favorability and growth?

Yeah, so I would say, I would characterize it as, you know, skilled nursing is a very highly regulated industry. And, you know, and I think that that is an actual competitive advantage that we as a company have because it's an incredibly challenging environment to operate in, and you have to have really good people. I think, like Josh mentioned, that's one of the competitive advantages as I think we've tried to create over the years is to create a culture and a company that is magnetic to attracting highly talented people that can figure out how to operate at a high level even within these challenging headwinds of regulatory environments. So every state is a little different. Every state has its own regulations that you have to operate within. You have federal regulations as well. So it is a very highly regulated industry. But as we, again, as a team, as we put together our business plans in every one of these individual facilities, that's why it's so important that we have the right people in the right places. Our administrators really are the lifeblood of what they do. So we mentioned we have 350-some-odd facilities. We also have 350-some-odd administrators, and they are the local leaders of their respective facilities. And we have a description of how we describe our operating model as locally led and centrally supported, meaning that every one of our facilities are led by these administrators, are supported by PAC services, which is our back office function. that is a support function that does help provide that additional level of support in this in this highly regulated industry for our administrators and their teams to make sure that they are playing within the the boundaries of what is what is required of them and what is appropriate that's what PAC services do on the back does on the back office side but then as we provide that support for our administrators and their teams you know they are these are highly entrepreneurial people that are they're driven uh to you know be the very best at what they do and uh you know as we provide them the appropriate resources you know we we do find ways to succeed in in that challenging environment so again i guess the the short answer would be um we view it as a competitive advantage as a company to be able to operate within such a highly regulated industry because of our model maybe if i may follow up i mean what is your view in terms of like the growth outlook for the industry today? So if you look at right now, we have, I believe, just under 15,000 nursing homes, right about 15,000 nursing homes across the country. And but we see an aging demographic and and the infrastructure is not going to be able to support that aging demographic. And we're already starting to see, you know, some of those that demographic hit in different states. And and so there's going to have to be either additional infrastructure that is built like bricks and mortar facilities to take care of these, these patients, or there's going to need to be, excuse me, there's going to need to be a, uh, a change in which, where we provide, you know, other services outside of the skilled nursing, you know, realm to, to take care of these, this, uh, this demand that's coming. So, um, you know, I think that there's, there's just like across our, our portfolio today we have you know we run just over 90 occupancy and uh that is a very high occupancy in comparison to our our our competition um you know we see that you know continuing to grow as uh as we think about you know new states that we're that we're expanding into so it is there's going to need to continue to be infrastructure or creative ways in which we create the infrastructure in order to take care of that those uh you know the aging demographic think it's there.

That makes a lot of sense. Josh, I'll pivot a little bit here. You just did a deal in Florida that adds 32 facilities. If you can walk us through what the integration plan is and the ramp timeline for these facilities as you bring them on board.

Yeah, we're excited. Being somebody I was running, Jason referenced two facilities at the beginning. I was one of the administrators of those two facilities. So I've been here and witnessed the growth and what it takes to onboard facilities. So when you talk about integrating them, there's the actual process that's going on right now in these facilities to ensure that we're onboarding staff, that we have staff ready day one to take care of patients. There's an assessment of the IT environment. What does it look like? Traditionally, technology isn't always well adapted in these facilities, and we need our people to have access to our electronic health record, to have real-time information so they can track KPIs. So there'll be a process of ensuring that our IT teams are out and actually helping to onboard these facilities. And then there's the actual work of providing the care, getting out into the community, assessing clinical capabilities, finding out from each individual community what we can do and do better in these facilities that have been distressed for a period of time before we're going to be taking them over. We've gotten a little bit of practice. Obviously, over time, going from 2 to 358, we've refined this process of integrating those facilities. We did an acquisition that part closed on August 1st, so the Aduro acquisition that we talked about prior to this Florida. So with a slower acquisition count that we had in 2025, we feel like we're kind of revving the engines up a little bit. We have historically been a growth company, which many of you know or if you're not familiar with our story, you can see through the numbers that's been the case as i mentioned before our model is to go in to assess the talent that we have and so that will be a big part of the aduro acquisition as well as the florida acquisition that we do in future acquisitions going in to assess the quality of the teams that we have at each individual facility fortunately we have a pipeline of talent fortunately we have access for even many of these administrators that are capable that are in spots not every one of them changes over that we'll have access now to new tools to new processes policies procedures other things that we can deploy that we bring value to because of the size and scale and experience of our organization and so you know we feel well positioned when we talk about onboarding you know the aduro acquisition was a total of 34 facilities 31 of which have closed and we anticipate the other three in Q4 closing and then the 32 in Florida for Q4, we feel like we're one of the very few number of providers who can actually grow at that sort of scale. And so when we talk about portfolio deals and opportunities to be able to successfully integrate those facilities and to make improvements in the space, we feel we're at a great position to do that. So we anticipate this being one of many deals that we're going to do in the future as our space begins to be more consolidated with high-quality operators like Pax.

Kerry, since Josh talked about the growth through acquisitions that you guys have done, maybe if you can just walk us through how you view the growth algorithm for the business and then maybe your thoughts on the capital structure as you do more of these relatively sizable transactions.

Sure. Yeah, so listen, we have a significant capacity for growth. We have a balance sheet that almost has no leverage. It's 0.1 times leverage. So we have plenty of capacity there, although a lot of the deals we do are ones where we're just taking over the leases and continuing to operate and then improving on their performance. But we did, with the Aduro acquisition for the first time, buy some assets that were moderately performing, had some level of EBITDA. And we're willing to put out, we want to use our balance sheet some to grow as we move forward. I think you'll see us have a rapid pace of growth through the next few years. We have a lot of acquisitions that we're looking at. There's a lot in the pipeline, very healthy pipeline. And when I think about the allocation of capital, those acquisitions are usually the highest and best use of capital. And we're looking at, we do buy some real estate, so that's another opportunity for capital allocation. But in each case, we're looking at what's the highest adjusted risk return that we can achieve. And we're allocating capital on a case-by-case basis as the opportunities come to us based on that return of capital.

Maybe, Jason, I'll pass it to you. Just as we think about it, I think you have a stated kind of goal of having a 50-50 mix of owned versus leased. So what is the path to that? What does that look like?

So, you know, that was a number that we had, that Mark and I had developed, you know, early on. and I don't know if I can really describe a rhyme or reason behind that number other than it just felt good 50-50 felt good uh yeah that's right so but we did know that that we wanted to own real estate because it strengthened the balance sheet of the company and that was so early on as as Kerry mentioned when we first started the company we didn't really have capital because it's very capital intensive to buy the real estate so we were buying essentially just operations you quote-unquote buying, you're basically getting them for free because they are underperforming, right? There's no EBITDA there, so there's nothing you're really buying. So you're taking on that risk, but as you turn that around, it starts generating cash flow, and then we were taking that cash flow, and we were putting it into new deals, and we were eventually able to get to a point where we could buy real estate to where now we've created a pretty healthy real estate portfolio. I don't know necessarily if the goal is 50% at this point. I think we get back to the strategy that Kerry was mentioning, which is what is the highest and best use of capital? So we'll look at deals where, you know, it may make very good sense where maybe we have a purchase option where we've negotiated a set purchase price on that option. And, you know, we're in the money because we've been able to perform very well operationally in that facility. And so it may make good sense for us to buy that real estate. And, you know, and it helps us with the potential, potential lease in that facility as well, where we can add more EBITDA to the bottom line. And so that calculus is all part of an exercise that we go through when we're looking at these types of deals. But the overarching theme would be, what is the highest and best use of capital? That's what we're going to do.

That makes sense.

Maybe Josh, and maybe for Kerry too, so as I think about the fact that your mature facilities are running at, what, 94% occupancy, I think company why it's like 90 percent how much margin runway is there and then you know when we think about growth when you're running at these occupancy rates obviously the acquisitions help lengthen that growth rate but how do you think about all that when you put it all together you want me to start it okay sure yeah when i think about so the margins on a mature business are more like a mid teens kind of number versus our overall which is somewhere around 11 so there's definitely more margin in our mature businesses when you look at our same store growth that we've had uh this year so far it's been around six percent and there's still a lot of opportunity for us to continue at that pace if if not if not better um from a same store standpoint we have the makeup of that same store is about uh we have 284 facilities in the same store 88 of those are ramping and they're at about 87% occupancy, 27% skilled mix versus that 94% and 32% you talked about for mature. So there's still a lot of room for us to grow those ramping facilities. And I'll also say that being at 94% occupancy and 32% skilled mix is not the goal. I mean, we have some of our facilities that are at our 100% occupancy and 100% skilled mix. And so there's still room for growth even within that mature cohort itself. so we you know i definitely believe there's room for margin growth as we go forward in the overall business from the ramping immature and then even within the mature so i think we can get we can continue to move that margin we've done it for the past few years grown the margin uh each year and i think we'll continue to do that going forward josh anything you'd add no i would just echo the fact that i'm thinking of a facility in my head one of those first two facilities in san diego was one that was distressed heavily distressed and i got the chance to see that kind of from the beginning to where it is now and that facility runs close to 100 percent occupied and is over 70 percent skilled mix and so there's levels to maturity as well it's you

know for not wanting to have you know 50 different cohorts that we're tracking we have new ramping and mature but there's levels to maturity as those facilities prove over time that they can that they've established themselves as the premier provider in those communities confidence just continues to increase. Managed care, which is a hot topic naturally. Managed care contracting improves. Volume of patients that those managed care contracts have access to and want to specifically target your facility because they've seen exceptional results. Hospitals now that are being penalized if you go back to the, if you're readmitted to the hospital. They care more than they ever had about our space. And Brian, you asked the reputation of nursing homes, I think has improved at least for an understanding and a knowledge that the communities, you know, get now, I would say, about how important post-acute care is. And if you establish yourself as that premier provider, you know, we expect and we've seen in our numbers that occupancy increases, that skilled mix can start moving towards that upper limit of 100%, and every time you're making steps there, your margin expands.

That's a perfect lead-in to my question for Jason. So as hospitals are trying to bring down length of stay and try to discharge patients as quickly as possible, what are you doing strategically to position yourself to capture more of the higher acuity and skilled mixes?

Yeah, and I think that's a great point you bring up because that dynamic has existed in our space for a while now. And I've been in the sector now for 25 years, and it certainly has changed significantly in that 25 years. Managed care has done that. And so it does require a lot of providers. You know, it requires us to do more with less. It requires us to be able to get similar outcomes, if not better outcomes, than what we had historically taking care of the same patient for, you know, in less amount of time. And so, you know, we as a company have really embraced this idea because it's here to stay. And, you know, lengths of stay will just continue to shrink. And, you know, reimbursement will always kind of, you know, continue to be something that we have to fight for every, you know, every year. But, you know, as we've evaluated the landscape, we've had to invest heavily in people, as we've already talked about. Technology is another big piece that we leverage as a provider to take advantage of this particular dynamic where we're providing real-time data to our caregivers at the facility level that we can make good decisions off of. And that information is also, you know, we can take that information and share it with the providers, the referring providers in the markets where we operate. And it becomes a tool that we can use to drive volume. So as, you know, even though we see lengths of stay, you know, going down, you know, our thought is if we can embrace this and continue to invest in people, continue to invest in technology to provide the tools that our teams need locally to take care of this changing environment, and take care of these patients and get, you know, really high-quality outcomes, we will hopefully replace that length of stay with volume. And that's been a strategy I think that's worked out well for us.

I guess that makes sense, right? Even if it's a shorter length of stay, as long as you're keeping the bed occupied.

Yeah, that's right.

It's generating revenue.

So it just creates churn, and it creates a lot of work, right? Again, having been an administrator, Josh, as well, like we, it creates churn for the teams. And having a patient admit and discharge, that requires a lot of work. And so the teams have to be really well experienced in that area to make sure that those processes are buttoned up and seamless for our patients.

Maybe, Kerry, for you, as I think about the rate environment for the business, right? I mean, obviously, Medicare, you know, it's a fee schedule.

But when you think about MA, when we think about commercial, we think about managed Medicaid, what does that look like for PACs? yeah you know we we have uh the managed care side of it i think we're going to continue to see rate increases as we as we look forward there on the medicare side as you noticed it's as you noted it's it's pretty scheduled it's it's a it's it's much better than from my previous life in the pt side where we were always kind of getting barely any increase and you know here it's a 2.4 percent increase for next year and then we have regular medicaid increases that happen in october beach year and i think the outlook for that is is um is is good you know it's favorable we're we're going to continue to see medicare and medicaid increases as well and some states

are certainly better than others but we are we like the states we're in josh anything you would add yeah just i think our space and we particularly have tried very hard to make sure that people understand how we how important we are to the landscape of of health care um and that we can actually do more, Jason mentioned, we can do more with less. We're used to it in post-acute care. We haven't been the highest reimbursed and probably never will be. And we embrace that idea. And so we talk to managed care plans. We talk to hospitals and health groups about this being the lowest cost setting for institutional care. And so if you're going to make cuts anywhere, it shouldn't be in post-acute care. You should be asking us to take on additional acuity, patients sooner than they otherwise would have discharged from a hospital where you're paying $3,000 a day and you can pay $600 or $700 or $800 a day in a skilled nursing facility so long as they can get exceptional care. And that's where we think our density, our commitment to quality is going to be the differentiator. And then we're making sure those legislators understand how important funding our space is. And we've had a lot of success, particularly post-COVID. When the landscape shifted, we needed people to make sure that they understood the labor environment shifted and that we need to be reimbursed appropriately. And they have understood that well, and we've seen a lot of success in the last couple of years.

Yeah, I was just going to say, from strictly a rate perspective, as I think about the growth going forward, I kind of, in my mind, count on a 2% to 3% kind of rate growth only, and then we're going to grow that from a same-store basis on the fact that we're going to be increasing occupancy and skilled mix and getting us up into the mid-single digits as we go forward.

Makes sense. Jason, maybe just in the last few minutes, one question I need to ask. DOJ SEC inquiry, any updates on where that stands or, like, finalization of that?

Yeah, I mean, we've publicly talked about this. You know, the investigation continues, and we continue to cooperate with it. It is going at the pace of the government, right? And so that is a bit of a challenge. We have, you know, we've signaled to the government our desire to have a resolution on this sooner than later. they've also actually signaled to us as well that they would like resolution on it sooner than later and so we are in active conversations with them now and what I can say is that the you know the scope continues to be what the scope has been historically what we've disclosed publicly there's been no you know scope creep there which is a good thing and you know the the activity that we're seeing in conversations with them you know lead us to believe that that we're hopefully going to have some resolution here soon and that you know the company is in a very good position as it relates to, we feel like we're in a good position to be able to absorb what is coming.

Cool. So we've got a minute left. Anything that you feel that investors don't fully understand about the PAC story or anything you want to leave the audience with in terms of how to think of the investment thesis here?

I'll go first and then with 40 seconds left, guys. So, yeah. So, you know, quality, what I would hope investors understand is, number one, how critical our sector is for the health care continuum. It is an incredibly intimate environment that we take care of patients in, and we are open 24 hours a day, seven days a week. And we have some amazing teams, some amazing people that take care of these patients every single day. And I don't know if you've had an opportunity to walk through a nursing home lately. I don't know what your experience has been, but if it's been like mine, there's a lot of opportunity for us to improve this sector. And that's what drives our growth. is that there's a lot of opportunity for us to add value to these facilities, to make them brighter, to make them lighter, you know, to make them more joyous. You know, that is, that's, it's a moral obligation that we feel we have and a mission of our company to continue to do that.

And so, you know, we feel like we have really embraced that idea of revolutionizing this sector, and it's something that we have a lot of energy to do. yeah i agree with that totally it all starts with care and the quality of care that we provide and that translates into results and then as a company we have a very strong balance sheet there's there's no telling what um you know the kind of growth we can achieve over the next few years we we've we've grown from two facilities 12 years ago to 358 today and i think we'll continue to grow it at a very rapid pace going forward amazing guys thank you so much really appreciate you Thank you.