Tao Qiu • Macquarie Group

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Interim CEO & Chairman Denise Warren explained that the transition of 55 underperforming Ventas communities in the second half will be a primary driver of the improved consolidated RevPAR metric. Regarding the 2027 debt, she clarified the goal is to boost the collateral pool's performance to a level where they can satisfy the loan while removing some properties from the pool, thereby creating a portfolio of unencumbered assets for future flexibility. The SWAT team's approach for these assets is the same as for others: improving operational performance.

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EVP & CFO Dawn Kussow detailed that many sub-70% occupancy communities are already slated for disposition or are part of 'high opportunity' turnaround groups. EVP & General Counsel Chad White added that an initial group of 14 non-core assets is already in the disposition process, with more being evaluated. Interim CEO Denise Warren stated the CEO search prioritizes a candidate with both proven operational expertise and a long-term strategic vision to unlock the company's intrinsic value.

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EVP & CFO Dawn Kussow explained that the 2025 RevPAR guidance of 4.75% to 5.75% already incorporates the expected impact of the Ventas transaction, along with assumptions for move-ins, move-outs, and the flu season. President & CEO Lucinda Baier added that future growth will be driven by expanding proprietary programs like Brookdale HealthPlus and EngagementPlus, enhancing the dining experience, and capitalizing on favorable demographic trends for their needs-based portfolio.

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Lucinda "Cindy" Baier, President & CEO, and Dawn Kussow, EVP & CFO, identified the key drivers for 2025 free cash flow as acquisition benefits and the annual rate increase, while noting variable interest rates as a potential risk. Regarding HealthPlus, Cindy Baier stated its primary goal is driving higher occupancy through a superior product, with Medicare Advantage payments currently covering incremental costs. She also confirmed the 41 acquired properties have varied performance, providing future flexibility for capital recycling, but emphasized the transaction is financially solid on its own terms.

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CEO Parth Mehrotra stated that the proposed rule does not change Privia's strategy, as the company's objective has always been to move its ACOs to the enhanced, two-sided risk track as quickly as possible. He believes this is where the economics are most attractive for high-performing groups. He suggested the rule change could create tailwinds for Privia by forcing other, lower-performing ACOs to either take on risk they are not prepared for or exit the program, potentially freeing up their physicians and lives for Privia to target.

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CEO Parth Mehrotra stated that no further changes are anticipated for the current book of business. He clarified that the previous decline in the value-based care revenue mix was a revenue recognition artifact from shifting from full-risk to shared-risk models, not a change in the underlying business, as the doctors and lives remain on the platform.

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EVP & CFO Kasandra Rossi noted that guidance reflects tougher year-over-year comparisons in the second half of 2025, though margins are expected to remain stable. CEO Mark Ordan added that hospitals are not retreating from their essential services; instead, Pediatrix is actively partnering with growing hospital systems on strategic initiatives like hub-and-spoke models.

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CEO Eric Evans attributed the consistent volume growth to the company's multi-faceted strategy, including a robust physician recruitment engine and service line expansion, with particular strength in GI and MSK. He clarified that the company's exposure to health exchange volume is 'immaterial,' as its elective surgical business is not typically sourced from channels like the ER, making potential declines in exchange membership a non-significant risk.

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CFO David Doherty explained the wide 6-11% revenue growth range reflects early-year conservatism and variability in the timing and nature of the remaining $150 million in planned M&A. CEO J. Evans highlighted the record physician recruiting in 2024, which is heavily orthopedic-focused and expected to double its impact in 2025. Doherty added that inflationary impacts on salaries (SWB) have been fully moderated, with the SWB-to-revenue ratio now in line with historical levels.

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Chad Keetch, CIO, EVP & Secretary, clarified that it's not a strategy shift but an application of their local-first model, which breaks large portfolios into smaller deals for existing clusters. He noted that for third-party leases, Ensign ensures disciplined pricing to achieve healthy rent coverage, targeting around 1.5x, and is seeing growing interest from potential partners.

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Chad Keetch, Chief Investment Officer, stated that the strong deal flow is a continuation of recent trends and that the company remains disciplined, with talent being a greater constraint on growth than capital. He noted the quarter's high real estate mix was opportunistic and expects future deals to be more lease-focused. CEO Barry Port addressed staffing, explaining that Ensign is an 'anomaly' with improving turnover and moderating wage inflation, allowing occupancy to rise without compromising care. He asserted there is no 'magic number' for occupancy, seeing continuous organic upside. CFO Suzanne Snapper added that the company is now in a 'stability phase' with wages, which creates the potential for future leverage.

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CEO Barry Port explained that while the current 81.7% same-store occupancy is a new high, significant upside remains as many mature operations are in the 90% range. He noted that driving acuity is fundamental to their model. CFO Suzanne Snapper added that supplemental payments are recognized quarterly within the Medicaid rate and that most state programs are now operating in a normal cycle post-FMAP.

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President & CEO Ted Wahl explained that the guidance reflects the variable timing of new business starts, though he acknowledged the trend is toward the high single digits. Regarding collections, he emphasized the continued use of promissory notes and disciplined decision-making, stating it's too early to predict Genesis recoveries. He also expressed a constructive view on the macro environment, noting that strong industry fundamentals and positive occupancy trends are expected to offset any moderate state-level budget pressures.

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Theodore Wahl (executive) explained that the Q2 revenue guidance of $445 million to $455 million accounts for the variable timing of new business starts, and reiterated that the mid-single-digit annual growth target is a better indicator of cadence. Vikas Singh (Chief Financial Officer) stated that the increased cash flow guidance was driven by a combination of receiving $12.2 million in ERC funds and the continuation of strong underlying collection momentum seen in recent quarters.

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CFO Brian Poff outlined a historical margin cadence, with Q1 as the low point, followed by a 40-50 basis point expansion in Q2 from payroll tax caps, and another step-up in Q4 from the annual hospice rate increase. Executive R. Allison clarified that an ACA rollback would have no direct effect on Addus, as their elderly and disabled patient base qualified for Medicaid long before the expansion.

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CEO R. Allison and President and COO W. Bickham projected that any impact from federal budget changes would likely be a 2026 event, not 2025. CFO Brian Poff detailed the expected 200 basis point sequential gross margin decline, attributing over 100 bps to normal payroll tax resets and merit increases, with the remainder due to the mix shift from the lower-margin Gentiva business. Poff also explained that strong hospice revenue per day was driven by the Medicare rate increase, a favorable service mix, and a positive implicit price concession.

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President and COO Brad Bickham described Missouri's reimbursement as solid and noted North Carolina's business is a small, high-margin case management operation. CFO Brian Poff stated the deal will be accretive, with more significant synergies expected in 12-18 months post-systems conversion. Regarding policy, management believes a federal minimum wage hike would not be material as they already pay above it, and they view potential Medicare expansion for personal care as a significant positive for the industry.

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An executive, likely Derick Apt, affirmed the AIT program provides a significant advantage and a deep bench of talent, though many leaders from the recent large acquisition are expected to be a good fit. Apt clarified that the forward run-rate for stock-based compensation is just over $4 million per month, as the large Q2 charge was mostly a one-time IPO-related vesting. He stated the Q2 impact from Medicaid supplemental programs was negligible and that potential revenue from California's program is not in guidance until payment is received from the state.

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PACS management explained that the leadership pipeline is strong, and the recent large acquisition included many capable local leaders, which supplements their AIT program. Executive Derick Apt clarified that the $90.9M stock compensation charge included a one-time $80M IPO-related vest, with the ongoing run-rate being just over $4M per month. He also noted that the impact from California's supplemental payment program was negligible in Q2 and is excluded from guidance until cash is received due to historical payment timing uncertainty.

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