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PACS Group, Inc. (PACS)·Q2 2024 Earnings Summary

Executive Summary

  • Revenue increased to $981.8M (+29.1% YoY, +5% QoQ), with strong occupancy at 91% and higher average Medicare and Medicaid daily rates; GAAP EPS was -$0.07 due to $90.9M IPO-related stock-based compensation recognized in Q2 .
  • Adjusted EBITDA grew to $99.7M (+77% YoY vs Q2 2023), and Adjusted EBITDA margin expanded QoQ to 10.16% on disciplined operations and acuity capture .
  • Bold catalyst: guidance raised for FY2024 revenue to $3.85B–$3.95B and Adjusted EBITDA to $370M–$380M, reflecting robust acquisition pipeline and strong rate environment. Strong Medicaid rate increases in several states and continued PDPM acuity capture support the outlook .
  • Consensus estimates: Wall Street consensus from S&P Global for Q2 2024 was unavailable at time of analysis due to SPGI request limits; estimate comparisons cannot be presented (see Estimates Context) [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • Elevated clinical quality and occupancy: 165 facilities achieved 4- or 5-star CMS Quality Measures ratings; total occupancy remained high at 91% in Q2, with ramping and mature cohorts at ~94% .
  • Revenue growth and rate improvement: Revenue rose 29.1% YoY to $981.8M; average Medicare daily rate rose 9.5% YoY; average Medicaid daily rate rose 3.5% YoY in Q2, underpinning revenue per patient day improvements .
  • Strategic expansion and real estate optionality: 28 facilities added post quarter-end across four new states; JV purchased real estate of 37 facilities; 31 purchase options provide future EBITDA capture from internalizing rent .
  • Management quote: “We had another strong quarter, again highlighted by 165 of our facilities having a 4 or 5 star CMS Quality Measures rating… a key driver of our revenue growth” — Jason Murray, CEO .

What Went Wrong

  • GAAP loss driven by stock comp: Q2 GAAP net loss of -$10.9M and EPS of -$0.07 were driven by $90.9M stock-based compensation tied to the April IPO; run-rate SBC is ~$4M/month going forward .
  • Skilled mix compression: Skilled mix by revenue fell to 51.2% from 58.0% YoY; skilled mix by nursing patient days declined to 29.2% from 34.7%, reflecting payor mix shifts as new facilities ramp .
  • New facility occupancy lag: New facilities’ occupancy was 84.2% (down from 88.3% YoY), indicative of ramp cycle dynamics and integration timeline .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$760.664 $934.721 $981.846
GAAP Net Income ($USD Millions)$21.220 $49.140 $(10.908)
Diluted EPS ($USD)$0.16 $0.38 $(0.07)
Operating Income ($USD Millions)$49.539 $79.960 $0.710
Adjusted EBITDA ($USD Millions)$56.367 $88.507 $99.737
Adjusted EBITDAR ($USD Millions)$107.823 (derived: 56.367+51.456) $152.468 $165.570
Operating Income Margin (%)6.51% (49.539/760.664) 8.56% (79.960/934.721) 0.07% (0.710/981.846)
Adjusted EBITDA Margin (%)7.41% (56.367/760.664) 9.47% (88.507/934.721) 10.16% (99.737/981.846)
Facility Cohort KPIsQ2 2023Q2 2024
All facilities — Skilled nursing services revenue ($USD Millions)$755.994 $973.082
All facilities — Occupancy (%)91.5% 91.0%
All facilities — Skilled mix by revenue (%)58.0% 51.2%
Mature facilities — Skilled nursing revenue ($USD Millions)$272.629 $298.199
Mature facilities — Occupancy (%)93.2% 94.2%
Ramping facilities — Skilled nursing revenue ($USD Millions)$237.944 $413.207
Ramping facilities — Occupancy (%)93.0% 94.4%
New facilities — Skilled nursing revenue ($USD Millions)$245.421 $261.676
New facilities — Occupancy (%)88.3% 84.2%
Rate & Volume KPIs (Total)Q2 2023Q2 2024
Average daily rate — Medicare ($USD)$870.03 $952.39
Average daily rate — Managed Care ($USD)$615.61 $625.09
Average daily rate — Medicaid ($USD)$294.46 $304.70
Average daily rate — Total ($USD)$465.23 $458.53
Available patient days (All facilities)1,773,346 2,225,208
Actual patient days (All facilities)1,621,868 2,023,865

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2024$3.65B–$3.75B $3.85B–$3.95B Raised
Adjusted EBITDAFY 2024$351M–$361M $370M–$380M Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 call)Current Period (Q2 call)Trend
CMS minimum staffing ruleSupport quality intent; concerns about workforce/funding; many PACS facilities already above 3.48 HPPD; large CA presence aligns with rule No material update in Q2 remarks; planning continues via local leadership and staffing model Neutral/monitor
Acquisition pipeline & pacingRobust pipeline; embedded EBITDA opportunity $80–$100M; guidance sensitivities to maturation 28 facilities added since quarter-end; accretion negligible near-term; disciplined pacing with human capital constraints considered Accelerating M&A
Rates (Medicare, PDPM acuity)Medicare rate increased 11% YoY in Q1; PDPM acuity capture drives RPPD Medicare average rate +9.5% YoY in Q2; CFO expects PDPM acuity capture to exceed base 2025 4.2% Medicare increase Positive
Medicaid ratesHealthy increases across states; model assumes ~2–2.5% LT growth Strong increases in KY, CO, OH in H2; guidance excluded WQIP timing Positive
Occupancy91.1% total; mature/ramping ~94–95% 91.0% total; ramping/mature ~94% sustained, minimal seasonality Stable high
Real estate strategy & options47 real estate assets; options on 27 87 real estate assets; options on 31; JV bought 37 facility real estate; 14-year average lease term Increasing ownership
Technology/data enablementData-enabled resources for faster decisions and outcomes Continued emphasis on real-time data to drive KPIs and outcomes Consistent

Management Commentary

  • “We had another strong quarter…165 of our facilities having a 4 or 5 star CMS Quality Measures rating…this is a key driver of our revenue growth…29.1% or $221.2 million” — Jason Murray, CEO .
  • “Average daily Medicare rates increased by 9.5%…and our average Medicaid rates…3.5%…due to state reimbursement increases and/or participation in supplemental…programs” — Jason Murray .
  • “Total facility occupancy was 91%…ramping and mature facility occupancy increased…while new facilities ended the quarter with 84.2% occupancy” — Derick Apt, CFO .
  • “Earnings per share for the quarter was negative $0.07…driven by…stock compensation expenses of $90.9 million associated with the restricted stock units granted at the time of our IPO” — Derick Apt .
  • “We are updating our guidance…annual revenue…$3.85–$3.95 billion…adjusted EBITDA…$370–$380 million” — Derick Apt .

Q&A Highlights

  • M&A pipeline robust; internal governors include real estate involvement, balance sheet, and human capital readiness; pacing flexible with a baseline view of ~20 buildings/year, opportunistically higher as quality assets emerge .
  • Near-term EBITDA contribution from Q3 acquisitions minimal; EBITDA uptick driven by mature/ramping cohorts maintaining high occupancy and rising RPPD; seasonality potentially stronger in winter months .
  • Embedded EBITDA trajectory: new buildings ramp from ~0–3% EBITDA margin toward high single-digit in 18–36 months and low-teens at maturity; recent 28-facility acquisition expected to reach 2–3% margins by late 2025 .
  • Medicaid rates: visibility improving with July increases in KY and CO and another in OH; LT modeling assumes ~2–2.5% growth; case mix index states allow acuity-driven rate control .
  • Stock-based comp run-rate: ~+$4M/month post-IPO, with ~$80M immediate vesting recognized in Q2; guidance excludes timing-sensitive CA WQIP supplemental revenue .
  • Purchase options: fixed-price options over 3–4 years enable internalization of rent to drive EBITDA; JV real estate approach optimized post stabilization .

Estimates Context

  • S&P Global consensus for Q2 2024 (revenue, EPS, EBITDA) was unavailable due to SPGI daily request limit; as a result, we cannot present actual vs consensus comparisons for Q2. We will update when SPGI data access is restored.

Key Takeaways for Investors

  • Guidance raise is the key catalyst: FY2024 revenue increased to $3.85B–$3.95B and Adjusted EBITDA to $370M–$380M, signaling confidence in acquisitions and rate environment .
  • Quality-led growth strategy is working: 165 facilities at 4/5-star CMS QM ratings and sustained ~91% occupancy underpin revenue and margin resilience despite payor mix shifts .
  • Near-term GAAP optics impacted by IPO SBC: $90.9M SBC drove Q2 GAAP loss; Adjusted EBITDA growth and margin expansion (to 10.16%) highlight underlying operating strength .
  • Ramping/mature cohorts drive margin and cash: operating performance is concentrated in higher-occupancy cohorts; new facilities are expected to reach low single-digit margins over ~12–24 months, adding embedded EBITDA for 2025 .
  • Rate tailwinds: PDPM acuity capture and state Medicaid increases (KY, CO, OH) support RPPD and earnings trajectory in H2; guidance conservatively excludes timing-sensitive CA supplemental payments .
  • Real estate optionality offers incremental upside: 31 purchase options and growing owned/JV real estate base create EBITDA opportunities via rent internalization over the next 3–4 years .
  • Trading lens: absent consensus comparisons, focus on execution vs raised guidance, occupancy stability into seasonally stronger H2, and pace of integration of 28+ new facilities; watch SBC run-rate and payor mix trajectory .