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PACS Group, Inc. (PACS)·Q3 2024 Earnings Summary

Executive Summary

  • PACS postponed its Q3 2024 earnings release and call pending an Audit Committee investigation into third‑party allegations; management emphasized confidence in controls and provided preliminary operating metrics instead .
  • Preliminary Q3 KPIs remained strong: total facilities occupancy 90.5% (vs industry ~77%), ramping/mature occupancy 93.9%/94.5%, with 76% of skilled nursing facilities at 4–5 star CMS QM ratings; liquidity expected to exceed $600M at quarter‑end .
  • Prior to Q3, FY24 guidance was raised after Q2 (Revenue: $3.85–$3.95B; Adj. EBITDA: $370–$380M), reflecting momentum in occupancy, rates, and acquisitions; no new guidance was issued with the Q3 postponement .
  • Potential stock reaction catalysts: the earnings postponement and government civil investigative demands (CIDs), plus strong preliminary occupancy/quality metrics and sizeable liquidity position .

What Went Well and What Went Wrong

  • What Went Well

    • Occupancy/quality maintained at high levels: Q3 total facilities occupancy 90.5% vs industry ~77%; 183 facilities (76% of the portfolio) achieved 4–5 star CMS QM ratings .
    • Cohort strength: ramping/mature occupancy 93.9%/94.5%; skilled mix 31.2%/32.1% in Q3 preliminary metrics, signaling continued ability to manage higher‑acuity patients .
    • Expansion and liquidity: 56 facilities acquired in six new states, expanding to 15 states in Q3; quarter‑end cash and available liquidity expected to exceed $600M .
    • Management tone: “We believe recent third‑party allegations are misleading… We have confidence in our systems and controls,” CEO Jason Murray (press release) .

  • What Went Wrong

    • Q3 financials postponed: results and call delayed as Audit Committee investigates third‑party allegations; company also disclosed receipt of CIDs regarding reimbursement and referral practices .
    • Non‑GAAP/GAAP divergence in Q2: GAAP EPS swung to a loss in Q2 (-$0.07) due to $90.9M stock‑based compensation linked to the April IPO, despite strong revenue growth and Adjusted EBITDA .
    • Mix headwinds vs prior year: Q2 skilled mix by revenue and by days declined YoY across cohorts (reflecting portfolio mix/new facility intake), though rates and occupancy offset at the consolidated level .

Financial Results

Quarterly comparison (oldest → newest). Note: Q3 2024 headline financials were not reported due to the postponement.

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Billions)$0.935B $0.982B Not reported — postponed
GAAP Diluted EPS ($)$0.38 $(0.07) Not reported — postponed
Adjusted EBITDA ($USD Millions)$88.5 $99.7 Not reported — postponed
Adjusted EBITDAR ($USD Millions)$152.5 $165.6 Not reported — postponed

Key operating metrics and cohorts:

KPIQ1 2024Q2 2024Q3 2024 (Prelim)
Total Facilities Occupancy (%)91.1% 91.0% 90.5% (industry ~77%)
CMS QM 4–5 Star Facilities158 (context from Q1 press) 165 (context from Q2 press) 183 (76% of portfolio)
Ramping Occupancy (%)95.0% (Q1) 94.4% (Q2) 93.9% (Q3 prelim)
Mature Occupancy (%)94.6% (Q1) 94.2% (Q2) 94.5% (Q3 prelim)
Ramping Skilled Mix by Days (%)34.1% (Q1) 33.0% (Q2) n/a (not disclosed)
Mature Skilled Mix by Days (%)32.5% (Q1) 32.2% (Q2) n/a (not disclosed)
Medicare Avg Daily Rate ($)$949 (Total, Q1) $952 (Total, Q2) n/a (not disclosed)

Notes:

  • Q2 GAAP net loss driven by $90.9M stock‑based comp linked to IPO RSUs; Adjusted EBITDA excludes this non‑core item .
  • Q3 included only preliminary KPIs; no consolidated P&L metrics reported due to postponement .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2024$3.65–$3.75B (issued with Q1) $3.85–$3.95B (raised with Q2) Raised
Adjusted EBITDAFY 2024$351–$361M (issued with Q1) $370–$380M (raised with Q2) Raised
  • No additional FY24 guidance update was provided with the Q3 postponement; the company stated it “expects to release its third quarter 2024 financial results as soon as practicable” .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2024)Trend
Compliance/legalQ1: Discussed staffing rule planning; strong compliance posture . Q2: Continued focus on care quality and contracting; no legal probes mentioned .Audit Committee investigating third‑party allegations; received federal CIDs on reimbursement/referral practices; mgmt asserts allegations are misleading and expresses confidence in controls .Heightened compliance focus; new investigation disclosure
Occupancy/qualityQ1/Q2 occupancy ~91%; 158→165 facilities with 4–5 star CMS QM; emphasis that quality drives payer contracting and rates .Prelim Q3 occupancy 90.5%; 183 facilities (76%) at 4–5 star QM .Still strong; cohort occupancy stable at high levels
Reimbursement (Medicare/Medicaid)Q1/Q2: Robust rate increases; Medicare +9–11% YoY; Medicaid +3.5–5.3%; case mix capture under PDPM .No new rate data disclosed in Q3 prelims .Prior positive trajectory; Q3 datapoints pending
M&A pipeline/expansionQ1/Q2: Strong pipeline; 28 facilities added post‑Q2; disciplined pacing; embedded EBITDA ramps with maturation .Q3 prelim: 56 facilities acquired in six new states; operations expanded to 15 states .Acceleration; broader footprint
Staffing rule/laborQ1: Company supports quality intent; sees sector‑wide hiring/funding challenges; PACS above threshold in many facilities .No update in Q3 prelims .Monitoring; planning
Liquidity/real estateQ1/Q2: Option to purchase real estate; JV; goal to own ~50% beds overtime .Q3 prelim: >$600M cash & available liquidity .Improved liquidity; optionality preserved

Management Commentary

  • Strategic focus on quality and compliance: “We believe recent third‑party allegations are misleading… the Company’s Audit Committee, with assistance from external counsel, is conducting an investigation… We have confidence in our systems and controls” — Jason Murray, CEO (Q3 prelim press release) .
  • Quality as revenue driver: “165 of our facilities having a 4 or 5 star CMS Quality Measures rating… a key driver of our revenue growth in the second quarter of 2024 of 29.1%” — Jason Murray (Q2 press release) .
  • Rates and acuity capture: “Our average daily Medicare rates increased by 9.5% [Q2]… and our average Medicaid rates… increased 3.5%… due to state reimbursement increases and/or supplemental payment and quality programs” — Management (Q2 call) .
  • Guidance rationale: Raised FY24 revenue and Adj. EBITDA after Q2 given strong occupancy, rate environment, and acquisitions (Q2 press) .

Q&A Highlights

  • M&A capacity and pacing: Management emphasized disciplined deal screening across capital and human capital availability; sees robust pipeline but underwrites to cohort maturation (new→ramping→mature) EBITDA build over 18–36 months .
  • EBITDA cadence: New acquisitions contribute little near‑term EBITDA; 2H uplift driven by mature/ramping cohort performance and seasonal acuity; winter months typically stronger .
  • Rates outlook: Medicaid rate momentum in several states (e.g., Kentucky, Colorado, Ohio) and ability to manage case mix acuity; Medicare rate capture above CMS headline via PDPM acuity alignment .
  • Real estate optionality: Fixed‑price purchase options and JV structure provide future EBITDA upside by internalizing rent when executed .

Note: Q3 call was postponed; highlights above reflect Q2 Q&A .

Estimates Context

  • S&P Global consensus estimates for Q3 2024 (revenue/EPS) could not be retrieved at the time of analysis due to service limits. As a result, we cannot present a vs‑consensus comparison for Q3. Values retrieved from S&P Global were unavailable at this time.

Key Takeaways for Investors

  • Near‑term uncertainty stems from the Audit Committee investigation and federal CIDs; timeline risk persists until full Q3 financials are released and issues are resolved or clarified .
  • Operating fundamentals appear intact: high occupancy and quality ratings, with preliminary Q3 KPIs broadly consistent with prior quarters and peer‑leading vs industry occupancy .
  • Rate capture and payer contracting remain structural tailwinds given higher‑acuity focus and quality performance, supporting medium‑term revenue per patient day expansion (pending Q3 financials) .
  • Acquisition engine is accelerating (56 facilities in Q3 prelim), expanding platform scale and embedded EBITDA opportunity as assets mature over 18–36 months .
  • Liquidity is ample (> $600M), providing flexibility to manage investigations, integration, and real estate option exercises without near‑term balance sheet stress .
  • Watch for: 1) timing of Q3 results release and any guidance updates; 2) specifics/findings from the audit/investigation; 3) confirmation of rate trends and skilled mix trajectory in reported Q3/Q4 numbers; 4) integration progress and early KPIs in newly added states .
  • Trading implications: headlines around the investigation and delayed earnings are likely to drive volatility; confirmation of continued operational strength and maintained FY24 guidance (or an updated FY25 outlook) could be positive catalysts upon release .

Appendix: Source Documents Read

  • Q3 2024 preliminary operational metrics press release (8‑K Item 2.02; postponement and KPIs) .
  • Q2 2024 results press release and financials (8‑K; revenue, EPS, Adj. EBITDA, KPIs, raised FY24 guidance) .
  • Q2 2024 earnings call transcript (operational commentary, rates, M&A, guidance color) .
  • Q1 2024 results press release and financials (8‑K; revenue, EPS, Adj. EBITDA, KPIs, initial FY24 guidance) .
  • Q1 2024 earnings call transcript (quality, staffing rule, occupancy) .