PACS Group, Inc. (NYSE: PACS) is a leading national post-acute healthcare provider, focused on delivering high-quality skilled nursing care through a portfolio of independently operated facilities. With a history dating back to 2013, PACS Group has grown to become one of the largest skilled nursing operators in the United States, with 220 facilities spanning 9 states and serving over 22,000 patients daily.

Company Background and Strategy

The company's success is rooted in its expertise in acquiring underperforming long-term custodial care skilled nursing facilities and transforming them into higher-acuity, high value-add short-term transitional care facilities. This strategy was conceived by founders Jason Murray and Mark Hancock, who recognized the opportunity to revitalize struggling facilities in the post-acute care sector. PACS Group's decentralized, local operating model empowers its facility-level leadership teams to operate autonomously, delivering excellence in clinical quality and a superior experience for patients. This approach has allowed PACS to rapidly integrate new acquisitions and drive operational improvements across its growing portfolio.

Growth and Expansion

Throughout its history, PACS Group has demonstrated a consistent ability to expand its footprint through strategic acquisitions and long-term leases. The company's growth has been primarily driven by a combination of real estate purchases and lease agreements, allowing it to enter new markets and increase its bed capacity. In 2021, PACS faced a challenge when it acquired a facility with pre-existing regulatory and compliance issues, which required significant effort to resolve post-acquisition. This experience led the company to invest heavily in compliance, technology, and operational support to better navigate the complex regulatory landscape of the healthcare industry.

Recent Acquisitions

PACS Group's financial performance has been shaped by its strategic acquisition strategy. During the six months ended June 30, 2024, the company expanded its operations with the addition of 11 stand-alone skilled nursing facilities and 1 assisted living facility, adding a total of 1,500 skilled nursing beds and 174 assisted living beds to its portfolio. Subsequent to June 30, 2024, the company's operations grew further with the addition of 28 stand-alone facilities through long-term leases across seven states, including four new states for the company. These new facilities added 1,450 skilled nursing beds and 831 assisted living and independent living beds.

Financials

The company's revenue for the six months ended June 30, 2024 totaled $1.92 billion, a 30.5% increase compared to the same period in 2023. This growth was driven by a 30% increase in skilled nursing services revenue, which represented over 99% of patient and resident service revenue. The increase in operational beds and consistent occupancy across the company's facilities contributed to the revenue expansion.

For the most recent quarter (Q2 2024), PACS Group reported revenue of $981,846,000, representing a 29.1% increase compared to Q2 2023. This growth was primarily driven by an increase in operational beds of 3,950 from June 30, 2023 to June 30, 2024. However, the company experienced a net loss of $10,910,000 in Q2 2024. Operating cash flow for the quarter was $34,813,000, while free cash flow stood at $19,481,000.

The company maintained high occupancy across all facilities at 91% for Q2 2024, slightly down from 91.5% in Q2 2023 due to lower occupancy at newer facilities. The increase in revenue was partially offset by higher costs, including a 29% increase in salaries and wages.

PACS Group's patient and resident service revenue, which accounts for over 99% of total revenue, is derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living, and hospice services. The company generates revenue from various sources, with Medicare and Medicaid representing significant portions of its routine revenue. For the three months ended June 30, 2024, Medicare and Medicaid represented 37.5% and 38.1% of PACS Group's routine revenue, respectively. For the six months ended June 30, 2024, these figures were 36.6% and 38.4%, respectively.

Key performance metrics for the skilled services segment include:

• Skilled Mix by Revenue: 51.2% for Q2 2024 and 51.6% for the first six months of 2024

• Skilled Mix by Nursing Patient Days: 29.2% for Q2 2024 and 29.5% for the first six months of 2024
• Occupancy: 91.0% as of June 30, 2024
• Number of Facilities: 214 post-acute care facilities as of June 30, 2024
• Number of Operational Beds: 24,480 skilled nursing beds as of June 30, 2024

Liquidity

PACS Group's financial position remains strong, with cash and cash equivalents of $73.4 million as of June 30, 2024. The company completed an initial public offering in April 2024, raising net proceeds of $414.2 million, which were used to repay $370 million outstanding under the company's credit facility and for general corporate purposes.

The company maintains a $600 million revolving credit facility, of which $248 million was outstanding as of June 30, 2024, leaving $340.35 million available. PACS Group's current ratio and quick ratio both stand at 1.71, indicating a healthy short-term liquidity position.

Challenges and Risks

However, the company is not without its challenges. In November 2024, PACS Group received a notice of late filing from the NYSE due to the delayed filing of its Q3 2024 Form 10-Q, citing an ongoing Audit Committee investigation of recent third-party allegations. This news caused the company's stock price to decline significantly. Additionally, the company faces risks related to regulatory compliance, labor shortages, and potential changes to government reimbursement programs.

Future Outlook

Despite these obstacles, PACS Group remains focused on its strategic growth initiatives, leveraging its operational expertise to identify and transform underperforming skilled nursing facilities. The company's commitment to clinical quality, operational excellence, and patient-centric care has been recognized, with 36 of its affiliated post-acute communities named to U.S. News & World Report's list of Best Nursing Homes for 2025, and 17 communities honored by Newsweek Magazine.

As PACS Group navigates the evolving healthcare landscape, its ability to successfully integrate new acquisitions, maintain regulatory compliance, and adapt to industry changes will be crucial in determining its future performance. The company's expansion strategy, focused on acquiring and improving underperforming skilled nursing facilities, has contributed to its growth, though it also exposes PACS Group to certain regulatory and operational risks associated with integrating new facilities into its portfolio.

Investors will be closely watching the company's progress as it continues on its transformative journey within the post-acute care sector. The stability of PACS Group's skilled mix metrics, both by revenue and nursing patient days, indicates that the company continues to serve a significant proportion of high acuity patients, which is a positive indicator for its business model. However, the recent challenges related to the delayed filing and ongoing investigation will likely remain a focus for stakeholders in the near term.