Q2 2024 PACS Group Inc Earnings Call

August 12, 2024

Operator: Hello, and welcome to the PACS Group Inc. second quarter fiscal year 2024 earnings conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star 1 at any time to be placed in the question queue.

Operator: Hello and welcome to the PACS Group Inc. second quarter fiscal year 2024 earnings conference call and webcast. At this time, all participants are in listen-only mode.

Speaker Change: Hello and welcome to the PAX Group Inc. second quarter fiscal year 2024 earnings conference call and webcast. At this time all participants are in listen-only mode. If anyone should require operator assistance please press star zero on your telephone keypad.

Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star 1 at any time to be placed in the question queue.

Speaker Change: A question and answer session will follow the formal presentation. You may press star 1 at any time to be placed into question queue.

Operator: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Derick Apt, CFO. Please go ahead, Derick.

Operator: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Derick Apt, our CFO. Please go ahead, Derick.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It's now my pleasure to turn the call over to Derick Apt's CFO. Please go ahead, Derick.

Derick Apt: Thank you, Kevin, and good afternoon, everyone. Thank you for joining us for our second quarter 2024 earnings call. I'm joined today by Jason Murray, our Chairman and CEO, and Josh Jergensen, our President and COO.

Derick Apt: Thank you, Kevin. And good afternoon, everyone. Thank you for joining us for our second quarter 2024 earnings call. I'm joined today by Jason Murray, our Chairman and CEO, and Josh Jergensen, our President and COO. Before we begin the prepared remarks, we'd like to remind you that this afternoon PACS Group issued a press release announcing its second quarter 2024 results. An investor presentation was published and is available in the Investor Relations section of PACS.com.

Derick Apt: Before we begin the prepared remarks, we'd like to remind you that this afternoon PACS Group issued a press release announcing its second quarter 2024 results. An investor presentation was published and is available in the investor relations section of PACS.com. I'd also like to remind everyone that during the course of today's conference call, we'll discuss certain forward-looking information. Any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate.

Speaker Change: Before we begin the prepared remarks, we'd like to remind you that this afternoon, Pax Group issued a press release announcing its second quarter 2024 results. An investor presentation was published and is available on the investor relations section of Pax.com.

Derick Apt: I'd also like to remind everyone that during the course of today's conference call, we'll discuss certain forward-looking information. Any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risk and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call.

Derick Apt: These statements are subject to risk and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. In addition to any risk highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect PACS Group's future results, as described in our quarterly report on Form 10-Q for the quarter ended June 30th and our other reports filed with or furnished to the SEC.

Speaker Change: I'd also like to remind everyone that during the course of today's conference call, we'll discuss certain forward-looking information. Any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate.

Speaker Change: These statements are subject to risk and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call.

Derick Apt: In addition to any risk highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect PACS Group's future results, as described in our quarterly report on Form 10-Q for the quarter ended June 30th and our other reports filed with or furnished to the SEC. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities law, PACS Group and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason.

Speaker Change: In addition to any risk highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect PACS group's future results as described in our quarterly report on Form 10-Q for the quarter ended June 30th and our other reports filed with or furnished to the SEC.

Derick Apt: Listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results, except as required by federal securities law, PACS Group and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason. Information discussed on this call concerning PACS Group's industry, competitive position, and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources, and management estimates, which are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from PACS Group's internal research and are based on reasonable assumption and computations made upon reviewing such data, and our experience and knowledge of our industry and markets.

Speaker Change: Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.

Speaker Change: except as required by federal securities law PACS group and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information future events changing circumstances or for any other reason

Derick Apt: Information discussed on this call concerning PACS Group's industry, competitive position, and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources, and management estimates, which are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from PACS Group's internal research and are based on reasonable assumptions and computations made upon reviewing such data, and our experience and knowledge of our By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the. During this call, we'll discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA-R. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP.

Speaker Change: Information discussed on this call concerning PAX Group's industry competitive position in the markets in which we operate is based on information from independent industry and research organizations, other third-party sources, and management estimates.

Speaker Change: which are derived from publicly available information released by independent industry analysts and other third-party sources as well as data from PACS Group's internal research and are based on reasonable assumption and computations made upon reviewing such data.

Derick Apt: By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the. During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA-R. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix in the investor relations presentation, which are both published and available on the investor relations section of PACS Group's website. I'll now turn the call over to Jason.

Speaker Change: and our experience and the knowledge of our industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates.

Speaker Change: During this call, we'll discuss certain non-GAAP financial measures.

Speaker Change: including adjusted EBITDA and adjusted EBITDA-R.

Speaker Change: These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP.

Jason Murray: For reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix in the investor relations presentation, which are both published and available on the investor relations section of PACS Group's website. I'll now turn the call over to Jason. Thanks, Derick. And thank you all for attending today's call. We continue to take great pride and responsibility in our mission of delivering better post-acute clinical care across the country and ensuring we elevate care for America's most vulnerable. We're proud of the work our more than 38,000 employees across the country provide each day. And we are inspired by their commitment to quality and excellence. They are the foundation of our success.

Jason: For reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix in the Investor Relations presentation, which are both published and available on the Investor Relations section of PAX Group's website. I'll now turn the call over to Jason.

Jason Murray: Thanks, Derick, and thank you all for attending today's call. We continue to take great pride and responsibility in our mission of delivering better post-acute clinical care across the country and ensuring we elevate care for America's most vulnerable. We're proud of the work our more than 38,000 employees across the country provide each day, and we are inspired by their commitment to quality and excellence. They are the foundation of our success.

Jason: Thanks, Derick, and thank you all for attending today's call. We continue to take great pride and responsibility.

Jason: with our mission of delivering better post-acute clinical care across the country and ensuring we elevate care for America's most vulnerable. We're proud of the work of our more than 38,000 employees across the country provide each day, and we are inspired by their commitment to quality and excellence. They are the foundation of our success.

Jason Murray: We're proud to report that we have built upon our strong first quarter performance into the second quarter of this year. We saw an increase in the number of buildings with four or five stars in the quality measure ratings, as well as continued strong financial performance from our buildings. Clinically, our teams continue to push for better outcomes for our patients and residents. Our leading indicator of better clinical results is the CMS quality measure or QM star rating.

Jason: We're proud to report that we have built upon our strong first quarter performance into the second quarter of this year. We saw an increase in the number of buildings with four or five star quality measure ratings.

Jason: as well as continued strong financial performance from our buildings. Clinically, our teams continue to push for better outcomes for our patients and residents. Our leading indicator of better clinical results is the CMS Quality Measure, or QM, star rating.

Jason Murray: Over the second quarter, we had seven buildings move into a four star rating, resulting in one hundred and sixty five or seventy five percent of our skilled nursing portfolio having achieved a four or five star CMS QM rating. To better illustrate our facility's dedication to quality, I'd like to share a quick anecdote from one of our facilities. In Q1 of this year, we acquired a highly distressed facility in the state of California. The facility lacked the clinical capability to admit higher-acuity patients, resulting in a depressed census of less than 60 percent.

Jason Murray: Over the second quarter, we had seven buildings move into a four star rating, resulting in one hundred and sixty five or seventy five percent of our skilled nursing portfolio having achieved a four or five star CMS QM rating. To better illustrate our facility's dedication and quality, I'd like to share a quick anecdote from one of our facilities. In Q1 of this year, we acquired a highly distressed facility in the state of California. The facility lacked the clinical capability to admit higher-acuity patients, resulting in a depressed census of less than 60 percent.

Jason: Over the second quarter, we had 7 buildings move into 4-star rating, resulting in 165 or 75% of our skilled nursing portfolio having achieved a 4 or 5-star CMS-QM rating.

Jason: To better illustrate our facility's dedication of quality, I'd like to share a quick anecdote from one of our facilities.

Jason: In Q1 of this year we acquired a highly distressed facility in the state of California. The facility lacked the clinical capability to admit higher acuity patients resulting in a depressed census of less than 60 percent.

Jason Murray: Since the acquisition, the facility leadership has invested heavily in the recruitment, training, and education of staff, as well as adding additional tools and resources to improve care. These efforts have yielded impressive results. And more importantly, the facility has earned a higher level of confidence in the community it serves. As a result, during Q2, the facility achieved and maintained an average daily census of over 95% and had increased its skilled mix from less than 10 patients daily at acquisition to over 60.

Jason Murray: Since the acquisition, the facility leadership has invested heavily in the recruitment, training, and education of staff, as well as adding additional tools and resources to improve care. These efforts have yielded impressive results. And more importantly, the facility earned a higher level of confidence in the community it serves. As a result, during Q2, the facility achieved and maintained an average daily census of over 95% and had increased its skilled mix from less than 10 patients daily at acquisition to over 60.

Jason: Since the acquisition, the facility leadership has invested heavily in the recruitment, the training, and education of staff, as well as adding additional tools and resources to improve care. These efforts have yielded impressive results.

Jason: And more importantly, the facility has earned a higher level of confidence in the community it serves. So, as a result, during Q2, the facility achieved and maintained an average daily census of over 95% and had increased its skilled mix from less than 10 patients daily at acquisition to over 60.

Jason Murray: The facility has recently been approached by one of their local hospitals and asked if they'd like to be a preferred partner to take care of their higher-acuity patients. The facility now has the staff and the clinical competence to serve its community in a meaningful way. The improvement in clinical outcomes is truly the most important factor in our financial strength. This is represented in our revenue growth year over year of 29.1%, or $221.2 million, for the second quarter and a 30.5% increase, or $447.5 million, year over year for the first six months of the year.

Jason: The facility is recently approached by one of their local hospitals and asked if they'd like to be a preferred partner to take care of their higher acuity patients.

Jason: The facility now has the staff and the clinical competence to serve its community in a meaningful way.

Speaker Change: The improvement of clinical outcomes is truly the most important factor in our financial strength.

Jason Murray: This is represented in our revenue growth year over year of 29.1% or $221.2 million for the second quarter and a 30.5% increase or $447.5 million for the first six months of the year. Our revenue was driven higher by several factors when compared with the same quarter last year. In addition to maintaining 90% plus occupancy in our ramping and mature facilities, we also saw revenue per patient day increases. For example, our average daily Medicare rates increased by 9.5% for the second quarter of 2024 compared to the second quarter of 2023 and 10.3% for the six months ended June 30, 2024 compared to the same period last year. And our average Medicaid rates over the same period increased by 3.5% and 4.3% over the same periods, respectively.

Speaker Change: This is represented in our revenue growth year-over-year of 29.1%, or $221.2 million for the second quarter, and a 30.5% increase for the third quarter.

Jason Murray: Our revenue was driven higher by several factors when compared with the same quarter last year. In addition to maintaining 90% plus occupancy in our ramping and mature facilities, we also saw revenue per patient day increases. For example, our average daily Medicare rates increased by 9.5% for the second quarter of 2024 compared to the second quarter of 2023, and 10.3% for the six months ended June 30, 2024 compared to the same period last year.

Speaker Change: for $447.5 million year-over-year for the first six months of the year.

Speaker Change: Our revenue was driven higher by several factors when compared with the same quarter last year.

Speaker Change: In addition to maintaining 90%-plus occupancy in our ramping and mature facilities,

Speaker Change: We also saw revenue per patient day increases. For example,

Speaker Change: our average daily Medicare rates

Speaker Change: increased by 9.5% for the second quarter of 2024.

Speaker Change: compared to the second quarter of 2023, and 10.3% for the six months ended June 30, 2024, compared to the same period last year. And our average Medicaid rates over the same period increased 3.5% and 4.3% over the same periods, respectively.

Jason Murray: And our average Medicaid rates over the same period increased by 3.5% and 4.3% over the same periods, respectively, due to state reimbursement increases and our participation in supplemental Medicaid payment and quality improvement programs. Both increases come from our efforts to keep health care local by recognizing and serving patients' acuity needs locally. This also allows us to properly meet the continuing shift of higher-acuity patients being discharged from acute care settings into skilled nursing facilities.

Jason Murray: Due to state reimbursement increases and our participation in Supplemental Medicaid Payments and Quality Improvement Programs. Both increases come from our efforts to keep health care local by recognizing and serving patients' acuity needs locally. This also allows us to properly meet the continuing shift of higher-acuity patients being discharged from acute care settings into skilled nursing facilities. Outlook for continued growth remains strong, with a robust acquisition pipeline and continued improvements, both clinically and financially, in the operations we've recently acquired.

Speaker Change: due to the state reimbursement increases and or participation in supplemental Medicaid payment and quality improvement programs.

Speaker Change: Both increases come from our efforts to keep health care local.

Speaker Change: by recognizing and serving patients' acuity needs locally.

Speaker Change: This also allows us to properly meet the continuing shift of higher acuity patients being discharged from acute care settings into skilled nursing facilities. Outlook for continued growth remains strong, with a robust acquisition pipeline and continued improvements both clinically and financially in the operations we've recently acquired.

Jason Murray: Outlook for continued growth remains strong with a robust acquisition pipeline and continued improvements, both clinically and financially, in the operations we've recently acquired. To support further growth, we continue to focus efforts on a robust administrator and training program where we have a pool of talent ready to take on leadership roles at new facilities. The AIT program success includes roughly 200 PACS AITs hired since our founding, with 157 still employed with us and licensed administrators and other leadership positions, a retention rate of about 75%, which we're very proud of. We currently have 31 AITs in our program to help facilitate further strengthening existing facilities and to support our growth.

Jason Murray: To support further growth, we continue to focus efforts on a robust administrator and training program, where we have a pool of talent ready to take on leadership roles at new facilities. The AIT program success includes roughly 200 PACS AITs hired since our founding, with 157 still employed with us and licensed as administrators and other leadership positions, a retention rate of about 75%, which we're very proud of. We currently have 31 AITs in our program to help facilitate further strengthening existing facilities and to support our growth.

Speaker Change: To support further growth, we continue to focus efforts on our robust administrator and training program, where we have a pool of talent ready to take on leadership roles at new facilities.

Speaker Change: The AIT program's success includes roughly 200 PACS AITs hired since our founding, with 157 still employed with us and licensed administrator and other leadership positions. A retention rate of about 75%, which we're very proud of.

Speaker Change: We currently have 31 AITs in our program to help facilitate further strengthening existing facilities and to support our growth.

Jason Murray: In addition to training new leaders, the PACS leadership model allows our local leaders to make operational decisions as close to our patients and employees as possible, which is ultimately better for the residents and the community in which they live. With support from PACS services, our back office, clinical, compliance, and business support team, our teams are able to stay laser focused on providing quality clinical care while creating a culture that attracts the best employees to our sector.

Speaker Change: In addition to training new leaders, the PACS leadership model allows our local leaders to make operational decisions as close to our patients and employees as possible, which is ultimately better for the residents and community in which they live.

Jason Murray: With support from PACS services, our back office, clinical, compliance, and business support team, our teams are able to stay laser focused on providing quality clinical care while creating a culture that attracts the best employees to our sector. Not only is our growth supported by our leadership pipeline and robust clinical processes, but PACS also empowers our facilities with technology and data-enabled resources that allow our clinicians and administrators to make decisions more quickly with a higher positive impact on patient care.

Speaker Change: With support from PACS services, our back office, clinical, compliance, and business support team, our teams are able to stay laser focused on providing quality clinical care while creating a culture that attracts the best employees to our sector.

Jason Murray: Not only is our growth supported by our leadership pipeline and robust clinical processes, but PACS also enables our facilities with technology and data-enabled resources that allow our clinicians and administrators to make decisions more quickly with a higher positive impact on patient care. We provide real-time data that allows both our local teams and PACS services to prioritize the most important KPIs that lead to more consistent clinical outcomes for better financial performance. So, as we look forward to the second half of 2024, the improvements that we have planned and the 28 new facilities we've already added in Q3, the quality of our people helps ensure we stay in a strong business position moving forward. So with that, I'll now turn the call back over to Derek to cover our financial highlights from the quarter.

Speaker Change: Not only is our growth supported by our leadership pipeline and robust clinical processes,

Speaker Change: The PACS also enables our facilities with technology and data-enabled resources that allow our clinicians and administrators to make decisions more quickly with a higher positive impact on patient care. We provide real-time data that allows both our local teams and PACS services to prioritize

Jason Murray: We provide real-time data that allows both our local teams and PACS services to prioritize the most important KPIs that lead to more consistent clinical outcomes for better financial performance. So we look forward to the second half of 2024.

Speaker Change: the most important KPIs that lead to more consistent clinical outcomes for better financial performance.

Derick Apt: The improvements that we have planned and the 28 new facilities we've already added in Q3. The quality of our people helps ensure we stay in a strong business position moving forward. So with that, I'll now turn the call back over to Derick to cover our financial highlights from the quarter. Thank you, Jason, and thank you to our employees for continuing to push to meet our mission of excellence in serving our patients, residents, and communities where we operate.

Speaker Change: So we look forward to the second half of 2024, the improvements that we have planned, and the 28 new facilities we've already added in Q3. The quality of our people helps ensure we stay in a strong business position moving forward. So with that, I'll now turn the call back over to Derek to cover our financial highlights from the quarter.

Derick Apt: Thank you, Jason, and thank you to our employees for continuing to push to meet our mission of excellence in serving our patients, residents, and communities where we operate. First, I wanted to highlight that since the close of the second quarter on June 30th, we have successfully completed the acquisition of 28 additional facility operations and entered into four new states. Additionally, we closed on a JV investment, which purchased the real estate of 37 facilities.

Derek: Thank you, Jason, and thank you to our employees for continuing to push to meet our mission of excellence in serving our patients, residents, and communities where we operate.

Derick Apt: First, I wanted to highlight that since the close of the second quarter on June thirtyth, we have successfully completed the acquisition of twenty eight additional facility operations and entered into four new states. Additionally, we closed on a JV investment, which purchased the real estate of thirty seven facilities.

Derek: First, I wanted to highlight, since the close of the second quarter on June 30th, we have successfully completed the acquisition of 28 additional facility operations and entered into four new states. Additionally, we closed on a JV investment, which purchased the real estate of 37 facilities.

Derick Apt: A few financial highlights from the quarter. We had $981.8 million of revenue for three months into June 30th, a 29.1% increase over the prior year period. And we had $1.9 billion of revenue for the first six months of the year, a 30.5% increase over that same period in 2023. Adjusted EBITDA was $318 million, and adjusted EBITDA was $188.2 million, respectively, for the first six months of June 2024. Adjusted EBITDA grew by 53.8% year-over-year for the first six months.

Derick Apt: A few financial highlights from the quarter. We had $981.8 million of revenue for the three months into June 30th, a 29.1% increase over the prior year period, and we had $1.9 billion of revenue for the first six months of the year, a 30.5% increase over that same period in 2023. Adjusted EBITDA was $318 million, and adjusted EBITDA was $188.2 million, for the first six months of June 2024. Adjusted EBITDA grew by 53.8% year-over-year for the first six months.

Derek: A few financial highlights from the quarter.

Derek: We had $981.8 million of revenue for three months into June 30th, a 29.1% increase over prior year period.

Derek: and we had $1.9 billion of revenue for the first six months of the year, a 30.5% increase over that same period in 2023. Adjusted EBITDA was $318 million and adjusted EBITDA was $188.2 million, respectively, for the first six months into June 2024. Adjusted EBITDA grew by 53.8% year-over-year for the first six months.

Derick Apt: And last, our earnings per share for the quarter was negative 7 cents, which was driven by an increase in stock compensation expenses of $90.9 million associated with the restricted stock units granted at the time of our IPO in April.

Derek: And last, our earnings per share for the quarter was negative 7 cents, which was driven by an increase in stock compensation expenses of $90.9 million associated with the restricted stock units granted at the time of our IPO in April.

Derick Apt: Total facility occupancy was 91% during the second quarter, compared to an industry average of 76%. Specifically, our ramping and mature facility occupancy increased by 1.4% and 1%, respectively, over the prior year quarter. While our new facilities ended the quarter with 84.2% occupancy, a 0.9% increase over the prior quarter, historically, this occupancy improves to 90% plus during the first three years of PACS operations. We attribute our revenue growth in part to adding 3,947 operating beds to the company over the past year, which represents a 24.8% increase in patient days.

Derick Apt: Total facility occupancy was 91% during the second quarter, compared to an industry average of 76%. Specifically, ramping and mature facility occupancy increased by 1.4% and 1%, respectively, over the prior year quarter. Meanwhile, our new facilities ended the quarter with 84.2% occupancy, a 0.9% increase over the prior quarter. Historically, this occupancy improves to 90% plus during the first three years of PACS operations.

Derek: Total facility occupancy was 91% during the second quarter, compared to an industry average of 76%. Specifically, our ramping and mature facility occupancy increased by 1.4% and 1% respectively over the prior year quarter.

Derek: While our new facilities ended the quarter with 84.2% occupancy, a 0.9% increase over the prior quarter, historically this occupancy improves to 90% plus during the first three years of PACS operations.

Derick Apt: Additionally, we realize improvement on revenue per patient day in our mature and ramping facilities. We continue the growth of our overall bed count in the second quarter with the addition of two new operations. As previously mentioned, we have added 28 facilities since June 30th, which have added 1,450 skilled nursing beds and 831 assisted living and senior living beds to our portfolio. Our average Medicare revenue per patient day grew through the second quarter across all facilities at $952 per patient day compared to $870 in Q2 of 2023.

Derick Apt: We attribute our revenue growth in part to adding 3,947 operating beds to the company over the past year, which represents a 24.8% increase in patient days. Additionally, we realize improvement in revenue per patient day in our mature and ramping facilities. We continue the growth of our overall bed count in the second quarter with the addition of two new operations. Additionally, as previously mentioned, we have added 28 facilities since June 30th, which have added 1,450 skilled nursing beds and 831 assisted living and senior living beds to our portfolio.

Derek: We attribute our revenue growth in part to adding 3,947 operating beds to the company over the past year, which represents a 24.8% increase in patient days. Additionally, we realize improvement on revenue per patient day in our mature and ramping facilities.

Derek: We continue the growth of our overall bed count in the second quarter with the addition of two new operations.

Derek: And as previously mentioned, we added 28 facilities since June 30th.

Derek: which have added 1,450 skilled nursing beds and 831 assisted living and senior living beds to our portfolio.

Derick Apt: Our average Medicare revenue per patient day grew through the second quarter across all facilities at $952 per patient day compared to 870 in Q2 of 2023, and our overall revenue per patient day for Q2 was $459 per patient day. Our teams continue to make operational improvements in our newly acquired facilities, which resulted in a 29% year-over-year increase in cost of services. Additionally, net of stock compensation expenses, we realized a 15% decrease in G&A over the same period last year and an 18% for the first 6 months of 2024 over the same period in 2023.

Derek: Our average Medicare revenue per patient day grew through the second quarter across all facilities at $952 per patient day compared to $870 in Q2 of 2023, and our overall revenue per patient day for Q2 was $459 per patient day.

Derick Apt: And our overall revenue per patient day for Q2 was $459 per patient day. Our teams continue to make operational improvements in our newly acquired facilities, which resulted in a 29% year-over-year increase in cost of services. Additionally, net of stock compensation expenses, we realized a 15% decrease in G&A over the same period the previous year and an 18% for the first 6 months of 2024 over the same period in 2023.

Derek: Our teams continue to make operational improvements in our newly acquired facilities, which resulted in a 29% year-over-year increase in cost of services. Additionally, net of stock compensation expenses, we realized a 15% decrease in G&A over the same period prior year, and an 18% for the first six months of 2024 over the same period in 2023.

Derick Apt: Finally, we exercised two purchase options and acquired one additional real property in the quarter. The addition of these facilities brings our total owned facilities to 38. We currently own or have joint venture real estate interests and purchase options on 37.7% of our beds, with a long-term goal of owning 50% of our overall portfolio. Of our facilities that we leased, we have an average of 14 years remaining on the initial term.

Derek: Finally, we exercised two purchase options and acquired one additional real property in the quarter. The addition of these facilities brings our total owned facilities to 38. We currently own or have joint venture real estate interest and purchase options on 37.7% of our beds, with a long-term goal of owning 50% of our overall portfolio.

Derek: Of our facilities that we lease, we have an average of 14 years remaining on the initial term.

Derick Apt: And now I'll turn to guidance. We look forward to a great second half for 2024 with our growth year to date, including the closing of 28 operations in the last six weeks. We're updating our guidance for the full year as follows. We expect annual revenue to be between $3.85 and $3.95 billion.

Jason Murray: We look forward to a great second half for 2024 with our growth year to date, including the closing of 28 operations in the last six weeks. We're updating our guidance for the full year as follows. We expect annual revenue to be between $3.85 and $3.95 billion. The midpoint of this range is a 25% increase over 2023 revenue. And we expect adjusted EBITDA to be between $370 million and $380 million in 2024. I'll now turn the call back over to Jason.

Derek: And now I'll turn to guidance.

Derek: We look forward to a great second half for 2024, with our growth year to date including the closing of 28 operations in the last 6 weeks. We are updating our guidance for the full year as follows.

Jason Murray: The midpoint of this range is a 25% increase over 2023 revenue, and we expect adjusted EBITDA to be between $370 million and $380 million for 2024. I'll now turn the call back over to Jason.

Derek: We expect annual revenue to be between $3.85 and $3.95 billion.

Derek: The midpoint of this range is a 25% increase over 2023 revenue. And we expect adjusted EBITDA to be between $370 million and $380 million for 2024. I'll now turn the call back over to Jason.

Unknown Executive: Hello, and welcome to the PACS Group Inc. 2nd quarter fiscal year 2024 earnings conference call and webcast. At this time, we'll participate in 20 listen only mode.

Operator: Thanks, Derick. With that, Operator, I believe we're ready for questions.

Operator: Thanks, Derick. With that, operator, I believe we're ready for questions. Certainly, without the conduct of a question-and-answer session, if you'd like to be placed in the question queue, please press star 1 on your telephone keypad.

Unknown Executive: If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed in the question cue.

Operator: Certainly, without the conduct of a question and answer session, if you'd like to be placed into the question queue, please press star 1 on your telephone keypad. One moment, please while we poll for questions. Our first question is coming from David MacDonald from Truist Securities. Your line is now live.

Jason: Thanks, Derick. With that, operator, I believe we're ready for questions.

Speaker Change: Certainly, without the conducting of a question and answer session, if you'd like to be placed into the question queue, please press star 1 on your telephone keypad. One moment please while we poll for questions. Our first question is coming from David McDowell from Truist Securities. Your line is now live.

Operator: One moment, please, while we poll for questions. Our first question is coming from David MacDonald from Truist Securities. Your line is now live. Hey guys, a couple of questions. I'm just curious, look, M&A has been a little bit more robust in CIPO than we had expected. I guess just any... General Comments on the opportunity that you see among skilled mix, occupancy, etc. within either the recent or even the pending acquisitions kind of relative to the overall company, and then I have one or two others. Okay, well, thanks, Dave. Good to hear from you.

Unknown Executive: As a reminder, this conference is being recorded.

Derick Apt: It's not my pleasure to turn the call over to Derrick Apt, CFO. Please go ahead, Derrick. Thank you, Kevin, and good afternoon, everyone. Thank you for joining us for our second quarter 2024 earnings call. I'm joined today by Jason Murray, our chairman and CEO and Josh Jergensen, our president and COO. Before we begin the prepared remarks, we'd like to remind you that this afternoon PACS Group issued a press release announcing its 2nd quarter 2024 results.

David MacDonald: Hey guys, a couple of questions. I'm just curious, look, M&A has been a little bit more robust in CIPO than we had expected. I guess just any... General comments on the opportunity that you see among skilled mix, occupancy, etc. within either the recent or even the pending acquisitions kind of relative to the overall company, and then I've got one or two others.

David McDowell: Hey guys, a couple of questions. I'm just curious, look MNA has been a little bit more robust in CIPO than we had expected. I guess just any

David McDowell: general comments on the opportunity that you see amongst skilled mix, occupancy, etc. within either the recent or even the pending acquisitions kind of relative to the overall company and then I got one or two others.

Derick Apt: An investor presentation was published and available on investor relations section of PACS.com. I'd also like to remind everyone that during the course of today's conference call, we'll discuss certain forward-looking information. Any forward-looking statements made today are based on management's current expectation, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risk and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call.

Jason Murray: And yeah, the opportunities out there continue to be robust is the best way to describe our M&A pipeline, you know, since IPO and even prior to that. But the acquisitions that we've announced for Q2 and then more robustly and already in Q3, the opportunity to move skilled mix in those buildings is pretty large. You know, for the most part, the buildings are operating less than 50% of where we operate our skilled mix, and the occupancy is much lower than our average. It's closer to the national average,

Jason Murray: Okay, well, thanks, Dave. Good to hear from you.

Derick Apt: In addition to any risk highlight during this call, you should carefully consider other important risk factors and disclosures that may affect PACS Group's future results as described in our quarterly report on Form 10Q for the quarter-ended June 30th, and our other reports filed with or furnished to the SEC. Listeners should not place under reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.

David McDowell: Okay

Speaker Change: Well, thanks, Dave. Good to hear from you. And yeah, the opportunities out there continue to be robust is the best way to describe our M&A pipeline, you know, since IPO and even prior to that, but the acquisitions that we've announced, you know, for Q2 and then more robustly and already in Q3, the opportunity to move skilled mix in those buildings is pretty large. You know, for the most part, the buildings are operating less than 50% of where we operate our skilled mix at. And the occupancy is much lower than our average. It's closer to the national average. So, we see a lot of upside in these opportunities to kind of execute on the PACS playbook of both increasing the clinical capacity.

Jason Murray: It's closer to the national average, so we see a lot of upside in these opportunities to kind of execute on the PACS playbook of both increasing the clinical outcomes, and moving the occupancy and the skilled mix to slash the acuity of those patients to yield better financial results as we acquire these and mature them through our process.

Jason Murray: So, we see a lot of upside in these opportunities to kind of execute on the PACS playbook of both increasing the clinical outcomes and moving the occupancy and the skilled mix to slash the acuity of those patients to yield better financial results as we acquire these and mature them through our process. And then guys, I guess just one quick follow-up on that is, You know, when we hear about it, it sounds like the pipeline's pretty full.

Jason Murray: Negril Apt, Jason Murray

Derick Apt: Except as required by federal securities law PACS Group and its affiliates, do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason. Information discussed on this call concerning PACS Group's industry competitive position in the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates, which are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from PACS Group's internal research and are based on reasonable assumption and computations made upon reviewing such data.

David MacDonald: And then guys, I guess just one quick follow-up on that is... You know, when we hear about it, it sounds like the pipeline's pretty full. How do we think about, you know, the internal governors in terms of, you know, M&A? Obviously, it's a decentralized model. So it's not, you know, what we traditionally think about is there's only a certain amount that, you know, you can kind of do in a certain period of time.

Speaker Change: and then guys I guess just one quick follow-up on that is

Speaker Change: You know, when we hear about it, it sounds like the pipeline's pretty full.

Jason Murray: How do we think about, you know, the internal governors in terms of, you know, M&A? Obviously, it's a decentralized model. So it's not, you know, what we traditionally think about is that there's only a certain amount that you can kind of do in a certain period of time.

Speaker Change: How do we think about, you know, the internal governors in terms of...

Speaker Change: You know, M&A obviously is a decentralized model. So it's not what we traditionally think about, there's only a certain amount that you can do in a certain period of time. So I'm just curious how you think about the pacing of potential further M&A.

Jason Murray: So I'm just curious about the pacing of potential further M&A on a going forward basis and how you think about that. Just given, again, what our checks suggest is, you know, a pretty full opportunity in terms of ongoing consolidation. Yeah, yeah.

David MacDonald: So I'm just curious how you think about the pacing of potential further M&A on a going forward basis and how you think about that. Just given, again, what our check suggests is, you know, a pretty full opportunity in terms of ongoing consolidation.

Speaker Change: on a go forward basis and how you think about that just given, again, what our check suggests is, you know, a pretty full opportunity in terms of ongoing consolidation.

Derick Apt: In our experience and the knowledge of our industry and markets, by definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non-gap financial measures, including adjusted EBITDA and adjusted EBITDA. These non-gap financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAP. For reconciliation of non-gap financial measures discussed during this call to the most directly comparable GAP measures, please refer to the earnings release and the pinnix in the Investor Relations presentation, which are both published and available on the Investor Relations section of PACS Group's website.

Jason Murray: Yeah, yeah, great follow-up question there, Dave. You know, from our perspective, when we review opportunities, we stay disciplined and strategic in looking at the most opportune set of buildings that we could acquire, whether that's in a new state or that's a tuck-in in an existing region. And typically, when we sit down to discuss that through, you know, we're looking at what the deal cost is. Is there real estate involved, or not? Is there any limit on the balance sheet and the capital?

Jason Murray: Great follow-up question there, Dave. You know, from our perspective, when we review opportunities, we stay disciplined and strategic in looking at the most opportune set of buildings that we could acquire, whether that's in a new state or that's a tuck-in in an existing region. And typically, when we sit down to discuss that through, you know, we're looking at what the deal cost is. Is there real estate involved, or not? Is there any limit on the balance sheet and the capital?

Speaker Change: Yeah, yeah, great follow-up question there, Dave. You know, from our perspective, when we review opportunities, we stay disciplined and strategic in looking at the most opportune set of buildings that we could acquire, whether that's in a new state or that's a tuck-in in an existing region. And typically when we sit down to discuss that through, you know, we're looking at what is the deal cost? Is the real estate involved or not? Is there any limits on the balance sheet and the capital? And then also we always bring in the human capital component, right? Because we have to have the human capital to make the necessary clinical outcome changes.

Jason Murray: And then also, we always bring in the human capital component, right? Because we have to have the human capital to make the necessary clinical outcome changes to get our product the best it can be to yield those financial results. So, as we look to the future, we're always evaluating that, whether that's, you know, only adding two buildings in Q2 or adding, you know, the 28 we have so far in Q3. And we'll continue to go through that same process for every deal that we look at.

Jason Murray: I'll now turn the call over to Jason. Thanks, Derek. And thank you all for attending today's call.

Speaker Change: to get our product the best it can to yield those financial results. So, as we look to the future, we're always evaluating that, whether that's, you know, only adding two buildings in Q2 or adding, you know, the 28 we have so far in Q3, and we'll continue to go through that same process for every deal that we look at.

Jason Murray: We continue to take great pride and responsibility with our mission of delivering better post-acute clinical care across the country, and ensuring we elevate care for America's most vulnerable. We're proud of the work of our more than 38,000 employees across the country provide each day, and we are inspired by their commitment to quality and excellence. They are the foundation of our success. We're proud to report that we have built upon our strong first quarter performance into the second quarter of this year.

Jason Murray: As we roll out, it's hard to predict the future as far as what buildings are going to come through the pipeline. And I think we've talked in the past and, you know, throughout this year, we've always said that we feel that there's a pretty easy path to acquiring 20 buildings per year. And that's what's in our out-year models because, at the end of the day, those can be tucked into our existing regions without the presence of good M&A for maybe an expansion to a new state or region.

Speaker Change: As we roll out, it's hard to predict the future as far as what buildings are going to come through the pipeline. And I think we've talked in the past and throughout this year, we've always guided towards we feel that there's a pretty easy path to acquiring 20 buildings per year. And that's what's in our out-year models, because at the end of the day, those can be tucked into our existing regions without the presence of good M&A for maybe an expansion to a new state or a new region, because those deals take a little longer to diligence, and we have to wait for the right opportunity to be able to expand the actual geographic footprint. So, as of today, we're not changing from kind of that's what we believe the future path will be.

Jason Murray: And I think we've talked in the past and, you know, throughout this year about how we feel that there's a pretty easy path to acquiring 20 buildings per year. And that's what's in our out-year models. Because at the end of the day, those can be tucked into our existing regions without the presence of good M&A for maybe an expansion to a new state or a new region.

Jason Murray: We saw an increase in the number of buildings with four or five-star quality measure ratings, as well as continued strong financial performance from our buildings. Clinically, our teams continue to push for better outcomes for our patients and residents. Our leading indicator of better clinical results is the CMS quality measure or QAM star rating. Over the second quarter, we had seven buildings move into four star rating, resulting in 165 or 75% of our skilled nursing portfolio having achieved a four or five-star CMS QAM rating.

Joshua Jergensen: Because those deals take a little longer to diligence, and we have to wait for the right opportunity to be able to expand the actual geographic footprint. So, as of today, we're not changing from that. That's what we believe the future path will be. Now, that number may go up and down depending on the quarter. But from our perspective, we're going after the best opportunities that are in front of us versus chasing a specific deal or building count.

Jason Murray: Because those deals take a little longer to diligence, and we have to wait for the right opportunity to be able to expand the actual geographic footprint. So, as of today, we're not changing from that. We believe the future path will be. Now, that number may go up and down depending on the quarter. But from our perspective, we're going after the best opportunities that are in front of us versus chasing a specific deal or building count.

Jason Murray: The better illustrate or facility dedication of quality, I'd like to share a quick anecdote from one of our facilities. In Q1 of this year, we acquired a highly distressed facility in the state of California. The facility lacked the clinical capability to admit higher acute patients resulting in a depressed census of less than 60%. Since the acquisition, the facility leadership is invested heavily in the recruitment, the training, and education of staff, as well as adding additional tools and resources to improve care.

Speaker Change: be? Now that number may go up and down depending on the quarter. But from our perspective, we're going after the best opportunities that are in front of us versus chasing a specific deal or building count.

David MacDonald: And then guys, just last one for me: when you look at the quality scores, can you just talk about a little bit the impact that that has on the conversations with payers, and especially as you start entering new states, new markets, kind of the halo effect that that potentially has just in terms of, you know, again, the overarching conversations that you're having with some of the payers in your market?

Joshua Jergensen: And then guys, just last one for me, when you look at the quality scores, can you just talk about a little bit the impact that that has on the conversations with payers, and especially as you start entering new states, new markets, kind of a halo effect that that potentially has just in terms of, you know, again, the overarching conversations that you're having with some of the payers in your market? Yeah, good question there, Dave. This is Josh Jergensen.

Jason Murray: These efforts have yielded impressive results, and more importantly, the facilities are at a higher level of confidence in the community it serves. So as a result, during Q2, the facility achieved the maintained an average daily census of over 95% and had increased its skilled mix from less than 10 patients daily at acquisition to over 60. The facility has recently approached by one of their local hospitals and asked that they'd like to be a preferred partner to take care of their higher acute patients. The facility now has the staff and the clinical competence to serve its community in a meaningful way.

Speaker Change: And then guys just plus one for me when you look at the quality scores Can you just talk about a little bit the impact?

Speaker Change: that has on the conversations with payers, and especially as you start entering new states, new markets, kind of the halo effect that that potentially has just in terms of, you know, again, the overarching conversations that you're having with some of the payers in your market.

Joshua Jergensen: I'll take that one here. We talk often as a company, and you hear us, you know, discussing quality measures and, in general, quality care because it is what we do. It's our product. We lead out with that all the time.

Joshua Jergensen: Yeah, good question there, Dave. This is Josh Jergensen. I'll take that one here.

Josh Jurgensen: Yeah, good question there, Dave. This is Josh Jurgensen. I'll take that one here. We talk often as a company and you hear us, you know, discuss quality measures and in general quality care because

Joshua Jergensen: We genuinely believe, having operated nursing homes for a long time, that if that is the primary focus of the company and each individual facility, then the financial results follow. One of those results is the ability to get a seat at the table when you're talking to managed care providers as well as other referring partners. Managed care has a certain set of criteria that they want to see a facility perform on that involves things like star ratings, quality measure ratings, re-hospitalization rates, and other things that all revolve around care. And I think each of you understand the reason they do that is because they want to make sure that there's a financial impact on the facility, and they want to make sure that they're providing the best care that they can for their patients.

Joshua Jergensen: We talk often as a company, and you hear us, you know, discussing quality measures and, in general, quality care because it is what we do. It's our product. We lead out with that all the time.

Speaker Change: It is what we do. It's our product.

Speaker Change: We lead out with that all the time. We genuinely believe, having operated nursing homes for a long time, that if that is the primary focus of the company and each individual facility, then the financial results follow. One of those results is the ability to get a seat at the table when you're talking to managed care providers, as well as other referring partners. Managed care has a certain set of criteria that they want to see a facility perform at. That involves things like star rating, quality measure rating, re-hospitalization rates, other things that all revolve around care. And I think each of you understand the reason they do that is they want to make sure that there's a financial incentive as well for them to get care.

Joshua Jergensen: We genuinely believe, having operated nursing homes for a long time, that if that is the primary focus of the company and each individual facility, then the financial results will follow. One of those results is the ability to get a seat at the table when you're talking to managed care providers, as well as other referring partners. Managed care has a certain set of criteria that they want to see a facility perform at that involves things like star ratings, quality measure ratings, re-hospitalization rates, and other things that all revolve around care.

Jason Murray: The improvement of clinical outcomes is truly the most important factor in our financial strength. This is represented in our revenue growth year over year of 29.1% or 221.2 million dollars for the second quarter and a 35.5% increase or $447.5 million year over year for the first six months of the year. Our revenue was driven higher by several factors when compared to the same quarter last year. In addition to maintaining 90% plus occupancy in our ramping and mature facilities, we also saw revenue per patient day increases.

Joshua Jergensen: And I think each of you understand the reason for that; they want to make sure that there's a financial incentive as well for them to get great outcomes for their patients. And so we believe that as we continue to improve, particularly in these new facilities that we take on, the quality of care, and improve quality metrics, we'll be able to go to those providers, gain confidence in them, either negotiate for the first time or renegotiate contracts that will allow us to take on a more clinically expanded approach to quality care.

Joshua Jergensen: That there's a financial incentive as well for them to get great outcomes for their patients. And so we believe that as we continue to improve, particularly in these new facilities that we take on the quality of care, improving quality metrics that we'll be able to go to those providers, gain confidence in them, either negotiate for the first time or renegotiate contracts that will allow for us to take on a more clinically acute patient, take a higher volume of those patients, improve reimbursement rates, and continue to build a positive reputation with them in the community to take care of those patients.

Speaker Change: great outcomes for their patients.

Speaker Change: And so we believe that as we continue to improve, particularly in these new facilities that we take on, the quality of care, improving quality metrics.

Jason Murray: For example, our average daily Medicare rates increased by 9.5% for the second quarter of 2024 compared to the second quarter of 2023 and 10.3% for the six months and a June 30 of 2024 compared to the same period last year. And our average Medicaid rates over the same period increased 3.5% and 4.3% over the same periods respectively due to the state reimbursement increases and or participation supplemental Medicaid payment and quality improvement programs.

Speaker Change: that we'll be able to go to those providers, gain confidence in them, either negotiate for the first time or renegotiate contracts that will allow for us to take on a more clinically acute patient, take a higher volume of those patients, improve reimbursement rates.

Joshua Jergensen: So, for sure, we're seeing an impact. You see that in the revenue, the increased revenue that we're pointing towards. We believe all of that is ultimately a result of the care that we've provided. Okay, thanks for the questions, guys. Thanks. Thank you. The next question today is coming from Scott Fidel from Stevens. Your line is now live.

Jason Murray: Both increases come from our efforts to keep health care local by recognizing and serving patients to cutie needs locally. This also allows us to properly meet the continuing shift of higher acute patients being discharged from acute care settings into skilled nursing facilities.

Speaker Change: and continue to build a positive reputation with them and the community to take care of those patients. So, for sure, we're seeing an impact. You see that in the revenue, the increased revenue that we're pointing towards. We believe all of that is, you know, ultimately a result of the care that we've provided.

David MacDonald: Okay, thanks for the questions, guys.

Speaker Change: Okay, thanks for the questions guys.

Scott Fidel: Thank you. The next question today is coming from Scott Fidel from Stevens. Your line is now live.

Speaker Change: Thanks. Sure.

Speaker Change: Thank you. Next question today is coming from Scott Fidel from Stevens. Your line is now live.

Scott Fidel: Great. Thanks. Hey, everyone.

Jason Murray: Outlook for continued growth remains strong with a robust acquisition pipeline and continued improvements both clinically and financially in the operations we've recently acquired. To support further growth, we continue to focus efforts on our robust administrator and training program where we have a pool of talent ready to take on leadership roles at new facilities. The AIT program success includes roughly 200 Pax AITs higher since our founding with 157 still employed with us and licensed administrator and other leadership positions.

Scott Fidel: Great. Thanks. Hey, everyone. First question, just thought it would be helpful if you want to give us some of your thinking around

Speaker Change: at Duke.

Scott Fidel: First question, just thought it would be helpful if you wanted to give us some of your thinking around the pacing of EBITDA in 3Q and 4Q that's embedded in the applied guide without giving, obviously, explicit quarterly guidance but just thinking in particular about, you know, one, just sort of seasonality or indicators in the KPIs for the buildings that you have. In force through the end of the second quarter, and then second, just sort of the pacing of the new acquisitions. Clearly, I would assume that that probably has a little bit more dilutive effect on EBITDA in the 3Q relative to 4Q, just as you start the integration of those facilities.

Scott Fidel: First question, just thought it would be helpful if you wanted to give us some of your thinking around the pacing of EBITDA in 3Q and 4Q that's embedded in the applied guide without giving, obviously, explicit quarterly guidance but just thinking in particular about, you know, one, just sort of seasonality or indicators in the KPIs for the buildings that you have. Enforce through the end of the second quarter, and then second, just sort of the pacing of the new acquisitions. Clearly, I would assume that that probably has a little bit more dilutive effect on EBITDA in the 3Q relative to 4Q just as you start the integration of those facilities. Yeah, certainly, Scott. This is Derick.

Speaker Change: for the for the buildings that you had enforced.

Jason Murray: The retention rate of about 75% which we're very proud of. We currently have 31 AITs in our program to help facilitate further strengthening existing facilities and to support our growth. In addition to training new leaders, the Pax leadership model allows our local leaders to make operational decisions as close to our patients and employees as possible, which is ultimately better for the residents and community in which they live. With support from PACS services, our back office, clinical, compliance, and business support team, our teams are able to stay laser focused on providing quality clinical care while creating a culture that attracts the best employees to our sector.

Speaker Change: through the end of the second quarter and then second just sort of the pacing of the new acquisitions clearly. I would assume that that probably has a little bit more dilutive effect on EBITDA and the 3Q relative to 4Q just as you start the integration of those facilities.

Derick Apt: Yeah, certainly, Scott. This is Derick.

Derick Apt: And starting from kind of the last going backwards, you know, the EBITDA accretion from newly acquired facilities is pretty much negligible to maybe a little bit, you're talking about a couple million dollars. Because at the end of the day, our goal is to transition these buildings from zero to 18 months and build that from kind of a break even to negative EBITDA in some situations to, you know, low single-digit EBIT And so our EBITDA uptick in our guidance really isn't driven from the new acquisitions, but it's driven from, as you see in the results, both our mature and our ramping cohorts, the occupancy has not seen the cyclical seasonal drop that we see in most summers; the occupancies remain strong, and the skilled mix is hung in there.

Speaker Change: Yeah, certainly, Scott. This is Derick. And starting from kind of the last going backwards, you know, the EBITDA accretion from newly acquired facilities is pretty much

Derick Apt: negligible to maybe a little bit. You're talking a couple million dollars because at the end of the day, you know, our our goal is to transition these buildings from zero to 18 months.

Jason Murray: Not only is our growth supported by our leadership pipeline and robust clinical processes, the PACS also enables our facilities with technology and data enabled resources that allow our clinicians and administrators to make decisions more quickly with a higher positive impact on patient care. We provide real-time data that allows both our local teams and PACS services to prioritize the most important KPIs that lead to more consistent clinical outcomes for better financial performance.

Derick Apt: and build that from kind of a break even to negative EBITDA in some situations to, you know, low single digit EBITDA margins.

Speaker Change: And so, our EBDA uptick in our guidance really isn't driven from the new acquisitions, but it's driven from, as you see in the results, both our mature and our ramping cohorts. The occupancy has not seen a cyclical seasonal drop that we did, you know, most summers. The occupancies remain strong, the skilled mix is hung in there, and most importantly, our revenue per patient day continues to grow with capturing the acuity mix.

Jason Murray: So we look forward to the second half of 2024, the improvements that we have planned and the 28 new facilities we've already added in Q3, the quality of our people helps ensure we stay in a strong business position moving forward.

Derick Apt: And most importantly, our revenue per patient day continues to grow by capturing the acuity mix, you know, across the patient population. So really, the EBITDA uptick is driven from that. And then kind of going to your first question on how that breaks down for later in the year. I mean, quickly speaking, the winter months typically are better with higher acuity just due to, you know, more respiratory viruses and or illnesses going through the communities.

Derick Apt: So with that, I'll turn the call back over to Derick to cover our financial highlights from the quarter. Thank you, Jason, and thank you to our employees for continuing to push to meet our mission of excellence in serving our patients, residents, and communities where we operate.

Speaker Change: you know, across the patient population. So really the EBITDA uptick is driven from that. And then kind of going to your first question on how that breaks down for latter in the year. I mean, quickly speaking, you know,

Speaker Change: The winter months typically are better with higher acuity just due to, you know, more respiratory viruses and or illnesses going through the communities. So, I would, I would anticipate, you know, maybe it picks up a little stronger towards the end of the year versus where we're pacing right now on a quarterly basis. But really what that blends out to for the second half of the year is making up the rest of the guidance versus, you know, what we've done for the first half of the year of one hundred and eighty eight million.

Derick Apt: First, I wanted to highlight since the close of the second quarter on June 30th, we have successfully completed the acquisition of 28 additional facility operations and entered into four new states. Additionally, we closed on a JV investment, which purchased the real estate of 37 facilities. A few financial highlights from the quarter. We had $981.8 million of revenue for the three months into June 30th, a 29.1% increase over prior year period, and we have 1.9 billion of revenue for the first six months of the year, a 30.5% increase over that same period in 2023.

Derick Apt: So I would anticipate, you know, maybe it picks up a little stronger towards the end of the year versus where we're pacing right now on a quarterly basis. But really, what that blends out to for the second half of the year is making up the rest of the guidance versus, you know, what we did for the first half of the year of $188 million.

Scott Fidel: And then following up on that and sort of, you know, implied in your comment, Derick, just around the acquisitions that you did in 3Q really not contributing to EBITDA, I thought it would be helpful if you wanted to give us an update on when thinking about the embedded EBITDA in the acquired facilities. You know, clearly a quarter or so ago, you had sort of 100 million, up to 100 million of embedded EBITDA opportunity in the recent tranches of deals. Looks like you're already harvesting that nicely in the first half.

Scott Fidel: Okay, great. And then following up on that and sort of, you know, implied in your comment, Derick, just around the acquisitions that you did in 3Q really not contributing to EBITDA. You know, we thought it would be helpful if you wanted to give us an update on when thinking about the embedded EBITDA in the acquired facilities. You know, clearly a quarter or so ago, you had sort of a hundred million, up to a hundred million, of embedded EBITDA opportunity in the recent tranches of deals.

Speaker Change: Okay, great. And then following up on that and sort of, you know, implied in your comment, Derick, just around the acquisitions that you've done in 3Q really not contributing to EBITDA, you know, we thought it would be helpful if you wanted to give us an update on when thinking about the embedded EBITDA.

Derick Apt: Adjusted EBITDA was $318 million, and adjusted EBITDA was $188.2 million respectively for the first six months into June 2024. Adjusted EBITDA grew by 53.8% year over year for the first six months, and last, our earnings per share for the quarter was negative seven cents, which was driven by an increase in stock compensation expenses of 90.9 million dollars. So, say with the restricted stock units granted at the time of our IPO in April.

Speaker Change: In the acquired facilities, you know, clearly a quarter or so ago, you had sort of 100 million up to 100 million of embedded opportunity in the recent tranches of deals. Looks like you're already harvesting that nicely in the 1st half. So, just interested in sort of how you're thinking about that embedded opportunity, just given the new facilities that you're bringing on right now with with very little that are going to ramp up the forward, you know, embedded even the opportunity looking out to 2025, for example.

Scott Fidel: Looks like you're already harvesting that nicely in the first half. So just interested in sort of how you're thinking about that embedded EBITDA opportunity, just given, you know, the new facilities that you're bringing on right now with very little EBITDA that are going to ramp up the forward embedded EBITDA opportunity looking out to 2025, for example.

Derick Apt: So just interested in sort of how you're thinking about that embedded EBITDA opportunity, just given, you know, the new facilities that you're bringing on right now with very little EBITDA that are going to ramp up the forward embedded EBITDA opportunity looking out to 2025, for example. Yeah, and not to because we're still refining our 25 and 26 guidance, you know, with Dave's questions and yours. Obviously, the opportunity set for M&A was a little more robust than we originally started out in the year.

Derick Apt: Total facility occupancy was 91% during the second quarter, compared to an industry average of 76%. Specifically, our ramping and mature facility occupancy increased by 1.4% and 1% respectively over the prior year quarter, where our new facilities ended the quarter with 84.2% occupancy, a 0.9% increase over the prior quarter. Historically, this occupancy improves to 90% plus during the first three years of PACS operations. We attribute our revenue growth in part to adding 3,947 operating beds to the company over the past year, which represents 24.8% increase in patient days.

Derick Apt: Yeah, yeah, and not to because we're still refining our 25 and 26 guidance, you know, with Dave's questions and yours. Obviously, the opportunity set of M&A was a little more robust than we originally started out in the year. So as we are looking to the future, you know, what I would point to, roughly speaking, is that for our new buildings, we typically see somewhere between, you know, zero, two to 3% EBITDA margin on that ramping, which is 18 to 36 months of ownership, that builds to high single-digit EBITDA margin.

Speaker Change: yeah yeah and not to because we're still refining our 25 and 26 guidance you know with

Speaker Change: Dave's questions and yours, obviously the opportunity set of M&A was a little more robust than we originally started out in the year. So, as we're looking to the future, you know, what I would point to roughly speaking is.

Derick Apt: So, as we are looking to the future, you know, what I would point out roughly speaking is, you know, our new buildings, we typically see somewhere between, you know, 0, 2 to 3% EBITDA margin on that ramping, which is 18 to 36 months of ownership. You know, that builds a high single-digit EBITDA margin.

Speaker Change: you know, our new buildings, we typically see somewhere between, you know, zero, two to three percent EBITDA margin, that ramping, which is 18 to 36 months of ownership, you know, that builds the high single digit EBITDA margin. And then, as we're seeing right now in our mature facilities, as well as some of the ramping facilities that are near the end of their maturity and moving into that mature bucket by the end of the year, you know, those buildings producing low teens EBITDA margin. And so, ultimately, as we point to that, you know, if you think you bring in 28 so far in the quarter, and the rest of the prestige deal will be closing here by the end of Q3, you know, you fast forward a year, those buildings should be producing three to two to three percent EBITDA margins as we roll into late 25.

Derick Apt: And then, as we're seeing right now in our mature facilities, as well as some of the ramping facilities that are near the end of their maturity in moving into that mature bucket by the end of the year, you know, those buildings producing low teens EBITDA margin. And so, ultimately, as we point out, you know, if you think you bring in 28 so far this quarter, and the rest of the prestige deal will be closing here by the end of Q3, you know, you fast forward a year, those buildings should be producing 3 to 2 to 3% EBITDA margins as we roll into late 25.

Derick Apt: And then, as we're seeing right now, in our mature facilities, as well as some of the ramping facilities that are near the end of their maturity, in moving into that mature bucket by the end of the year, you know, those buildings producing low teens EBITDA margin. And so ultimately, as we point out that, you know, if you think you bring in 28 so far this quarter, and the rest of the prestige deal will be closing here by the end of Q3, you know, you fast forward a year, those buildings should be producing three to two to 3% EBITDA margins as we roll into late 25.

Derick Apt: Additionally, we realize improvement on revenue per patient day in our mature and ramping facilities. We continue the growth of our overall bed count in the second quarter with addition of two new operations. And as previously mentioned, we added 28 facilities since June 30, which have added 1,450 skilled nursing beds and 831 assisted living and senior living beds to our portfolio. Our average Medicare revenue per patient day grew through the second quarter across all facilities and 952 dollars per patient day compared to 870 in Q2 of 2023.

Derick Apt: And that's what we're refining now as we look forward. But I think ultimately, we wouldn't be doing the deal if we didn't think it fit the roadmap of maturing the buildings that we've experienced over, you know, the other 220 buildings we've acquired prior to this.

Derick Apt: And that's what we're refining now, as we look forward, but I think ultimately, we wouldn't be doing the deal if we didn't think it fit the roadmap of maturing the buildings that we've experienced over the other 220 buildings we've acquired prior to the year. Great, and I guess since Dave started the precedent of a third question, I'll continue that trend and sneak one more in here.

Derick Apt: And our overall revenue per patient day for Q2 was $459 per patient day. Our teams continue to make operational improvements and are newly acquired facilities, which resulted in a 29% year-over-year increase in cost to services. Additionally, net-of-stock compensation expenses we realize a 15% decrease in GNA over the same period prior year and an 18% for the first six months of 2024 over the same period in 2023.

Speaker Change: I think ultimately, we wouldn't be doing the deal if we didn't think it fit the roadmap of maturing the buildings that we've experienced over the other 220 buildings we've acquired prior to these.

Scott Fidel: Great. And since Dave started the precedent of a third question, I'll continue that trend and sneak one more in here. Just thought it would be helpful.

Speaker Change: Great and I guess since Dave started the precedent of a third question I'll continue that trend and sneak one more in here. I just thought it would be helpful you talked about three and a half percent rate growth for Medicaid in the first half. I'm interested if you can give us sort of what you're seeing on visibility into Medicaid rates.

Scott Fidel: You talked about three and a half percent rate growth for Medicaid in the first half. I'd be interested if you could give us sort of what you're seeing on visibility into Medicaid rates in the back half of the year. And, you know, as you're seeing some of the FY 25 rates come in, and sort of how you would think about that underlying Medicaid rate trend in the back half of the year compared to the first half. And that's it for me. Thanks.

Scott Fidel: I just thought it would be helpful if you talked about three and a half percent rate growth for Medicaid in the first half. I'd be interested in sort of what you're seeing on visibility into Medicaid rates in the back half of the year and as you're seeing some of the FY25 rates come in, and sort of how you would think about that underlying Medicaid rate trend in the back half of the year compared to the first half. And that's it for me.

Derick Apt: Finally, we exercise two purchase options and acquired one additional real property in the quarter. The addition of these facilities brings our total own facilities to 38. We currently own or have joint venture real estate interests and purchase options on 37.7% of our beds, with a long-term goal of only 50% of our overall portfolio. Of our facilities that we lease, we have an average of 14 years remaining on the initial term.

Speaker Change: in the back half of the year and, you know, as you're seeing some of the FY25 rates come in and sort of how you would think about that underlying Medicaid rate trend in the back half of the year compared to the first half. And that's it for me. Thanks.

Derick Apt: Yeah, and that's great. And I think part of the reason we revised guidance because the performance, some of the Medicaid rate increases, both from base rates and also from acuity slash quality mix, rate increases were a little stronger. I think as I've reviewed prior, you know, our model in the out years kind of shows a 2%, maybe two and a half percent, depending on the state growth in Medicaid.

Derick Apt: Thanks. Yeah, and that's great. And I think part of the reason we revised guidance because the performance, some of the Medicaid rate increases, both from base rates and also from acuity slash quality mix rate increases, were a little stronger. I think as I've reviewed prior, you know, our model in the out years kind of shows a 2%, maybe two and a half percent, depending on the state growth in Medicaid.

Speaker Change: Yeah, and that's great. And I think part of the, as you know, we revised guidance because the performance, some of the Medicaid rate increases both.

Derick Apt: And now I'll turn to guidance. We look forward to a great second half for 2024, with our growth year to date, including the closing of 20 operations in the last six weeks.

Speaker Change: from maybe two and a half percent, depending on the state growth and Medicaid.

Derick Apt: We're updating our guidance for the full year as follows. We expect annual revenue to be between $3.85 and $3.95 billion. The midpoint of this range is a 25% increase over 2023 revenue. And we expect adjusted EBITDA to be between $370 million and $380 million for 2024.

Derick Apt: But as we enter more states with the case mix index, we have the ability to control that and kind of control our own destiny with taking higher acuity long-term patients. And as you look at the rest of this year, we have had some strong rate increases in a couple of states. Specifically, Kentucky and Colorado just had large rate increases. In July, we also had another rate increase in Ohio.

Speaker Change: but as we enter more states with case mix index, we have the ability to control that and kind of control our own destiny with taking higher acuity long-term patients.

Speaker Change: And as you look at the rest of this year, we have had some strong rate increases in a couple states.

Jason Murray: I'll now turn the call back over to Jason. Thanks, Derek.

Unknown Executive: With that operator, I believe we're ready for questions. Certainly.

Speaker Change: specifically Kentucky and Colorado just had large rate increases in July. We also had another rate increase in Ohio and so we we anticipate that to continue and then as we blend through you know making sure that the case mix and we're capturing the acuity that we need in those longer-term patients then then we should see a healthy growth in that Medicaid rate.

Unknown Executive: Without the conducting of question and answer session, if you'd like to be placed in the question queue, please press star one on your telephone keypad. One moment, please, while we pull for questions.

Derick Apt: And so we anticipate that to continue. And then as we blend through, you know, making sure that the case mix and we're capturing the acuity that we need in those longer-term patients, then we should see a healthy growth in that Medicaid rate. Now, further out than that, it's super hard to predict, mainly because we cannot sit here and tell you we know exactly what different Medicaid programs or state politicians will do.

David MacDonald: Our first question is coming from David McDowell from truest securities. You're right. There's our live. Hey, guys, a couple of questions. Just curious. Look, M&A has been a little bit more robust in the IPO than we had expected. I guess just any general comments on the opportunity that you see among skilled mix, occupancy, et cetera within either the recent or even the pending acquisitions kind of relative to the overall company. And then I got one or two others.

Speaker Change: Now, further out than that, it's super hard to predict, mainly because we cannot sit here and tell you we know exactly what different Medicaid programs or state politicians will do. But as we look to the future, we'll probably continue with our modeling of 2 to 2.5% Medicaid rate increases and depend on our operators to make sure they're maximizing that and capturing any additional rate that could be possible from quality programs or acuity programs.

Derick Apt: But as we look to the future, we'll probably be continuing with our modeling of two to two and a half percent Medicaid rate increases and depend on our operators to make sure they're maximizing that and capturing any additional rate that could be possible from quality programs or acuity programs. Okay, great. Thank you. Thank you. Next question is coming from Jason Cassorla from City of Carolina's Online. Great, thanks. Good afternoon, guys

David MacDonald: Okay. Well, thanks, Dave. Good to hear from you. And yeah, the opportunities out there continue to be robust is the best way to describe our M&A pipeline. You know, since IPO, and even prior to that, but the acquisitions that we've announced, you know, for Q2 and then more robustly and already in Q3, the opportunity to move skilled mix in those buildings is pretty large. You know, for the most part, the buildings are operating less than 50% of where we operate our skilled mix at.

Jason Cassorla: Thank you. The next question is coming from Jason Cassorla from Citi; your line is live.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you. Next question is coming from Jason Kisorla from Citi, your line is now live.

Jason Cassorla: Congratulations on the quarter. Maybe just picking up on the rate side, I wanted to ask about the 2025 Medicare rate notice up a strong 4.2% at the headline level. I guess, just curious how you're thinking about how that rate translates for you guys. Are there any considerations in terms of the wage index changes or any components of the rule that are kind of worth noting at this point? Yeah, Hey Jason, this is Derick.

Jason Cassorla: Great, thanks. Good afternoon, guys. Congratulations on the quarter. Maybe just picking up on the rate side, I wanted to ask about the 2025 Medicare rate notice up a strong 4.2% at the headline level. I guess, just curious how you're thinking about how that rate translates for you guys. Are there any considerations in terms of the wage index changes or any components of the rule that are kind of worth noting at this point?

Jason Kisorla: Great, thanks. Good afternoon, guys. Congrats on the quarter. Maybe just picking up on the rate side, I wanted to ask about the 2025 Medicare rate notice up a strong, you know, 4.2% at the headline level. I guess just curious on how you're thinking about how that rate translates for you guys. You know, is there any considerations in terms of the wage index changes or any components of the rule that are kind of worth noting at this point? Thanks.

David MacDonald: And the occupancy is much lower than our average. It's closer to national average. So we see a lot of upside in these opportunities to kind of execute on the PAX playbook of both increasing the clinical outcomes, moving the occupancy and the skilled mix, slash the acuity of those patients to yield better financial results, you know, as we, we acquire these and mature them through our process. And then guys, I guess just one quick follow up on that is, you know, when we hear about it, it sounds like the pipeline's pretty full.

Derick Apt: Yeah. Hey, Jason, this is Derick.

Derick Apt: Hey Jason, this is Derick. I don't think there's anything that jumps out worth noting. You know, anecdotally, if you look back last year, I believe the rate increase from CMS overall was under 3%, but as you see, our Medicare rate for the first half of the year, we were able to drive up, I believe, 9%, 9.5%. And really, that comes from capturing higher acuity. With PDPM, we're getting rewarded financially for taking care of those clinical needs of the higher acuity patients. So, instead of just taking a base Medicare patient, if somebody with comorbidities, Medicare is paying for that. And that's really our model, is taking the higher acuity needs of the local patients in the communities and making sure

Derick Apt: I don't think there's anything that jumps out worth noting. You know, anecdotally, if you look back last year, I believe the rate increase from CMS overall was under three percent. But as you see, our Medicare rate for the first half of the year, we were able to drive up, I believe, nine percent, nine and a half percent. And really, that comes from capturing higher acuity. With PDPM, we're getting rewarded financially for taking care of the clinical needs of higher-acuity patients.

Derick Apt: With PDPM, we're getting rewarded financially for taking care of those clinical needs of higher-acuity patients. So instead of just taking a base Medicare patient, if somebody with comorbidities, Medicare is paying for that. And that's really our model, taking the higher acuity needs of the local patients in the communities and making sure that we're satisfying them with good quality outcomes. Okay, great. Maybe just shifting gears a little bit, wanted to ask about the purchase option opportunity on your book. It looks like you have 31 kind of currently, but maybe could you just help unpack that opportunity set for you?

David MacDonald: How do we think about, you know, the internal governors in terms of, you know, M&A, obviously it's a decentralized model. So it's not, you know, what we traditionally think about is there's only a certain amount that, you know, you can kind of do in a certain period of time. So I'm just curious how you think about the pacing of potential further M&A on a go forward basis and how you think about that just given again, what our checks suggest is, you know, a pretty full opportunity in terms of ongoing consolidation.

Derick Apt: So instead of just taking a base Medicare patient, if somebody has comorbidities, Medicare is paying for that. And that's really our model, taking the higher acuity needs of the local patients in the communities and making sure that we're satisfying them with good quality outcomes.

Speaker Change: Page 1 of 4

Jason Cassorla: Okay, great. Maybe just shifting gears a little bit, wanted to ask about the purchase option opportunity on your book. It looks like you have 31 kind of currently, but maybe could you just help unpack that opportunity set for you? You know, what timing on executing those options would look like, or just any other color as we think about, you know, the purchase options as a source of EBITDA upside kind of down the line. Uh, yeah, this is

Speaker Change: Okay, great. Maybe just shifting gears a little bit, I wanted to ask about the purchase option opportunity on your book. It looks like you have 31...

David MacDonald: Yeah, great follow-up question there, Dave. From our perspective, when we review opportunities, we stay disciplined and strategic in looking at the most opportune set of buildings that we could acquire, whether that's in a new state or that's a tuck-in in an existing region, and typically when we sit down to discuss that through, we're looking at what is the deal cost, is the real estate involved or not? Is there any limits on the balance sheet and the capital?

Derick Apt: You know, what timing on executing those options would look like, or just any other color as we think about, you know, the purchase options as a source of EBITDA upside kind of down the line. Yeah, this is Derick.

Speaker Change: it kind of currently, but maybe could you just help unpack that opportunity set for you? You know, what timing, executing those options would look like? or just any other color as we think about, you know, the purchase options as a source of EBITDA upside kind of down the line? Thanks.

Derick Apt: Yeah, this is Derick. So the options, as we view them, all the options that we have in front of us are really fixed purchase price options. And as we view those, you know, over the next, I believe it's three to four years by the time all kinds of option windows open, the goal would be to step in and exercise those options. Because ultimately, as we have the ability to step in and capture that, that internal rent that we're paying to third parties, you know, provides incremental upside for us, instead of having that rent go elsewhere, we're able to capture that in the EBITDA upside.

Derick Apt: So the options, as we view them, all the options that we have in front of us are really fixed purchase price options. And as we view those, you know, over the next, I believe it's three to four years by the time all the different kinds of option windows open, the goal would be to step in and exercise those options. Because ultimately, as we have the ability to step in and capture that, that internal rent that we're paying to third parties, you know, provides incremental upside for us, instead of having that rent go elsewhere. We're able to capture that in the EBITDA upside.

Speaker Change: Yeah, this is Derick. So, the options as we view them, all the options that we have in front of us are really fixed purchase price options.

Speaker Change: And as we view those, you know, over the next...

David MacDonald: And then also we always bring in the human capital component, right? Because we have to have the human capital to make the necessary clinical outcome changes to get our product the best it can to yield those financial results. So as we look to the future, we're always evaluating that, whether that's, you know, only adding two buildings in Q2 or adding, you know, the 28 we have so far in Q3, and we'll continue to go through that same process for every deal that we look at.

Derick Apt: I believe it's three to four years by the time they all kind of option windows open is the goal would be to step in and exercise those options because ultimately as we have the ability to step in and capture that that internal rent that we're paying to third parties, you know, it provides incremental upside for us instead of having that rent go elsewhere. We're able to capture that in the upside.

Derick Apt: So, you know, that number will continue to evolve as we get more and more options. Because if we're not purchasing the real estate, we push hard in our deal structures to have options or access to real estate at some point in the future to be able to capitalize on that equity upside that we're generating through our strong financial results.

Derick Apt: So, you know, that number will continue to evolve as we get more and more options, because if we're not purchasing the real estate, we push hard in our deal structures to have options or access to real estate at some point in the future to be able to capitalize on that equity upside that we're generating through the strong financial results.

David MacDonald: As we roll out, it's hard to predict the future as far as what buildings are going to come through the pipeline. And I think we've talked in the past and, you know, throughout this year, we've always guided towards, we feel that there's a pretty easy path to acquiring 20 buildings per year. And that's what's in our out-year models because at the end of the day, those could be tucked into our existing regions without the presence of good M&A for maybe an expansion to a new state or a new region.

Derick Apt: Okay, thank you guys. Thank you. The next question is coming from Ben Hendrix from RBC; your line is now live.

Jason Cassorla: Thank you. The next question is coming from Ben Hendrix from RBC. Your line is now live.

Speaker Change: Okay, thank you guys.

Speaker Change: Thank you. Next question is coming from Ben Hendricks from RBC. Your line is now live.

Benjamin Hendrix: Thank you very much, guys. Just a quick follow-up on that last one. Would the same be true for the joint venture that you entered into for the O'Grill Estate in your latest acquisition? I think it's, what, about 25% of that you own.

Benjamin Hendrix: Thank you very much, guys. Just a quick follow-up on that last one. Would the same be true for the joint venture that you entered into for the own real estate of your latest acquisition? I think it's, what, about 25% of that you own. Would you be looking to increase your ownership percentage of that JV over time?

Ben Hendricks: Thank you very much guys. Just a quick follow-up on that last one. Would the same be true for the joint venture that you entered into for the O'Grill Estate of your latest acquisition? I think it's what about 25% of that you own. Would you be looking to increase your ownership percentage of that?

David MacDonald: Because those deals take a little longer to diligence, and we have to wait for the right opportunity to be able to expand the actual geographic footprint. So as of today, we're not changing from kind of, that's what we believe the future path will be. Now that number may go up and down depending on the quarter, but from our perspective, we're going after the best opportunities that are in front of us versus chasing a specific deal or building count.

Derick Apt: Would you be looking to increase your ownership percentage of that JV over time? Yeah, as of now, we're not entering into it to look to kind of change the ownership spectrum. We have a good relationship with our partner on that JV investment. It's the same partner that we utilized in a prior investment in South Carolina. As we look through the portfolio and try to make sure we're maximizing both the leverage and the JV investment, we have the ability to work closely with them. For example, in South Carolina, some of those buildings have been taken to HUD with HUD financing mortgages and others.

Derick Apt: Yeah, as of now, we're not entering into it to look to kind of change the ownership spectrum. We have a good relationship with our partner on that JV investment. It's the same partner that we utilized in a prior investment in South Carolina. As we look through the portfolio and try to make sure we're maximizing both the leverage and the JV investment, we have the ability to work closely with them. For example, in South Carolina, some of those buildings have been taken to HUD with HUD financing mortgages and others.

Speaker Change: JV overtime.

Speaker Change: Yeah, as of now, we're not entering into it to look to kind of change the ownership spectrum. We have a good relationship with our partner on that JV investment. It's the same partner that we've utilized in a prior investment in South Carolina. As we look through the portfolio and try to make sure we're maximizing both the leverage and the JV investment, we have the ability to work closely with them. For example, in South Carolina, some of those buildings have been taken to HUD with HUD financing mortgages, and others we purchased and just put on our balance sheet versus kind of staying in the JV. So it's something that we're constantly under evaluation, but we really don't start evaluating

David MacDonald: And then, guys, just plus one for me, when you look at the quality scores, can you just talk about a little bit the impact that has on the conversations with payers, especially as you start entering new states, new markets, kind of the halo effect that that potentially has just in terms of, you know, again, the overarching conversations that you're having with some of the payers in your market. Yeah, good question there, Dave.

Derick Apt: We purchased and just put them on our balance sheet versus kind of staying in the JV. So it's something that we're constantly evaluating, but we really don't start evaluating or trying to maximize the JV investment return until the buildings are at a stable point. And we believe we're getting close to stabilization and maximization of those financial results from the underlying buildings.

Benjamin Hendrix: We purchased and just put them on our balance sheet versus kind of staying in the JV. So it's something that we're constantly evaluating, but we really don't start evaluating or trying to maximize the JV investment return until the buildings are at a stable point. And we believe we're getting close to stabilization and maximization of those financial results from the underlying building. Great, thank you. Just one more.

Joshua Jergensen: This is Josh Turgenson. I'll take that one here. We talk often as a company and you hear us, you know, discuss quality measures and in general quality care because it is what we do with our product. We lead out with that all the time. We genuinely believe having operated nursing homes for a long time that if that is the primary focus of the company and each individual facility, then the financial results follow.

Speaker Change: are trying to maximize the J.B. investment return until the buildings are at a stable point and we believe we're getting close to stabilization and maximization of those financial results from the underlying buildings.

Benjamin Hendrix: Great, thank you. Just one more.

Speaker Change: Great, thank you. Just one more. I appreciate the corollary you offered on that One California facility and its ability to kind of ramp up into a preferred provider relationship. I wanted to kind of get the landscape of the four new states that you're in, kind of what the provider relationships are there that exist, and kind of your opportunity to get more of a preferred relationship in those regions. Do you know those regions well?

Benjamin Hendrix: I appreciate the corollary you offered on that one California facility and its ability to kind of ramp up into a preferred provider relationship. I wanted to kind of get a sense of the landscape of the four new states that you're in, kind of what the provider relationships are there that exist, and kind of your opportunity to get more of a preferred relationship in those regions. Do you know those regions well?

Joshua Jergensen: I appreciate the corollary you offered on that one California facility and its ability to kind of ramp up into a preferred provider relationship. I wanted to kind of get a sense of the landscape of the four new states that you're in, kind of what the provider relationships are there that exist, and kind of your opportunity to get more of a preferred relationship in those regions. Do you know those regions well? Thank you.

Joshua Jergensen: One of those results is the ability to get a seat at the table when you're talking to managed care providers as well as other referring partners. Managed care has a certain set of criteria that they want to see a facility perform that involves things like star rating, quality measure rating, re-hospitalization rates, other things that all revolve around care and I think you do you understand the reason they do that is they want to make sure that there's a financial incentive as well for them to get great outcomes for their patients.

Joshua Jergensen: And so we believe that as we continue to improve particularly in these new facilities that we take on the quality of care, improving quality metrics that will be able to go to those providers, gain confidence in them, either negotiate for the first time or renegotiate contracts that will allow for us to take on a more clinically acute patient, take a higher volume of those patients, improve reimbursement rates, and continue to build a positive reputation with them in the community to take care of those patients. So for sure we're seeing an impact. You see that in the revenue, the increased revenue that we're pointing towards. We believe all of that is ultimately a result of the care that we've provided.

Joshua Jergensen: Yeah, a good question. I mean, this is Josh.

Benjamin Hendrix: Thank you. Yeah, a good question. I mean, this is Josh.

Speaker Change: Thank you

Josh Jurgensen: Yeah, good question. I mean, this is Josh. For us, as we enter into these new states, it's always important that we begin establishing relationship in the community. I already mentioned the quality measures that we start with, but as we go in there, that's a key component. Fortunately, in this situation, as we've evaluated, you know, not only the states that we're in, but we also evaluate the operator and the facilities that we're purchasing to see what their relationship was before. We're fortunate because in this particular deal, there are actually some very beneficial relationships that we feel we're going to be able to enter into and leverage. Relationships with hospitals that have wanted to work with these facilities. Part of the reason is quality. We think there's still some areas that we

Joshua Jergensen: For us, as we enter into these new states, it's always important that we begin establishing a relationship in the community. I already mentioned the quality measures that we start with, but as we go in there, that's a key component. Fortunately, in this situation, as we've evaluated, you know, not only the states that we're in, but we also evaluated the operator and the facilities that we're purchasing to see what their relationship was before.

Joshua Jergensen: We're fortunate because in this particular deal, there were actually some very beneficial relationships that we feel we're going to be able to enter into and leverage relationships with hospitals that have wanted to work with these facilities. Part of the reason is quality.

Joshua Jergensen: We're fortunate because in this particular deal, there are actually some very beneficial relationships that we feel we're going to be able to enter into and leverage relationships with hospitals that have wanted to work with these facilities. Part of the reason is quality.

Joshua Jergensen: We think there's still some areas that we can improve, but we also recognize that the outgoing provider has worked hard to build density in key markets. And so, when you look at these states, a number of them are new for us. You have Alaska, Washington, and Kansas are the most recent ones that we feel there's nice density from the location of the facilities close to hospitals.

Josh Jurgensen: you can improve.

Josh Jurgensen: but we also recognize that you know that the the outgoing provider has worked hard to build density and key markets

Joshua Jergensen: We think there are still some areas that we can improve, but we also recognize that the outgoing provider has worked hard to build density in key markets. And so, when you look at these states, a number of them are new to us. You have Alaska, Washington, and Kansas are the most recent ones that we feel there's a nice density from the location of the facilities close to hospitals. So, as we hit the ground in any of these places, as we're driving care and quality, we're also going out into the community and making sure people are aware that there has been a change and that they understand what our intentions are as far as investment in the people, the systems, and the physical plants in these environments so that we can build confidence in those communities.

Josh Jurgensen: And so when you look at these states, a number of them are new for us.

Unknown Executive: Okay, thanks for the questions, guys. Thanks. Sure. Thank you.

Josh Jurgensen: You know, you have Alaska, Washington, and Kansas are most recent ones that we feel there's nice density from, you know, the location of the facilities close to hospitals. So, as we hit the ground in any of these places, as we're driving care and quality, we're also going out into the community and making sure people are aware that there has been a change.

Scott Fidel: Next question today is coming from Scott Fidel from Stevens Revive. Is that alive? Great. Thanks. Hey everyone. First question, just thought it would be helpful if you want to give us some of your thinking around the pacing of EBITDA in 3Q and 4Q. That's embedded in the applied guide without giving obviously explicit quarterly guidance, but just thinking in particular about, you know, one, just sort of seasonality or indicators in the KPIs for the buildings that you had enforced through the end of the second quarter.

Joshua Jergensen: So, as we hit the ground in any of these places, as we're driving care and quality, we're also going out into the community and making sure people are aware that there has been a change and that they understand what our intentions are as far as investment in the people, the systems, and the physical plants in these environments so that we can build confidence in those communities. So, as we've done that, we feel with the ones we've just recently taken on.

Scott Fidel: And then second, just sort of the pacing of the new acquisitions clearly. I was assuming that that probably has a little bit more fluid of effect on EBITDA and the 3Q relative to 4Q just as you start the integration of those facilities. Yeah, certainly Scott. This is Derick and started from kind of the last going backwards. You know, the EBITDA accretion from newly acquired facilities is pretty much negligible to maybe a little bit.

Josh Jurgensen: and that they understand what our intentions are as far as investment into the people, to the systems, to the physical plants in these environments, so that we can build confidence in those communities. So, as we've done that, we feel with the ones we've just recently taken on, that we're already making great progress in the couple weeks that we've been there, and we intend on the remainder of those buildings to execute the same game plan.

Joshua Jergensen: So, as we've done that, we feel with the ones we've just recently taken on that we're already making great progress in the couple of weeks that we've been there, and we intend on the remaining remainder of those buildings to execute the same game plan.

Joshua Jergensen: We're already making great progress in the couple of weeks that we've been there, and we intend on the remaining remainder of those buildings to execute the same game plan. Great, thank you. Thank you. Next question is coming from Tao Qiu from Acquire. Your line is now live. Thank you. Good afternoon.

Tao Qiu: Thank you, the next question is coming from Tao Qiu from Acquire. Your line is now live.

Josh Jurgensen: Great, thank you.

Speaker Change: Thank you. Next question is coming from Cal Q from McGuire. Your line is now live.

Tao Qiu: I think I heard you have 31 leaders in the AIT program, and you are acquiring at a faster pace when we account for the prestige transaction. You know, do you feel like you have an adequate leadership pipeline to continue the brisk pace of acquisitions? And also, maybe remind us how fast you're turning out these leaders and how you make sure, you know, they adhere to the same cultural and operating models. Thank you.

Tao Qiu: Thank you. Good afternoon.

Cal Q: Thank you, good afternoon.

Speaker Change: You have 31 leaders in the AIT program and you are acquiring at a faster pace when we account for the prestige transaction.

Joshua Jergensen: I think I heard you have 31 leaders in the AIT program, and you are acquiring at a faster pace when we account for the prestige transaction. You know, do you feel like you have an adequate leadership pipeline to continue the brisk pace of acquisitions? And also, maybe remind us how fast you're turning out these leaders and how you make sure, you know, they adhere to the same cultural and operating models. Thank you.

Speaker Change: do you feel like you have adequate leadership pipeline to continue the brisk pace of acquisitions and also maybe remind us how fast you're turning out these leaders and how you make sure they adhere to the same culture and operating models. Thank you.

Scott Fidel: You're talking a couple million dollars because at the end of the day, you know, our goal is to transition these buildings from zero to 18 months and build that from kind of a break even the negative EBITDA in some situations to, you know, load single digit EBITDA margins. And so, they're EBITDA uptick and our guidance really isn't driven from the new acquisitions, but it's driven from, as you see in the results, both our mature and our ramping cohorts.

Joshua Jergensen: Yeah, this is an area that we emphasize internally, and we talk about often because we believe this is an area where we have a significant advantage to go and grow. And as we evaluate talent in these facilities, each deal is a little bit different. Again, as we look at this particular deal that we just did, although the facility count is high, we feel that there are a number of leaders that are already in place that are doing a lot of good things and will be a good fit in our model.

Tao Qiu: Yeah, this is an area that we emphasize internally, and we talk about often because we believe this is an area where we have a significant advantage to go and grow. And as we evaluate talent in these facilities, each deal is a little bit different. Again, as we look at this particular deal that we just did, although the facility count is high, we feel that there are a number of leaders that are already in place that are doing a lot of good things and will be a good fit in our model. We want to be prepared with a bench of talent in the event we need to make changes.

Speaker Change: Yeah, this is an area that we emphasize internally and we talk about often because we believe this is an area where, you know, we have a significant advantage to go and grow. And as we evaluate talent in these facilities, each deal is a little bit different. Again, as we look at this particular deal that we just most recently did, although the facility count is high, you know, we feel that there are a number of leaders that were already in place that are doing a lot of good things and will be a good fit in our model. We want to be prepared with a bench of talent in the event we need to make changes. But in this particular deal, we've met with a number of the administrators. They're local to the area, as I mentioned, a number of them have great relationships with the hospitals.

Scott Fidel: The occupancy has not seen a cyclical seasonal drop that we did, you know, most summers. The occupancy is remained strong. The skilled mix is hung in there. And most importantly, a revenue per patient day continues to grow with capturing the acuity mix, you know, across the patient population. So really the EBITDA uptick is driven from that. And then kind of going to your first question on how that breaks down for later in the year.

Joshua Jergensen: We want to be prepared with a bench of talent in the event we need to make changes. But in this particular deal, we've met with a number of the administrators. They're local to the area, and as I mentioned, a number of them have great relationships with the hospitals. There's certainly an adjustment as they come into our more decentralized model, but we believe a number of these individuals are able to adapt to our model and get good results.

Joshua Jergensen: But in this particular deal, we've met with a number of the administrators. They're local to the area, and as I mentioned, a number of them have great relationships with the hospitals.

Joshua Jergensen: There's certainly an adjustment as they come into our more decentralized model, but we believe a number of these individuals are capable of adapting to our model and getting good results. So, in the event that happens, and we maintain a higher number of administrators that are already in place, that just continues to allow the bench to be deeper as we evaluate other deals that we're looking at into the future. Got it, that's helpful. And then, for clarification, you initiated the stock incentive program this quarter. Help us understand what will be the run rate of StockXComp going forward and any GNA targets you can provide. That's a great question.

Scott Fidel: I mean, quickly speaking, you know, the winter months typically are better with higher acuity just due to, you know, more respiratory viruses and or illnesses going through the communities. So I would anticipate, you know, maybe it picks up a little stronger towards the end of the year versus where we're pacing right now on a quarterly basis. But really what that blends out to for the second half of the year is making up the rest of the guidance versus, you know, what we've done for the first half of the year of 188 million.

Speaker Change: certainly an adjustment as they come into our more decentralized model, but we believe a number of these individuals are capable to adapt to our model and get good results. And so in the event that happens, that we, you know, maintain a higher number of administrators that are already in place.

Joshua Jergensen: So, in the event that that happens, and we maintain a higher number of administrators that are already in place, that just continues to allow the bench to be deeper as we evaluate other deals that we're looking at into the future.

Speaker Change: That just continues to allow the bench to be deeper as we evaluate other deals that we're looking at into the future.

Tao Qiu: Got it. That's helpful. And then, clarification. You initiated the Stop Incentive Program this quarter. Help us understand what the run rate of StopXComp going forward and any G&A target you can provide.

Speaker Change: Got it, that's helpful. And then, clarification, you initiated the STOP incentive program this quarter. Help us understand what will be the run rate of STOPxComp going forward, any GNA target you can provide.

Scott Fidel: Okay, great. And then following up on that and sort of, you know, implied in your comment director's around the the acquisition that you've done in the three queue really not contributing to EBITDA. You know, we thought it would be helpful if you wanted to give us an update on when thinking about the embedded EBITDA in the acquired facilities, you know, clearly a quarter or so ago, you had sort of a hundred million up to a hundred million of embedded EBITDA opportunity in the recent launches of deals, looks like you're already harvesting that nicely in the first half.

Derick Apt: So of the $90 million that we booked in Q2, approximately $80 million was for immediate vestings on the IPO, and the remainder was for May and June entries, so roughly and slightly part of April for accrual for vestings next year. So that run rate comes out to a little over $4 million a month. All right, thank you. And last question from me: in terms of the Medicaid Supplemental Program, could you size up the impact of that program for the quarter? Specifically in which state or overall? Overall. I mean, California is probably a big piece there. But if you can provide any color, that would be helpful.

Derick Apt: That's a great question. So of the $90 million that we booked in Q2, approximately $80 million was for immediate vestings on the IPO, and the remainder was for May and June entries, so roughly and slightly part of April for accrual for vestings next year. So that run rate comes out to a little over $4 million a month.

Speaker Change: That's a great question. So of the $90 million that we booked in Q2, approximately $80 million

Speaker Change: About 80 million was for immediate vestings on the IPO and the remainder was for May and June entries So roughly and slightly part of April for accrual for for vestings next year So that run rate comes out to a little over four million a month

Scott Fidel: So just interested in sort of how you're thinking about that embedded EBITDA opportunity just given, you know, the new facilities that you're bringing on right now with with very little EBITDA that are going to ramp up the forward, you know, embedded EBITDA opportunity looking out to 2025, for example. Yeah, and not too, because we're still refining our 25 and 26 guidance with Dave's questions and yours obviously. The opportunity set of M&A was a little more robust than we originally started out in the year.

Tao Qiu: All right, thank you. And last question from me: in terms of the Medicaid Supplemental Program, could you size up the impact of that program for the quarter?

Speaker Change: Thank you.

Speaker Change: All right, thank you. And last question from me. In terms of the Medicaid Supplemental Program, could you size up the impact for the quarter from that program?

Tao Qiu: Specifically in which state or overall?

Tao Qiu: Overall, I mean California is probably a big piece there, but if you can provide any color, that would be helpful. Thank you.

Speaker Change: Specifically in which state or overall? Overall, I mean California is probably a big piece there but if you can provide any color that would be helpful. Thank you.

Derick Apt: And Q2 is negligible. In Q1, we had some entries from the WQIP program, but California staged the payment of those this year, so some was paid out at the end of Q1, and the remainder is set, per the state, to be paid in September. And so we have not recognized all that on our revenue books until the state actually pays us.

Tao Qiu: Thank you. And Q2 is negligible. In Q1, we had some entries from the WQIP program, but California staged the payment of those this year, so some was paid out at the end of Q1, and the remainder is set, per the state, to be paid in September. And so we have not recognized all that on our revenue books until the state actually pays us. Okay, how much of that is in the guidance?

Scott Fidel: So as we are looking to the future, what I would point to roughly speaking is our new buildings. We typically see somewhere between zero, two to three percent EBITDA margin that ramping which is 18 to 36 months of ownership, you know, that builds the high single digit EBITDA margin. And then as we're seeing right now in our mature facilities as well as some of the rampant facilities that are near the end of their maturity in moving into that mature bucket by the end of the year, you know, those buildings producing low teens EBITDA margin.

Speaker Change: In Q2 is negligible. In Q1 we had some entries from the WQIP program, but California staged the payment of those this year and so some was paid out at the end of Q1 and the remainder is set per the state to be paid in September and so we have not recognized all that onto our revenue for the books until the state actually pays us.

Tao Qiu: Okay, how much of that is in the guidance? None of that is in the guidance.

Speaker Change: Okay, how much of that is in the guidance?

Tao Qiu: None of that is in the guidance due to we wait for the state because there have been years past where California stretches out for many months. Several years back, they stretch us clear into the next year.

Derick Apt: None of that is in the guidance due to the fact that we wait for the state because there have been years past where California stretches out for many months and several years back. They stretch us clear into the next year. So, we have taken the approach to wait for that to be paid before we recognize it to ensure that the state is going through with its commitment to pay it.

Scott Fidel: And so ultimately as we point to that, you know, if you think you bring in 28 so far in the quarter and the rest of the prestige, you will be closing here by the end of Q3. You know, you fast forward a year. Those buildings should be producing 2 to 3 percent EBITDA margins as we roll into late 25. And that's what we're refining now as we look forward. But I think ultimately we wouldn't be doing the deal if we didn't think it fit the road map of maturing the buildings that we've experienced over, you know, the other 220 buildings we've acquired prior to these.

Speaker Change: None of that is in the guidance due to we wait for the state because there's been years past where California stretches out for for many months and several years back they stretched us clear until the next year so we have taken the approach to wait for that to be paid before we recognize it to ensure that the state is going through with their commitment to pay it.

Derick Apt: So, we have taken the approach to wait for that to be paid before we recognize it to ensure that the state is going through with their commitment to pay it. Got it. Thank you. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments. Thank you, operator. We appreciate that, and thank you all for joining us. We look forward to speaking with you soon. Have a great rest of your day. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day.

Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Speaker Change: Got you. Thank you.

Speaker Change: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Jason Murray: Thank you, operator. We appreciate that, and thank you all for joining us. We look forward to speaking with you soon. Have a great rest of your day.

Scott Fidel: Great. I guess since Dave started the precedent of a third question, I'll continue that trend and sneak one more in here. Just thought it would be helpful. You talked about 3.5 percent rate growth from Medicaid in the first half. I'm interested if you could give us sort of what you're seeing on visibility into Medicaid rates in the back half of the year and, you know, as you're seeing some of the FY25 rates come in and sort of how you would think about that underlying Medicaid rate trend in the back half of the year compared to the first half.

Speaker Change: Thank you, operator. We appreciate that and thank you all for joining us. We look forward to speaking with you soon. Have a great rest of your day.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at

Scott Fidel: That's it for me. Thanks. Yeah. No, and that's great. And I think part of the, you know, we revised guidance because the performance, some of the Medicaid rate increases both from base rates and also from a cutie slash quality mix rate increases were a little stronger. I think as I've reviewed, you know, prior, you know, our model in the out years kind of shows a 2 percent to maybe 2.5 percent depending on the state growth and Medicaid.

Scott Fidel: But as we enter more states with case mix index, we have the ability to control that and kind of control our own destiny with taking higher acuity, long term patients. And as you look at the rest of this year, we have had some strong rate increases in a couple of states, specifically Kentucky and Colorado just had the large rate increases in July. We also had another rate increase in Ohio. And so we anticipate that to continue.

Scott Fidel: And then as we blend through, you know, making sure that the case mix and we're capturing the acuity that we need and those longer term patients, then we should see a healthy growth in that Medicaid rate. Now further out than that, it's super hard to predict mainly because we cannot see here and tell you we know exactly what different Medicaid programs or state politicians will do. But as we look to the future, we'll probably be continuing with our modeling of 2 to 2.5 percent Medicaid rate increases, independent on our operators to make sure they're maximizing that and capturing any additional rate that could be possible from quality programs or acuity program. Okay, great.

Scott Fidel: Thank you.

Jason Cassorla: Next question is coming from Jason Cassorla from City, Your Life, is that live? Great. Thanks.

Derick Apt: Good afternoon, guys. Congrats on the quarter. Maybe just picking up on the right side. I wanted to ask about the 2025 Medicare rate notice up a strong 4.2% at the headline level. I guess just curious on how you're thinking about how that rate translates for you guys. Is there any considerations in terms of the wage index changes or any components of the rule that are worth noting at this point? Thanks. Yes, A. Jason, this is Derick.

Derick Apt: I don't think there's anything that jumps out worth noting. Anodotically, if you look back last year, I believe the rate increase from CMS overall was under three percent, but as you see our Medicare rate for the first half of the year, we were able to drive up, I believe, nine percent, nine and a half percent. And really that comes from capturing higher acuity with PDPM. We're getting rewarded financially for taking care of those clinical needs of the higher acuity patients.

Derick Apt: So instead, just taking a base Medicare patient if somebody with comorbidities, Medicare is paying for that. And that's really our model is taking the higher acuity needs of the local patients in the communities and making sure that we're satisfying them with good quality outcomes.

Derick Apt: Okay, great.

Derick Apt: Maybe just shifting gears a little bit. Wanted to ask about the purchase option opportunity on your book. It looks like you have 31 currently, but maybe could you just help unpack that opportunity set for you? What timing on executing those options would look like? Or just any other color as we think about, you know, the purchase options as a source of either upside kind of down the line. Thanks. Yeah, this is Derek.

Derick Apt: So the options as we view them, all the options that we have in front of us are really fixed purchase price options. And as we view those, you know, over the next, I believe it's three to four years by the time they all kind of option windows open is the goal would be to step in and exercise those options because ultimately, as we have the ability to step in and capture that that internal rent that we're paying the third parties, you know, provide incremental upside for us instead of having that rent go elsewhere, we're able to capture that in the EBITU upside.

Derick Apt: So, you know, that number will continue to evolve as we get more and more options because if we're not purchasing the real estate, we push hard in our deal structures to have options or access to real estate. At some point in the future, to be able to capitalize on that equity upside that we're generating through the strong financial results.

Benjamin Hendrix: Okay, thank you guys. Thank you.

Joshua Jergensen: Next question is coming from Ben Hendrix from RBC Your Life. Is that live? Thank you very much, guys. Just a quick follow up on that last one. Would the same be true for the joint venture that you entered into for the overall state of a related acquisition? I think it's about 25% of that you own. Would you be looking to increase your ownership percentage of that JV over time? Yeah, as of now, we're not entering into it to look to kind of change the ownership spectrum.

Joshua Jergensen: We have a good relationship with our partner on that JV investment. It's the same partner that we've utilized in a prior investment in South Carolina as we look through the portfolio and try to make sure we're maximizing both the leverage and the JV investment. We have the ability to work closely with them. For example, in the South Carolina, some of those buildings have been taken to HUD with HUD financing mortgages and others.

Joshua Jergensen: We purchased and just put on our balance sheet versus kind of staying in the JV. So it's something that we're constantly under evaluation, but we really don't start evaluating it or trying to maximize the JV investment return until the buildings are at a stable point. And we believe we're getting close to stabilization and maximization of those financial results from the underlying building. Thank you. Just one more. I appreciate the corollary you offered on that one California facility and its ability to kind of ramp up into a preferred provider relationship.

Joshua Jergensen: I wanted to kind of get the landscape of the four new states that you're in, kind of what the provider relationships are there that exist and kind of your opportunity to get more of a preferred relationship in those regions. Do you know those regions well? Thank you. Yeah, good question. I mean, this is Josh. For us, as we enter into these new states, it's always important that we begin establishing relationship in the community.

Joshua Jergensen: I already mentioned the quality measures that we start with. But as we go in there, that's a key component. Fortunately, in this situation, as we've evaluated, you know, not only the states that were in, but we also evaluate the operator and the facilities that were purchasing to see what that relationship was before. We're fortunate because in this particular deal, there are actually some very beneficial relationships that we feel we're going to be able to enter into and leverage relationships with hospitals that have wanted to work with these facilities part of the reason is quality.

Joshua Jergensen: We think there's still some areas that we can improve. But we also recognize that, you know, that the outgoing provider has worked hard to build density and key markets. And so when you look at these states, a number of them are due for us. You know, you have Alaska, Washington, and Kansas are most recent ones that we feel there's nice density from, you know, the location of the facilities close to hospitals.

Joshua Jergensen: So as we hit the ground in any of these places is we're thriving care and quality. We're also going out into the community and making sure people aware that there has been a change and that they understand what our intentions are as far as investment into the people to the systems, to the physical plants and these environments so that we can build confidence in those communities. So as we've done that, we feel what they want.

Joshua Jergensen: We've just recently taken on that we're already making great progress in the couple weeks that we've been there, and we intend on the remaining of remainder of those buildings to execute the same game plan. Great. Thank you. Okay.

Calvin Sternick: Next question is coming from Calcule from Aquarius line is not live. Thank you.

Unknown Executive: Good afternoon. I think I heard you have 31 leaders in the AIT program and you are acquiring at a faster pace when we account for the perceived transaction. Do you feel like you have adequate leadership pipeline to continue the brisk pace of acquisitions, and also maybe remind us how fast you are turning out these leaders and how you make sure they adhere to the same culture and operating models. Thank you. Yeah, this is an area that we emphasize internally and we talk about often because we believe this is an area where we have a significant advantage to go and grow.

Unknown Executive: And as we evaluate talent in these facilities, each deal is a little bit different. Again, as we look at this particular deal that we just most recently did, although the facility count is high. You know, we we feel that there are a number of leaders that were already in place that are doing a lot of good things and will be a good fit in our model. We want to be prepared with a venture talent in the event we need to make changes.

Unknown Executive: But in this particular deal, we've met with a number of the administrators. They're local to the area. As I mentioned, a number of them have great relationships with the hospitals. There's certainly an adjustment as they come into our more decentralized model, but we believe a number of these individuals are capable to adapt to our model and get good results. And so in the event that happens that we maintain a higher number of administrators that are already in place, that just continues to allow the bench to be deeper as we evaluate other deals that we're looking at into this.

Unknown Executive: Future. Got it. That's helpful. And then clarification, you initiated the stock incentive program this quarter. Help us understand what will be the wrong rate of stopaxe comp going forward to any GNA target you can provide. That's a great question. So of the 90 million that we booked in Q2, approximately 80, about 80 million was for immediate vestings on the IPO. And the remainder was for May and June entries. So roughly and slightly part of April for a cruel for for vestings next year.

Unknown Executive: So that run rate comes out a little over four million a month. All right. Thank you. And last question from me, in terms of the Medicaid supplemental program, could you size up the impact in the foot of quarter from that program? Specifically in which state or overall overall, I mean, California is probably a big piece there, but if you can provide any color, that would be helpful. Thank you. And Q2 is negligible.

Unknown Executive: And Q1, we had some entries from the WQP program, but California staged the payment of those this year. And so some was paid out at the end of Q1, and the remainder is set per the state to be paid in September. And so we have not recognized all that onto our revenue for the books until the state actually pays us. Okay. How much of that is in the guidance? None of that is in the guidance due to we wait for the state because there's been years passed where California stretches out for for many months.

Unknown Executive: And several years back they stretch us clear until the next year. So we have taken the approach to wait for that to be paid before we recognize it to ensure that the state is going through with their commitment to pay it. Thank you.

Unknown Executive: We reach in of our question and answer session. I'd like to turn the floor back over to management. Pretty further or closing comments. Thank you, Operator. We appreciate that. And thank you all for joining us. We look forward to speaking with you soon. Have a great rest of your day. Thank you for those concludes today. Tell a conference to webcast and we just connect your line at this time and have a wonderful day. We thank you for your participation today.

Q2 2024 PACS Group Inc Earnings Call

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