All right, first and foremost, thank you all for joining us here in person, and for those who are joining us via webcast. My name is Ben Rossi, and I'm the Healthcare Facilities Analyst here at J.P. Morgan. We're excited to welcome PACS Group to the stage as we wrap up another exciting day. With us here today are CEO Jason Murray and CFO Mark Hancock. Thank you both for being here.
Yeah, great, thanks. Thanks for that, Ben. Appreciate the introduction, and thanks for all of you who are here. We were told that the 5:15 P.M. slot was the most desirable slot in the entire conference, and now I can understand why it's the most desirable, but we're excited to be here. As was said, I'm Jason Murray, one of the co-founders of PACS Group, with my business partner here, Mark Hancock, who is a co-founder and also CFO.
We're looking forward to telling the story about our company, and then we'll transition to some Q&A as well as we get towards the end of this, but I wanted to start with this slide because I think it encompasses very well who we are as an organization. We like to think that we are revolutionizing the delivery, leadership, and quality of post-acute care nationally. That is the mission of our company.
We are a post-acute healthcare company. We specialize primarily in the operations of skilled nursing facilities, so we own and operate skilled nursing facilities across the country. Why I like this slide is because this work is a very important work. It's a work that we're very passionate about as a company, and there are certain attributes that we are looking for in our employees, that we're looking for in the work that we do each day, that brings a great amount of satisfaction to our efforts. I'd like to point out not only the mission of revolutionizing, I'm going to talk more about that as we go throughout the presentation today, but also the values of our organization, what's important to us.
And so when we think about the recruiting of staff, when we think about how we train our staff, when we think about new acquisitions and M&A and growth, it all, we try to direct all of that towards our mission statement and the values of our company to make sure that all of it aligns so that we are feeling comfortable about our growth, that we're not outpacing our culture as an organization. And so a couple of things I might point out here that are important to us: love. That is, we recognize that love is the foundation for providing care. Nursing homes, as you might imagine, I'm hopeful that many of you have been in a nursing home and have an idea of what it feels like, what it smells like. And maybe some of those emotions are not very positive.
Typically, when we start talking about nursing homes, if I try to have a conversation with a stranger that I work in nursing homes, usually their eyes gloss over, and the conversation's pretty short because people don't really want, it's not the most glamorous type of work, but it's a work that is very important, and we're going to talk about why it's important to us, but it's a very intimate setting that we work in, so when you think about going from home to work, we go from home to another person's home. Our patients are our family members, and they are there, many of them are there for the entirety of their lives, and many are there for just a short amount of time as well, so it's a very intimate setting when you think about that.
Post-acute healthcare, in particular nursing homes, is the most intimate setting to provide care in our entire healthcare sector today, and so we're incredibly passionate about that, and that's what drives us each day is having this opportunity to improve and revolutionize a very important sector of our healthcare continuum, so I thought it'd be helpful if we talked a little bit about the background of PACS, so we started the company, myself and Mark, my business partner, back in 2013. We had both spent a significant amount of time working in the industry. I had started off working as a CNA, providing direct patient care, which was, frankly, not a very fun job, but it was one that was very eye-opening to me. We had both spent time working as administrators in facilities as well.
And so when we had the opportunity to go into business together, we liked to think that we had a good idea of what the good, the bad, and the ugly of our sector, what it offered. And as we started talking about this opportunity, we started to cobble together ideas that we felt were unique: a unique operating model, a unique clinical model, a unique leadership model that we felt, based off of our experience, would be a value add to our sector. And so as we spent time going through this, we started to get energized and excited about this idea that there is a better way to operate a nursing home. There's a better way to bring joy, to bring light, to bring investment into a nursing home, to make the experience and elevate the experience, revolutionize the experience for our patients and for our employees.
And so in late 2012, we created the company that we have today and started with two facilities. We purchased two facilities in San Diego, California. And from there, took our platform, this operating platform that we felt was unique, and we looked to grow. A couple of things that were unique about this. I talk about this operating model, this leadership model that was unique. A couple of attributes I'd point to that we felt make it unique is this idea of decentralized leadership, so locally led, centrally supported model. So what that means is every one of our facilities has a local administrator, a leader of that facility, and a leadership team. And that leadership team directs the care under the guidance of a physician and clinical licensed professionals to deliver care to patients, depending on whatever their clinical needs might be.
Those administrators are empowered to make decisions locally because we believe strongly that healthcare is local. The way that we've designed the company is set up in a way that decisions are meant to be made as close to the patient and as close to our employees as possible. As we've structured the company, that's the way we've been very intentional in that.
And so as we've designed the company that way and allowed our administrators the latitude to make those decisions, we've tried to create also the framework of a back-office support function through a centrally supported model with PACS Services, which is that back-office support, to provide the support and guidance that our local administrator and their teams need to make good decisions, to be compliant, to make good decisions, to make sure that they're safe in the way that they operate their facility. So that was one attribute that I would say was unique in the way that we were thinking about how we would operate a nursing home. The next would be this idea of taking underperforming facilities, facilities that were broken in many ways: broken financially, broken clinically, broken operationally.
And our business thesis was that we could take this model that we had created, and we could find these targets throughout the country, and we would work to purchase them and deploy our model, our operating model, into them to add value, to elevate the level of care within the facility, the quality of care within the facility. And as we many times need to bring in new leadership and breathe new life into that facility through the leadership, that's one of the first steps that we take in turning facilities around. So as we target underperforming facilities, we bring in our leadership model, we bring in our operating model, clinical model, and we start to breathe new life into that facility. And so what that looks like is these underperforming facilities usually are facilities that are depressed in their overall occupancy.
And the average occupancy in a nursing home across the country today is around 80%, call it. And many of the targets that we look at are depressed. They're in the 60%-70%. And the reason that's a function of the facility just being broken. And so when we come in and we focus on care, that's priority number one for us is to invest in our people, the resources, the training, the equipment that our teams need to focus on care and to improve the quality of the product in the nursing home that we own. And as we focus on care and start to get that right, and as we start to show the clinical outcomes that our facilities need to have through that investment in our people and in our processes, that starts to yield results, quality results.
And then we share those quality results in the markets where we operate. So we share that with the hospitals. We share that with the referring physicians. Those are important metrics, KPIs that we measure every single day. And as we start to do that, the providers in the markets where we operate, our referring partners, they see that there's value that we're bringing to this community, to this market. So it really does create this virtuous cycle of, as we perform well clinically, we start to see more referrals. And the more referrals we see and the better we perform clinically, we start to see better reimbursing referrals, higher acuity in our facilities.
So that's the recipe, and that's kind of the business thesis from the beginning, was that we would take these underperforming facilities, we'd be very intentional in the way that we targeted our growth and in the markets that were where we wanted to grow, that we were finding these facilities where we could add value with our operating model. And so when we first started, Mark and I, we didn't have much capital. So really, the way that we tried to grow early on was to buy the operating platform of a nursing home. So if we had a target that we were looking at, usually that's divided up into an operating entity and a property entity, the company that owns the real estate and the company that owns the operations of that real estate.
And early on, we didn't have enough capital to really purchase real estate because that's a pretty capital-intensive endeavor. So early on, the idea was, let's buy operations of these facilities. We'll partner with some of our public REITs, and we will have them take down the real estate, and then we will partner with them and have a triple-net lease and operate the facility. With that, that formula works pretty well because when you're targeting underperforming facilities, you might imagine the operations, if these are facilities that are broken, they're not performing well financially. And because they're not performing well financially, the operations are really not valued at anything, really, right? Because there's negative cash flow in those situations.
So we were fortunate early on to be able to find good deals where we could essentially get in for virtually nothing because we were taking a burden off of a seller and working to improve that. And so we were very fortunate early on to take some facilities and deploy our model and turn the operations around to where we started generating enough cash to where we had the opportunity to start investing in real estate. That was always part of the strategy early on. We liked that strategy because it created optionality for us as owner-operators to not only own the real estate but also own the operations so that we had flexibility with our leases and flexibility with CapEx and those sorts of things, and just optionality with creating value down the road.
So as you see here on the slide, today we have leases on, call it, a little over 50% of our portfolio. And we have ownership interests. We either own or have ownership interests in 27%, and we have a path to ownership in another 20%. So within the next couple of years, we have a path to ownership or having ownership interests in roughly just under 50% of our portfolio, which is an important strategy of ours that we'll continue to execute on. This slide just shows a little more of the trajectory of the company over the years. And so, as I mentioned, Mark and I, we started in 2013 with two facilities in Southern California. Over the years, you can see the growth as we grew at a clip of, call it, 8-12 facilities a year up until 2021 when we did a larger transaction.
I think that was notable because it really did give us, we had, over the years, been working on this idea of building out the back-office support function, that central support that I talked about earlier. We've spent a significant amount of time and resources building that up so that we could absorb and assimilate more growth, and 2021 was an important year for us because we did a fairly large transaction that almost doubled the size of the company, and we did that with our new kind of back-office support that we had invested in, and we feel like that went really, really well, so it gave us the confidence, really, that we could grow at scale with chunkier deals as we think about growth in general, so I would highlight as well on the slide on the right-hand side, the consolidation within our sector is ripe.
And we consider ourselves a consolidator. And of the 15,000 nursing homes in the country today, roughly 15,000, you can see some of the providers here on the bottom right. The top nine providers constitute 11% of that count. And so there's ample opportunity for us to continue to grow. And again, the thesis is to find those facilities where we can add value. And we've been fortunate over the years to, as we continue to perform well clinically, that is, as the virtuous cycle continues, that has strengthened the bottom line and the balance sheet of the company as well. And it's provided ample opportunity for us to continue to invest in new growth. So we're very optimistic about growth and scale moving forward as a company. I like this slide because it's a nice snapshot of who we are as a company.
As I mentioned, we started with the two facilities in San Diego back in 2013. As you take a snapshot today, we're at 321 facilities with taking care of roughly 31,000 patients and roughly 47,000 employees. These last three metrics I just want to touch on briefly. 94.8% of our facility occupancy in our mature facilities, that's significant. And again, as I mentioned earlier, the average occupancy in a nursing home across the United States is around 80%. So this is an important metric for us because it, I think, signals that we are the provider of choice in the markets where we operate. And so this is well above what industry average is. And we're very proud of that because, again, it signals that we're doing a good job in the markets where we operate. The other one is the 33% average skilled mix for mature facilities.
I'll talk more about mature facilities in just a moment, but that's significant because we think of nursing homes. Today's nursing home is the patient in today's nursing home was yesterday's hospital patient, and so that level of acuity is shifting, and it has been shifting for years where hospitals are interested to get the patient into the lowest cost setting possible, and nursing homes happen to be the lowest cost setting to receive institutional post-acute healthcare in our healthcare continuum today, and so that's important. We're positioned very well to take care of a higher acuity patient for less, and that's significant, so when we have targets that we're looking at to acquire, these are areas where they potentially struggle and usually struggle, where they've had a hard time adapting to this idea that healthcare is shifting, the acuity level is shifting from the hospital into the nursing home.
And so when we take those facilities over, this is a key area for us as we work to not only improve overall occupancy, but we need to invest in our people and the training and the resources and equipment within the facility, the physical plant of the facility to make sure that we can take care of these higher acuity patients. That investment is critical for us to be able to make that adaptation in that facility so that we can capture more of those higher acuity patients because, again, we feel strongly that's where healthcare is going. That's where post-acute healthcare is going. And providers need to make that change and that adaptation if they want to be successful. And it so happens that those skilled patients are the higher reimbursing, the better reimbursing patients for what we do.
And then the last point on the slide would be the mature facilities or, I'm sorry, the CMS quality measure rating of 4.3 across our portfolio. That's a metric we're very proud of. We've worked really hard at this. That's out of a 5.0-star rating. Again, as you might imagine, as we take underperforming facilities, these facilities are, call it, one, two-star facilities from the QM standpoint. And as we deploy our model over time, we start to see that move. And that's very important for us. As I mentioned in my kind of beginning comments, we're very passionate about what we do. So for every tenth of a point that we can gain here in quality star rating is a life that we're improving or lives that we're improving. And that's important to us.
That's what drives what we do is our ability to add value to our patients' lives. So I won't spend much time on this. Just to give you an idea of our overall occupancy, the revenue on a daily rate, skilled mix, and by revenue and patient days, what I'll call out on this slide are the cohorts. You'll notice that we have new, ramping, and mature. That's the way that we cohort our portfolio. As I mentioned, we grow by acquisition quite a bit. We have right now about a third of our facilities that are in the new bucket. That's 0 to 18 months that we've had a facility in the new. That's how we define new is 0 to 18 months. 18 to 36 months is ramping. Then mature is 36 months and beyond.
So the expectation that we have in our company is once a facility, after three years, a facility really should be transformed. And it should be firing on all cylinders as we think about it. And the team should be in place. The program should be in place. The relationships with referring partners should be in place. And that facility should be performing well. So that's the way we think about it. And you'll notice the longer we have a facility, the better it becomes. And we like the way that looks on this graph here. We like the way that we talk about that internally as well because it's important to us. It's important that we're able to add value to the facilities where we operate. And then this last slide before we move on to questions here will be this is just the trailing 12-month snapshot.
The last 12 months, $5.14 billion in revenue, $456.9 million of Adjusted EBITDA. You'll note here as well, $355.7 million in cash. We also have a credit facility around $600 million, which we don't have a lot drawn on. So you put those together, we have a lot of liquidity as an organization to grow and advance our mission as a company. And then the net leverage of effectively zero. Again, hopefully, as you see this, you'll see that we feel very good about where the company sits as it relates to growth moving forward. We have a very strong foundation. The fundamentals of the company are strong. And we're excited about the future and the position that we're in to advance our mission. So with that, maybe we'll transition to questions.
All right, and thank you for that background and refresher on the company, so to start here, before we talk about your forward outlook, would you mind providing us with a retrospective on 2025 and just walk us through some of the key drivers behind your financial performance during the year?
Yeah. So 2025, it was an interesting year for us. We had, if there's people that have been following the company, there was a short report that was filed against the company in November of 2024. And in that short report, there were some very wide-ranging allegations against the company. And immediately, the company went to work on investigating those. The audit committee and outside counsel spent time investigating all of those allegations in the report. That took quite a bit of time for them to go through the allegations and do a thorough investigation. At the conclusion of that investigation, there was a restatement of just over $60 million of revenue. That was really the only conclusion from the audit committee's investigation that impacted the financials of the company.
Even though it took quite some time to make it through that investigation, we were actually quite encouraged that those were the only findings because it was a very thorough process where rocks were overturned, millions of documents reviewed, hundreds of people, employees interviewed. To have that be the ultimate conclusion, that was important to us. We feel like the company has been pretty well sanitized through that process. There were many, many improvements over 2025 that we made operationally during that time where we did a lot of kind of 360 analysis of our policies, procedures, people, just to make sure that we had not only that we were in a position to take care of our current patient load and our employees, but also positioning ourselves for future growth. That was important to us.
And so as unfortunate as it was in 2025, we really feel like we came out stronger. And it helped kind of accelerate our maturation as a public company since we launched our IPO in 2024. So we didn't have much time as a public company before we were hit with a short report. But we feel like we're in a position of strength as I had time just to talk through some of the metrics of the company. And so that's the overview of 2025. We're very optimistic about 2026.
Great. I think that's a good segue to go into some of the operating trends. So across your operational and clinical KPIs, you flashed it on the screen, but could you just describe how those are trending as we head into 2026?
Yeah. Maybe I'll take that one. We've been talking as a sector for a good decade plus now about this kind of silver tsunami, right, of aging demographic, of baby boomers eventually making their way into our sector, and so we saw kind of the waters recede a little bit with the COVID pandemic as occupancy levels dropped, but now it's come back very strong, and so this tsunami, this silver wave, it's here, and so we're seeing that reflected in our occupancy levels, and as Jason described, our mission is to be the best provider of post-acute care, and with that focus on quality measures, that is our product care, and as we focus on the product and good outcomes, then that drives demand for our services.
And so this model of taking long-term traditional nursing homes and converting them into more transitional care extensions of the hospital, we're seeing that trend manifest in our KPIs. So in our occupancy levels, in our skilled mix, as Jason described, which is those higher acuity patients, higher acuity and higher reimbursing. And for us, we are the lowest cost setting for institutional care. So those patients that are getting pushed out of the hospital sooner and sooner, but they're not well enough to go home, they need a place. And for us, we take those patients and we transition them for 20 days. And then there's just more options for long-term care today. There's assisted living. The best outcome is to get someone back home, potentially on home health. So for us, we're seeing those trends from a clinical perspective.
As Jason mentioned, our quality measures 4.3 in our longer-tenured facilities out of five. These are some of the highest levels of quality care in our industry, and so focused on that, focusing on the coordination of care within the health system, the readmissions, making sure those patients aren't returning back to an acute setting within 30 days. Those are kind of the key metrics that we constantly monitor, and they continue to trend. In spite of kind of the headwinds and the challenges of this kind of internal review that we did this last year, the fundamentals of the business remain strong, and that was manifest in our most recent filings where we were up 30% year-over-year top line, where we've assimilated a lot of the cohort of new acquisitions that we had taken on in 2024, and so very positive from a KPI trending perspective across the board.
Great. And just flipping over to the rate side, there's been a lot of noise around reimbursement. What are your expectations for Medicaid rate development in 2026?
Yeah. So rates are always a constant source of, I think, hand-wringing across the healthcare system, right? But in our sector, I mean, over the last 20, 30 years, we've seen consistent rate increases, both on the federal side with Medicare and managed care reimbursement, and also on the state level with Medicaid. So typically, we've seen that trend consistent with inflation. So nominal, call it 1-3 % increases. Post-pandemic, we did see a couple of years of accelerated rate increases, which was kind of a catch-up for some of the inflationary pressures that we felt during the pandemic with labor inputs being more expensive with minimum wage increases, that sort of thing. So there was kind of a catch-up over the last, call it, couple of years in rate.
And now we're seeing that kind of plateau and kind of return to more of that kind of nominal tracking with inflation.
Got it, and just thinking about acuity then within that, as part of your broader efforts in maintaining your target skilled mix, could you just walk us through the past year how you're thinking about your capturing this higher acuity patient volume, and then could you give us any color on the types of services or specialty areas where you've been seeing the most opportunities within that?
Yeah. I mean, and that's really where the opportunity is for operators like us, where with our focus on clinical complexity and doing everything that Jason described, which is equipping and resourcing and training and developing the local clinical teams to be able to be capable of taking that clinical complexity, that's how we enhance our margins and effectively improve our rate organically is by driving the case mix and taking those more clinically complex patients. So even though we get nominal rate increases, that's how we create value and drive that margin. And again, that's where the demand and the trends are. The demand is for those patients are coming out of the hospital, and the traditional nursing homes aren't equipped to take those. So those of us that focus on that, that are prepared, have the benefit of taking a higher fair share of those types of patients.
And then at the same time, we see both at the federal level and at the state level trends towards incentivizing quality care. So with supplemental payments at the state level or quality incentive programs that enhance those kind of daily rates, that's where we benefit by being a quality provider.
Great. So I have a multi-parter here on capital deployment, so bear with me. But with your cash position north of $350 million exiting 3Q, could you just walk us through your thoughts on capital deployment in 2026 and maybe provide an update on your M&A pipeline? And then within that, is your target of 20 facilities per year still the right way to think about forward M&A?
Yeah. So let's start with the first part of that question. How do we think of deploying our capital? I think as we've established, the company is well capitalized right now, and that's a fortunate position to be in. We also feel very passionate about our ability to add value in underperforming facilities. And so as we think about the best use of our capital, it's to grow. So as we think of 2026 and beyond, we've been anxious to get back to this, call it, normal operating environment where we don't have the overhang of that internal investigation, which has now concluded. So with that in the rearview mirror, we are excited about the ability to get back to something that's more normal. And that's where we plan to spend most of our capital is in growing. Now, to the point on or the part of the question about.
20 facilities.
20 facilities a year. That's right. So that is what we've signaled historically. And I think that is still consistent with the way we think about growth. That's a number that we've talked about internally over the years. And I think that's a number we settled on around the IPO. That number is one that we'll continue to evaluate and make sure that it makes sense with our overall kind of strategic goals of the organization. But yeah, we feel good. We feel good that that 20 number is the right number right now. But we will continue to be opportunistic, meaning that if we go above 20, there will be a reason why we go above 20. And it will be a good reason why we do that. So as it relates to, so that's the part of the question on the 20 per year.
The pipeline part of the question is the pipeline is very healthy right now. There was a moment there in 2025 where the spigot was turned off just a little bit. It wasn't turned off completely, but just a little bit where the flow was less than what we had seen historically. But now with the internal investigation concluded and with the company back in compliance with its filings, that's been kind of fully turned back on again. And so we're seeing a very healthy pipeline, multiple deals, some that are small in size, some that are large in size in different geographies across the country. It's really a mixed bag, but we're very encouraged by the activity that we're seeing there and feel good about our ability to grow into 2026.
And I would maybe just layer in that, again, from a leverage perspective, we're effectively zero net debt today on a lease-adjusted basis. We're, call it, in the mid-threes. And we constantly evaluate that from a lease-adjusted perspective, from a total debt, net debt. And so we do have capacity and some dry powder to grow. And as we exercise some of the options that Jason identified in the presentation, that moves from kind of that lease-adjusted to the other side of the balance sheet as we buy out those properties. And we've got capacity to do that. So again, we've got potential there for growth.
Great. I think as just a follow-up within there, you touched on it a little bit at the end with the real estate purchases, but could you just remind us again about how you're thinking about your broader real estate portfolio within this?
Yeah. I mean, we create a lot of value in the real estate by driving the financial performance of the operations effectively drives a cap rate that increases our ability to finance and structure and exercise purchase options on the real estate. Often, we try to negotiate lease deals. If we're going to do an acquisition via lease, we often try to negotiate a fixed purchase price upfront, knowing that we're going to create value, that then we're in the money when we exercise that option in terms of not requiring a lot of cash down to exercise that option if we're going to implement a mortgage there. And we do benefit from HUD 232/223 financing in our space of being able to get long-term fixed rate, 30+ year non-recourse debt. And so real estate is important.
We've seen other operators in our space create a lot of value through the real estate and generate. We've seen people spin off REITs over the years. It provides us a lot of optionality in terms of we can always sell lease back. We can control kind of the escalators if we own the real estate versus, and we can amortize that down, depreciate it to offset tax and that sort of thing. So a lot of flexibility with real estate. So it's an important part of moving towards that 50/50 mix gives us a lot of flexibility.
Great. Thanks for that. And just as we're going into the closing minutes here, thinking about your 2026 outlook, so given the acquisition activity in 2024, followed by the events of 2025, how have your strategic priorities evolved, and what are your top areas of focus for 2026? And then as a prospect, we always like to close with this, what will investors appreciate about PACS one year from now that they don't today?
You want me to go first on that? I mean, I think what we've learned over the events of 2024, 2025 is that the fundamentals of our company are strong, and the people that we have on the front lines and throughout the organization are very, very strong. That's been reaffirmed to me time and time again over this last year, is that as we've been able to emerge from the challenges that we had in 2025, to be able to show the performance from an operational standpoint on the overall occupancy, on the bottom line as well, like there in our revenue, that's remarkable, especially during a time of significant challenge. So I think that speaks to how strong the fundamentals of the company are and the fact that we have people that can execute during a time of challenge.
And the fact now that we are out of that challenging time from an internal investigation standpoint, we feel very optimistic about our ability to operate in normal circumstances. And so as I think of 2026, what I hope investors appreciate about us in 2026 is consistency. We look forward to being consistent. We look forward to executing. As you've heard us talk about getting back to normal in the way that we think about operating our business, we're looking forward to that and looking forward to just being consistent and executing on our business plan and being able to give good guidance and hit our guidance. That's important to us. So I think that's what I hope as we fast forward to the end of 2026. I hope investors look at that and are pleased to see that.
Yeah. And I would maybe just add that the hot topic today is AI, right? And nursing homes, our sector is not a space that's traditionally known for being kind of very sophisticated. But this is absolutely a space that could benefit greatly from all the elements of AI, whether it's allowing our clinicians to spend more time bedside while simultaneously capturing the care and the delivery of services that they're providing from adjudicating billing and claims to even data mining our own kind of population of data and trends and clinical information that we have. So we've got an AI committee that's evaluating. I think we're looking at 15+ solutions right now, including implementing or developing our own solutions in the space.
So being a progressive forward-thinking operator in our space, we feel like that could be a differentiator and a competitive advantage and just really something that benefits our industry generally, broadly in improving that ultimate product of quality care.
Excellent. Thank you all for your commentary here. This is all the time we have here today. Thank you all for joining us and listening in. We really appreciate PACS Group for joining us and on stage. Thank you all.
Thank you.