PACS Group, Inc. (PACS) Earnings

Management highlights

### Operating Model & Clinical Quality - PACS uses a locally led, centrally supported operating model: local facility leadership is empowered to make patient-facing decisions, while regional corporate teams provide clinical resources, compliance frameworks, technology, and administrative support - 83.6% of PACS's skilled nursing facilities (239 out of 286 with reported CMS ratings) hold 4 or 5-star CMS quality ratings; mature facilities average 4.5 stars, 0.8 stars above the industry average of 3.7 - Management emphasizes a virtuous cycle: strong clinical quality builds trust with hospitals, payers, and patients, which drives higher occupancy, better patient mix, and improved long-term financial performance - Successfully turned around a previously troubled California special focus facility, which graduated from the CMS program in June 2026, preserving care for 250 vulnerable patients and retaining 500 jobs, demonstrating PACS's ability to improve distressed assets Portfolio & M&A Activity - As of Q2 end 2026, PACS operates 324 facilities across 17 U.S. states, with 35,631 total beds (32,790 skilled nursing, 2,841 assisted living), serving ~31,900 daily patients with ~48,000 employees - Closed on the acquisition of 20 Aduro Healthcare skilled nursing facilities in Texas on August 1, 2026, part of a larger 34-facility deal adding 3,633 total beds across 6 states - The remaining 14 Aduro facilities are expected to close in Q3 and Q4 2026, pending regulatory and customary closing conditions; the acquisition adds density to PACS's existing Texas footprint and expands presence in adjacent regional markets - Acquisition strategy remains disciplined, focused on opportunities where PACS can deploy its operating model to improve quality and generate long-term value - M&A pipeline activity has increased substantially after PACS regained compliance with SEC filing requirements, with deal flow ranging from small one-off transactions to large portfolio deals, providing meaningful optionality for growth Balance Sheet & Internal Improvements - As of June 30, 2026, PACS holds $756.6 million in available liquidity ($164.5 million cash, no draws on its $600 million revolving credit line), with a net leverage ratio of 0.1x - Remediation of previously disclosed material weaknesses in internal financial reporting controls is progressing well, with substantial progress made, and full remediation expected by the end of 2026, focused on revenue processes and compliance department expansion - AI/automation is being explored for administrative and clinical documentation tasks to reduce clinician workload, improve documentation accuracy, and support higher quality outcomes, with robust compliance review for patient privacy requirements

Guidance

- Management upwardly revised full-year 2026 guidance to reflect stronger than expected first-half performance and sustained operational momentum - Full-year 2026 revenue guidance is increased to a range of $5.75 billion to $5.85 billion, up $100 million at both endpoints from the prior range of $5.65 billion to $5.75 billion; the new midpoint of $5.8 billion represents 10% full-year revenue growth over 2025 - Full-year 2026 adjusted EBITDA guidance is increased to a range of $640 million to [redacted in call], reflecting continued margin expansion from organic portfolio improvements - Guidance includes only a modest contribution from the 20 recently closed Aduro Texas facilities, and excludes contributions from the 14 unclosed Aduro facilities and any other future pending acquisitions, to account for integration timelines - Expected unaccrued supplemental quality payments from Ohio and California WQIP programs, expected to be received in H2 2026, are not included in guidance, representing potential upside to current projections

Segment performance

PACS Group operates a single core segment of skilled nursing and assisted living healthcare facilities, with internal cohort segmentation by integration maturity: 184 mature facilities, 100 ramping facilities, and six new facilities. For the overall portfolio in Q2 2026: - Total revenue: $1.43 billion, up 9.1% year-over-year - Net income: $76.4 million, up 50% year-over-year - Adjusted EBITDA: $166.8 million, up 25% year-over-year, with margin expanding 150 basis points to 11.7% - Adjusted EPS: 63 cents, up 34% year-over-year - Overall occupancy improved 180 basis points year-over-year to 90.4% (10.9 percentage points above the industry average of 79.5%), and skilled patient mix improved 100 basis points to 30% For the same-store skilled nursing portfolio (284 facilities operated since Q1 2025): - Revenue increased 5.8% year-over-year to $1.35 billion - Occupancy improved 150 basis points to 90.6% - Skilled patient mix improved 50 basis points to 29.7% Cohort-specific performance: - Mature facilities: 93.8% occupancy, 31.9% skilled mix - Ramping facilities: 87.7% occupancy, 26.9% skilled mix - New facilities: 78.7% occupancy, 27.2% skilled mix Cost of services totaled $1.09 billion, up 6.7% year-over-year, while general and administrative expense was $114.3 million, up from $100.3 million year-over-year, reflecting continued investment in growth infrastructure. For H1 2026, operating cash flow totaled $371.8 million, with $190.8 million deployed in real estate investment.

Risks & headwinds

- Previously disclosed government investigations into company practices are progressing through the normal legal process; while management remains confident in navigating the matters, the timing of final resolution cannot currently be estimated - Integration of newly acquired facilities carries inherent operational and financial risks, including potential unexpected costs, leadership turnover, and slower than expected improvement in occupancy, quality metrics, and profitability - AI adoption in healthcare carries unresolvable compliance and patient privacy risks that require ongoing rigorous review of all new tools - Actual future results may differ materially from forward-looking guidance due to changes in Medicaid and Medicare reimbursement rates, labor market conditions, regulatory requirements, and broader healthcare industry dynamics

Analyst Q&A

• Q: What drove the upward guidance revision, and what operational trends support management confidence in H2 2026 performance? /

  A: The guidance increase reflects sustained strong performance across all maturity cohorts in the first half of 2026, including consistent improvements in occupancy, skilled patient mix, clinical quality, and cash flow. Guidance only includes a modest contribution from the 20 closed Aduro Texas facilities and excludes any contribution from unclosed Aduro assets or other future acquisitions, to account for normal integration timelines, resulting in the disciplined updated range.

• Q: Why is ramping cohort performance exceeding expectations, and what is the outlook for this cohort for the rest of 2026? /

  A: Strong performance comes as facilities in this cohort have established local leadership and built community and payer trust through consistent quality outcomes, leading to higher managed care contracting execution, increased occupancy, and better skilled mix. As these facilities stabilize, labor costs (including overtime, double pay, and agency usage) also decline, expanding margins. Substantial upside still remains as the cohort continues to mature toward full steady-state performance.

• Q: How important are PACS's strong quality metrics for payer contracting and referral sources? /

  A: Quality is the fundamental foundation of PACS's business strategy. Most payers set minimum quality thresholds for network participation, so strong quality metrics are required to access contracting opportunities and gain negotiating leverage, alongside market density. Strong quality also builds trust with hospital referral sources, driving higher admissions and better patient mix. This aligns clinical and financial success, creating a sustainable virtuous cycle.

• Q: What are PACS seeing in terms of Medicaid and managed care rate trends, and what is driving favorable rate increases? /

  A: PACS has targeted states that tie Medicaid reimbursement to quality, and has secured 3% year-over-year Medicaid rate increases so far, by demonstrating PACS delivers high-quality care for clinically complex patients as the lowest-cost institutional care setting. For managed care, payers increasingly prioritize quality outcomes and market bed density, two areas where PACS outperforms, leading to favorable contracting terms. The federal government has also continued to deliver consistent Medicare rate increases for the sector.

• Q: What will the contribution profile of the 20 closed Aduro Texas facilities look like in 2026, and how do they compare to PACS's typical new acquisitions? /

  A: Guidance only includes a modest contribution, with revenue contributing more than EBITDA in 2026 due to near-term integration costs. The Aduro facilities already have a positive operating foundation, but currently have ~mid-60% occupancy and ~10-11% skilled mix, in line with PACS's typical new acquisition cohort. Management expects these facilities will follow the same maturity progression as past acquisitions, with improvements in quality driving higher occupancy and skilled mix over time.