PACS Group, Inc.

Previous wording

The following discussion should be read in conjunction with the unaudited condensed combined/consolidated financial statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (SEC), including our audited consolidated financial statements and related notes as disclosed in our final prospectus dated April 12, 2024 in connection with our IPO, which includes for the year ended December 31, 2023, and discusses our business and related risks in greater detail, as well as subsequent reports we may file from time to time on Form 10-Q and Form 8-K, for additional information. The section titled “Risk Factors” contained in Part II, Item 1A of this Quarterly Report on Form 10-Q, and similar discussions in our other SEC filings, also describe some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Quarterly Report on Form 10-Q and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.

Current wording

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2024 (Annual Report) which discusses our business and related risks in greater detail, as well as subsequent reports we may file from time to time on Form 10-Q and Form 8-K, for additional information. The section titled “Risk Factors” contained in Part I, Item 1A of our Annual Report on Form 10-K, and similar discussions in our other SEC filings, also describe some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Quarterly Report on Form 10-Q and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.

Previous wording

We are a leading post-acute healthcare company primarily focused on delivering high-quality skilled nursing care through a portfolio of independently operated facilities. Founded in 2013, we are one of the largest skilled nursing providers in the United States based on number of facilities, with 220 post-acute care facilities across nine states serving over 22,000 patients daily. We also provide senior care, assisted living, and independent living options in some of our communities. Our significant historical growth has been primarily driven by our expertise in acquiring underperforming long-term custodial care skilled nursing facilities and transforming them into higher acuity, high value-add short-term transitional care skilled nursing facilities. We believe our success is driven in significant part by our decentralized, local operating model, through which we empower local leaders at each facility to operate their facility autonomously and deliver excellence in clinical quality and a superior experience for our patients. We provide our independently operated facilities with a comprehensive suite of technology, support, and back-office services that allow local leadership teams to focus more of their time and effort on providing quality care to patients. We believe our operating model delivers value to all of our healthcare stakeholders, including patients and families, referring providers, payors, and administrators and clinicians.

Current wording

We are a leading post-acute healthcare company primarily focused on delivering high-quality skilled nursing care through a portfolio of independently operated facilities. Founded in 2013, we are one of the largest skilled nursing providers in the United States based on number of facilities. We also provide senior care, assisted living, and independent living options in some of our communities. As of March 31, 2025, our portfolio consisted of 315 post-acute care, assisted living, and independent living facilities across 17 states serving over 30,400 patients daily. We believe our significant historical growth has been primarily driven by our expertise in acquiring underperforming long-term custodial care skilled nursing facilities and transforming them into higher acuity, high value-add short-term transitional care skilled nursing facilities. We believe our success is driven in significant part by our decentralized, local operating model, through which we empower local leaders at each facility to operate their facility autonomously and deliver excellence in clinical quality and a superior experience for our patients. We provide our independently operated facilities with a comprehensive suite of technology, support, and back-office services that allow local leadership teams to focus more of their time and effort on providing quality care to patients. We believe our operating model delivers value to all of our healthcare stakeholders, including patients and families, referring providers, payors, and administrators and clinicians.

Previous wording

We aim to create value by identifying and acquiring underperforming custodial care facilities and converting them into higher-value short-term transitional care facilities by investing in clinical teams and processes and upgrading technology, equipment, training, staffing, aesthetics, and other aspects of the business. The resources and guidance offered by PACS Services is key to rapid integration of new facilities and provides our local leadership teams with an effective technology infrastructure, support tools, and regional support teams that allow local leadership to focus on operational improvements. Our facilities generally undergo an up to three-year post-acquisition transition period. During this period, we seek to implement best practices designed to realize and sustain the facility’s full potential. These practices often result in significant improvements to clinical quality and other operational metrics, including skilled mix, occupancy rates and payor contracting. We believe the results of our acquisition strategy are demonstrated by our high average QM Star rating and occupancy rate for Mature facilities of 4.3 and 94%, respectively, as of June 30, 2024. As of June 30, 2024, the average QM Star rating and occupancy rate for New facilities was 4.1 and 84%, respectively.

Current wording

We aim to create value by identifying and acquiring underperforming custodial care facilities and converting them into higher-value short-term transitional care facilities by investing in clinical teams and processes and upgrading technology, equipment, training, staffing, aesthetics, and other aspects of the business. We believe the resources and guidance offered by PACS Services is key to rapid integration of new facilities and provides our local leadership teams with an effective technology infrastructure, support tools, and regional support teams that allow local leadership to focus on operational improvements. Our facilities generally undergo an up to three-year post-acquisition transition period. During this period, we seek to implement best practices designed to realize and sustain the facility’s full potential. These practices often result in significant improvements to clinical quality and other operational metrics, including skilled mix, occupancy rates and payor contracting. We believe the results of our acquisition strategy are demonstrated by our high average QM Star rating and occupancy rate for Mature facilities of 4.1 and 96%, respectively, as of March 31, 2025. As of March 31, 2025, the average QM Star rating and occupancy rate for New facilities, which we define as facilities purchased less than 18 months prior to the measurement date, was 3.1 and 82%, respectively.

Previous wording

Healthcare is an area of extensive and frequent regulatory change. Changes in the law or new interpretations of existing laws may have a significant impact on revenue, costs and business operations. Our independent operating facilities that provide healthcare services are subject to federal, state and local laws relating to, among other things, licensure, accreditation, enrollment, quality, adequacy of care, physical plant, life safety, personnel, staffing and operating requirements. In addition, these facilities are subject to federal and state laws that govern billing and reimbursement, relationships with vendors, business relationships with physicians and other healthcare providers and facilities, and workplace protection for healthcare staff.

Current wording

Regulatory Environment. The SNF industry is highly regulated with stringent regulatory compliance obligations. In the ordinary course of business, providers are subject to federal, state and local laws and regulations relating to, among other things, billing and reimbursement, relationships with vendors, business relationships with physicians and other healthcare providers and facilities, as well as licensure, accreditation, enrollment, quality, adequacy of care, physical plant, life safety, personnel, staffing and operating requirements. Changes in law or new interpretations of existing laws and regulations may have a significant impact on revenue, costs and business operations of providers and other industry participants. In addition, governmental and other authorities periodically inspect the SNFs, senior living facilities and outpatient rehabilitation agencies to verify continued compliance with applicable regulations and standards and may impose citations and other regulatory penalties for regulatory deficiencies. Such regulatory penalties include but are not limited to civil monetary penalties, temporary payment bans, suspension or revocation of a state operating license and loss of certification as a provider in the Medicare or Medicaid program, which may be temporary or permanent in nature. This regulatory environment and related enforcement can have an adverse effect on providers and other industry participants. See the section titled “Regulatory Matters.”

Previous wording

During the six months ended June 30, 2024, we expanded our operations with the addition of eleven stand-alone skilled nursing operations and one assisted living facility. These new operations added a total of 1,501 skilled nursing beds and 174 assisted living beds to be operated by our affiliated operating subsidiaries.

Current wording

During the three months ended March 31, 2025, we expanded our operations with the addition of one stand-alone skilled nursing facility. This new facility added a total of 119 skilled nursing beds to be operated by our affiliated operating subsidiaries.

Previous wording

We monitor the below key skilled services metrics across all of our facilities and by Mature facilities, Ramping facilities, and New facilities. Mature facilities are defined as facilities purchased more than 36 months prior to a respective measurement date. Ramping facilities are defined as facilities purchased within 18 to 36 months prior to a respective measurement date. New facilities are defined as facilities purchased less than 18 months prior to a respective measurement date.

Current wording

We monitor the below key skilled services metrics across all of our facilities and by Mature facilities, Ramping facilities, and New facilities. Mature facilities are defined as facilities purchased more than 36 months prior to a respective measurement date. Ramping facilities are defined as facilities purchased within 18 to 36 months prior to a respective measurement date. New facilities are defined as facilities purchased or built less than 18 months prior to a respective measurement date.

Previous wording

◦Skilled mix by revenue — Skilled mix by revenue represents the portion of routine revenue generated from treating high acuity Medicare and managed care patients. Routine revenue refers to skilled nursing services revenue generated by contracted daily rates charged for skilled nursing services. Services provided outside of routine contractual agreements are recorded separately as ancillary revenue, including Medicare Part B therapy services, and are not routine revenue. The inclusion of therapy and other ancillary treatments in the contracted daily rate varies by payor source and by contract. Revenue associated with calculating skilled mix is based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606.

Current wording

◦Skilled mix by revenue — Skilled mix by revenue represents the portion of routine revenue generated from treating high acuity Medicare and managed care patients. Routine revenue refers to skilled nursing services revenue generated by contracted daily rates charged for skilled nursing services. Services provided outside of routine contractual agreements are recorded separately as ancillary revenue, including Medicare Part B therapy services, and are not routine revenue. The inclusion of therapy and other ancillary treatments in the contracted daily rate varies by payor source and by contract. Revenue associated with calculating skilled mix is based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606).

Previous wording

•Number of facilities — The total number of skilled nursing facilities that we operate. Excludes six and three assisted living and independent living facilities for the six months ended June 30, 2024 and 2023, respectively.

Current wording

•Number of facilities — The total number of skilled nursing facilities that we operate. Excludes 27 and six assisted living and independent living facilities for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

The following tables present the above key skilled services metrics by category for all facilities, Mature facilities, Ramping facilities and New facilities as of and for the three months ended June 30, 2024 and 2023:

Current wording

The following tables present the above key skilled services metrics by category for all skilled nursing facilities, and for the skilled nursing facilities in each of the three facility cohorts, as of and for the three months ended March 31, 2025 and 2024:

Previous wording

The following tables present additional detail regarding our skilled mix, including our percentage of nursing patient days and revenue by payor source for all facilities, Mature facilities, Ramping facilities and New facilities for the three months ended June 30, 2024 and 2023:

Current wording

The following tables present additional detail regarding our skilled mix, including our percentage of nursing patient days and revenue by payor source for all facilities, and for each of the three facility cohorts, for the three months ended March 31, 2025 and 2024:

Previous wording

•Average daily rates — The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period. These rates exclude additional state relief funding, which includes payments we recognized as part of The Families First Coronavirus Response Act (FFCRA). Revenue associated with calculating average daily rates is based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606.

Current wording

•Average daily rates — The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period. Revenue associated with calculating average daily rates is based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under ASC 606. These rates also exclude additional state relief funding, which includes payments we recognized as part of The Families First Coronavirus Response Act (FFCRA).

Previous wording

In addition to our results provided throughout that are determined in accordance with GAAP, we also present the following non-GAAP financial measures: EBITDA, Adjusted EBITDA and Adjusted EBITDAR (collectively, Non-GAAP Financial Measures). EBITDA and Adjusted EBITDA are performance measures. Adjusted EBITDAR is a valuation measure. These Non-GAAP Financial Measures have no standardized meaning defined by GAAP, and therefore have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. You should review the reconciliation of net (loss) income to the Non-GAAP Financial Measures in the table below, together with our audited combined/consolidated financial statements and the related notes in their entirety, and should not rely on any single financial measure. Additionally, other companies may define these or similar Non-GAAP Financial Measures with the same or similar names differently, and because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures to those of other companies.

Current wording

In addition to our results provided throughout that are determined in accordance with GAAP, we also present the following non-GAAP financial measures: EBITDA, Adjusted EBITDA and Adjusted EBITDAR (collectively, Non-GAAP Financial Measures). EBITDA and Adjusted EBITDA are performance measures. Adjusted EBITDAR is a valuation measure. These Non-GAAP Financial Measures have no standardized meaning defined by GAAP, and therefore have limitations as analytical tools, and they should not be considered in isolation, or as a substitute for analysis of our results as reported in accordance with GAAP. You should review the reconciliation of net income to the Non-GAAP Financial Measures in the table below, together with our condensed consolidated financial statements and the related notes in their entirety, and should not rely on any single financial measure. Additionally, other companies may define these or similar Non-GAAP Financial Measures with the same or similar names differently, and because these Non-GAAP Financial Measures are not standardized, it may not be possible to compare these financial measures to those of other companies.

Previous wording

EBITDA –We calculate EBITDA as net (loss) income, adjusted for net losses attributable to noncontrolling interest, before: other expense, net; provision for income taxes; and depreciation and amortization.

Current wording

EBITDA –We calculate EBITDA as net income, adjusted for net (loss) income attributable to noncontrolling interest, before: interest expense; provision for income taxes; and depreciation and amortization.

Previous wording

Adjusted EBITDA –We calculate Adjusted EBITDA as EBITDA further adjusted for non-core business items, which for the reported periods includes, to the extent applicable, costs incurred to acquire operations that are not capitalizable, losses incurred from debt restructuring, gains on lease termination, stock-based compensation expense, loss from equity method investment in joint venture and certain one-time expenses that are not representative of our underlying operating performance. Costs related to acquisitions include costs related to our acquisition of SNF facilities and providers, including related costs such as legal fees, financial and tax due diligence, consulting and escrow fees. The loss related to our equity method investment in joint venture is a loss allocated to us from a discrete disposal recognized by one of our joint ventures.

Current wording

Adjusted EBITDA –We calculate Adjusted EBITDA as EBITDA further adjusted for non-core business items, which for the reported periods includes, to the extent applicable, costs incurred to acquire operations that are not capitalizable, gains on lease termination, stock-based compensation expense, legal and other costs, and certain one-time expenses that are not representative of our underlying operating performance. Costs related to acquisitions include costs related to our acquisition of SNF facilities and providers, including related costs such as legal fees, financial and tax due diligence, consulting and escrow fees. Legal and other costs include legal and professional fees incurred associated with the Audit Committee’s independent investigation and with other ongoing investigations.

Previous wording

The table below presents a reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDAR to net (loss) income, the most directly comparable financial measure calculated in accordance with GAAP, on a combined/consolidated basis for the periods presented:

Current wording

The table below presents a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted EBITDAR to net income, the most directly comparable financial measure calculated in accordance with GAAP, on a consolidated basis for the periods presented:

Previous wording

Patient and resident service revenue typically represents over 99% our total revenue. Patient and resident service revenue comprises skilled nursing services revenue, revenue generated from our senior assisted living services and revenue generated from certain ancillary services provided outside of routine contractual agreements. For the three and six months ended June 30, 2024 and 2023, skilled nursing services revenue represented over 99% of patient and resident service revenue.

Current wording

Patient and resident service revenue typically represents over 99% of our total revenue. Patient and resident service revenue comprises skilled nursing services revenue, revenue generated from our senior assisted living services and revenue generated from certain ancillary services provided outside of routine contractual agreements. For the three months ended March 31, 2025 and 2024, skilled nursing services revenue represented over 99% of patient and resident service revenue.

Previous wording

We derive patient and resident service revenue from services rendered, under short-term contracts, to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and hospice services. This revenue is reported at the amount that reflects the consideration to which we expect to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Within our skilled nursing operations, we generate revenue from Medicaid, Medicare and other payors such as commercial insurance companies, health maintenance organizations, and preferred provider organizations.

Current wording

We derive patient and resident service revenue from services rendered, under short-term contracts, to patients for skilled and intermediate nursing, rehabilitation therapy, and assisted living services. This revenue is reported at the amount that reflects the consideration to which we expect to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits and reviews. Within our skilled nursing operations, we generate revenue from payor sources including Medicaid, Medicare and other payors such as commercial insurance companies, health maintenance organizations, and preferred provider organizations.

Previous wording

Our cost of services represents the costs of operating our operating subsidiaries, which primarily consist of payroll and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients. Cost of services also includes the cost of general and professional liability insurance, rent expenses related to leasing our operational facilities (such as taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements), dietary services, contracted services and other general cost of services with respect to our operations. As we continue to execute on our acquisitions strategy and grow our business, we expect that our cost of services will continue to increase.

Current wording

Our cost of services represents the costs of operating our operating subsidiaries, which primarily consist of payroll and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients. Cost of services also includes the cost of general and professional liability insurance, rent expenses related to leasing our operational facilities (such as taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements), dietary services, contracted services and other administrative general cost of services with respect to our operations. As we continue to execute on our acquisitions strategy and grow our business, we expect that our cost of services will continue to increase.

Previous wording

Rent - cost of services consists solely of base minimum rent amounts payable under lease agreements to third-party real estate owners. Our operating subsidiaries lease and operate but do not own the underlying real estate and these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements. As we continue to execute on our acquisitions strategy and expand our network of facilities, we expect that our rent - cost of services will continue to increase.

Current wording

Rent - cost of services consists solely of base rent amounts payable under lease agreements to third-party real estate owners. Our operating subsidiaries lease and operate, but do not own the underlying real estate of, 271 facilities and these amounts do not include taxes, insurance, impounds, capital reserves or other charges payable under the applicable lease agreements. As we continue to execute on our acquisitions strategy and expand our network of facilities, we expect that our rent - cost of services will continue to increase.

Previous wording

We expect general and administrative expense to increase on an absolute dollar basis for the foreseeable future as we continue to increase investments to support our growth. We also expect that our costs will increase related to legal, audit, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, investor and public relations costs, and other expenses that we will now incur as a public company. We anticipate that general and administrative expense as a percentage of revenue will vary from period to period, but we expect to leverage these expenses over time as we grow our revenue.

Current wording

We expect general and administrative expense to increase on an absolute dollar basis for the foreseeable future as we continue to increase investments to support our growth. Our costs related to legal, audit, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, investor and public relations costs, and other expenses that we did not incur as a private company are higher as a public company. Legal and professional fees incurred associated with the Audit Committee’s independent investigation and with ongoing investigations are included in general and administrative expense. We anticipate that general and administrative expense as a percentage of revenue will vary from period to period, but we expect to leverage these expenses over time as we grow our revenue.

Previous wording

Property and equipment are recorded at their original historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. The following is a summary of the depreciable lives of our depreciable assets:

Current wording

Property and equipment are recorded at their original historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets. The following is a summary of the estimated useful lives of our depreciable assets:

Previous wording

•Leasehold improvements - shorter of the lease term or the estimated useful life, generally 5 to 15 years

Current wording

•Leasehold improvements - shorter of the lease term or the estimated useful life, generally 5 years to 15 years

Previous wording

•Furniture and equipment - minimum of 3 to a maximum of 15 years

Current wording

•Furniture and equipment - minimum of 3 years to a maximum of 15 years

Previous wording

Other expense, net consists primarily of interest expense related to our debt, as well as income from gains and losses from investments in partnerships, including joint ventures, and gains from lease termination.

Current wording

Other expense, net consists primarily of interest expense related to our debt, as well as income from gains and losses from investments in partnerships, and gains from lease termination.

Previous wording

Patient and resident service revenue - Patient and resident service revenue increased by $221.0 million to $981.4 million for the three months ended June 30, 2024, a 29.1% increase compared to the three months ended June 30, 2023. For the three months ended June 30, 2024 and 2023, skilled nursing services revenue represented more than 99.0% of patient and resident service revenue.

Current wording

Patient and resident service revenue - Patient and resident service revenue increased by $357.6 million to $1.3 billion for the three months ended March 31, 2025, a 38.9% increase compared to the three months ended March 31, 2024. For the three months ended March 31, 2025 and 2024, skilled nursing services revenue represented more than 99% of patient and resident service revenue.

Previous wording

Our skilled nursing services revenue was impacted by developments in our average daily rates and fluctuations in our payor sources. Our average Medicare daily rates increased by 9.5%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Our skilled nursing services revenue was impacted by developments in our average daily rates and fluctuations in our payor source mix. Our average Medicare daily rates decreased by 0.8%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Previous wording

Our average Medicaid rates increased 3.5% due to state reimbursement increases and our participation in supplemental Medicaid payment programs and quality improvement programs in various states. Medicaid rates exclude the amount of state relief revenue we recorded.

Current wording

Our average Medicaid rates increased 7.5% due to state reimbursement increases and our participation in supplemental Medicaid payment programs and quality improvement programs in various states. Medicaid rates exclude the amount of state relief revenue we recorded.

Previous wording

Other revenue - Other revenue increased by 86.7% to $0.4 million for the three months ended June 30, 2024, compared to the same period in the prior year.

Current wording

Other revenue - Other revenue decreased to $0.2 million for the three months ended March 31, 2025, compared to $0.4 million for the same period in the prior year.

Previous wording

Cost of services increased by $171.3 million to $762.1 million, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The 29.0% increase was primarily driven by an increase of $100.6 million in salaries and wages. Of the salaries and wages increase, those attributable to New facilities purchased after June 30, 2023 accounted for $61.7 million or 61.3% of the increase. Our total number of post-acute care facilities, inclusive of skilled nursing facilities and assisted living facilities, increased from 188 as of June 30, 2023 to 220 as of June 30, 2024, an increase of 17.0%. This increase in operations and employees led to the increase in labor cost for New facilities as they were acquired throughout the year. Headcount and operational changes attributable to Ramping and Mature facilities accounted for the remaining change in salaries and wages. Aside from labor costs, the increase in cost of services was due to increases of $37.8 million in administrative expenses for facilities driven by a $23.7 million increase in professional and general liability insurance; $19.0 million in contracted services made up of $9.8 million from New facilities, or 51.4%, and the remaining $9.2 million from Ramping and Mature facilities; and $11.3 million in nursing and dietary expenses, $7.8 million from New facilities, with the remainder spread out across various expense types.

Current wording

Cost of services increased by $287.8 million to $1.0 billion, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The 39.1% increase was primarily driven by an increase of $170.9 million in salaries and wages. Our total number of post-acute care facilities, inclusive of skilled nursing facilities and assisted living facilities, increased from 176 as of March 31, 2024 to 315 as of March 31, 2025, an increase of 79.0%. Of the salaries and wages increase, those attributable to New facilities purchased after March 31, 2024 accounted for $141.1 million or 82.6% of the increase. Headcount and operational changes attributable to Ramping and Mature facilities accounted for the remaining change in salaries and wages. Aside from labor costs, the increase in cost of services was due to increases of $37.1 million in administrative expenses for facilities; $36.3 million in contracted services made up of $9.5 million from New facilities, or 26.1%, and the remaining $26.8 million from Ramping and Mature facilities; $20.3 million in nursing and dietary expenses, made up of $7.3 million from New facilities; and $11.4 million from liability insurance; with the remainder spread out across various expense types.

Previous wording

Rent - cost of services increased to $65.8 million for the three months ended June 30, 2024, compared to $51.5 million for the three months ended June 30, 2023. The increase was primarily attributable to the addition of new facilities throughout the year, as well as to annual escalators on existing facilities' rent.

Current wording

Rent - cost of services increased to $93.8 million for the three months ended March 31, 2025, compared to $63.5 million for the three months ended March 31, 2024. The increase was primarily attributable to the addition of new facilities with operating leases throughout the year, as well as to annual escalators on existing facilities' rent.

Previous wording

Depreciation and amortization increased by $2.6 million to $8.8 million, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. This increase is directly attributable to new real estate obtained through acquisitions.

Current wording

Depreciation and amortization increased by $4.6 million to $12.7 million, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. This increase is directly attributable to new real estate obtained through acquisitions as well as our finance lease portfolio.

Previous wording

Other expense, net was $13.1 million for the three months ended June 30, 2024, a decrease of $4.9 million compared to the three months ended June 30, 2023. Other expense, net consists of interest expense related to our debt, which decreased by $6.1 million, to $9.2 million for the three months ended June 30, 2024, driven by a decrease in lines of credit and long term debt of $55.1 million from June 30, 2023 to June 30, 2024. This was offset by an increase in other expense of $1.3 million compared to the three months ended June 30, 2023, driven by a loss on a joint venture disposal.

Current wording

Other expense, net was $5.4 million for the three months ended March 31, 2025, a decrease of $2.2 million compared to the three months ended March 31, 2024. Other expense, net consists of interest expense which decreased by $9.2 million, to $6.9 million for the three months ended March 31, 2025, driven by a decrease in amounts drawn on our line of credit and long-term debt of $380.6 million from March 31, 2024 to March 31, 2025. The three months ended March 31, 2024 included a gain of $8.0 million recognized upon the termination of a lease and there was no comparable activity for the three months ended March 31, 2025. Additionally, other income, net increased by $1.1 million compared to the three months ended March 31, 2024, driven by an increase in unrealized gains on investments.

Previous wording

Our income tax benefit totaled $1.5 million for the three months ended June 30, 2024, representing an effective tax rate of 11.9%, compared to a provision for income tax of $10.4 million and an effective tax rate of 32.8% for the three months ended June 30, 2023. The change in effective tax rate in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to a decrease in earnings before tax related to stock-based compensation, resulting in a loss for the three months ended June 30, 2024. See Note 8 “Income Taxes”, in our condensed combined/consolidated financial statements for more information.

Current wording

Provision for income taxes totaled $14.4 million for the three months ended March 31, 2025, representing an effective tax rate of 33.6%, compared to a provision for income tax of $22.9 million and an effective tax rate of 39.7% for the three months ended March 31, 2024. The change in effective tax rate in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to the change in forecasted pre-tax book income. See Note 11 “Income Taxes”, in our condensed consolidated financial statements for more information.

Previous wording

We are a holding company with no significant direct operating assets, employees or revenues. Our operating subsidiaries are operated by separate, independent entities, each of which has its own management, employees and assets. In addition, through a separate wholly-owned subsidiary, we provide centralized accounting, payroll, human resources, information technology, legal, risk management and other consulting and centralized services to the other operating subsidiaries through contractual relationships with those subsidiaries. We also have a wholly-owned captive insurance subsidiary that provides some claims-made coverage to our operating subsidiaries for professional liability and general liability insurance.

Current wording

In addition, through a separate wholly-owned subsidiary, we provide centralized accounting, payroll, human resources, information technology, legal, risk management and other consulting and centralized services to the other operating subsidiaries through contractual relationships with those subsidiaries. We also have a wholly-owned captive insurance subsidiary that provides some claims-made coverage to our operating subsidiaries for professional liability and general liability insurance.

Previous wording

Our primary sources of liquidity have historically been derived from our cash flows from operations, mortgage loans (including both Housing and Urban Development (HUD)-insured and non-HUD mortgage loans), and credit facilities maintained with commercial banks. Our liquidity as of June 30, 2024 is impacted by cash generated from strong operational performance that improved through a combination of long-term leases and real estate purchases and increased acquisitions. As of June 30, 2024, we had cash and cash equivalents of $73.4 million, total assets of $3.9 billion, total liabilities of $3.3 billion, and total equity of $578.2 million, compared to cash and cash equivalents of $38.2, total assets of $3.1 billion, total liabilities of $3.0 billion, and total equity of $83.7 million as of June 30, 2023.

Current wording

Prior to our IPO our liquidity was generally derived from our cash flows from operations, mortgage loans (including both Housing and Urban Development (HUD)-insured and non-HUD mortgage loans), and credit facilities maintained with commercial banks.

Previous wording

We currently maintain our Amended and Restated 2023 Credit Facility, which has a total commitment limit of $600.0 million, as our single line-of-credit. As of June 30, 2024, the total principal amount outstanding under our Amended and Restated 2023 Credit Facility was $248.0 million. The terms of the Amended and Restated 2023 Credit Facility permit optional prepayments from time to time without premium or penalty. We expect to continue to use the Amended and Restated 2023 Credit Facility as our single line-of-credit and to fund the potential acquisition of additional property and operation acquisitions, as well as for working capital and for general corporate purposes. Cash paid to fund real estate acquisitions was $174.7 million for the six months ended June 30, 2024, compared to $52.4 million, for the six months ended June 30, 2023. We used approximately $370.0 million of the net proceeds from the IPO to repay amounts outstanding under our Amended and Restated 2023 Credit Facility.

Current wording

The terms of the Amended and Restated Credit Facility permit optional prepayments from time to time without premium or penalty. We expect to continue to use the Amended and Restated Credit Facility, subject to entrance into the agreement described above, as our single line-of-credit and to fund the potential acquisition of additional property and operations, as well as for working capital and for general corporate purposes. We paid no cash to fund real estate acquisitions for the three months ended March 31, 2025, compared to $78.5 million, for the three months ended March 31, 2024.

Previous wording

We believe our current cash balances, our cash flow from operations, the amounts available for borrowing under our credit facilities and the proceeds from our IPO will be sufficient to cover our operating needs for at least the next 12 months. We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.

Current wording

We believe our current cash balances and our cash flow from operations will be sufficient to cover our operating needs for at least the next 12 months. We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.

Previous wording

The following table presents selected data from our condensed combined/consolidated statement of cash flows for the periods presented:

Current wording

The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:

Previous wording

Cash provided by operating activities is net (loss) income adjusted for certain non-cash items and changes in operating assets and liabilities.

Current wording

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities.

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2024 of $93.6 million increased by $35.4 million as compared with the same period in 2023. The increase to net cash provided by operating activities was driven by an increase in operational performance offset by an increase in non-cash expenses, primarily due to the stock-based compensation expense. This increase was further offset by a decrease in cash flows from the change in operating assets and liabilities of $37.9 million due primarily to the timing of accounts receivable collections as well as the timing of payables and other accrued liabilities. The timing of collections and impacts to net income are driven by growth in operating facilities period-over-period and an increase in days sales outstanding of 3.4, from 54.0 as of June 30, 2023 to 57.4 as of June 30, 2024. This growth in days sales outstanding is primarily due to the increase of newly acquired facilities during the year which typically have a longer collection period during the facility ownership transition.

Current wording

Net cash provided by operating activities for the three months ended March 31, 2025 of $150.2 million increased by $91.5 million as compared with the same period in 2024. The increase was driven by an increase in cash flows from the change in operating assets and liabilities of $100.4 million due primarily to the timing of accounts receivable collections as well as the timing of payables and other accrued liabilities. The impact of collections to net income is driven by growth in operating facilities period-over-period, accompanied by a decrease in days sales outstanding of 3.6, from 57.5 as of March 31, 2024 to 53.9 as of March 31, 2025. This reduction in days sales outstanding is primarily due to a focus on increasing collections on revenue.