PACS Group Empowering Regional Operators for Sustainable Growth

Scaling up by empowering regional operators has long been a successful strategy for nursing home giant PACS Group (NYSE: PACS). According to CEO Jason Murray, this growth has not come at the expense of losing the company's identity or over-leveraging itself with high-interest debt.

A Steady Path to Public Offering

For PACS, which debuted on Wall Street in March, its steady expansion guided its decision to go public. "As we grew in size, we were getting to a point where we were talking about what the future looked like – how do we preserve what we built?" Murray said.

Over the years, PACS executives have understood the importance of avoiding "wrong capital"—loans that over-leverage a company and limit good decision-making. As PACS grew too large for specialty lenders, the Utah-based provider began to seek other means of capital to support its growth. According to Murray, this access to institutional capital and the ability to offer employees a stake in the company ultimately led PACS to launch an initial public offering (IPO).

Leadership and Strategic Growth

Murray, who co-founded PACS with Executive Vice Chairman Mark Hancock, has two decades of experience in the acute and post-acute space and is a licensed nursing home administrator. PACS Group's footprint extends over 225 post-acute facilities across nine states.

In its first earnings release since going public, PACS beat earnings estimates for the first quarter and projected a strong year ahead. Murray discussed the journey to becoming publicly traded, differentiating PACS from competitors like Ensign Group (Nasdaq: ENSG), and the company's focus on local needs and serving higher acuity residents.

Decentralized Model and Local Focus

"That decentralized model is critical for us because healthcare is local, and we need to keep it local," Murray emphasized. The only way we can keep it local is by allowing our local leaders to make decisions and letting them adjust their business models based on the nuances of their markets."

Addressing the Federal Minimum Staffing Rule

Murray also discussed the unintended consequences of the federal minimum staffing rule and how PACS is prepared to meet these challenges. PACS is poised to absorb the staffing mandate due to its higher acuity model, which naturally requires higher staffing levels.

The Path to Becoming Public

When discussing PACS' path to becoming a public company, Murray noted, "It was an interesting path for us because we didn't set out with the idea that we were going to become a public company. It just happened over time as we grew." The need for institutional capital and the ability to offer stock options to employees were key driving factors behind the decision.

Lending Challenges in Skilled Nursing

Lending is challenging in the skilled nursing sector due to the industry's nuances. Providers can only grow to a specific size due to difficulty securing loans. Murray noted that PACS has been careful not to take on the "wrong capital," which could over-leverage the company and place it under burdensome terms.

Learning from Competitors

Murray acknowledged the success of competitors like Ensign Group and noted that PACS has adopted elements of its decentralized model. However, PACS differentiates itself with a younger company profile and its ability to integrate facilities on typical clinical and IT platforms.

Preparing for Staffing Mandates

PACS is well-positioned to meet staffing mandates, and it already operates in states like California with existing staffing requirements. The company has been proactive in modeling the financial impacts of the federal staffing mandate and is prepared to adjust its staffing levels accordingly.

Future Regional Strategies of PACS Group

PACS's model, which focuses on higher-acuity residents, positions it well for success across different states and regions. As new leadership is integrated and performance improves, staffing levels are adjusted to meet the needs of higher occupancy and acuity mixes.

PACS Group's strategic growth through empowering regional operators, cautious capital management, and a focus on local healthcare needs have positioned it well in the competitive nursing home industry. With its recent IPO and strong market presence, PACS is set to continue its successful expansion while maintaining its core values and identity.