InnovAge Holding Corp. Q2 FY2025 earnings call

• Patrick Blair expressed appreciation for support and noted second quarter results were in line with expectations, reaffirming fiscal 2025 guidance. - PACE industry shows strong momentum with steady growth and demand; over 50 new PACE centers opened in the past three years. - Financials: Revenue $209M, census 7,480, center level contribution $37.1M with 17.7% margin. - De novo centers: Tampa and Orlando centers growing, Crenshaw eclipsed 100 participants. - Operational challenges: State-driven enrollment processing delays in California impacting accounts receivable. - Operational improvements: New President and COO Michael Scarborough driving operational changes; acquisition of a small pharmacy in Denver to bring capabilities in-house; focus on provider network management. - Clinical performance: Strong management of external provider costs, containing cost growth despite seasonal pressures.

For the second quarter, InnovAge reported revenue of $209 million, a 2% increase from the first quarter. Center level contribution was $37.1 million, representing a 17.7% margin and a 7% sequential improvement. Census grew to 7,480, reflecting approximately 4% quarter-over-quarter increase. Total revenues for the second quarter of fiscal 2025 were $209 million, up 10.6% compared to the second quarter of fiscal 2024, primarily driven by an increase in member months. External provider costs increased but cost per participant decreased. Center level contribution margin was $37.1 million for the quarter, representing 17.7% of revenue, an increase of approximately 90 basis points from the first quarter.

• Reaffirming fiscal 2025 guidance: ending census expected to be between 7,300 and 7,750 participants and member months in the range of 86,000 to 89,000. - Projecting total revenue in the range of $815 million to $865 million and adjusted EBITDA in the range of $24 million to $31 million. - Anticipating de novo losses for fiscal 2025 will be in the $18 million to $20 million range. - Mentioned calendar year Medicaid rate increases in California and Pennsylvania went into effect January 1st, and monitoring enrollment and redetermination delays in California.

• State-driven enrollment processing delays, both for new enrollments and Medicaid redeterminations, impact certain markets. In California, these delays led to higher allowances against accounts receivable and corresponding write-offs.

Q: Patrick, you mentioned transformation over the next 18 months. What does that entail?

A: It begins with reimagining how they do things, using technology first mindset to integrate processes like placing orders, scheduling, transportation, and customer service. Also reimagining payer capabilities.

Q: Jamie Perse asked about Medicare and Medicaid funding mix and PACE growth under new administration.

A: Roughly 3-to-1 Medicare to Medicaid mix. PACE is seen as having potential to serve more people, with government affairs team engaging to support growth.

Q: Ben Adams asked about Medicare Advantage disruption and messaging.

A: Messaging was proactive, with marketing spend to educate on PACE's difference, leading to stronger retention and enrollment.

Q: Matthew Gilmore asked about out-of-period risk adjustment true up and pharmacy acquisition.

A: Out-of-period adjustment affected prior period, pharmacy acquisition is part of insourcing efforts to take on fulfillment and logistics.

Q: Benjamin Rossi asked about back half EBITDA progression and pharmacy impact on drug utilization.

A: EBITDA progression is expected to be linear with seasonal factors, pharmacy integration has opportunity for cost savings and improved service but details on drug utilization impact to be clarified later.