InnovAge Holding Corp. Q3 FY2025 earnings call

Financial Performance: Delivered third quarter results meeting expectations, with revenue up 13% y-o-y, center-level contribution margin at 18.7%, adjusted EBITDA at 4.9% margin. ### Operational Transformation: Shifted from operational stabilization to enterprise transformation, launching numerous cross-functional work streams focused on operational excellence and efficiency. ### Clinical Model: Proactive clinical model effective in controlling medical costs, with flu vaccination rate at 77% for seniors, well above national average. ### Personnel Changes: Chief Medical Officer Dr. Rich Feifer left the organization, with a transition plan in place. ### Pharmacy Initiative: Acquisition of a pharmacy in Colorado completed, with successful migration of pharmacy distribution and management, expecting long-term value creation from integrating pharmacy services into clinical model.

Revenue was $218.1 million, an approximate 13% increase year-over-year. Center-level contribution was $40.7 million, representing an 18.7% margin and an improvement of approximately 110 basis points year-over-year. Adjusted EBITDA was $10.8 million or a 4.9% margin, an improvement of more than 3.5 times over third quarter 2024 adjusted EBITDA of $3 million. Census grew to approximately 7,530 participants, an approximate 10% annual increase. Revenue contribution: Total revenues of $218.1 million, with center-level contribution margin being a key component at 18.7% of revenue.

2025 Fiscal Year Guidance: - Ending census expected to be between 7,300 and 7,750 participants. - Member months expected in the range of 86,000 to 89,000. - Total revenue projected in the range of $815 million to $865 million. - Adjusted EBITDA projected in the range of $24 million to $31 million. - De novo losses for fiscal 2025 anticipated to be in the $18 million to $20 million range.

Risks: - Policy uncertainty in the health care environment. - State-driven enrollment processing delays, such as in California, which previously created backlog issues. - Medical cost volatility and potential challenges in managing utilization across different care settings. - Volatility related to de novo center operations and associated losses.

Q: On initial 2026 guidance, how to think about Medicare and Medicaid rate development?

A: It's early for 2026. Expect reasonable Medicare rates, but Medicaid rates have uncertainty due to state rate setting timelines and policy changes in Washington.

Q: Any changes in pharmacy utilization trend across member base?

A: No noticeable changes in trend as out-of-pocket costs in MA Part D program don't apply, with different reimbursement model.

Q: Nature of conversations with regulators and policymakers about PACE value?

A: Stepped up engagement, common questions are about why PACE isn't bigger and what's needed to serve more seniors, with interest in the frail elderly population served.

Q: Enrollment trends and de novo losses for new centers?

A: Census consistent with expectations, some variability in cost side like transportation costs in Florida, de novo losses tracking with expectations.

Q: Cost of care increase and leverage?

A: Cost of care increase due to in-sourcing certain activities, core trend in cost of care is low single digits, with cost impact spread across different P&L components.

Q: EBITDA guidance for 4Q?

A: Guidance stands as is due to variability in risk or true-up numbers in Q4