InnovAge Holding Corp. Q4 FY2025 earnings call

• Fiscal 2025 was a year of delivery with strong execution, exceeding internal goals and external expectations. - Finished FY 2025 with strong momentum heading into FY 2026. - Fourth quarter capped a strong year with consistent execution. - Full-year results included revenue growth, improved contribution margin, and increased adjusted EBITDA. - Committed to expanding margins, improving clinical outcomes, driving revenue growth, improving operating leverage, and returning sustained positive adjusted EBITDA, all of which were delivered. - Formed partnerships with Orlando Health and Tampa General Hospital. - Advancing transformation agenda by investing in talent, technology, and tools to make InnovAge more disciplined, efficient, and scalable. - Over 40% of total cost of care is delivered in centers, with integrated care model giving an advantage in managing costs and utilization.

Fourth quarter revenue was $221.4 million, up 11% from Q4 last year. Center-level contribution margin was $41.3 million, representing an 18.6% contribution margin. Full-year total revenue was $853.7 million, up nearly 12% year over year. Center-level contribution was $153.6 million, with a 18% contribution margin. Adjusted EBITDA was $34.5 million for the full year, which was above the high end of FY '25 guidance. The fourth quarter adjusted EBITDA was $11.3 million, more than doubling year over year with a 5.1% margin.

• Projected census for FY 2026: 7,900 to 8,100 participants. - Member months: 91,600 to 94,400. - Total revenue: $900 to $950 million. - Adjusted EBITDA: $56 to $65 million. - De novo losses: $13.4 to $15.4 million. - Expect profitability to build through FY 2026, aiming for adjusted EBITDA margins of 8% to 9% over the next few years. - Factored in transition to V28 Medicare Advantage payment model starting January 1, 2026. - Pharmacy insourcing initiative expected to improve medication adherence, enhance outcomes, and streamline logistics.

• Recent legislation creating uncertainty for value-based care models, particularly Medicare Advantage and Medicaid long-term care programs. - State fiscal pressures leading to budgetary and operational strain. - Enrollment processing delays. - Impact of federal budget cuts and regulatory actions.

Q: Matthew Gillmor asked about member mix and its impact on margins and cost trends, and the progress on acuity normalization and the impact on margins.

A: Patrick Blair said the mix has rebalanced as expected since sanctions were lifted, and they're at a point where they feel they've achieved targets. Ben Adams added the average tenure of a PACE participant is about three and a half years, and the mix is pretty much normalized if things have washed through the system.

Q: Matthew Gillmor followed up on V28 and its impact on revenue growth.

A: Patrick Blair said it's included in guidance and Ben Adams mentioned it's expected to be a headwind over the next couple of years but is factored into this year's guidance.

Q: Jared Haase asked about the outlook for EBITDA margins and leverage between center-level margin and operating leverage.

A: Patrick Blair mentioned clinical value initiatives and pharmacy insourcing as drivers, and Ben Adams said they're on track for 8% to 9% margins over the next few years and the long-term margin opportunity was outlined previously.

Q: Jared Haase asked about Epic and automation opportunities.

A: Patrick Blair and Michael Scarbrough discussed leveraging partners like Epic and Salesforce for optimizing processes and improving efficiency.

Q: Jamie Perse asked about Medicaid redeterminations and their impact on census and member progression, and about the primary areas for margin improvement.

A: Ben Adams said Medicaid redeterminations are a headwind in the first part of the year but gross enrollment trends remain the same, and the primary areas for margin improvement are cost of care and G&A operating leverage.