InnovAge Holding Corp. Q4 FY2026 earnings call

• Strategic Evolution (InnovAge 3.0): The company is transitioning from 'Chapter 2' (strengthening platform/compliance) to 'Chapter 3' (scaling capabilities). This involves leveraging a stronger operational foundation to pursue growth through census expansion, technology, and potential M&A.
• Leadership Addition: Jen Browne joined as President and COO to drive consistency across centers, strengthen accountability, improve Epic EMR utilization, and enhance participant experience.
• Technology & AI Investments: InnovAge is investing in integrated data systems (Epic, Oracle, Salesforce) and pragmatic AI applications. Pilots include an AI consultation agent for geriatric care (reducing external referrals) and a medication optimization agent. AI is also being explored for scheduling and transportation efficiency.
• Participant Experience: Focus on creating a seamless journey via omnichannel communication, improved scheduling, and transportation integration to boost satisfaction and retention.
• Policy Engagement: Active dialogue with CMS and CMMI regarding barriers to PACE growth and exploring applicability of PACE models to adjacent populations (e.g., Medicare-only beneficiaries with functional impairments).
• Operational Discipline: Emphasis on managing medical costs, reducing variation across centers, and maintaining high standards of quality and compliance non-negotiable.

The transcript does not break down financial performance by specific product segments (e.g., Medicare vs. Medicaid or geographic regions). However, it provides consolidated financial highlights for the firm's primary PACE business. For fiscal year 2026, total revenue was $989.7 million, a 15.9% increase from the prior year. Center-level contribution margin increased 48.2% to $227.8 million, representing 23.0% of revenue (up from 18.0% in FY2025). Adjusted EBITDA reached $94.6 million, an approximate 175% increase from FY2025, with an adjusted EBITDA margin of 9.6%. In Q4 FY2026 specifically, revenue was $262.0 million, center-level contribution margin was $62.6 million (23.9% of revenue), and Adjusted EBITDA was $24.3 million.

• Census: Ending census targeted at approximately 8,625 to 8,850 participants, reflecting 5% to 7.5% growth.
• Revenue: Total revenue projected between $1.05 billion and $1.085 billion.
• Adjusted EBITDA: Projected between $105 million and $115 million.
• De Novo Losses: Expected to be minimal, ranging from $0.4 million to $0.8 million.
• Rate Environment: Medicare net rate increases expected at 1.5% to 2.0%, driven by county rates and V28 risk adjustment transition. Medicaid rates are expected to see low single-digit increases, though final outcomes in key markets (CA, CO) are pending.
• Margin Outlook: Guidance implies an adjusted EBITDA margin of ~10.3%, indicating an upward revision/maintenance of margin expectations compared to the long-term target of 10%+, driven by execution efficiencies rather than robust rate hikes.

• Regulatory & Policy Uncertainty: Finalization of state-specific Medicaid rates in California and Colorado remains incomplete, impacting revenue assumptions.
• Risk Adjustment Changes: Transition to the V28 risk adjustment model introduces variability; while dementia coding is favorable, other impacts are part of a complex blend.
• Legal & Compliance: Past litigation accruals impacted FY2026 net income; ongoing compliance monitoring is critical as the company scales.
• Operational Execution Risks: Future earnings growth depends heavily on execution (utilization management, cost control) as the favorable rate environment of FY2026 moderates.
• Market Competition: Open enrollment periods can lead to softness in census growth due to competitive pressures.

Q: Benjamin Rossi asked for details on PMPM trends for FY2027, specifically how variables like county rates, risk adjustments, and the V28 model shift factor into the 1.5%-2.0% Medicare rate increase assumption, and the status of state rate negotiations.

A: Ben Adams explained that Medicare rates incorporate the phase-in of V28 (50-50 blend next year), which benefits InnovAge due to favorable dementia coding. State rates for California and Colorado are still pending final public policy adjustments, but the company has incorporated responsible internal assumptions into guidance. The overall rate environment is viewed as manageable, though less robust than FY2026.

Q: Matthew Gillmor inquired about the drivers of margin expansion in FY2027 guidance (implying ~10.3% margin) despite investments, and what "disciplined margin management" entails.

A: Ben Adams stated that achieving the >10% long-term margin target relies on three pillars: improving third-party care utilization, increasing internal cost efficiencies (led by new COO Jen Browne’s data analytics initiatives), and continuing G&A efficiency gains. The focus is on preserving margins through operational discipline rather than relying solely on rate increases.

Q: Matthew Gillmor followed up on policy discussions, asking for specifics on barriers to PACE enrollment/expansion and opportunities for adjacent populations beyond dual-eligible seniors.

A: Patrick Blair identified barriers primarily around enrollment complexity, awareness, and regulatory hurdles for entering new markets. Regarding adjacencies, he highlighted interest in serving Medicare-only adults with functional impairments who are upstream of PACE. Policymakers are exploring if a center-based interdisciplinary model could reduce institutionalization and total cost of care for this population, potentially slowing their trajectory to Medicaid eligibility.

Q: Christine Rains asked about the cadence of census and revenue build-up in FY2027 and any quantifiable benefits from bringing pharmacy and other services in-house.

A: Ben Adams described census growth as relatively predictable quarter-by-quarter, with typical strength in Q1/Q2, softness in Q3 (open enrollment competition), and normalization in Q4. He noted that bringing services in-house (pharmacy, DME, behavioral health) improves operational control and recaptures margin, but specific dollar amounts are not broken out. Patrick Blair added that AI will now be used to optimize these in-house operations, particularly in clinical decision support and logistics.