Thank you for standing by. Welcome to InnovAge First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and thank you all for joining the InnovAge fiscal 2024 First Quarter Earnings Call. With me today is Patrick Blair, President and CEO; Benjamin Adams, CFO; Dr. Rich Feifer, our Chief Medical Officer, will also be joining the Q&A portion of the call. Today, after the market closed, we issued a press release containing detailed information on our quarterly results. You may access the release on our company website, innovate.com. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, November 7, 2023, and have not been updated subsequent to this call. During our call, we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our fiscal first quarter 2024 earnings release, which is posted on the Investor Relations section of our website. We will also be making forward-looking statements, including statements related to our future growth prospects, Florida de novo centers, potential acquisitions, our payer capabilities and clinical value initiatives, the status of current and future regulatory actions and other expectations. Listeners are cautioned that all of our forward-looking statements involve certain assumptions and are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K annual report for fiscal year 2023 and our subsequent reports filed with the SEC, including our quarterly report on Form 10-Q for our fiscal first quarter 2024. After the completion of our prepared remarks, we will open the call for questions. I will now turn the call over to our President and CEO, Patrick Blair.

Thank you, Ryan, and good afternoon, everyone. I want to begin by expressing my ongoing gratitude to our InnovAge colleagues, participants, government partners and the investor communities for the organization. As it's only been 2 months since we reported fiscal year '23 results on September 12. My remarks will be brief and hit on our results for the first quarter of fiscal year 2024 and progress in our key focus areas. The company's first quarter results were in line with our expectations and reflect continued momentum in our people, service, quality, growth and financial performance measures. Our progress in these areas gives us confidence that we're growing our business in a financially responsible way, delivering high-quality service to our participants, all while ensuring their employees are engaged and committed to our mission. I'll spend more time on these areas in a moment. We reported revenue of $182.5 million, an increase of approximately 3.2% compared to the fourth quarter of fiscal year '23 and center level contribution margin of $27.9 million, which represents a 15.3% margin. Adjusted EBITDA was $2.2 million for the quarter, which represents a significant improvement compared to the fourth quarter of fiscal year 2023, which was approximately $700,000. Census increased to 6,580 which represents a quarter-over-quarter improvement of 2.8%. The results represent continued sequential improvement, and we remain convinced that we have the capacity to deliver even more value to our federal, state and shareholder partners over time. We have the right team in place, and we continue to build and enhance our processes and technology. It now boils down to driving consistent execution. That said, we're still in the early innings, post-sanctions, and on the path back to unlocking the full potential of the organization. We remain focused on growing into the stock capacity at our…

Thank you, Patrick. Today, I will provide some highlights from our first quarter fiscal year 2024 financial performance compared to the fourth quarter as well as provide insight into some of the trends we are seeing evident to the winter months of the year. While it's still early in the fiscal year, we continue to track and make progress on the guidance targets we provided on our fourth quarter earnings call. Starting with Census, we ended the first quarter of fiscal year 2024 with 17 centers and approximately 6,580 participants as of September 30, 2023. This represents an ending census increase of 2.8% compared to last quarter. We reported approximately 19,540 member months in the first quarter of fiscal year 2024, a 2.3% increase compared to the fourth quarter. Total revenue increased by 3.2% to $182.5 million in the first quarter compared to the fourth quarter, primarily due to an increase in member months coupled with an increase in capitation rates associated with annual Medicaid rate increases effective July 1, and partially offset by favorable Medicare risk or true-ups recorded in the fourth quarter. We incurred $99.4 million of external provider costs during the first quarter of fiscal 2024, a 4.6% increase compared to the fourth quarter. The sequential increase was driven by an increase in member months as we continue to grow Census coupled with an increase in cost per participant. The cost per participant increase was driven by higher assisted living and nursing facility unit costs as a result of annual provider increases, higher cost per admission due to acuity and an increase in pharmacy expense. These costs were partially offset by reductions in permanent and short-stay nursing facility utilization and a reduction in inpatient utilization. Cost of care, excluding depreciation and amortization of $55.3 million was 3.5%…

Thank you. [Operator Instructions] Our first question comes from the line of Jamie Perse with Goldman Sachs.

I wanted to start with just some of the comments on enrollment trends and just your level of confidence in the guidance that you laid out so far and your progress this year. Maybe comment on the headwind you're experiencing in terms of enrollment, how much that impacts guidance for the year? And then also just the Florida delay and potential opening of those centers in the early part of next calendar year. How much was contemplated in guidance with respect to that? And should we be thinking about that as a headwind relative to your prior guidance?

Well, thanks, Jamie. I'll get to start and then hand it over to Ben. In terms of just our confidence levels and momentum around enrollment and we're feeling very good about the progress we're making across all of our markets. We're pushing ourselves every month on this every month, I'm pushing the team to find some new way to accelerate our growth. And I think the team is doing a great job. I think in my prepared remarks, I talked a bit about the inside sales capability, which is a new capability that we're seeing is some early indicators that it's going to have an impact. And I think there's still incremental opportunities out there to become more efficient, more productive, but when we look at Colorado or Sacramento, some of the new markets that are coming online, we're feeling really positive about the momentum that the team is building. And in our markets that have been online for a while, we're achieving some better growth rates than we have in the past. So overall, feeling really good about that. In terms of the headwinds, I think you're referring to just comments related to the processing of enrollments. And we pointed that out a couple of times. I think last quarter was the first time we raised that. Really, as I said in the remarks, it's really situational. It's not happening in every market. We're working through each of those issues with those states. At this point, we're not concerned that as a wider scale issue that we have to be concerned with the team is just doing a good job. It's just one of those things that I think it's the first time we've really seen resource constraints in some of our markets as it relates to processing enrollments. And we know both our states and CMS have a lot on their plate as it relates to redetermination. So I think those are some of the highlights on existing growth. I'll pass it over to Ben out here to hit Florida and sort of how to think about guidance.

Yes. I mean I think Patrick actually captured most of it there. The one thing I'd say is if you take a look at the growth that we had in the first quarter, both in terms of census and member months and then begin to annualize out those rates, you sort of end up at a place that makes you feel pretty comfortable with that guidance. And if you also look at what's happening, I think, in the enrollments over the last couple of months, it feels like we're building momentum on the enrollment slightly on a month-over-month basis. So I think you sort of factor those things 2 things together, and you feel like we're pretty confident we're going to end up right in the guidance range.

My next question is just the external provider costs. Those were a little bit higher than we expected. It sounds like some of that was in Colorado and just the shift in acuity there, the mix of patients. Can you talk a little bit more about what you're seeing in the inpatient and outpatient utilization trends? And then I guess, just any comments on how to think about the cadence. It sounds like you typically see a step-up in the calendar fourth quarter, your second quarter just around flu and all the dynamics that go with that and as well as COVID. So maybe just any comments to frame what we should think about for the step-up in external provider cost sequentially?

Jimmy. Again, I'll kind of get us started, and then I'll hand it off to Dr. Feifer to put a finer point on it. When I think about from a participant expense perspective, maybe what's not going exactly to plan. And it's really a couple of hotspots around yard emissions. We've always done a great job managing ER admissions, and we saw a little bit of a tick up relative to historical trends and so we've got a number of initiatives lined up against that. I think we have 11 or 12 initiatives that really focus on making sure people call us before they go to an emergency room. And I feel confident in the work that Rich and team are doing. So I think that's one that hopefully just kind of falls back in the line. The second area is around inpatient unit costs. As we noted, we're seeing some improvements in inpatient utilization, and I think maybe that's a variance with what some of the other payers might be reporting. For us, it's probably, hypothesis makes more acuity but on the unit cost side. And so we're digging into that, trying to answer why that's happening, but I'll let Rich just go a little bit deeper on each of those. And then your point about seasonality, it will play a role given how frail our population is for sure, whether that be flu or COVID. So it will be a perfect straight line quarter-by-quarter of the drop in the anticipated, I should say, the anticipated improvements in medical costs. But we think we're doing all the right things. We've got a lot of great initiatives that are underway, and it just takes a while for them to flow through sort of the cost structure. And as you know, at this point, we're really in complete a lot of the claims history. So there's a lot of estimates still in our numbers, and we'll just let those things play through as well. But overall, I'm really feeling good about the team and what they're focused on. But let me ask Rich to hit his fire points on each of those.

Great. Thanks, Patrick. Let me pick up where you left off on the second question about respiratory illness and seasonality. We are already seeing an uptick in respiratory illness, but we are not seeing that translate into higher inpatient utilization at this point. Although we do anticipate that to some extent, and we budget for it. We are working really hard to maximize influenza and COVID vaccination rates to protect our population. We are seeing more COVID just as everyone is seeing in the community, but so far, most of those cases are actually mild even in our vulnerable population. Back to the point about outpatient utilization, as Patrick said, we are seeing very effective reductions through a lot of the interventions of our team reductions in inpatient utilization. And in some ways, that's leaving those who are ultimately admitted to be more severely afflicted and have higher unit costs because they are the ones who really need to be admitted. So in some ways, it shouldn't be surprising to us that we're seeing some increase in severity or acuity in addition to the aging of our population, but we're working on that very closely to ensure that there are things that we could mitigate whether they be rates or steerage to lower-cost providers. I'd also echo Patrick's point around ER diversion because we are seeing increases in ER utilization, which are going in the other direction from inpatient. Part of that relates to our facility partners, assisted living facilities and nursing homes and to Patrick's point earlier around moving to a high-performance network part of our definition of a high-performance network going forward will be how well those facilities work with us when there's a minor change of conditions so that we can address that change of condition without utilizing the emergency so it's a key intervention going forward.

[Operator Instructions] Our next question comes from the line of Matt Larew with William Blair.

This is actually Madeline on for Matt. Kind of following up on the patient acuity question. I know one of the things that you are anticipating once sort of the sanctions were lifted, was that the pace and acuity mix would normalize a little bit because you were able to enroll new patients. Can you talk a little bit about like what you're seeing in terms of new enrollee patient acuity and how that mix might have changed now that you've had a couple of months of being able to enroll patients?

Sure. I'll start again and have Rich filling gaps. The first thing I would say is that the sort of the mix issue is obviously very dependent on the rate of growth of our new enrollment and the progression of our existing patient base and discipline, frankly, that's attributable to death. So all those factors come kind of play into the risk pool changing. What I would say is, if I think about the mix of new participants, again, still early because it's there was a bit of a ramp in Colorado, in particular. But I think one of the things we're starting to see is fewer people enrolling with us that are in an assisted living facility. Pace is a great solution for people, and that's an important lever for us to avoid nursing facility care. And I think historically, we maybe saw a little bit higher levels assisted living facility enrollments. I think we're starting to see some of that, let's call it, backlog, pent-up demand, maybe starting to play through. So our mix is increasingly looking more and more what we would expect a community mix to look like between people in nursing homes, people in assisted living and people who are coming to us living independently. So still early, but seeing some good signs that, again, the work that Rich is leading is having an impact. And our high-performing network is another great example of making sure we're providing all the access that's necessary for this.

Well, yes, exactly, as Patrick said, we are seeing lower acuity people being enrolled than our existing population by definition because these are people who are living either independently or in assisted living. Now we have had and seen a backlog of interested people, people wanting to enroll an innovate pace who were living in assisted living in Colorado. And as that backlog work to sell out, we're seeing much higher rates of true independent living, and so our acuity and our mix will become even more favorable over time.

Got it. That's really helpful. And then just one more on the de novos. With the Florida de novos maybe being pushed back a little bit. Is that changing how you're thinking about this full year de novo losses?

Yes. I mean the for facilities, if they're going to get pushed back or get pushed back by a relatively small amount of time, these are things where we might move it back by 4 weeks or 8 weeks. What you find is that, we have de novo losses associated with those facilities. To the extent that those get pushed back, the de novo losses are decreased slightly for the course of the year. At this point, I think we're sticking with the guidance that we've got related to de novo losses. But as we get towards February, where we hope we're going to have an Investor Day, we'll know a lot more about the business, we'll know a lot more, but timing of floor facilities. And to the extent there are any update to be given then we'll give them that.

Yes I would just add one last point on that is, obviously, we're timing our hiring and being very agile and being absolutely certain that we ensure we don't assume any cost any earlier than is absolutely necessary. So we're managing this very well.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.