Thank you for standing by, and welcome to the InnovAge Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Star 11 again. And now, as a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Ryan Kubota, Director of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you all for joining the InnovAge 2025 Fourth Quarter and Fiscal Year End Earnings Call. With me today is Patrick Blair, CEO, and Ben Adams, CFO. Michael Scarbrough, President and COO, will also be joining the Q&A portion of the call. Today, after the market closed, we issued an earnings press release containing detailed information on our 2025 fiscal fourth quarter and year-end results. You may access the release on the Investor Relations section of our company website, InnovAge.com. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, September 9, 2025, 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 earnings press release posted on our website. We may also make statements that are considered forward-looking, including those related to our 2026 fiscal year projections and guidance, future growth prospects and growth strategy, our clinical and operational value initiatives, Medicare and Medicaid rate increases, the effects of recent legislation and federal budget cuts, enrollment processing delays, the status of current and future regulatory actions, and other expectations. Listeners are cautioned that all of our forward-looking statements involve certain assumptions that 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 annual report on Form 10-K for fiscal year 2025 and any subsequent reports filed with the SEC. After the completion of our prepared remarks, we will open the call for questions. I will now turn the call over to our CEO, Patrick Blair.

Thank you, Ryan, and good afternoon, everyone. I'll begin with gratitude to our colleagues across InnovAge, to our participants and families, to our state and federal partners, and to our investors. Thank you for your continued support and trust. Fiscal 2025 was a year of delivery. We made clear commitments, and we followed through. In many cases, we exceeded both our internal goals and external expectations. And importantly, we finished the year with strong momentum heading into fiscal 2026. Today, I'll cover fourth quarter and full-year results, fiscal 2025 guidance for fiscal 2026, and progress we're making to position InnovAge for long-term success. Our fourth quarter capped a strong year of consistent execution. 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. Adjusted EBITDA more than doubled year over year to $11.3 million, representing a 5.1% margin. We ended the year with a census of approximately 7,740 participants. These results reflect disciplined cost management, strong medical utilization performance, and continued sense of growth. Now turning to the full year. Total revenue was $853.7 million, up nearly 12% year over year. Center-level contribution was $153.6 million, with contribution margin expanding to approximately 18%, up 70 basis points from FY '24. Adjusted EBITDA was $34.5 million, above the high end of our FY '25 guidance of $31 million. Adjusted EBITDA margin nearly doubled from 2.2% in FY '24 to approximately 4% in FY '25. These numbers matter not just in isolation but in the context of what we committed at our Investor Day in February 2024. We committed to expanding margins, and we delivered. Center-level contribution margin improved from 17.3% in FY '24 to 18% in FY '25, with further progress expected in FY '26. We committed to improving clinical…

Thank you, Patrick. Today, I will provide some highlights from our fourth quarter and fiscal year-end 2025 financial performance, followed by our fiscal year 2026 guidance. I am pleased with our overall performance and strong finish to the year. As Patrick mentioned, we really started to feel the impact of our clinical value initiatives throughout this year, and we expect those to carry through into fiscal 2026. We are also pleased with the progress of our new operational improvement initiatives this year and expect them to continue building throughout the next fiscal year. Starting off our fiscal 2025 highlights with Census, we served approximately 7,740 participants across 20 centers as of June 30, 2025, which represents annual growth of 10.3% and sequential quarter growth of 2.8%. We reported 23,000 member months in the fourth quarter, an increase of approximately 10.5% compared to 2024 and an increase of approximately 2% over 2025. Total revenues increased by 11.8% to $853.7 million for fiscal year 2025. The increase was primarily driven by an increase in member months coupled with an increase in capitation rates. The increase in capitation rates includes rate increases for both Medicare and Medicaid, partially offset by revenue reserves and an out-of-cycle risk or true-up payment received in fiscal 2024. Compared to the third quarter, total revenues increased by 1.5% to $221.4 million in the fourth quarter, primarily due to a sequential increase in member months partially offset by a decrease in Medicare rates associated with decreasing risk scores as new participants are entering PACE with lower risk scores and disenrolling participants are leaving PACE with higher risk scores. We incurred $431.2 million of external provider costs during the fiscal year, a 7% increase compared to fiscal year 2024. The increase was primarily driven by an increase in member months,…

Certainly. And our first question for today comes from the line of Matthew Gillmor from KeyBanc. Your question, please.

Hey, guys. Thanks for the question. I wanted to ask about member mix and how that's impacting margins and cost trends. If I recall, I think the acuity of the membership is in the process of normalizing with your census growth that had been resuming starting last fiscal year. How far along are you on that process? Is there still more room to go in terms of acuity normalizing? And is there any way to think about the impact that that's been having on margins or some of the utilization metrics you've been sharing?

Hey, Matt. It's Patrick. Great question. I'd say largely, we've sort of seen the mix rebalancing that we would expect since the sanctions were lifted. We've grown well. We've kept a very balanced pool of enrollments as it relates to people living in the community, people living in assisted living facilities, and I think we've done a really nice job of ensuring that we're a solution to keep people in the community rather than to go into nursing homes. As a result, the mix of our population, the age, the acuity has, I think, progressed much as we anticipated. I'd say we're largely at a point where we feel like achieving our targets. All of our work going forward is about continuing to grow and maintaining an appropriate mix. It does negatively impact our risk score, so we have to be mindful of that shift, which can come with some revenue impacts. But generally, we've got the right mix of healthier folks, and with the right clinical model wrapped around them, they can be a contributing factor to the company's growth and margin expansion. Ben, anything to add?

No. I think you really covered it. If you think about the average tenure of a PACE participant, it's three and a half years or so. We've been going through a normal enrollment process for about two years now, so the mix is pretty much normalized if things have washed through the system.

Okay. Great. That's helpful. And then as a follow-up, I wanted to ask about V28. I heard Ben's comments about the phase-in starting next year. Should we think about that as being a slight headwind to your revenue growth, or is that a slight tailwind? Just wanted to sort of understand how that might play out both in 2026 and then, of course, beyond that as well.

Well, as I think Ben said in his remarks, we're just sort of entering into this phase where we're starting to see a phase-in of the V28 relative to the V22. It's going to take multiple years for that to play out. As you probably know, there are a lot of variables with the PACE population and how all this will work out. It is included in our guidance, and I just want to make sure that's clear.

No. I think you pretty much hit it. We expect it to be a headwind over the next couple of years. We only provide one year of guidance, so it's all factored in for this year. But obviously, it's something we're spending a lot of time thinking about for future years.

Got it. I appreciate it. Thank you.

Thank you. And our next question comes from the line of Jared Haase from William Blair. Your question, please.

Yeah. Hey, guys. Thanks for taking the questions. Maybe I'll ask on the outlook for EBITDA margins. Congrats on all the progress that you've made there. I know you kind of reinforced the expectation that you're on track for the 8% to 9% target over the next few years. I think the guidance implies about 250 basis points of margin expansion. I guess, number one, should we think of that as a reasonable cadence in terms of margin expansion continuing for the next few years on that pathway to the high single-digit target? And then I'd also be curious if you could just unpack, given all the initiatives and progress you've made, where you think the balance is in terms of the bigger opportunities for leverage between center-level margin and then operating leverage.

I'll let Ben pick up, but I would just start with I do think a lot of our margin improvement over the last couple of years has been a combination of factors. Being able to reinstitute growth for the company and growing that in double digits. We've had a variety of transformation efforts that focus on a lot of clinical value initiatives. We've done our best to predict when that value will flow through. We've talked about the latency between execution of an initiative and when we start to see the impact flow through the P&L. We're doing our best to predict that, but it's kind of hard to hit on a quarter-by-quarter basis. But I'll say we're very pleased with the work by our clinical teams to address medical costs. I think that is a nice driver of this. As I said in my opening remarks, one of the things that I think we're really developing a strong appreciation for, especially since we've brought pharmacy in-house, is that over 40% of the total cost of care we're delivering with our team, our employees, in our centers. And then this notion that for the remaining 60%, we're ordering that care. We're ordering the specialist visits and specialist services, and that gives us a lot of control. So I do think medical costs are an area we've been very successful in. We've got a great team, and we continue to move there. And then the operating leverage, as we grow our centers, we're getting operating leverage at the center level. Pharmacy insourcing is an area where the real value to that is the medical-pharmacy integration. That's given us more control over the total cost of care when we have pharmacy integrated more closely with our medical. So overall, I think we're pretty pleased with margin growth. And I think it is fair to say that over the next couple of years, the growth we've seen in the last two probably translates over the next couple. Ben, what would you say?

Yeah. I mean, I think Patrick pretty much covered it. I would say that the guidance we put out about the long-term margin opportunity when we met with everybody back in two years ago in February, I think that sort of outlook we put out there probably holds true today. And I think probably today more than ever, we've always been convinced that we'd get to the right margin structure. It was always just a question of when we would get there. So it wasn't an if, it was a when. And I think we feel very confident with the vision we put out a couple of years ago. And I think this year shows us that we're kind of halfway there.

Got it. That's helpful. I appreciate that. And then maybe as a follow-up, I'll switch gears a little bit. But I'm curious, you obviously have the partnership with Epic, your electronic health record, and they've been in the news recently rolling out a number of new AI or automation-related features. I'm not sure if you're able to benefit from any of that at all. I know you probably had some specific modules and implementations related to PACE. But just curious, anything specific to Epic or, I guess, even more broadly, areas where you might see opportunities for automation and continue to take cost out of the cost structure.

I'm going to flip that to Michael, but I'll say it's a great question. It's something we're spending a lot of time on, really trying to figure out how do we leverage the latest AI-driven tools just to make us a better company and help us with cost efficiencies and quality of care and outcomes, etc. I think, given the size of our company, we certainly don't have the capability or the ambitions of a much larger managed care organization as an example. So to that point, you're correct in that we're working very closely with a broad range of technology partners that we have within the company today. That, of course, includes Epic, and I'll let Michael say a little bit about some of the work there. But then whether it's a medical partner, or it's a claim system partner, or some of our clinical programs, each of those companies has a really robust AI agenda. And ours is really trying to figure out how do we leverage what our partners are developing and then connect that to how we operate as a PACE program. And I think we're off to a good start, but it's certainly early days. Michael, please say more.

Yeah. Thanks, Patrick. And so I would just add, I think as we have continued to invest in our technology capabilities, we've really gone with a kind of a best-in-class strategy and doing so. Tools like Epic and others provide us a number of out-of-the-box capabilities and out-of-the-box solutions that we're finding a lot of applicability with within our business. Everything from how we provide clinical care, inform our clinicians, highlight for them information about our participants, which might not be otherwise easily discernible from all of the information in Epic, through our Oracle implementation and the ability to use tools like that. Just continue to look for opportunities with our business where we have processes that could be optimized and generate not just efficiency, but also greater accuracy of the work that we do. And so I think we're very much working as the whole industry is around just looking for opportunities where AI could be a lever to improve the output of our business.

I'd probably highlight Salesforce as another partner who we're doing some really interesting work with. More focused on sort of efficiency and accuracy of business processes both in compliance as well as in sort of the enrollment processing space. So Salesforce has been a great partner as we sort of dip our toe in the AI space.

Got it. That's really great to hear. I appreciate all the color.

Thank you. And as a reminder, our next question comes from the line of Jamie Perse from Goldman Sachs. Your question, please.

Hey, thank you. Good afternoon. I wanted to start with one quick clarification which relates to my first question. I know you talked about the Medicaid redeterminations and that being a headwind to census and member progression through the year. You mentioned that being a headwind in the first part of the year. Is that a January type of headwind? Or are you referring more to the start of the fiscal year, so impacting the first quarter?

Well, I think if you think about redeterminations, they go on obviously throughout the course of the year. And I think what you've seen with us is we've changed a lot of our internal processes. Because as we've tried to partner with the states and make that whole eligibility enrollment redetermination process more efficient, we basically put in new processes that made it easier for us to identify people who are going to lose Medicaid coverage potentially. And if we think they're going to lose it and it's not recoverable, we can get them disenrolled more quickly, right? So as those new processes roll in and we begin to disenroll people who will never regain Medicaid eligibility more quickly, it'll put a little bit of a headwind on growth both in terms of census and in terms of member months. And you'll see that really happening in 2026. And then we think it will wash through the system by the time we hit January. And the other thing I would say is it's not really changing the rate of growth for us. Our trends around gross enrollment growth per month are really going to be the same. So it's not changing the slope of the line. It's really just shifting the line down slightly as we work through the implementation of this new eligibility process.

Okay. That's helpful. And I think you partially answered my first question here, but just want to make sure I'm clear. Obviously, you had really strong census growth in fiscal '25. The guidance is kind of call it, low, maybe mid-single-digit growth this year on a net basis. I hear your comments on the redetermination piece. Are you assuming that the gross enrollment trajectory that you had in fiscal '25 continues? And maybe just any updates from a capacity standpoint, anything that might change that enrollment trajectory?

Yeah. You're right. The gross enrollment trends are going to remain the same, we think, this year. What you're seeing in terms of slightly lower census and member months growth is basically the work through the new eligibility process. And we kind of went through an intentional strategic decision this year where we said, look, there were people that we were probably carrying too long to try to reestablish Medicaid eligibility. As opposed to moving them off of our system into a more appropriate place for them once we knew that they weren't going to get their Medicaid eligibility renewed. By moving people out of the system more efficiently when we know they no longer qualify for PACE, it slows us down on the top line. But it actually gives us a big boost on the EBITDA line. Right? So you think of this as kind of a year where we're using the enrollment mechanism to strategically reposition the business. We're going to give up a little census growth, but not the growth in gross enrollment trends. But we're going to get a big pickup in EBITDA from it.

Okay. Alright. That's really helpful. My second question, I know there were some earlier ones on just kind of connecting your guidance to the long-term targets you've laid out. Looking back at those targets, you're kind of a little bit ahead on external provider costs. There's maybe some room to continue seeing some progression on cost of care and then certainly on G&A. There's more room relative to the prior financial targets you laid out. Are those two buckets, just the cost of care and G&A operating leverage, the primary areas we should expect continued margin performance or improvement in fiscal 2026 specifically?

Yes, it's a good question. When you think about when I think about when you go back and you look at the presentation we gave back in February '23 about '24. Sorry. Had the year wrong. Anyhow, we gave that presentation about what the long-term margin potential is. You probably remember we went through sort of breaking out the different components. There was sort of the third-party provider care where we get some efficiencies. But then there was the cost of care, which was provided in our centers. And we get a lot of efficiency out of that number. Not only because we can, as Patrick spoke about before, we can control and coordinate that care more closely. But there's also an administrative component in there as well. Where we get some margin lift as the business scales. So we get some out of that line item. Then when you think about the G&A, obviously, we had some activities in the past related to compliance and other things. That we've been able to scale down going forward. So where we're investing in G&A really today is around improving operations. And if we start to look at that G&A line item as a percentage of revenue or even on a PMPM basis, we think you'll continue to see improvements in the next couple of years in that line item. So again, really focus more on the EBITDA percentage target than anything else. But those are probably the two line items where we'll get the biggest lift.

Got it. Thank you.

And this does conclude the question and answer session of today's program as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.