Good day and thank you for standing by. Welcome to the InnovAge First Quarter 2026 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 first speaker today, Ryan Kubota, Director of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and thank you all for joining the InnovAge 2026 fiscal first quarter earnings call. With me today is Patrick Blair, CEO; and Ben Adams, CFO. Today, after the market closed, we issued an earnings press release containing detailed information on our fiscal first quarter 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, November 4, 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 and redetermination processing delays, seasonality of cost trends, 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 and other discussions included in our annual report on Form 10-K for fiscal year 2025 and any subsequent reports filed with the SEC, including our most recent quarterly report on Form 10-Q. 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. Patrick?

Thank you, Ryan, and good afternoon, everyone. I know it feels like we just held our fourth quarter results and full year earnings call, and we did. The first quarter reporting cycle always comes quickly due to SEC requirements and companies needing more time to complete and audit their year-end financial results. As a result, we're meeting about 6 weeks after our last call. So today, I'll spend less time on new headline numbers and more on the progress we're making against our strategic priorities, the continued strength of our model and the momentum that we expect to carry us through fiscal year 2026. This afternoon, we reported total revenue of $236.1 million, center-level contribution margin of $51.4 million and adjusted EBITDA of $17.6 million. Compared with the first quarter of fiscal 2025, total revenue increased 15% and adjusted EBITDA more than doubled. Census grew to an all-time high of 7,890 participants, up nearly 2% quarter-over-quarter. These results reflect continued strong medical cost management and better-than-expected census growth as the Medicaid redetermination cleanup is progressing well in the first 90 days. The quarter also reflects positive momentum in our new Florida centers, particularly in Tampa where our partnership with Tampa General is off to a strong start. The operating environment for many value-based care models remains challenging. Medicare Advantage and Medicaid managed long-term supports and services are experiencing lower or declining reimbursement levels, higher-than-expected medical service utilization and growing regulatory scrutiny around risk adjustment and quality measures. In contrast, InnovAge and the PACE model have remained resilient. While many plans are retreating from markets or reporting financial strain from escalating medical costs, PACE offers a fundamentally different approach, one built on direct accountability for every aspect of participant care. At InnovAge, our providers not only deliver care within our centers,…

Thank you, Patrick. Today, I will provide some highlights from our first quarter fiscal year 2026 financial performance and insight into some of the trends we are seeing in the current quarter. Starting with census, we served approximately 7,890 participants across 20 centers as of September 30, 2025, which represents growth of 9.4% compared to the first quarter of fiscal year 2025 and sequential quarter growth of 1.9%. We reported 23,500 member months in the first quarter, an increase of approximately 9.9% compared to the first quarter of fiscal year 2025 and an increase of approximately 2.2% over the fourth quarter. Our first quarter census growth was modestly better than expected and was primarily driven by our ability to reinstate more participants that had lost Medicaid coverage than expected and timing delays associated with disenrolling participants that have lost coverage and have not been able to regain eligibility in a few markets. Total revenues of $236.1 million increased 15.1% compared to $205.1 million in the first quarter of fiscal year 2025, driven by an increase in member months and capitation rates. The increase in member months was primarily due to growth in our existing California, Florida and Colorado centers. The increase in capitation rates was primarily due to an annual increase in Medicaid and Medicare capitation rates, partially offset by revenue reserve. Compared to the fourth quarter of fiscal year 2025, total revenues increased 6.6% due to an increase in member months and capitation rates. The increase in capitation rates was driven by annual rate increases in Colorado, New Mexico and Virginia, and an annual Medicare rate increase, all effective July 1, 2025. We incurred $108.9 million of external provider costs during the first quarter of fiscal year 2026, an increase of 1.5% compared to the first quarter of fiscal…

[Operator Instructions] Our first question comes from the line of Benjamin Rossi with JPMorgan.

So you've previously mentioned that the calendar 3Q is typically one of your softer margin quarters as a result of open enrollment. I guess just under your reaffirmed guidance setup, how are you thinking about margin progression for the remainder of the year? And then just curious if you could walk us through some of your assumptions for the remainder of the year and how you're thinking about impact from things like the aforementioned Medicaid eligibility changes, your cost savings initiatives and then some of the broader shift into the MA V28 model.

Yes. Ben, it's Ben Adams, and I'm here with Patrick and the rest of the team. We don't give quarterly guidance. So what I would probably say is there are a couple of things that are causing a little bit of noise in the progression this year. And why don't I walk through a couple of them just so you understand what's going on. You may remember in the last call, we talked about the fact that we had a number of folks who were what we call [ LOMI ] status, people lost their Medicaid eligibility, and we were either working to reestablish it or to help them find a program that better fit their needs. That process has been ongoing. I think it probably went a little bit better in the first quarter of the year than we anticipated, but we also think it may drag on a little bit longer than we thought. So that's something that's influenced us a little bit in the first quarter. In the second quarter, there are kind of a couple of things that happened in the second quarter. We have the October Medicare fee schedule increases. We have some risk score decay, which incurs in the second quarter where the risk scores get reset on July 1. We will, again, have sort of a full quarter of our merit increases, which were implemented in the back half of Q1. And we'll probably have a little bit higher utilization as we roll into sort of cold and flu season. So we'll have those factors to deal with in Q2. And then in Q3 is really where we start to see usually a little flattening in what happens with our net enrollments because some of that is sort of a byproduct of going through the open enrollment period. And then we sort of return to kind of a more normalized Q4. So those are some of the factors that are going on. This year, because of what's happening with our population around Medicaid eligibility in the first quarter and working through some of the issues there, probably is going to make a little bit more lumpiness in the front half of the year than in the past. But we're still good where we are with guidance. So hopefully, that provides a little color on how to think about the quarters.

Really, yes, I appreciate the color there. I guess just as a follow-up, just taking a step back as we're making our way through open enrollment and Medicare Advantage. There's just been some commentary from brokers regarding an uptick in Special Needs plans offerings as some of the traditional MA plans are generally pared back. I appreciate that PACE possesses unique eligibility and processing requirements relative to those SNFs. But just curious how you describe maybe the competitive dynamics of this cycle and whether you've maybe seen any spillover into how you're thinking about your risk pool going into this upcoming year.

This is Patrick. I'll get to start and maybe hand off to Matt. I think what we're experiencing is a market that still remains pretty competitive. I certainly see some of the extraction of certain Medicare Advantage plans. But to your point, the Special Needs Plans still remain a strong presence. I think in terms of how we're responding to that, I think we got out there very early into the market, working with our referral channels and working with our participants just to make sure that people were aware of the strength of our offering, how our offer differentiates between a Medicare Advantage set of benefits, how much more comprehensive we are and integrated we are. And I think for the most part, I think we're feeling good about our position in the market. I think it's taken a few years, but people are, I think, gaining a better understanding of PACE as it relates and compares to any sort of Medicare Advantage plan, whether that be a Special Needs Plan or a traditional Medicare Advantage plan. And I think that distinction, we're getting better at articulating that value proposition in all of our markets. And so I think we're feeling pretty good about our relative positioning in the markets. I think it is still very competitive, but I think we're getting much better at telling the PACE story, and that's certainly helping. But Matt Huray is here with us today, and I'll ask him to add any of his thoughts.

Thanks Patrick. Patrick articulated it well. I would start with just the difference in the models themselves. PACE is a vertically integrated offering. It's a comprehensive set of services and there's 0 out of cost. And so we're focused on making sure that folks for whom either is an alternative. And you'll recall, within the dual eligible population, only a small subset would be PACE eligible based on clinical frailty. But when we find folks who that overlaps, we make sure to hit those differentiated points. And year-to-date, it's early days, but it's going well.

Our next question comes from the line of Matthew Gillmor with KeyBanc.

I wanted to ask about some of the cost trends that you reported. And I think we tend to look at sort of total cost PMPM because it normalizes for the in-sourcing you've done on pharmacy and hospice, but really impressive results again this quarter. I wanted to see if there was any lingering benefit as the acuity of the population has normalized or if that's fully behind you. And then just what would you attribute the lower SNF utilization to in terms of your clinical efforts in the market?

This is Patrick. I'll start. Ben did have some thoughts he wants to share. On your last point about sort of post-acute, we put a lot of work into optimizing our discharges from the hospital into the appropriate level of care with skilled nursing and have put a lot of work into the contracts themselves to ensure that we're optimizing the unit cost side of things as well as the level of care and care coordination side. I think we've gotten a lot better in that area as well of doing sort of our version of prior authorization, just making sure that the individual does, in fact, need to go to a SNF versus go back home. Really one of PACE's strengths is our ability to build a support structure around the home through our resources and family members, et cetera, to help people get back home when in many other programs, they're going to go to a SNF. And so I think that's a big part of it. And then just trying to align incentives as well with our network partners, that's really helped us a great deal with our SNF. But overall, each year, we've got a portfolio of what we call clinical value initiatives and OVIs, our operating value initiatives. And so in addition to the work we've done in SNF, we've done a lot of work on inpatient hospitalizations as well, conversions of short-stay inpatient stays into observations. We're doing a really tight management of readmission of our patients; our doctors play a big role. We've put work into our audits of hospital claims and are working with top-tier organizations to make sure we're not paying any more than we should. Lots of work around the ER as well. Pharmacy is one. I think Ben has…

Yes. I mean, I guess the only thing I'd add to that is if you're looking at trend in kind of a Q-over-Q fashion, one thing that's probably worth being aware is that with the in-housing of pharmacy, it's moved a few expenses around in terms of the geography of the income statement. And we don't break it out, although there's some discussion of it in the 10-Q itself. But let me just give you a little guidance to think about it. If you think about our external provider costs, they went up Q-over-Q by 1.5%. Obviously we had a 9.9%, almost a 10% increase in member months. And so we had an offsetting amount to get there. And some of it had to do with improved utilization. Some of it also had to do with slightly better rebates on the pharmacy side and also the benefits of what our in-house pharmacy does to our external provider cost trend. So think about that is there's a little bit of a model transition when you do the Q-over-Q comparison. Similarly, if you look at the cost of care line item for us, it looks like it went up 19.7%, which is huge in comparison to the increase in member month. But if you sort of get behind it, you'll see in some of the description, we talk about the fact that there's an increase in SWB that's pretty large. And there's also a $4.9 million increase in consulting fees and shipping costs related to the in-housing of our pharmacy. So if you were to sort of realign things back geographically, which you really don't have all the pieces to do, but it will become more apparent as we get further through the course of the year and things begin to annualize out, you'll see the cost trends sort of make more intuitive sense as opposed to what the real Q-over-Q numbers would suggest.

Yes. No, I appreciate that. We tend to look at the external provider costs and the cost of care together right now just because of that geography. Let me ask kind of one follow-up. Patrick, I was curious as you're thinking about these clinical value initiatives just how far along the path do you think you are in terms of standardizing some of these processes like working with the discharge planners at the hospitals to try to get people home. How much runway is there to go? I assume it's a long runway, but just wanted to get your sense in terms of the degree of maturity for these programs as you roll them out across your markets.

Thank you. It's a great question and one that we sort of think a lot about. And what I would say, if I had to sort of put it into percentage terms, I'd say we're about 50% there. And our 100%, I don't put on sort of the caliber of your best MA plans, for example. So just -- but what are we capable of? I'd say we're about 50% there. And you're right, as we go through, as I go through inpatient and I think about what we're doing there, when I go through emergency room services or PTOT, dermal medical equipment, labs, those are post-acute that we talked about. You think about for all of those, what we've done is tightened coordination, tighten communication, leveraged our new Epic EMR to the fullest, got under the cover on unit costs and renegotiated where we could on unit cost. What's left -- and this is where you kind of go from good to great. What's left is really ordering behavior. The point about we control so much of the healthcare dollar, it means we also are responsible for deciding what we're going to do and what we're not going to do. So where do I think there's more opportunity in that back half? It's things like very thoughtful technology-based clinical guidelines and utilization review guidelines. So what we find is across our 20 centers, you could find variations in ordering patterns and variations in decision-making on when does someone go to assisted living. When do we make the decision for someone to go into a nursing home? How much of the specialist care that's recommended is supported with clinical guidelines. So it's that sort of reducing variation of care across our system and using clinical guidelines to help direct us and help guide us there. And so this intersects with -- you saw -- I think it was yesterday, we announced Paul Taheri is joining us. And if you think about Paul's leadership, he brings tremendous experience with sort of systems thinking. He brings tremendous experience leading physicians through this sort of transformation, understanding the unique dynamics and culture of our providers and how they make decisions and how to address resistance, frankly, to change. And then he just has a great collaborative leadership style and he's just an all-around great guy. So he's here to help us address that next 50%. And we think there's value there. It takes time to get to. It doesn't happen in a quarter or 2 quarters. But over the next couple of years, we feel really good about our ability to deliver high-quality, cost-effective care.

I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.