Good day, and thank you for standing by. Welcome to the InnovAge Holding Corp. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations.

Good afternoon, and thank you all for joining the InnovAge Holding Corp. 2026 Fiscal Second 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 second quarter results. You may access the release on the Investor Relations section of our company website, Innovh.com. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, 02/03/2026, 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 will 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, clinical and operational values, Medicare and Medicaid rate increases, the effects of recent legislation in 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 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 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.

Thank you, Ryan, and good afternoon, everyone. I'd like to start by thanking our colleagues, our participants, and their families, our government partners, and our investors for joining us today and for their continued support. We appreciate the opportunity to share an update on our fiscal 2026 second quarter results and the progress we are making against our strategic priorities. Our second quarter results reflect continued momentum across the business and disciplined execution across our clinical, operational, and financial initiatives. For the quarter, we reported total revenues of $239.7 million, center-level contribution margin of $52.8 million, Adjusted EBITDA of $22.2 million, and net income of $11.8 million. To put those results in context, we generated $39.8 million of adjusted EBITDA in the first half of the fiscal year, exceeding our full-year fiscal 2025 adjusted EBITDA of $34.5 million. Two years ago, at our Investor Day, we outlined an intermediate-term adjusted EBITDA margin target of 8% to 9% over a two to four-year horizon. This quarter, for the first time, we achieved that target, delivering an adjusted EBITDA margin of 9.2%. It's important to emphasize that this level of margin is consistent with what's required to sustainably operate a full-risk, investment-intensive, highly regulated healthcare delivery model and to continue reinvesting in our people, infrastructure, and the quality of care we provide to our participants. As we talk about the strength of our first-half results, I want to be clear about how we think about this performance and what's driving it. Over the past several years, InnovAge Holding Corp. operated from a very different financial position as we worked through operational, compliance, and organizational challenges. The progress we are seeing today reflects a deliberate effort to rebuild and strengthen the foundation of the business across every dimension: our talent, clinical model, service…

Thank you, Patrick. Today, I will provide some highlights from our second 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 8,010 participants across 20 centers as of 12/31/2025, which represents growth of 7.1% compared to 2025, and sequential quarter growth of 1.5%. We reported 23,960 member months in the second quarter, an increase of approximately 7.9% compared to 2025, and an increase of approximately 2% over 2026. Our second-quarter census growth exceeded expectations, driven primarily by our continued success in reinstating participants who had previously lost Medicaid coverage. Total revenues of $239.7 million increased 14.7% compared to $209 million in 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 2026, total revenues increased 1.5% due to an increase in member months. We incurred $112 million of external provider cost during 2026, an increase of 3.8% compared to 2025. The increase was driven by the increase in member months, partially offset by a decrease in cost per participant. The decrease in cost per participant was primarily driven by a decrease in permanent nursing facility utilization and a decrease in pharmacy expense associated with the transition to in-house pharmacy services. This decrease in cost per participant was partially offset by an annual increase in assisted living and permanent nursing facility unit cost, an increase in assisted living utilization, and an increase in inpatient unit cost. Compared to 2026, external provider costs increased 2.9%. The increase was primarily driven by…

Thank you. Press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And our first question comes from Benjamin Rossi with JPMorgan. You may proceed.

Hi. Afternoon, everyone. Thanks for taking my questions. So just on the back half EBITDA progression following the raise, in context of your year-to-date adjusted EBITDA margin coming in north of about 8%, my math here kind of suggests back half margins are coming maybe closer to a mid-seven EBITDA margin as you move forward with these restructured operating costs. Just walk through some of the variables going into those margin expectations and maybe how you're thinking about margin progression for the remainder of the year?

Yes. Yeah. Hey, Ben. It's Ben Adams. How are you? Yeah. What I would say is remember that the third quarter for us is always the soft quarter, and there are probably a couple things going on in there. One is when we go through the open enrollment period at the end of the year, we often have slower enrollment gains in the first couple months of the third quarter. You've seen that happen over the last several years. And I think our expectation is you'll probably see something similar like that evolve this year. The other thing I think to be mindful of is the flu season, which has been, you know, particularly bad this year. We were talking earlier about the fact that the vaccine was only partially effective against the flu. And saw a relatively high incidence of the flu going into year-end and in through January. And so our expectation is we may see a little additional pressure on that side in Q3. You know, it's all, you know, it's all preliminary at this point because the data is just coming in. But because of that, I think what you'll see is, you know, sort of the softer third quarter that we typically exhibit. And then you'll see a return to a more normalized Q4 growth rate that you've seen. So that will just play through the margins just naturally.

Then I might add to that just the continued work we're doing on the Medicaid redeterminations. You know, as I shared in my prepared comments, we made a tremendous amount of progress and some aspects of that work have worked out better than expected, but it's still a work in progress. Still a continued effort to ensure that our enrollment and our enrollment applications are being processed in a timely fashion. And so I think we were also cognizant of that as we put the guidance forward.

Great. Appreciate that. And I just I'm kinda flipping over to with the shift in v28 beginning earlier this year. I know you're only a month in. But just hoping to better understand your thinking on the impact to your maybe your raw risk scores and how that might flow through to subsequent graph scoring for some of your members. I appreciate there's a lot of variables in here with some of the changes to the HCC for conditions like dementia and CKD, and you might have the frailty score come in there. Just following the guidance raise, can you just maybe help us understand how any of the back half guidance factors, those changes flowing through? I know it's only 10% at this point, but just trying to get an idea of how that maybe impacts your rates, how that could be impacted maybe overall by rates and when that on the other set of the variables.

Yeah. I mean, I'll start with more of kind of a macro view, and then let Ben talk about the flow through to risk scores. You know, I think the first point is we share more in common with, you know, the Medicare rate adjustment model than we share differences. You pointed out, you know, a couple differences. You know, but I also just remind folks that only about 45% of our total per member month premium is actually Medicare. And so for that reason, and the fact that v28 is a phase-in for PACE, it has moved from a five-year phase-in to a three-year phase-in, but still is a phase-in. So we're sort of structurally less exposed to v28, you know, when comparing to other MA plans. And when you think about the frailty adjustment, you know, that is not inconsequential. You know, as it were. It is one of the some of the beauty of the system for PACE is that it, you know, it captures the disability and functional status that wouldn't otherwise be reflected, you know, in a diagnosis alone. You know, someone can have a severe set of functional disabilities that relates to bathing, dressing, eating, you know, using the toilet, walking, without necessarily having a dramatically different diagnosis than someone that say has fewer diagnoses. So there is a real opportunity for us as it relates to the differences that exist. And, you know, there actually is a floor on that frailty adjuster of, I think it's point one two nine. So, you know, I just want to point out that we do share a lot of the same challenges that the rate notice revealed. Preliminary rate notice revealed last week. But at the same time, there are some notable differences. And I'll let Ben maybe share through how he thinks about the flow through.

Yeah. You know, I think that Patrick pretty much hit it. I think the one thing I would say is that when we went through and did a reforecast of the business, we factored in our latest thinking about what the impact is going to be over the next two quarters till we get to the end of our fiscal year. And we think we've kind of captured appropriately in the guidance.

Appreciate the additional color there. Thanks.

Our next question comes from Matthew Gillmor with KeyBanc. You may proceed.

Hey, thanks. Quick question. Good afternoon. I guess I wanted to start off on the census growth that was, you know, I think a bit stronger than at least we expected, and there was some commentary around being better in terms of the work you've done on Medicaid return redeterminations and improving your processes. I thought I might just ask sort of where you're seeing more success. Is that on your side and your processes, or has there been some success in just the processes at the state level and getting approvals through?

Thank you. I'll let Ben kind of clean me up here. But, you know, I think there's a couple of ways to break this apart. You can think about the processes for which we sort of have complete control of. And, you know, that involves a very sort of rigorous let's call it kind of a patient accounting system. Where we can really match someone's eligibility to the premium that we receive. And we can reconcile that and we can track that throughout the company and in some ways, think of it as sort of a workflow management process as well where we're constantly sharing data between our finance organization, our enrollment organization, and our local centers on where follow-up is needed, etcetera. I think our progress in the first half, first couple quarters of the year has been on what we control. The other part of this is at some point, we're essentially handing files off, enrollment files off to the state. And depending on the state, there can be, you know, different levels of work that's required on their end. I think going forward, I think our caution is, you know, not to be overly confident about what we've accomplished internally, but we have to be mindful of where the states are and the resource challenges they're grappling with and how do we ensure that we're being as sort of collaborative as we can, timely as we can. And producing very high-quality data that allows them to do their job very effectively. That's kinda how we break it up. I'll let Ben kind of...

Sure. Yeah. No. I think Patrick hit it pretty well. I guess what I'd say you may remember from our prior earnings calls that we had a number of cases at the end of the fiscal year where people had lost their Medicaid coverage. And we had assumed that there'd be some attrition in our census over the first six months of this year as that happened. As we said, I think before we ended up getting a lot more of those folks re on Medicaid than we originally anticipated. Right? So that provided us a little bit of an enrollment cushion in the first six months of the year. The other thing that's nice about it is because a lot of them got reestablished relatively early, you kind of get that compounding effect of the member months. So that gave us a little bit of a member month cushion going in. You know, we're through most of that now as of the end of the fiscal year. And now we're on what I think of as our regular glide path of enrollments. And so we're seeing gross enrollments that are doing pretty well, coming in generally in line with what we'd expect. We're probably seeing a little bit more in disenrollments than we'd like, and so we're spending a lot of time on that. But you know, as we said in the beginning of the year, there are a lot of factors that are kind of coming into play into enrollment numbers this year because of the washing through of some of the changes I talked about before. But I think we seem to be tracking okay.

Got it. That's very helpful. And then just as a quick follow-up, how does that influence the reduction in you mentioned there's a reduction in revenue write-offs. Any sense for the magnitude of that and was there some was there any sort of one-time pickup, or is that just a better go forward you think about some of the improvement in these processes?

Yeah. I mean, I can tell you sort of conceptually how it all works. Which is we go through a process that's pretty rigorous on the revenue write-offs. Where we look at individual participants, where they are in the redetermination process or even the enrollment process in some cases, and we come up and we look at historical write-off patterns and then we also go through and risk score them depending on where they are in the process. And compare those two results to figure out how we actually set our revenue reserves. The good news is we built a new system we didn't have last year so we can actually do this in a much more methodical fashion than we could in the past. And that was the patient accounting system, which Patrick referenced before, which is built in Salesforce for us. It's been a great tool for us. So we can track those people going through a lot more easily than we could before. So it's a much tighter process. So when we go through and set our monthly revenue reserves, we can be much more precise in the way they play out. And we can put in what I would think of as sort of an appropriate level of conservatism. Without being, you know, overly conservative. So I think the process has worked really well for us in the last six or seven months. I think we're pleased with the way it's going. I'm not sure we'd be ready to draw any conclusions yet about how far ahead we are in revenue reserves because those patterns tend to adjust month by month. But right now, I would say we're tracking to expectations.

Got it. Thanks a lot.

Thank you. And as a reminder, to ask a question, please. And our last question comes from Jared Haase with William Blair and Company.

Yes. Hey, guys. Thanks for taking the questions and congrats on the results. Maybe just unpack a little bit more, and I guess this is a little bit related to the question that Matt just asked. But, you know, the comment, Patrick, that you made on participating participant experience, I'm curious if you could unpack just a little bit more, you know, some of the specific areas within that patient journey that you believe could be the most impactful? And then I guess a related question, you sort of alluded to potential improvement in patient retention. You know, I'm wondering if there's any way to contextualize just where you sit today from a retention standpoint and, you know, where that might go, as you implement some of these initiatives.

You know? Yeah. Let me just maybe start with just kinda giving you the order of magnitude. And we talked about kind of voluntary disenrollment, it's about 6% annualized on an annualized basis. So, you know, just gives you a sense of kind of what we're the magnitude of sort of what we're faced with as our as the denominator, our census grows. And so where we see some of the opportunities, you might expect not unlike other service providers, we're very interested to understand how what people expect when they enroll, how does that line up to what they experience once they come to the center and experience, you know, sort of the day in a life of a PACE member. And as we dig into data like that process, it sort of covers everything from the sales process through sort of onboarding communications to onboarding them physically in the center. And we've identified there's our example where people will disenroll within a short period of time. So there could be a misalignment between what they expected and what they experienced. And so tackling that end-to-end onboarding experience really isolating the moments of that experience that matter most, and then understanding, you know, where there may be misalignment or opportunity and then sort of defining that and determining if we can't build kind of the InnovAge Holding Corp. way one single way that if you walked into any center of in the country, you'd get the exact same sales experience. You get the exact same onboarding experience, etcetera. And so you could take onboarding as a part of that. You could go further to think about, you know, grievances. In the world of PACE, grievance means something very different than a typical, say, managed care or health plan model.…

Got it. I really appreciate all the detail. That's super helpful. You know, as I think about sort of the implications of, let's say, retention and patient experience, one follow-up that comes to mind. I assume you typically see sort of MLR improve as patient cohorts mature over time. So are you kind of explicitly thinking about this as, you know, if we can drive that retention better by, you know, whatever number, 50 basis points, 100 basis points, whatever number, that that kinda directly flows to MLR by just, you know, further increasing the mix towards those more tenured? Is that fair to say?

It is fair to say. It's an astute question. And, you know, Ben and team are spending a lot of time right now really trying to understand those cohorts. You know, in our model, we kind of roughly say, tenure and pace is like high school. Have freshmen, sophomores, juniors, and seniors. And we're starting to look at each of those cohorts and the resources they consume, the needs they have, and really trying to understand, you know, back to this notion of kind of elevating our consumer centricity model understanding each of those cohorts, their needs, and their contribution financially is something that we're really digging into. And so to your point, for many members, there is a period of time as they progress from a freshman to a senior, there are points in time where contribution is greater. There's also points in time where, let's say, an assisted living facility may become the most appropriate solution for that person. You might see an impact contribution. And so we're really starting to dig into that data, see some really interesting opportunities to create a much more informed participant experience that's dialed in to the needs of specific cohorts. At the same time, trying to understand how the mix of those cohorts can impact the company going forward. And that's where there's a lot of work. Ben, anything to add?

No. I think that encapsulated it really well. You know, the nice thing about pace rates, obviously, is they're set to basically take care of a portfolio of participants who are at all different places along their journey. Right? So as long as you maintain the right proportions in your mix, the rates work very effectively. And so as we see steady enrollment growth over periods of time, the mix is much more predictable and more closely aligns with what goes on on the rate side. Probably the only thing I'd add to the disenrollments is the interesting thing about voluntary disenrollments because they really happen in the first six months of a participant's experience with us. So when we're going through and developing programs to make sure that we minimize those voluntary disenrollments, there's really a discrete period of time. Because we know once people have been with us for six or nine months, they're sort of stable in the program and they like the program and they stay. It's during that first six months or so they're getting comfortable with the PACE program, getting used to how to use it in a slightly different set of expectations versus they had before. That's the period that we really need to focus on. And today, we've got roughly probably 10% to 12% of voluntary disenrollments over the course of the year. If we can bring that down a couple of points through a bunch of these initiatives, it's very beneficial to the health of the organization.

Perfect. Once again, I appreciate all the detail, and I'll go ahead and leave it there and hop back in queue.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.