InnovAge Holding Corp. (INNV) Q2 2026 Earnings Call Transcript
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Overview
The earnings call reveals strong financial performance, with substantial revenue growth, improved EBITDA, and a positive net income shift. Despite some challenges, such as Q3 seasonal pressures, guidance remains optimistic with strong census growth and cost management. The Q&A highlights effective internal processes and a proactive approach to Medicaid coverage. However, management's vague responses on certain metrics and the seasonal Q3 impact temper the outlook slightly. Overall, the sentiment is positive, driven by robust financials and strategic improvements, suggesting a stock price increase in the 2% to 8% range.
Key Financial Performance
Total Revenues $239.7 million, a 14.7% increase year-over-year from $209 million in Q2 FY2025. This growth was driven by an increase in member months and capitation rates, primarily due to growth in California, Florida, and Colorado centers, and annual increases in Medicaid and Medicare capitation rates.
Adjusted EBITDA $22.2 million, a significant increase from $5.9 million in Q2 FY2025. This improvement reflects better operational efficiency, cost management, and revenue growth.
Net Income $11.8 million, compared to a net loss of $13.5 million in Q2 FY2025. This turnaround was driven by revenue growth, cost management, and operational improvements.
Center-Level Contribution Margin $52.8 million, up from $37.1 million in Q2 FY2025. As a percentage of revenue, it increased to 22% from 17.7%, reflecting improved operational efficiency and cost management.
External Provider Costs $112 million, a 3.8% increase year-over-year. This was driven by an increase in member months, partially offset by a decrease in cost per participant due to reduced permanent nursing facility utilization and lower pharmacy expenses from in-house pharmacy services.
Cost of Care (Excluding Depreciation and Amortization) $74.9 million, a 16.9% increase year-over-year. This was due to higher wage rates, costs associated with organizational restructuring, and increased member months.
Sales and Marketing Expenses $8.1 million, a 4.9% increase year-over-year, driven by higher wage rates.
Corporate, General, and Administrative Expenses $26.6 million, a 5.3% decrease year-over-year, primarily due to reduced legal and consulting fees.
Census Growth 7.1% year-over-year growth in participants served, reaching approximately 8,010 participants as of December 31, 2025. This growth was driven by reinstating participants who had previously lost Medicaid coverage.
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Operating Highlights
Pharmacy In-sourcing: Stabilized pharmacy in-sourcing, positioned to pursue opportunities in pharmacy distribution, utilization management, and care coordination.
AI in Care Delivery: Exploring advanced analytics and AI for scheduling and transportation to optimize center productivity and care delivery.
Census Growth: Served approximately 8,010 participants across 20 centers as of December 31, 2025, representing a 7.1% growth compared to the previous year.
Revenue Growth: Total revenues increased by 14.7% to $239.7 million compared to the same quarter in the previous year, driven by member month growth and capitation rate increases.
Revenue Integrity: Improved Medicaid eligibility and redeterminations through investments in people, workflows, data, and technology.
Medical Cost Management: Achieved strong cost management by focusing on inpatient and skilled nursing utilization, care coordination, and appropriate site of care decisions.
Operational Efficiency: Enhanced staffing models, scheduling, and throughput while maintaining quality and participant experience.
Governance Evolution: Tom Scully returned as Chairman of the Board, and new board members joined to strengthen oversight and alignment.
Participant Experience: Focused on defining end-to-end participant experience to drive satisfaction, engagement, and retention.
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Risk or Challenges
Medicaid eligibility and redeterminations: Challenges in Medicaid eligibility and redeterminations led to elevated revenue reserves and write-offs in the past. Although progress has been made, further work is required to improve timeliness, accuracy, and coverage reinstatement.
Medicare Advantage policy changes: Changes to Medicare Advantage policy, including risk adjustment and payment mechanics, could impact the PACE program, creating financial uncertainties.
Cost pressures in healthcare: The company faces challenges in managing medical costs, particularly in inpatient and skilled nursing utilization, despite current progress in cost management.
Organizational restructuring costs: Higher wage rates and costs associated with organizational restructuring have increased operational expenses, although headcount reductions have partially offset these costs.
De novo center losses: New centers, particularly in Tampa and Orlando, are incurring losses during their initial ramp-up phase, impacting overall financial performance.
Regulatory compliance: Operating in a highly regulated environment requires ongoing compliance efforts, which could pose risks if not managed effectively.
Pharmacy transition: The transition to in-house pharmacy services has led to higher third-party fees and shipping costs, creating short-term financial pressures.
Advanced analytics and AI implementation: Efforts to implement advanced analytics and AI in scheduling and transportation are in early stages, with potential risks in execution and realization of expected benefits.
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Guidance & Outlook
Fiscal Year 2026 Guidance: InnovAge has raised its full-year fiscal 2026 guidance. The company now expects member months between 92,900 and 95,700, total revenue between $925 million and $950 million, and adjusted EBITDA between $70 million and $75 million.
Medicaid and Medicare Rates: Medicaid rates for fiscal year 2026 are higher than originally estimated. Medicare risk scores were less affected than anticipated due to the phased-in implementation of risk adjustment model version 28 effective January 1.
Operational and Clinical Value Initiatives: InnovAge continues to implement operational and clinical value initiatives aimed at improving participant experience, quality, compliance, efficiency, and revenue. These include enhancing participant retention, optimizing center productivity, and leveraging advanced analytics and AI for scheduling and transportation.
De Novo Center Losses: De novo losses for fiscal year 2026 are anticipated to be in the range of $11.5 million to $13.5 million.
Medicare Advantage Rates Impact: PACE is subject to the same core Medicare payment mechanics as Medicare Advantage. CMS has proposed a blended risk score for calendar year 2027 using 50% of the 2017 CMS HCC model and 50% of the proposed 2027 model, accelerating the transition timeline.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you explain the variables affecting the back half EBITDA margin progression and how you foresee margin progression for the rest of the year?
A:The third quarter is typically soft due to slower enrollment gains during the open enrollment period and the flu season, which has been particularly bad this year. The flu vaccine was only partially effective, leading to higher flu incidence. These factors may add pressure in Q3, but a return to normalized Q4 growth is expected. Additionally, progress on Medicaid redeterminations has been better than expected, but it remains a work in progress.
Q:How does the shift in V28 impact raw risk scores and subsequent RASS scoring for members?
A:The company shares similarities with the Medicare rate adjustment model but has structural differences, such as only 45% of its premium being Medicare and a phased-in V28 model. The frailty adjustment captures functional disabilities not reflected in diagnoses, providing opportunities. The impact has been factored into guidance for the next two quarters.
Q:What contributed to the stronger-than-expected census growth, and where are you seeing more success?
A:Success is attributed to improved internal processes, such as a rigorous patient accounting system and better workflow management. The company also reestablished Medicaid coverage for many participants earlier than expected, providing an enrollment cushion. However, caution is advised due to state-level resource challenges.
Q:How does the reduction in revenue write-offs influence financials, and is there any onetime pickup?
A:The company has implemented a rigorous process for revenue write-offs using a new patient accounting system built in Salesforce. This allows for more precise monthly revenue reserves. While the process has improved, it is too early to draw conclusions about being ahead in revenue reserves.
Q:What specific areas within the patient journey could be most impactful for participant experience and retention?
A:Key areas include aligning onboarding experiences with participant expectations, addressing grievances effectively, and improving service recovery. The company aims to create a consistent experience across all centers and use data to identify opportunities for improvement.
Q:How does improved retention and patient experience influence MLR and financial outcomes?
A:Improved retention can lead to better MLR as patient cohorts mature over time. The company is analyzing participant cohorts to understand their needs and financial contributions. Reducing voluntary disenrollments, particularly in the first six months, is a focus area to enhance organizational health.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numerical details on the magnitude of revenue write-off reductions and the exact financial impact of improved retention and patient experience. They also used general language when discussing the potential benefits of participant experience initiatives and the impact of V28 changes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Advantage rate
CMS
Chairman
InnovAge today
Instructions
Medicare Medicaid
PACE model
accountability
approach
calendar
care coordination
care delivery
challenge
change
commitment
conference
confidence
consistency
context
decision making
engagement
evidence
experience
focus
governance phase
government partner
outcome
oversight
participant government
platform
position
practice
quality compliance
rate environment
regulator
result progress
retention
scheduling
setting
strength
structure
utilization care
variability
INNV Transcript
InnovAge Holding Corp. (INNV) Q2 2026 Earnings Call Transcript
Positive2-3
The earnings call reveals strong financial performance, with substantial revenue growth, improved EBITDA, and a positive net income shift. Despite some challenges, such as Q3 seasonal pressures, guidance remains optimistic with strong census growth and cost management. The Q&A highlights effective internal processes and a proactive approach to Medicaid coverage. However, management's vague responses on certain metrics and the seasonal Q3 impact temper the outlook slightly. Overall, the sentiment is positive, driven by robust financials and strategic improvements, suggesting a stock price increase in the 2% to 8% range.
InnovAge Holding Corp. (INNV) Presents at 44th Annual J.P. Morgan Healthcare Conference Transcript
Neutral1-12
InnovAge Holding Corp. (INNV) Q1 2026 Earnings Call Transcript
Positive11-4
The earnings call presented strong financial results with a 15% revenue increase and a significant improvement in adjusted EBITDA. Despite challenges like higher costs and regulatory risks, the company achieved its first positive net income since 2021. The Q&A highlighted confidence in guidance and effective cost management, though some responses lacked clarity. Overall, the optimistic financial performance and strategic focus on operational efficiency suggest a positive stock price movement in the near term.
InnovAge Holding Corp. (INNV) Q4 2025 Earnings Call Transcript
Unknown9-9
Despite strong census growth and improved EBITDA margins, the increase in net loss and higher operational costs, along with uncertainties around B-28 and Medicaid redeterminations, create a mixed outlook. The positive aspects, such as partnerships and automation efforts, are counterbalanced by these challenges, leading to a neutral sentiment.
INNV Report
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