InnovAge Q3 Earnings Call Highlights

Key Points

• InnovAge reported Q3 revenue of $251.9 million (up 15.5%) with adjusted EBITDA of $30.5 million and a center-level contribution margin of $61 million (24.2% of revenue), and it raised fiscal 2026 guidance to Revenue $950–$975M and Adjusted EBITDA $85–$90M.
• Despite margin improvement, net loss widened to $29.9 million as corporate G&A jumped 98.3% largely from increased litigation liability; the company ended the quarter with $95.5 million cash, $43.1 million short-term investments and $69.4 million total debt, while de novo losses fell to $1.8 million.
• Management cautioned fiscal 2027 visibility is limited, noting Medicare rates may rise only ~1.5%–2% and Medicaid increases could be smaller—creating potential top-line pressure—while planning to reinvest in clinical teams, pilot AI tools, and pursue acquisitions/JVs to drive growth without sacrificing margin.

InnovAge NASDAQ: INNV reported fiscal third-quarter 2026 results that management said reflected “stronger operating execution” and the benefits of investments made to strengthen its platform. The company, which operates Programs of All-Inclusive Care for the Elderly (PACE) centers, posted approximately $252 million in total revenue, a center-level contribution margin of $61 million, and adjusted EBITDA of $30 million for the quarter, according to CEO Patrick Blair.

Quarterly results and updated fiscal 2026 outlook

CFO Ben Adams said InnovAge served approximately 8,050 participants across 20 centers in six states as of March 31, 2026, representing 6.9% growth versus the prior-year period and 0.5% sequential growth. Member months totaled 24,060, up 6.7% year-over-year and 0.4% sequentially, which Adams attributed in part to “normal seasonal growth resulting from the Medicare Advantage open enrollment period.”

Total revenue was $251.9 million, up 15.5% from $218.1 million in the fiscal third quarter of 2025, driven by higher capitation rates and growth in member months. Adams said capitation rates benefited from annual Medicaid and Medicare rate increases and “a lower revenue reserve,” while enrollment expansion occurred across California, Colorado, and Florida centers. Sequentially, revenue rose 5.1%, “primarily due to higher capitation rates” from annual rate updates in California and Medicare effective Jan. 1, 2026.

On profitability, Adams reported center-level contribution margin of $61 million, compared with $40.7 million a year earlier. As a percentage of revenue, center-level contribution margin was 24.2%, up about 550 basis points year-over-year and up 220 basis points sequentially.

InnovAge raised its fiscal 2026 guidance for revenue and adjusted EBITDA for a second time, citing year-to-date performance. Blair said the company now expects:

• Revenue of $950 million to $975 million
• Adjusted EBITDA of $85 million to $90 million

Adams added that other full-year guidance items were unchanged, including ending census of 7,900 to 8,100 participants and de novo losses of $11.5 million to $13.5 million.

Cost trends, de novo centers, and litigation impact

Adams said external provider costs were $113.2 million, up 5% year-over-year. The increase was driven by member-month growth, “partially offset by a reduction in cost per participant.” He attributed the lower cost per participant to reduced permanent nursing facility utilization and lower pharmacy expense following a transition to in-house pharmacy services, partially offset by rate increases for assisted living and nursing facility services and higher assisted living utilization. Sequentially, external provider costs increased 1.1% due to modest membership growth and a slight increase in cost per participant tied to seasonal inpatient admissions.

Cost of care excluding depreciation and amortization was $77.7 million, up 11.8% year-over-year, reflecting member-month growth and higher cost per participant. Adams cited higher salaries, wages, and benefits due to higher wage rates (partially offset by reduced headcount), higher third-party fees and shipping costs associated with in-house pharmacy services, and higher contract services and fleet costs, including contract transportation. Sequentially, cost of care rose 3.7%, driven by the annual reset of employee benefits and payroll taxes and higher consulting expense, partially offset by lower contract transportation.

Sales and marketing expense was approximately $8.7 million, up 26.3% year-over-year due to higher wage rates and increased marketing spend to support growth. Corporate general and administrative expense was $76.5 million, up 98.3% from the prior-year period, which Adams said was “primarily driven by an increase in litigation liability.”

Net loss was $29.9 million, compared with a net loss of $11.1 million in the year-ago quarter. The company reported a net loss of $0.22 per share on a weighted-average share count of approximately 135.7 million shares on a fully diluted basis.

Adjusted EBITDA was $30.5 million, up from $10.8 million in the prior-year quarter and $22.2 million in the fiscal second quarter of 2026. Adjusted EBITDA margin was 12.1%, compared with 4.9% in the year-ago quarter and 9.2% sequentially.

Adams said InnovAge does not add back de novo center losses in adjusted EBITDA. De novo losses were $1.8 million in the quarter, “primarily related to our Orlando, Florida center,” compared with $3.5 million in the prior-year quarter and $4.7 million in the fiscal second quarter of 2026.

Balance sheet and cash flow

InnovAge ended the quarter with $95.5 million in cash and cash equivalents and $43.1 million in short-term investments, Adams said. Total debt was $69.4 million, consisting of borrowings under a senior secured term loan, revolving credit facility, and finance leases.

The company recorded $18.1 million of positive cash flow from operations in the quarter and reported capital expenditures of $3.6 million.

Early view of fiscal 2027 rate environment

Management repeatedly emphasized that fiscal 2027 visibility is still developing, with more detailed commentary expected on the fourth-quarter and full-year call in early September. Still, Blair provided an early perspective on Medicare and Medicaid dynamics.

On Medicare, Blair said the final 2027 rate notice was more favorable than initially proposed, particularly for Medicare Advantage plans, aided by deferred changes to the V28 risk model transition. However, he said the benefit is “more limited” for PACE due to different rate-setting and transition timelines. As a result, InnovAge expects Medicare rates to increase “approximately 1.5% to 2%” in fiscal 2027, which Blair described as more modest than what Medicare Advantage plans may experience.

On Medicaid, Blair said the company is seeing “early indications” of increasing state budget pressures, but characterized the environment as “normal cycle variability, not a change in the underlying economics of the model.” Adams echoed that view, noting that early signals suggest fiscal 2027 Medicaid rate increases “may be lower than what we have experienced historically,” which, combined with a more modest Medicare rate environment, “could create top-line pressure in fiscal 2027.” Both executives said they view the dynamic as near-term rather than structural.

In response to a KeyBanc question about the durability of the quarter’s revenue upside, management pointed to favorable Medicaid rates and improved Medicare risk scores that began in January and “rolled through the second half of the year,” with California cited as an important driver of the Jan. 1 rate change. Management said improvements in risk scores should be durable absent major enrollment mix changes, while also cautioning they can fluctuate over time.

Strategy: reinvestment, AI pilots, and growth options

Blair described improving financial performance as “an enabler, not an endpoint,” saying InnovAge plans to reinvest in clinical teams, its interdisciplinary model, technology, and quality measurement. He said the company is also investing in growth, including new Florida centers that are “still maturing from an operations and financial perspective.”

Blair highlighted early and “closely monitored” AI applications intended to improve care coordination and participant experience, with clinical AI work led by Dr. Paul Taheri. He said the company is piloting tools to synthesize participant records for care planning and to identify potential risks such as medication interactions or avoidable acute events. InnovAge is also applying AI to operational functions including scheduling, transportation, and care coordination, with Blair citing “structural inefficiencies” that can lead to cancellations, unused capacity, and administrative burden.

On growth strategy, Blair told analysts the company is beginning to evaluate a broader set of alternatives—including acquisitions, joint ventures, partnerships, and participation in new programs and demonstration models—alongside efforts to fill existing centers and expand sales capabilities. He cited a prior acquisition in California about 18 months earlier as an example that showed InnovAge can “bolt on smaller PACE programs” and potentially achieve a “de-risk de novo” profile versus starting from scratch.

Asked how InnovAge might balance growth versus profitability in a potentially tighter rate year, Adams said the company believes investing “very heavily in quality” and participant experience can drive both growth and financial outcomes. Blair added that InnovAge is continuing to test and refine its sales and marketing model, explore new channels and partnerships, and reduce disenrollment by understanding why participants leave. He said that after achieving margin progress faster than anticipated, the company’s priority is “investing in growth while maintaining a consistent margin,” rather than emphasizing further margin expansion.

About InnovAge NASDAQ: INNV

InnovAge Holdings, Inc NASDAQ: INNV is a healthcare services company that specializes in caring for seniors through the Program of All-Inclusive Care for the Elderly (PACE). Designed for individuals who are eligible for both Medicare and Medicaid, the PACE model integrates medical care, social services and long-term care—delivered primarily in participants' homes and community-based centers. InnovAge's approach centers on interdisciplinary care teams that coordinate everything from primary and specialty medical services to nutritional counseling and recreational activities.

The company's core offerings include comprehensive in-home assessments, physician and nursing services, physical and occupational therapy, prescription medication management, and transportation to medical appointments.

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