What InnovAge (INNV) Said on Its Q1 Earnings Call

Key Points

• Strong quarterly growth: Fiscal Q1 2027 revenue rose 12.1% year over year to $264.8 million, net income increased to $20.9 million, and adjusted EBITDA reached $31.3 million. Participant census grew 6.7% to 8,420.
• Margins improved as some care costs eased: Center-level contribution margin expanded to 24% of revenue from 21.8%, supported by lower per-participant assisted-living, nursing-facility and pharmacy costs. InnovAge is investing in provider networks, in-house specialists, technology and analytics to support care and efficiency.
• Full-year guidance reaffirmed: The company expects fiscal 2027 revenue of $1.05 billion to $1.085 billion and adjusted EBITDA of $105 million to $115 million. Management also expects Medicare rates to rise 1.5% to 2% from Jan. 1, including the anticipated V28 model transition.

InnovAge NASDAQ: INNV reported fiscal first-quarter 2027 revenue of $264.8 million, up 12.1% from a year earlier, as participant growth and higher capitation rates contributed to gains. The company also posted net income of $20.9 million, compared with $7.7 million in the prior-year quarter, while adjusted EBITDA rose to $31.3 million from $17.6 million.

Chief Executive Officer Patrick Blair said the company’s ending census reached 8,420 participants as of Sept. 30, an increase of 6.7% year over year. InnovAge served participants across 20 centers and recorded 25,070 member months during the quarter, also up 6.7%.

“What is particularly encouraging is that the census and profitability are both growing, and that is the combination we want,” Blair said. He said the company’s results reflected prior investments in clinical operations, technology, compliance infrastructure and management systems, as well as operational discipline around care costs.

Margins Expand as External Costs Moderate

InnovAge’s center-level contribution margin increased to $63.6 million, or 24% of revenue, from $51.4 million, or 21.8% of revenue, in the prior-year period. The margin expansion represented an increase of roughly 230 basis points.

External provider costs rose 6.3% to $115.7 million, a slower pace than revenue growth. Chief Financial Officer Ben Adams said the increase was driven by additional member months but partly offset by lower cost per participant. The lower per-participant cost reflected decreased assisted-living and permanent nursing-facility utilization, along with lower pharmacy expense. Those improvements were partly offset by higher inpatient utilization and higher assisted-living and nursing-facility unit costs.

Cost of care, excluding depreciation and amortization, rose 12.7% to $85.5 million. Adams attributed the increase to growth in member months and higher cost per participant, including higher salaries, wages and benefits, restructuring costs, pharmacy-related third-party fees, contract services and fleet costs, including contract transportation.

During the question-and-answer session, Blair said the company’s efforts to improve networks and deepen engagement with external providers have helped reduce assisted-living and nursing-facility costs. InnovAge has invested in providers in certain markets to round at facilities, he said, while also expanding access to after-hours nursing support.

Blair also cited efforts to bring certain specialists in-house. In San Bernardino, for example, InnovAge has brought a cardiologist into a center for several days a week, he said. The approach is intended to help care teams intervene earlier and potentially avoid hospital visits and subsequent skilled-nursing or long-term-care stays.

InnovAge 3.0 Focuses on Scale, Technology and Growth

Blair said InnovAge is advancing what it calls “InnovAge 3.0,” an initiative focused on developing the leadership, infrastructure and capabilities needed to support longer-term growth. Priorities include expanded use of Epic, data and analytics to support care teams and productivity, as well as improved participant onboarding, referral relationships, revenue accounting and eligibility operations.

The company is also in the early stages of assessing artificial intelligence applications that could assist clinicians with decision-making and reduce administrative workloads. Blair said the company will pursue AI tools only where it believes they can improve care quality and lower costs.

While growing census within existing centers remains InnovAge’s primary focus, Blair said the company is spending more time evaluating partnerships, acquisitions, adjacent care opportunities and new PACE centers. He emphasized that InnovAge intends to be selective and will require potential opportunities to meet its quality, operating-model and return standards.

Blair said the company sees possible opportunities to apply its coordinated PACE care model to people who are not yet eligible for PACE, as well as opportunities involving managed-care organizations serving members through Medicare and Medicaid managed long-term-care programs. However, he said InnovAge had no specific transactions or market expansions to announce.

Company Addresses V28 Reimbursement Transition

Management also discussed the transition to the V28 Medicare risk-adjustment model. Blair said the change has created reimbursement pressure for Medicare Advantage plans but said InnovAge’s PACE population differs because all participants meet state nursing-home-level-of-care criteria and generally have more medically complex conditions and functional limitations.

According to Blair, the company’s participant population includes high-severity conditions such as congestive heart failure, chronic obstructive pulmonary disease and end-stage renal disease, which have largely remained recognized under the revised model. He said the mix of diagnoses matters more than the number of diagnoses, while accurate encounter-data submission is also important.

Adams said InnovAge continues to expect a 1.5% to 2% increase in Medicare rates effective Jan. 1, a forecast that includes the expected effect of the V28 phase-in. Medicare represented 45% of company revenue, Adams said during the call.

The company expects the V28 blend to shift from 90% V22 and 10% V28 to a 50-50 blend during the fiscal third quarter. Adams noted that the company’s business has seasonal dynamics, with the first quarter historically among its strongest periods and subsequent quarters affected by rate updates, risk-score changes, respiratory illness, annual wage increases and payroll-tax resets.

Full-Year Outlook Reaffirmed

InnovAge reaffirmed its fiscal 2027 guidance, projecting:

• Ending census of 8,625 to 8,850 participants;
• Member months of 101,000 to 102,500;
• Revenue of $1.05 billion to $1.085 billion;
• Adjusted EBITDA of $105 million to $115 million; and
• De novo center losses of $0.4 million to $0.8 million.

The company ended the quarter with $119.3 million in cash and cash equivalents, $43.7 million in short-term investments and $61.4 million of total debt. Operating cash flow was $28.7 million during the quarter, while capital expenditures totaled $3 million.

InnovAge also recently completed a secondary offering involving 11.5 million shares sold by affiliated shareholders controlled by Welsh, Carson, and Apax. The company did not issue new shares or receive proceeds from the transaction. Blair said the offering increased public float and trading liquidity while creating opportunities to introduce the company and the PACE model to a broader group of institutional investors.

About InnovAge (NASDAQ:INNV)

InnovAge NASDAQ: INNV is a healthcare services company that provides comprehensive care for older adults through the Program of All-Inclusive Care for the Elderly (PACE). Its model is designed to help eligible seniors remain living in their homes and communities rather than moving to nursing facilities, while coordinating medical, social, and supportive services through an integrated care program.

InnovAge's services may include primary and specialty medical care, nursing, physical and occupational therapy, behavioral health, pharmacy services, dentistry, vision care, meals, transportation, social services, and in-home support.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.