Q3 2021 InnovAge Holding Corp Earnings Call
Yeah.
Good afternoon, and welcome to the earnings call for third quarter of fiscal year 'twenty 'twenty. One my name is Justin and I'll be the facilitator during the call on the call with me today on the range Hewitt, President and Chief Executive Officer of.
One of the age and Barbara.
Chief Financial Officer Bill.
Before I hand, the call over to the marine to make some opening comments I will take you through the legal safe Harbor and cautionary statement.
Certain statements and projections of future results made in the presentation constitute forward looking statements that are based on our current competitive and regulatory expectations are subject to risks and uncertainties that could cause actual results to vary materially.
We will we undertake no obligation to update publicly any forward looking statement. After this presentation, whether as a result of new information future results changes in assumptions or otherwise. Please see our registration statement on form S. One initially filed on February.
During the eighth 2021 for a discussion of risk factors as they relate to forward looking statements and note in particular that these forward looking statements may be affected by risks relating to the spread and impact of COVID-19 pandemic.
In today's presentation, we will use certain non-GAAP financial measures.
The first with you to the appendix in the presentation materials available on our Investor Relations website, a reconciliation to the most directly comparable GAAP financial measures and related information.
Youll find a link to the webcast on our Investor Relations website at H T. T. P S.
Colin but what's the last sports slash investor Dot and obey each dot com slash investors.
Cash flow relationships.
After the call of the presentation and webcast will be archived on the website for 12 months with that I will turn the call over to Marine Hewitt, President and Chief Executive Officer of NIH.
Welcome and thank you all for joining US this afternoon for our first earnings call as a publicly traded company and to discuss our fiscal third quarter, earning results.
Joining me on today's call as Barb Gutierrez, our Chief Financial Officer.
I want to start the call by providing a bit about the innovate story, then I'll provide an update on our operations growth strategy de Novo and development activity and the regulatory environment bar.
Barbara will then provide more details on our financial results and guidance before we open the call for questions.
The age is at the forefront of value based senior health care.
We are a market leader in managing the care of high cost dual eligible seniors.
We call our seniors participants.
Because of they participate in the design and implementation of their own care.
Our participants are among the most frail and medically complex individuals in the country and the high quality care coordination management, we provide enables them change independently in their homes for as long as possible.
We contract directly with Medicare and Medicaid through the program of all inclusive of care for the elderly otherwise known as the pace.
Which is of risk bearing 100% globally capitate the program.
We operate of high touch patient centered care model designed to improve the quality of participant care, while reducing over of utilization of high cost of care settings.
Our care model benefits, our participants their families government payers and providers.
Our model keeps families together, both emotionally and financially while the government saves money as evidenced by the National Pace Association report, which found the cost of pace care was approximately 13% lower than traditional care for a comparable Medicaid population.
As of Q3 fiscal 'twenty, one we have 18 centers in five states, Colorado, New Mexico, California, Virginia, and Pennsylvania, and two more states underdevelopment in Florida and Kentucky.
We grew our member months by 6% on a year over year basis to over 19900 the.
Despite headwinds from COVID-19.
Turning to our fiscal third quarter performance at a high level, we reported a strong quarter as revenue increased 8% year over year to $156 million.
Center level contribution margin improved by 270 basis points over Q3 prior year and adjusted EBITDA grew 15% year over year to $23 million.
The ongoing COVID-19 pandemic impacted our business in the late fiscal year, 'twenty and through Q3 of fiscal year 'twenty one.
So I'll provide a quick update on what we're seeing on that front.
During the quarter, we started to see some normalization at the centers starting to reopen in Colorado, and California, and we are pleased to announce our center of New Mexico has also opened.
As more people get vaccinated and states continue to loosen restrictions, we think we will get closer to normalized trends. However, it's hard to predict when we will be back to full capacity as some things are outside of our control.
That being said, we're working toward a goal of having 90% of our staff and participants vaccinated by the end of July.
We think the COVID-19 vaccine is tremendously important to our staff participants communities and the country as it is critical to turning the corner to the pandemic and restoring the face to face connections that we all need and value.
Shifting to growth our multi pronged strategy consists of organic growth, which is driven by increasing participant enrollment and capacity within existing centers.
Opening de Novo centers, and new and existing markets tuck in acquisitions and reinvesting in the innovation platform to drive greater efficiencies and optimize performance.
Over the last few years. This growth strategy has resulted in meaningful census growth and we have completed a number of tuck in acquisitions increased our geographic footprint to five states and became the largest payer provider in the country based on the number of participants served.
We remain on track to open pace centers over the next 18 months into New States, Florida.
Tampa, and Orlando and Kentucky Louisville.
Which is the new state for pace. We also expect to open two more de novo centers by the beginning of calendar year 2023.
We have good visibility on our pay center expansion into at least three additional states, where we don't have presence today and.
And we are in active discussions with joint venture partners for some of our de novo's.
We also intend to pursue growth enhancing acquisitions of pace centers in large markets with experienced community partners that have established footprints.
As you can see we of a number of irons in the fire, which have the potential to foster some nice growth avenues for innovation for several years to come.
We have built a strong leadership team as I've stated before leadership starts with the vision.
Our team has a strong operational experience, including successfully executing on de novo's acquisitions and turnarounds color.
Culture is very important to us and we are an inclusive organization, which is reflected in our leadership team's commitment to diversity.
Innovation has been named a great place to work for three consecutive years and this is consistent with our low voluntary turnover rate, which is only 20% compared to the long term care industry average turnover, which ranges from 30 to 60 per cent.
We believe in developing our teammates and have created what we call three feet deep succession planning to ensure our team is always trained and ready.
We also continue to add talented experienced members to our team for example, during the quarter, we added Alice Ria as Chief Information Officer, Alice has over 25 years of health care and technology experience, including most recently as vice President of digital experience and.
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Alex brings significant experience and expertise in developing technological strategies to improve customer engagement, while driving meaningful improvements to patient outcomes.
She will lead our strategy and development for data management digital technology integration information technologies and technical transformation.
She's also responsible for data and technology integration across our organization and she'll help modernize and develop technical data digital platforms to enhance patient care to this point, we continue to enhance care provided for participants through technology. For example, we utilized <unk>.
Well today as a complement to our in person visits which allows our providers and other clinicians to spend more time with each participant.
Since the pandemic began we've performed more than 93000 telehealth visits through the end of March and we are actively working on development of of pay specific telehealth platform.
Our clinical operations and technology teams are working closely with of third party to design and deploy the solution. We are excited to roll out the first phase of this new solution later this calendar year.
Before I turn the call over to Barb to review our financial performance I want to provide a quick update on the reimbursement and regulatory environment.
We continue to be well positioned to leverage our skill set from the pace of program to participate and federal demonstration models the.
The center for Medicare and Medicaid innovation or C. M. M. I indicated in early April that they no longer intend to solicit applications from new organizations interested in participating in the direct contracting models for the performance year commencing on January one 'twenty 'twenty two.
However, we do expect new opportunities to be released by the innovation center in the near future.
The work that we've already done to prepare for the direct contracting application can be repurposed for example to explore the possibility of sub contracting arrangements, where innovate manages high needs dual eligible for managed care organizations that are currently at risk for those part.
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As the largest provider of pace based on the number of participants served.
Innovation is encouraged by the pace plus act legislation introduced by Senator Casey.
The need for comprehensive Homebase caregiver in health services for older Americans continues to grow and since the onset of the COVID-19 pandemic. We believe it has become even clearer that pace is one of the most effective care models for frail seniors.
The pace plus act would result in the creation of new pace programs and the expansion of existing ones through federal funds, providing more aging Americans the option of living life on their terms independently and in their own homes for his long and safely.
As possible.
While we don't have specifics on the impact from the American jobs plan. We generally think of it will be positive for innovation and pace. Since there will be a continued focus on the importance and quality of home and community based services like pace.
Which should drive further expansion of the pace model.
We think this should lead to higher provider rates for home and community based services, which would have a direct and indirect positive impact.
Because of this all inclusive model pace would directly benefit from an increase in capitate Medicaid payments since Medicaid rates would increase for home and community based services. The jobs plan also seeks to improve wages and quality of life for essential workers and home and community based.
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To wrap things up we had a strong first quarter as a public company I'm honored to lead this company and I want to thank each and every one of our team members for their dedication and hard work.
They are the Heartbeat and foundation of innovation, and we wouldnt be successful without them, providing the highest quality care to our most frail population.
Now I'll turn the call over to Barb <unk>, who will review our financial performance in more detail and provide our outlook for 2021 barb.
Thank you Murray and thanks to everyone for joining the call today.
Before we open the call to questions I want to provide some highlights from our IPO.
Our fiscal third quarter financial performance, and then provide our fiscal 2021 guidance.
First we completed our initial public offering on March 8th 'twenty, 'twenty, one where we raised gross proceeds of approximately $399 million.
Through our offering of almost 19 million shares at $21 per share, which was at the high end of the Upsized price range.
We used the net proceeds from the offering combined with our new credit facility to repay our term loans and to fund a $20 million earn out arrangement related to the August 2018 acquisition of the.
Cortland life program in Pennsylvania the.
The remainder of the proceeds will be used for general corporate purposes.
Working capital and capital expenditures moving on to our fiscal third quarter financial performance, we produced strong financial results and our initial quarter as a public company.
We ended fiscal Q3 with 18 centers in a census of 6655.
Compared to Q3 in the prior year ending census increased by 5%.
Member months for the quarter of 19958 were 6% higher than the prior year.
As a result of the second wave of COVID-19 in late 2020 census growth was adversely impacted due to an increase of mortality among existing participants and a temporary slowing of new participant referrals.
By the end of the third quarter referrals return to the level of experienced prior to the second wave of COVID-19.
And we have seen early indications that growth enrollments are in excess of pre second wave level.
Our revenue of $156 $3 million grew 8% year over year due to census growth annual rate increases and the delay of sequestration.
External provider cost of $75 $4 million were 6% higher than prior year due primarily to census growth mentioned previously.
Sales and marketing expense was $5 $6 million during the quarter, representing an increase of 21% year over year due to an increase in head count to support enrollment growth as well as a shift in the timing of marketing spend to the latter part of FY 'twenty one.
General and administrative expense was $18 $6 million on the third quarter, an increase of 33% year over year, primarily due to increases in head count to support organizational growth.
Costs associated with being a public company and transaction costs associated with the IPO net loss for the quarter was negative $10 $9 million compared to prior year fiscal quarter net income of 8.0 of million dollars.
The loss was expected and relates to the $20 million earn out payment mentioned previously.
Coupled with a $13.5 million loss on extinguishment of debt both incurred as a result of our initial public offering.
These losses were partially offset by a tax benefit related to the earn out payment and a gain of $10 $9 million as a result of an increase in fair value from the consolidation of our Sacramento, California of joint venture.
During the quarter, we increased our investment in our Sacramento, California of joint venture and we are now consolidating the results of the Sacramento Center for this JV GAAP earnings per share for fiscal Q3 was a loss of nine cents using a weighted average basic and diluted share count.
Of 121 million 324980 shares.
We expect our fully diluted share count to be 135 million 516513 shares.
At the end of fiscal 'twenty, one, reflecting the timing of our March of IPO, adjusted EBITDA, which we calculate by adding interest taxes, depreciation and amortization, one time adjustments for transaction and offering related costs and other nonrecurring or exceptional costs.
Net income was $23 million for the quarter.
Adjusted EBITDA for the quarter grew 15% over the prior year.
We did not add back any losses incurred with our de Novo centers in the calculation of adjusted EBITDA.
De Novo center losses.
Which we define as net losses related to the Preopening of startup ramp for our de Novo's two the first 24 months of operations.
We're approximately 300000 for our Sacramento Centre in California, and our Penny Pack Center in Philadelphia for the third quarter period.
Adjusted EBITDA margin for the quarter increased to 13% as compared to 12% in Q3 of the prior year turning to our balance sheet. We ended the quarter with $201.5 million in cash and cash equivalents and had $82 $8 million in debt representing <unk>.
Debt under our senior secured term loan plus capital leases.
And the secured net leverage ratio of 0.75 times as calculated pursuant to our credit agreement for.
For the nine months ending March 31, 2021 we had $14 $7 million of capital expenditures turning to guidance for fiscal year 'twenty 'twenty. One we will end the year with 18 centers and we expect our ending census to be between 6000 806900 and our <unk>.
Member months to be between 79070 9500.
We are forecasting fiscal Q4 revenues in the range of $160 million to $162 million and adjusted EBITDA in the range of $17 million to $19 million.
When combining the actual results through Q3 as of Q4 forecast, we expect revenues in the range of $626 million to $628 million and adjusted EBITDA in the range of $83 million to $85 million for the full fiscal year.
Again, and estimating adjusted EBITDA for future periods.
We did not add back any expected losses associated with our de Novo centers.
The novo losses for fiscal 2021 are expected to be approximately $2 million.
That concludes our prepared comments operator, we'll now open the call to questions.
And thank you as a reminder to ask the question you'll need the press star one on your telephone to draw. Your question press the pound key please standby, while we compile the Q&A roster and once again that is star one if you'd like to ask a question in the first question comes from Jamie Pierce from Goldman Sachs. Your line is now open.
Yeah.
Hey, good afternoon, and congrats on getting out of a let me just start with a couple of quick on them on the quarter on the.
The first on the per member per month rate that you guys realized the little bit below what I had modeled in the low prior trends, maybe you could just bridge either quarter over quarter of year over year anything that might have impacted that and maybe more importantly, your outlook on that group of crude here.
Yeah.
Hi, Jamie it's barb. Thanks for the question. So so likely that's really just a factor of mix.
It would just be likely of factor of mix amongst the various centers that have different rates.
Okay.
I'll move to the EBITDA margin I think around 13% on the corner can can you just talk to how much you're benefiting on the EBITDA line from the some of the centers being closed and how we should think about that returning to a more normalized level as you get through the reopening process.
Sure.
So as we indicated in our in our release that our centers.
Central level of contribution margin for the quarter.
<unk> was 26.5 per cent and so that was up quarter over quarter on the increase there.
In the range of one to two per cent.
It really relates to the fact that our centers were either partially closed or completely closed of the centers opened in various phases throughout the quarter.
And so that that would be the the dropped the EBITDA.
Okay, Great and then one more just forward looking question I know, we're a little early here, but you're coming up on the end of your fiscal year.
Any early comments on on how we should think about the census growth next year net net next fiscal year any key rate changes, we should be thinking about the you mentioned in the in the release in the prepared remarks on the the impact on on incentives from the.
Temporary slowing of the referrals and mortality.
I presume those will be behind you.
Pretty soon if not already.
So how should we think about the expenses.
Figure kind of accelerating as we give you on COVID-19.
Sure. So in the prepared comments, we did we did comment that we have seen.
An uptick in the referral to the pre second wave levels and we're seeing some early indications as well as it relates to growth enrollment of those were in those prepared comments.
Little too early to give the guidance for FY 'twenty two at this point, but we'll just tie back to the comments that we did make after this quarter.
Okay. Thank you.
Sales in Q.
And our next question comes from Chris Pneumonitis from Piper Sandler.
Line is now open.
Hey, guys congrats on getting the first public quarter out there and one of the pick up a little bit on Jamie's question around margin. So I'm just wondering specifically.
Just with your growth in telehealth.
North of the commitments out of ramping on the efficiency initiatives, where are you seeing some of those savings come from and should we expect any changes to the outlook on cost structure.
Sure Hi, Chris Thanks for calling in and thanks for the the warm regards there.
As it relates to the cost structure of the.
On the savings that we're actually seeing are primarily related to the facility operating cost.
So not as much related to telehealth.
It's a definitely a different delivery modality, but the savings that we're seeing it's really related to the of facility operating costs of.
Which you know as our again as our centers returned back to normal or started opening we will see those costs come back into play as they have been historically.
Yeah.
Got it and then obviously just recognizing the temporary slowing in the new enrollments just hoping you could touch on any highlights around the participant of recruitment relative to.
The more recent enhancements to your digital marketing strategy.
Hi, This is Maureen and yes, I mean digital has been such a positive for this organization and we're starting to see more increases there in the funnel on development. There. So we expect to see continued positive trends in that area as well.
Great and then just lots of for me I'll hop back in the queue just touching on the labor quickly any channel surfing there for you guys keep.
Keep hearing about challenges, obviously with nursing, but wondering if that's impacting you guys in any of your clinical staff and then just one more volume to that would be about the capacity to your clinical especially what that looks like that's something that needs to grow with parts of its been growth or the teams, maybe a little more leverage pool.
So on the first question for health care of health care and staffing around health care in this country. As you probably know is is something that is needs to grow to be able to continue to serve our patients young animals going across I think renovations done an excellent job of.
Really ensuring that we've kept our turnover rates down.
And certainly they've been very successful as compared to other long term AR.
Care organizational results as well so it's for US it's an ability really of recruiting people continuing with a great place to work initiatives. This will be our third year in a row of being able to share to secure that but our recruitment of looking for staff is one oh.
Something is ongoing as it would be for any other health care organization out there and we're going to continue to do that and continue to recruit them. You know extra go on an excellent team members into the organization.
Yeah.
Yeah.
Thank you.
And our next question comes from Steven the I'll quit from Barclays.
Your line is now open.
Kind of thanks, and good afternoon everybody.
Yeah of course, I was just curious to hear more on the progression of EBITDA throughout the fiscal 'twenty. One so far I mean, just using round numbers, the EBITDA was $23 million or so in the fiscal first quarter.
The 22, and a half million of fiscal second quarter, you announced $20 3 million reported today.
The <unk> $17 million to $19 million in fiscal <unk> and with all the moving parts, perhaps you could just provide your own view on how much of the sequential trend is driven by expense trends versus the topline trends.
Just about any seasonality within the bureau of the.
The business as well.
Sure I think his farm.
So for Q1 and Q2.
We saw some we had some leverage there because of our centers of we're not open. So we did have some of some leverage there in terms of some of our facility operating costs.
And then in Q3, we had some of that in our centers started to open. So we started seeing some of those costs come back starting.
Starting in Q3 is when we had the census challenges that we mentioned earlier and so so again into Q4.
Indicators that we've seen some recovery initially from on those growth enrollments as it relates to the census, and those costs facility costs will be will go back into line. One of those centers are open. So I I think if I could summarize it I would say that our fiscal year Q1, and Q2 were on.
On the definitely on the higher side of the entire year.
And in contrast, when you compare fiscal one fiscal Q1 and Q2 of the prior year and that comparison fiscal Q2 of the prior year was actually one of our lower EBITDA.
EBITDA quarters.
Primarily due to some seasonality related to participant expenses. So I guess I you know again in summary, the next fiscal year.
Full year of Q1 in Q2 were actually some of our higher quarters than we've seen and we think in Q3 and Q4 are returning to more normal levels.
Okay, Yeah, because of fiscal fourth quarter interest based on the guidance would that would be the highest revenue quarter of the year, but the lowest EBITDA. The sounds like that just be on return of medical costs more than anything else just the kind of give a summary of accurate way to think about that.
Okay, Yeah the medical.
On the return of medical costs, as well and sales facility operating costs.
Got it okay alright. Thanks.
Thank you and again, ladies and gentlemen that of star one if you'd like to ask the question again, if you'd like to ask the question that the star one and our next question comes from Ralph Giacobbe from Citi. Your line is now open.
The expansion.
I wanted to go back to sensus.
To get on understanding you know at this point can you just give us a sense of it.
Is it sort of above the ending three Q number or has it built up closer to the yearend targeting maybe just remind us of the visibility there of that range.
Sure sure Ralph So we gave the guidance for the quarter.
For that that census, the ending census, there to be between 6800 6900. So we ended this quarter of fiscal Q3, and 6000 and 655.
So I think that hopefully gives you a sense of where we think we will end up from the end of this quarter to the end of the fourth quarter.
Yeah.
Understood I guess I'm, just trying to get a sense of the visibility of.
I know that's obviously the guidance just give us a little bit of a sense given sort of some of the commentary on sort of the gross new adds post quarter I guess I was hoping to get a little bit of of the understanding of sort of that the bridge and how close you on or to that to that number just given the sensors a little bit softer.
I think in the in the fiscal third quarter.
Yes, sure it without giving you the specific numbers yet just because they are embedded in the Q4 numbers. We do have visibility for April and May already. So that's why I guess, we feel we feel confident in that range for that ending sensors, because we already have visibility for April and may.
And then can you just give us a little bit more on how many centers are either fully open or maybe just the general sense of what percentage of activities.
Close to normal if there's any way to sort of aggregate and senior <unk>.
70%, there just any sort of framing of that.
I know you talked mentioned getting 90% of your stamp on committed by July wasn't sure.
That was meant to sort of determine that you're going to get to 90% of your sort of normal business.
The point as well.
Yeah, Hi, this is Maureen and thank you for the question.
We're working really hard we're happy to say, the California, and new Mexico on Colorado are I'm open and we have been working on implementing that in phases and of course of the vaccination arranged are important right that's going to be really important key indicators.
The communities along with the community COVID-19.
The rates as well and you know so we're feeling very confident there and we're also starting to see some improvement on the east coast as well on those community COVID-19 rates are starting finally to come down we're excited to see that and as you as you know our organization has implemented reopening as the.
As we reopened the centers, we're doing them in phases and safely and we coordinate you know.
With the states, we work with the regulatory bodies to ensure that we do this accurately and safely for both of our participants from employees. So we are starting to see it and it's exciting to see it.
Okay. That's helpful and one more if I could squeeze in just as as you reopen.
Are there any type of staffing challenges, even beyond clinical and or maybe greater inflationary pressures that youre seeing the to bring Baxter.
So I you know I will tell you that even during the pandemic, we kept our employees together, we kept our operations together. So we never laid off employees, we repurposed employees. So its great to see them back to work and having the new normal we will call it that.
Going forward and we will continue with our recruitment efforts as we have been and continue to staff at the ratios of which we implement within our organization. So I would I will tell you things are going very positively there.
Okay. Thank you.
Thank you.
And I am showing no further questions I would now like to turn the call back to Marine Hewitt for closing remarks.
Thank you everyone for joining us. This evening, we do appreciate all of your time on your questions and your support we look forward.
To this journey and we will continue.
To do what we set out and what we've told you we will do so thank you very much for this evening.
Thank you very much everyone. Thanks for joining us.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
No.
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