Q4 2021 InnovAge Holding Corp Earnings Call

September 21, 2021

Thank you for standing by and welcome to innovate as fiscal 2021 fourth quarter earnings call. At this time all participants are in a listen only mode. After the speaker presentation that will be a question and answer session to ask a question. During the session you will need to press star one on your Touchtone telephone. Please be advised that today's conference may.

We recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host director of Investor Relations Ryan Kubota.

Thank you operator.

Good afternoon, and thank you all for joining innovators fiscal 2021 fourth quarter earnings call.

With me today are key members of our leadership team.

In Hewitt, President and CEO, Bob this year as CFO.

Today after the market close the issued a press release containing detailed information of our quarterly and annual results you.

You may access the release on our company website.

<unk> Dot com.

For those listening to the rebroadcast of this presentation. We remind you that the remarks made herein are as of today Tuesday September 'twenty, one 2021 and have not been updated subsequent to the initial earnings call.

During this call we will refer to certain non-GAAP measures a reconciliation of these measures with the most directly comparable GAAP measures can be found on our fiscal fourth quarter 2021 press release, which is posted on the Investor Relations section of our website.

During our call, we will be making forward looking statements, including statements related to our growth prospects regulatory and other expectations.

Look on fiscal year 2021.2022.

Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that can cause our actual results to differ materially from our current expectations.

We advise listeners to review the risk factors discussed in our IPO prospectus filed on March two 2021, as well as our upcoming Form 10-K annual report for fiscal year 'twenty one.

That will be filed with the SEC on September 20, <unk> 2021.

After the completion of our prepared remarks.

We will open the call to take your questions.

I will now turn the call over to our President and CEO.

Marine Hewitt.

<unk>.

Thank you Ryan and thank you all for joining US. This afternoon I'm pleased to report that we had a strong finish to our fiscal year ended June 30, 2021.

Let me first provide a brief summary of our performance Barb will provide additional details on our fourth quarter and fiscal year end results as well as an update on our fiscal 2022 outlook in a few minutes.

As of June 32021, innovate served more than 6850 participants this.

This represents a nearly seven 5% increase year over year and it's just over the midpoint of the guidance we provided last quarter.

On our last call all of our innovation centers in the Western and Central regions were open and we expected to open our centers in Pennsylvania, and Virginia. Shortly I'm pleased to say that we are able to open all of our centers to our participants as of July six consistent with the national decline in Covid trends.

We reported strong revenue of approximately 638 million for fiscal year 2021 exceeding the high end of our guidance estimate.

This represents an increase of approximately 12, 5% compared to the previous fiscal year. We also reported a center level contribution margin of 27, 3% or approximately 174 million for fiscal year 2021. This is an increase.

<unk> of nearly $33 million compared to fiscal 2020.

I will now provide an update on our growth strategy. We have sites selected with signed leases for three de Novo centers, one in Louisville, Kentucky, and two centers in Florida, one in Orlando and one in Tampa and all three sites, we are renovating our plans to renovate existing.

Buildings, and we are diligently working through the development process. We currently expect these three centers to open in fiscal year 2023.

However, as with every development there are factors beyond our control that may impact our expected timing. We also continue to evaluate locations for two additional centers and our current plan is to have those operational within the next 24 months.

Regarding acquisitions.

We continue to pursue acquisition opportunities in new markets with experienced community partners, who have established footprints and where the economics make sense we.

We are also continuing to look for joint venture opportunities that provide strong strategic value.

Last month on August 4th we announced an equity investment in jet Doc a telehealth and virtual urgent care app dedicated to connecting users with medical professionals in an effective way.

Following the significant increase in telehealth services that we utilized during the pandemic, we determined that we needed a more pay specific telehealth solution. We are partnering with Jack dock to develop a virtual care and remote patient monitoring platform, specifically for a pace program model.

Innovation, Jack Doc have begun the design and development of a pace specific patient experience focusing on early biometric features that will be included in the final product. We expect the technology will continue to allow innovation clinical and administrative staff to connect with.

Participants and their caregivers for improved continuity of care.

Regarding COVID-19.

Earlier this month, the White house mandated COVID-19 vaccines for all federal workers and employers with more than 100 employees.

Innovation continues to require we're legally permitted that all innovation employees and participants received the COVID-19 vaccine and the less they are entitled to an accommodation based on religious belief disability or other legally protected reasons.

We also continue to apply COVID-19, health and safety protocols in accordance with federal state and local public Health Authority guidance. This includes the requirement that appropriate PPE and symptom screening are in place for our participants in employees I am also pleased to announce that we achieved our goal.

I'm, having 90% of our employees vaccinated and 96% of our employees have at least one dose completed as of last week, 86% of our participants have been vaccinated and we continue to target a 90% goal for our participants as well.

For our centers.

We continue to carefully monitor COVID-19 trends in each of our markets and centers.

Should we experience COVID-19 pressures at our centers that what's caused us to shut them down partially or fully we have the ability to do that we also have the ability to reopen them in a phased approach as pressures are relieved we remain deeply committed to participant safety and have the appropriate protocol.

<unk> necessary should any of our staff or participants test positive for Covid.

Enrollment growth has continued to improve throughout the quarter and has returned to pre COVID-19 levels.

Participants continue to serve as ambassadors for the innovative brand.

Referrals, we receive from our own innovative participants have historically made up approximately 25% census growth.

In addition to participants we continue to make significant strides regarding digital marketing efforts as we realign our marketing strategy to increase our focus on digital channels during the COVID-19 pandemic.

From March 31 to the end of June leads on our web qualifier grew more than 80% and referrals grew nearly 60%.

I now want to discuss new additions to our team employee turnover and staffing as we have received a number of questions about this topic.

As we announced in today's earnings release, we are continuing to build out our leadership team with the addition of three key positions.

Nicole D'amato joined the company as Chief Legal Officer, and corporate Secretary. She oversees legal government affairs information security and compliance.

Nicole brings public company experience in of age most recently as senior Vice President and Chief intellectual property counsel at make Andrews in Forbes and operating a company acquiring divesting and executing strategic long term management of diverse public and private companies.

Ranging from cosmetics to pharmaceuticals.

Emily Tansey joined the company as our new Chief people Officer, Emily spent more than 13 years with Cvs health, while there. She led multiple organizational design and change management initiatives, including transitioning employees to work from home during COVID-19.

<unk>.

Olivia patents joins innovate as our new Chief compliance officer.

She will lead regulatory internal audit the monitoring of policies and procedures and company related staff training programs.

Olivia brings a depth of leadership experience in healthcare compliance, including developing training for CMS and Medicare policies and was most recently the corporate compliance officer for United Health care in Phoenix, Arizona.

As of the end of our fiscal year ended June 30 of 2021, we had approximately 1800 employees. Excluding contractors approximately 1200 of those employees are clinical professionals and interact with our participants.

On a regular basis.

It is no surprise that managing turnover and retention is challenging for all healthcare organizations due to the limited supply of workers and the competitive environment in which we operate.

That being said, we continue to address staffing needs of the business by proactively utilizing strategies to minimize the impact on our business and to sourcing talent that varies by location and position.

We utilized recruitment process outsourcing alongside our internal recruiting team and utilize the locum tenants and temporary help to fill positions on an interim basis.

When included in our total employee count contracted and temporary labor accounts for less than 10% of the overall total workforce companywide.

Regarding retention.

Our operating leaders work with their HR counterparts to foster a work environment that is rewarding both personally and professionally.

We believe we have a unique culture and N of age and for the fourth year in a row innovate has been re certified as a great place to work.

We are a company culture that honors, our participants and staff as individuals and as important contributors to innovate as a whole our team delivers care. It supports each other in a positive work environment I'm extremely proud to work alongside such a capable and committed team and.

<unk> senior care and all of our markets.

I will now provide a brief update on the reimbursement and regulatory environment.

We received an aggregate rate increase of approximately 5% across Colorado, Pennsylvania, and Virginia that became effective on July one of this year. We are still working with the state of new Mexico on finalizing our rates in that market and negotiations with California.

We will not start until the fall for a January one 2022 effective date Barb will provide some additional detail on our rate increases, but I will highlight that we have received a mid single digit rate increase from the state of Colorado specifically.

Which is significant given the recent rate decrease we received last year due to the Covid pandemic.

Regarding the regulatory environment, we continue to see positive federal and state legislative activity at levels, we have not seen in recent memory.

This is a very encouraging sign for pace as interest in the program is at an all time high.

Due to the increased legislative activity and the state interest and pace innovation became a member of the National Pace Association, our NPA as well as the leading age Association. These two organizations are focused on furthering the interest of participants advancing pace and aging.

Related services nationally at the state and local levels, we view our memberships with these two organizations as key additions to our overall legislative efforts when combined with our existing American health insurance plans or a hip and the National Committee for quality assurance.

C. QA memberships. In addition, we are members of several state associations as pace is a community focused program and we will continue to join local organizations as we grow with new states looking to expand pace, we are actively monitoring stinks and local interest and.

This program.

To summarize current federal legislative activity.

Pending three five trillion budget reconciliation package could provide additional funding for pace providers through home and community based services.

And beneficial policy changes that would increase access to pace.

Innovation has been actively advocating for H C. B S funding levels to stay at the 400 billion level set forth in the resolution and for policy provisions such as those set forth in the pace plus act to be included in the final budget.

CMS continues to put its leadership in place under the buy and the administration. They have publicly announced that they expect to unwind. Many of the current demonstration projects operating out of the center for Medicare and Medicaid innovation or CMI, and we'll be looking to launch three to four pilots.

That fit within the administration's mission of health access and equality.

Should CMI select the pace program for one of their pilots. We believe we will be well positioned to participate in the program as we continue to discuss potential opportunities with potential collaborators.

The American Rescue Plan Act provides additional funding to states that are considering adding pace and.

Including a 10% increase to the state federal match to Medicaid for home and community based services as well as the pace program.

We do not expect any new programs to be presented until the fall at the earliest.

But we are closely watching the planned New York has proposed with interest.

They are planning a pilot program that would expand pace to Medicare only beneficiaries in the state for a fee.

Regarding state legislation.

Pending, California Assembly Bill $45.0

Requires pace participants to be exempt from mandatory enrollment and to Medicare managed care plans.

It also requires that pace is presented as an option during metical enrollment periods.

This bill is passed the House Committee and has been referred to appropriations.

California Assembly Bill five Q3 makes the flexibility, but we're allowed during COVID-19 to become permanent.

These include telehealth verbal enrollment agreements and for adult day health care services to be provided in the home.

Yes.

And Michigan pending Senate Bill 203 provides for the establishment of a new pace program in a geographic area that is already being served by an existing pace organization.

Pending the demonstration then an unmet need exists in that area. Among other requirements. This bolus heard before the House Committee in April and is pending committee vote.

Florida House Bill 905 provides the agency for Health care administration with additional authority to manage the pace program. This bill was signed into law by Governor Ron to Santos on June 21, 2021.

I will now provide a brief update on the status of our audits in Sacramento and Colorado.

As a reminder, given the nature of our business and the participants we serve audits are a regular occurrence in our industry, including financial and Medicare part D audits.

We have and continue to work collaboratively with regulators as we seek to constantly improve our processes and outcomes to better serve our participants and their families.

In early May the centers for Medicare and Medicaid services began a routine scheduled audit of our Sacramento Center.

CMS completed their audit field work on May 21, and requested additional information, which we supplied promptly.

This past Friday September 17th we were notified the CMS has determined to freeze new enrollments at our Sacramento Center based on efficiencies detected in the audit.

The deficiencies relate to failures to provide cover services provide accessible and adequate services managed participants medical situations and oversee use of specialists among others.

Freeze will remain in effect until we correct. These deficiencies and we are working on developing a corrective action plan to submit to CMS.

In addition, we have a right to provide a rebuttal and request a hearing.

At this time given how recent the notices we are assessing options and are unable to estimate the duration of the freeze or the final outcome of this process. This.

This freeze is limited to our Sacramento Center and does not extend to our San Bernardino Centre in California for context, there were less than 200 participants that Sacramento as of the beginning of this month, we are committed to quality improvement and comprehensive care coordination at each of our centers.

The pace program in Colorado has been the subject of three audits over the last several months conducted by the state and CMS.

<unk> completed the onsite audit work on July 20 seconds, and we received preliminary findings at that time.

<unk> completed their audit work in Colorado on July eight we.

We anticipate receiving their report in early 2022, we also expect that the state will issue their report around the same time for consistency purposes.

In Colorado, we have not received any direction from CMS or the state of Colorado to freeze or otherwise curtail our program and we have continued to operate our business in a consistent manner throughout the entire audit process. In addition, there have been no immediate corrective actions identified in the preliminary final.

<unk>.

Or to date.

We believe the audit process is important to the integrity of the program and each audit. We undergo is an opportunity for us to improve the pace program improve our services and ultimately the outcome of our participants these.

These audits will continue to make our program better over the long term.

Before I turn the call over to Barb I would like to highlight the certification from the National Committee for quality assurance of 14 of our centers and patient centered medical homes.

We have chosen to pursue this certification to demonstrate our ongoing commitment to quality improvement and comprehensive care coordination I want to thank our entire team and innovate for their hard work tireless effort and dedication to our participants.

Now I will turn the call over to Barbara to review, our financial performance in more detail and provide our outlook for 2020 to barb.

Thank you marine before.

Before we open the call to questions I want to provide some highlights from our fourth quarter and fiscal year end financial performance for 2021.

An update on Medicaid rates for fiscal year, 2022, and then provide our fiscal year 2022 outlook.

With respect to our fourth quarter results and the development due to a decrease in COVID-19 transmission rates during the period I will refer to sequential comparisons to the third quarter in order to provide a more meaningful picture of our performance.

We produced strong financial results in the fourth quarter and ended our fiscal year with 18 centers in.

In a census of just over 6850 participants as of June 32021.

Compared to the prior year. This represents an ending census increase of nearly seven 5%.

Member months for the fiscal year ended June 32021 of over 79400 were 6% higher than the prior year.

During the fourth quarter census growth and referrals continue to improve and return to levels experienced prior to the second wave of Covid.

Which impacted our business primarily in Q3.

We also continued to see indications that gross enrollments were trending above pre COVID-19 levels.

Bolstered by the realignment in our marketing strategy to focus more on digital channels to reach those searching for senior care alternatives.

Revenue grew approximately 12, 5% to $645.0 million for fiscal year 2021, primarily driven by an increase in part C and part D Medicare rates.

The temporary suspension of sequestration and census growth.

Fourth quarter revenue grew by nine 8% to $177.0 million compared to the previous quarter due to adjustments that included $9.0 million of risk adjustment factor rasp true up payments received from CMS.

One $8 million of part D bid reconciliation true up.

And an adjusted estimate of $9.0 million of revenue recorded in the fourth quarter, but related to full year performance.

External provider costs for the full year were $309.3 million 13, 4% higher than the prior year.

And $86.0 million for the fourth quarter, an increase of 12, 9% compared to the fiscal third quarter of 2021.

The year over year increase was due to an increase in cost per participant related to pharmacy expenses in.

Inpatient expenses associated with Covid and outpatient expenses as well as an increase in census.

During the quarter costs continue to normalize as COVID-19 transmission rates improved.

And elevated quarterly external provider costs were primarily due to an increase in cost per participant associated with increased specialist outpatient and housing utilization coupled with census growth.

Our cost of care, excluding depreciation and amortization of $158.0 million was relatively flat year over year, increasing by just 1% due to an increase in census, offset by a decrease in transportation costs and employee compensation costs.

Which were impacted by Covid.

Center level contribution margin, which we define as revenue less external provider costs and cost of care, excluding depreciation and amortization was $175.0 million for the fiscal year ended June 32021.

This is a 238 basis point improvement over the prior year.

For the fiscal fourth quarter, we reported a center level contribution margin of $48 million, an increase of nearly 16% compared to the fiscal third quarter of 2021.

Sales and marketing expense was $24.0 million for the fiscal year ended June 32021, increasing 17% year over year due to an increase in costs associated with new advertising campaigns and head count to support enrollment growth.

For the fourth quarter sales and marketing expense of $16.0 million increased $5.0 million or 41, 3% quarter over quarter.

Primarily due to a shift in the timing of our marketing spend to the back half of fiscal year 2021.

Corporate general and administrative expense was $135.0 million for the fiscal year ended June 32021, an increase of 126% year over year.

The full year increase is primarily related to fees incurred as a result of the apex transaction in July 2020, and the IPO.

In connection with the apex transaction the company recorded $49.0 million related to the cancellation of stock options outstanding under the company's 2016 equity incentive plan.

An additional $14.0 million of transaction related costs.

In connection with the IPO the company recorded $6.0 million of transaction costs.

For the fourth quarter, corporate general and administrative expense increased 42, 1% to $30.0 million.

The increase over the prior quarter was primarily due to additional stock based compensation expense timing of bad debt expense and an increase in the costs associated with being a public company for a full quarter.

Net loss for the fiscal year ended June 32021, with $51.0 million compared to prior fiscal year net income of $33.0 million for.

For the fourth quarter, we reported net income of $9.0 million.

The loss for the fiscal year was expected and is primarily the result of the following.

Costs associated with the apex transaction and IPO.

Expenses related to the extinguishment of debt associated with our amended and restated credit agreement.

Other expenses due primarily to the warrants issued as part of our JV agreement for our Sacramento Center.

And an offsetting gain due to innovate Sacramento, becoming a consolidated entity as of January one 2021.

For fiscal year ended June 30th 2021, we reported an earnings per share loss of 36.

Both basic and diluted.

Our fully diluted share count for the full year was $135 million 516513 shares at the end of fiscal year 2021.

Adjusted EBITDA, which we calculate by adding interest taxes, depreciation and amortization and one time adjustments for our transaction and offering related cost and.

And other nonrecurring or exceptional cost to net income with.

With $88.0 million for the fiscal year ended June 32021.

A 29, 5% increase over the prior year.

Adjusted EBITDA for the fiscal fourth quarter was $22.0 million.

A decrease of four 7% over the fiscal third quarter of 2021.

The quarter over quarter decrease is attributed to an increase in external provider cost per participant the reopening of our centers and an increase in costs associated with being a public company.

Partially offset by the adjustments to revenue made in the fourth quarter.

We do not add back any losses incurred in connection with our de Novo centers in the calculation of adjusted EBITDA.

<unk> centre losses, which we define as net losses related to the pre opening and start up ramp for our de Novo Sue the first 24 months of operations for.

For our Sacramento Centre in California, Our Penny Pack Center in Philadelphia, and our Louisville Center in Kentucky were $5.0 million for fiscal year 2021.

Adjusted EBITDA margin for the fiscal year ended June 32021 increased to 13, 4% as compared to 11, 7% in the prior year.

For the fiscal fourth quarter, we reported an adjusted EBITDA margin of 11, 3% a decrease from the fiscal third quarter of 172 basis points.

Turning to our balance sheet.

We ended the quarter with $201.5 million in cash and cash equivalents and had $90.0 million in total debt on the balance sheet.

Representing debt under our senior secured term loan plus capital leases and other commitments.

And the secured net leverage ratio of <unk> eight zero times as calculated pursuant to our credit agreement.

For the fiscal year ended June 32021, we had $24.0 million of capital expenditures.

Now I want to provide a brief update on fiscal year 2020 to Medicaid rates.

We received a combined rate increase of just over five 3% in Colorado, Pennsylvania, and Virginia for fiscal year 2022.

For Colorado, specifically, our mid single digit rate increase was significant.

Given the recent rate decrease we received last year due to the Covid pandemic.

Turning to guidance for fiscal year 2022.

We expect our ending census to be between 7000.507750.

We are expecting member months to be in the range of 86580.7800.

We are forecasting fiscal year 2022, total revenues in the range of $712 million to $725 million.

And adjusted EBITDA in the range of $60 million to $72 million.

In estimating adjusted EBITDA for fiscal 2022, we did not add back any expected losses associated with our de Novo centers, nor have we included any results from potential acquisitions.

De Novo losses for fiscal 2022 are expected to be approximately $10 million.

Finally to provide some additional visibility into our projected census growth. We expect first quarter census to grow by approximately 2% from our 2021 fiscal year end as a result of our ongoing multi pronged growth strategy and our efforts to continue to.

<unk> up our digital marketing program.

In summary, we would like to highlight that in addition to growing our top line revenue over 12% year over year, we generated double digit adjusted EBITDA margins and have historically.

Storage, we generated positive cash flow from operations on a consistent basis.

That concludes our prepared comments operator, we'll now open the call to questions.

As a reminder to ask a question you will need to press star one on your touched on telephone to withdraw your question press the pound key.

These standby, while we compile the Q&A roster.

Our first question comes from the line of Viacom cassava backbone of Baird. Your line is open.

Yeah. Thanks for taking the question I wanted to start on the <unk> results and in particular it looks like you landed in your guidance range per census, and for member months, but it looks like you beat the high end of the revenue range. So would just love to understand some of the drivers of the outperformance. There I know you mentioned some of the rate increases, but it sounds like a lot of that took effect on July 1st So it would be.

We get some color on the factors that influence <unk> specifically.

Sure sure. Thanks for the question, it's Barb I'll take that.

Yes, so in the fourth quarter as we as was outlined in my remarks.

Remarks, just a few minutes ago, we had some additional.

Adjustments to revenue positive adjustments to revenue, which included the risk adjustment factor a true up payment from CMS, which is typical in the fourth quarter.

And that was about four and a half million, we had $9.0 million of our part D bid reconciliation true up in the quarter and then we had some additional $9.0 million of revenue that was recorded in the fourth quarter that really was related to the entire fiscal year as a result of.

And internal reconciliation of rates with one of our states.

Sometimes these states pay us incorrectly or it take some additional time to get the technical information to apply the payments in the rates. So that also occurred in the fourth quarter. So those three things contributed to.

The revenue being outside and above the top end of the guidance range.

Okay, Great and then just a follow up on some of your comments about Colorado I appreciate it sounds like Youre getting the results of those findings in early 2022, but I guess could you just help us understand the range of outcomes that could come from those audits and I guess ultimately could Colorado result in a free use like what you described in Sacramento and maybe if you can give some color there just based on your historical.

Experiences with those audits and just taking that a step further I mean, given the freeze that you called out in Sacramento and the ongoing orders in Colorado. What is your guidance for fiscal 'twenty to Sensus and member months assumed with respect to those regions. Thanks.

Hi. This is more you know I'll start it off and then Barb you can talk a little bit.

As well and add some color around it.

As far as Colorado, we do not have the outcome of the Colorado as you know we are a healthcare provider, we take care of frail seniors and we are highly regulated so there is always going to be a risk.

Around surveys and survey outcomes.

Our job and our job of our leadership, our management clinicians and operations is to make sure that we had.

Adhere to compliance and have solid plans of correction and work with our state and federal regulators. So.

We can't give you any guidance around Colorado at this time and as soon as we know and I. There may be a question too that maybe there's some relationship between Sacramento and Colorado and we don't have any knowledge of those two things are related.

Thank you.

Yeah. This is barb as it relates to guidance and generally speaking you know our guidance Jeff.

Reflects what we believe are achievable results.

We have taken into consideration the enrollment freeze for Sacramento are in our guidance, we have taken that into consideration and then we'll also just remind you as it was in the previous remarks, our guidance does not include any potential acquisitions as well.

Okay, great. Thank you.

Thank you. Our next question comes from Jeff Garro of Piper Sandler Your line is open.

Yes, thanks for taking the question so I'll, maybe follow up on the last comment on M&A.

Does seem like M&A processes have been elongated so was hoping for any further update on the near term pipeline and what might serve as a catalyst to get any deals over the finish line.

Barb.

Yes sure.

So I'll just talk a little bit about the pipeline in general So we've outlined our our pipeline here and you know some of the catalysts that we've we've explained in the in the past that it is a it's a long process not necessarily all within our control that include a state approvals and see.

M S approvals in fighting real estate and all that goes with that so well it might be on the back end Theres a couple in the the elongated process I'll also note compared.

Compared to some of our earlier thoughts we've actually accelerated a couple of the de novo's as well. So we are moving.

As fast as furiously as we can as it relates to de Novo's as marine said in her remarks.

We've entered into leases and are in the construction phases and in three of those levers as we speak so we feel very positive about our de novo pipeline and our progress there.

That's great to hear.

Maybe a couple of questions from me on the FY 'twenty two guidance and.

Particularly around enrollment growth and revenue.

Impact the risk adjustment factor.

Thinking about potential.

Variability of impact from Covid any comments, you could give on seasonality of enrollment growth beyond the first quarter would be helpful and expectations for our ability to capture accurate RAF scores.

Might've been deferred with an impact from COVID-19 over the last year or so.

Sure I'll start maybe with a high level comment that that might answer some of that and that is as it relates to the to our to our guidance and the growth in that enrollment over the course of FY 'twenty two.

About.

Just under 80% of that growth comes from volume and about 20, 22% actually comes from rate.

And so a couple of points there.

We've indicated that we have good visibility into the first quarter in our first quarter, we know we've grown 2% quarter over quarter.

We see some acceleration over the course of the year to achieve the full year growth I'm.

So hopefully that gives you a little bit of sense of the timing.

In terms of the rate and that that 22% that I that I speak about in terms of the rate increases.

You know we are being what we consider to be neutral a.

Kind of appropriately conservative if you will related to the the Medicare increases, particularly for the things that you mentioned, there's a lot of unknowns coming out of Covid.

We feel very comfortable with our ability to capture.

Other RAF scores in our coding, but there's just still a lot of unknowns about the you know the trickle effect and the timing of some of those scores. So we were.

Neutral to appropriately conservative on the on the Medicare rates themselves and that's why there's a little bit lower.

Right to volume proportion.

Great. Thanks for taking the question.

Thank you. Our next question comes from Sarah James of Barclays. Please go ahead.

Thank you I was hoping.

You could give us a little bit more color on 2022, what does guidance imply for a center level contribution margin.

Sure Hi, Sarah it's Barb.

Yes, Scott.

Don't typically we don't typically us or if I should say, specifically outline or center level contribution margin, but I think it's fair to say, we expect that central level contribution margin to return to normal levels in the mid twenties them that we have seen historically.

Okay.

And maybe if you could could you help us bucket out.

Some of the bridge between.

2021 margins and 2022, so how much is that conservatism in there for <unk> versus some of the other moving pieces that you spoke to.

Sure.

We so in terms of the rates so while I spoke of that conservatism, perhaps in the Medicare rates you know the flipside to that is we did receive as we indicated.

Very significant Medicaid increases so we feel very confident about that the the biggest bridge between 'twenty, one and 'twenty two would be that center level contribution margin that you just asked about as we've indicated in our Q3 results.

But you know the first three quarters of the year. Our centers were essentially closed and that resulted in higher than normal center level contribution margins, because we had lower operating cost in our centers and of course like outsource transportation and maintenance and some of those type of things. So the biggest factor.

There is really got central level contribution margin.

Okay, great. Thank you.

Thank you. Our next question comes from Ralph Giacobbe of Citi. Your line is open.

Thanks, Good afternoon.

To go back to the census guidance.

It's a little lower than we had expected I think it's at the midpoint about 11% growth I think.

You talked about sort of longer term in the mid teens or even 20% type question, I guess I understand sort of the freeze and maybe that impact it seems like.

There may be something more in terms of holding back some of the census, so any details on that would be helpful.

Yeah.

Yeah, Yeah, yeah. So.

Really it relates to a couple of things again, we've factored in that freeze for Sacramento, but other than that and then the other thing again, we did not include any acquisitions.

In this in this guidance and so really were a.

Positioning our guidance on or our current run rates and our visibility to.

What we can see for organic growth for the business as well as factoring with Atmos.

Okay and have you shifted any timing of the opening of the de Novo's I thought there are a couple that were supposed to come on at the end of fiscal 'twenty two.

I guess is that is that just not the case or am I thought it was my timing off.

Your recollection is correct and we are still working toward that have good visibility on one and I'm still working toward the second one opening in that timeframe.

Okay.

In the press release it talks about fiscal 'twenty three.

Okay.

Yes, we've got well and it's really very close to the end of fiscal 2022.

Okay, Alright fair enough.

And then I guess, just one more I guess I'd have to go back to sort of the freeze.

And enrollment I guess.

Is there a risk the current membership rolls off as well and doesn't that impact the ability to enroll even when the freezers lifted and then from a broader perspective how.

How much impact does it have even just reputation Ali if you will in other areas that have seen the stories.

This this morning, so it does impact the current census of the facility that's number one.

And as I mentioned, you know with with adhering to our regulatory and surveys.

That's a risk that sometimes things can happen like this so what's most important.

Is that we work collaboratively.

<unk> with our regulators, both the state and federal level get those planning a correction than and I and I want to stress that we are all seeing all the staff are working diligently on that.

To ensure that the freeze will get lifted in a timely manner. We just don't have an ability to see how long that will go or for how long. It will go as far as the risk to other centers. It's important to note that Sacramento has its own license.

License a separate for example from San Bernardino is separate from other states as well so there is crossover.

From that regard.

As well so hopefully you know and as from reputation income if you do healthcare youre going to know in long term care, there's a risk of that and the operations and clinical teams.

Yep innovative buckled down and get their plans to corrections in place work with our compliance side of our organization to ensure that's going to happen.

Make sure that all of the proper staffing and documentation documentation is in place and I say that twice because that's so important when you think about your survey not to mention the importance of caring for frail seniors, which is what we do so it's gonna get addressed they're working on it.

And when we know more information.

We will disclose as we are required to do.

Okay fair enough. Thank you.

Thank you.

Thank you. Our next question comes from Matt Larew.

William Blair Your line is open.

Yeah, Hi, good evening.

So Sacramento was it to Novo launched in July 2020.

Less than a year and on the audit started.

I guess.

Is that.

Part of the reason that maybe some of the other de Novo is might be more extended or are you taking a look at the processes you've put in place to open these quality control more broadly I guess.

The fact that it that had these issues within a year what are we to make of that.

Relative to your product and <unk> efforts.

Thank you for the question this is maureen.

As I mentioned this de Novo, which you may recall opened up during the pandemic July 1st and as with all new pace programs CMS will survey new programs every year for the first three years to make sure things are in place.

So that's not something that we will continue to have that type of oversight by our regulators to ensure that were giving good care and the quality.

What what is in with Sacramento, certainly, we're gonna have a lessons learned.

And.

We will learn very quickly and be able to respond quickly.

And we're going to ensure that our working with our new de novo than any lessons learned here get applied with them as well. So we're not anticipating any stall on the new ones.

Okay.

Just on the acceleration.

Enrollment did out there I mean, you know enrollment in the <unk>.

This has been a bit below expectations for a few quarters in a row here now and then you're guiding to 2% in the first fiscal quarter. So I guess what are you assuming changes over the balance of the fiscal year given that I think the sacrament degrees you said, it's built in.

But what are sort of the landmark as we've set out throughout the year that there can help get that's going on.

So this is Barbara let's talk about that just a timing of it there you know there's not a significant seasonality to our business, but we do see some some increases.

Typically in the second quarter and in the fourth quarter and it and it just really has to do with you know timing of things.

Like open enrollment for MAA and you know, we just we see a higher I'm just to pick up in the spring. So we do see a little bit of seasonality. So I just didn't want to I didn't want to give the impression that its flat across each.

Each quarter, we typically see a little bit of an increase over the course of the year.

Okay, and just lastly on.

On the labor side, and I think relative to last quarter I think the rate update is it incrementally positive here, especially with respect to Colorado, yet the margin outlook.

I think relative to what the street was that based on your comments on <unk>. It is worse and so can you give us a sense in terms of the 10% in terms of the contract and temporary labor what is that like relative to historical what's contemplated about.

Built into guidance for FY 'twenty two.

Have you seen any meaningful changes in turnover or expected wage inflation since this summer.

Hum.

Such far or at least on the turnover voluntary turnover rate of the company.

Currently approximately.

Approximately 26%, which is fairly consistent with our historical.

Voluntary turnover rate.

And as mentioned in our earlier discussions or prior ones.

This is an industry, where you will see turnover and certainly.

<unk>.

<unk> debit is contributed probably to some of that but that being said, we're very committed and we've been staffing and certainly have plans around staffing and recruitment and retention across the company.

Sure.

Yes, and you know in terms of the cost profile. You know, we're you know we're not seeing them.

Over the top increases as it relates to you know market pressure or those temporary costs them you know we we we.

Our forecast according to staffing ratios. So you know based on our census, we.

Putting the cost correspondingly so we're building and some cost increases, but we're not seeing anything alarming.

Okay. Thanks for taking the questions.

Thank you. Our next question comes from Jamie Pearce.

Goldman Sachs. Your question please.

Hey, Thank you good afternoon I wanted to go back to the Sacramento audits in Colorado for a moment I think investors will naturally.

Question, what's what's different about.

Or services being provided in Sacramento versus Colorado.

<unk>.

Basically the risk that you could have a similar outcome in Colorado So.

Maybe talk us through why Sacramento was more challenging than expected in N Y Colorado is different in terms of the the level of covered services youre, providing new successful as some of those things that you cited that were issues in the audit.

Yeah. So I think there are really two different kinds of surveys that occurred although they're both CMS surveys they are a little different and Sacramento as you know as a startup.

So lots of learning going on.

Well and you can also tell them the consensus is much lower as well because it's a brand new a brand new program. So with that it is a it is really about understanding continuously trying.

Trying to improve and learn and help those new teams learn to run at pace programs. So they're kind of two different things.

Thanks.

In Colorado.

That was three survey is going on as you recall.

Our CNS focused survey.

And as well as.

Our hip hop healthcare policy, and Finance survey and C. D ph, so theyre very two different things.

<unk> also Colorado was related as you may recall to a complaint so.

They are different and what we can't do for you today or what I can't do for you today, if there's describe the differences or even the similarities because they are really two different.

Points in time and types of surveys that were going on were similar but there's but there's obviously differences in the programs.

Yeah.

Okay understood.

Maybe just on the external provider cost you talked about those coming down across our crusher fourth quarter. What are you seeing so far in.

The first quarter of your fiscal year end.

What's contemplated just generally speaking as you think about COVID-19 trend in a non COVID-19 utilization.

Are you.

Kind of contemplating in your guidance for external provider cost as a percent of revenue in fiscal 'twenty two.

Yeah. So this is barb so actually in quarter four when you compare this was in the prepared remarks.

Q4, compared to Q3, we actually saw a bit of an increase as the centers opened and in operations returned to normal there was a bit of a pent up demand with specialists out patient that's in their prepared remarks, we see that normalizing going forward. So that was to be expected in Q4.

Once they opened our centers those external provider costs were actually higher.

Higher than they were a quarter over quarter, but we do see that starting to normalize in this fiscal year.

So we believe it'll be get back to normal.

And just to clarify on that is that something we should start to expect early in the year. It is the first quarter.

We're going to be challenged because of what's going on with with Covid right now or you expect that to external provider cost to start.

Tracking back to normal.

In the near term.

And we think it'll start tracking back to normal in the in the near term.

Okay alright, thank you.

Thank you. Our next question comes from Gary Taylor of Cowen Your line is open.

Yes.

Hi, good afternoon.

Three questions from me the first my recollection was your Colorado Revs.

Our revenue exposure was in the ballpark of almost 30% for the.

For the company is the.

I'm, sorry, I'm, drawing a blank that survey.

The audit related is that related to the entire Colorado operation. So if there were some.

Corrective action or whatever it would apply to the entire revenue base potentially.

That is correct of Colorado.

Okay.

And then this one for Barb I think of the roughly 10 million of revenue adjustments you called out for the fiscal for Q, How do we think about the margin contribution.

From that.

Is that just it was extra revenue that true up and the bulk of that flowed down through to EBITDA or is there offsets between the two numbers.

So the bulk of it slows down with the exception.

And part of some of the part D. So the bulk of it flows down and then the next part of I think the question will be because we did see some increase participant expenses in the fourth quarter above slightly above what we expected we needed some more investments in marketing and sales in the fourth quarter.

And we had some additional subsidies some slight additional G&A in the fourth quarter. So so it all doesn't translate down to the bottom line.

And that's really the bridge the reconciliation of those two.

Okay.

And then last question is I believe.

On the de Novo losses that you're contemplating for fiscal 'twenty, two you called out $10 million expectation.

It looks like that's up.

A couple of million dollars versus sort of <unk>.

Previous.

Expectations and it look like from your last press release, that's one the de Novo Scott.

<unk>, just a little bit in terms of timing. So I don't know if there is maybe too deep in the weeds here, but I don't know if theres anything you can help us with just sort of thinking about.

Has why there might be additional de novo cost for the next year or maybe you don't agree if I'm looking at the numbers the right way.

No I think you were looking at them the right way I you know a couple of things is just really the timing of it I think the capital expenditures and trying to get those and get those de Novo is up and running the capital and the Preopening losses.

And as I also indicated.

Although if you looked we also indicate that there's some additional de novo's and in the pipeline too.

Two additional ones over the next one to two years and so there'll be some startup costs related to those as well. So we are trying to accelerate that de novo pipeline and so some of those costs get pushed up just a bit.

Okay. Thank you.

Thank you our last question comes from the line of Sarah James of Barclays. Your question. Please.

Sir James Please make sure your line is immediate and if you're not a speaker phone lift your handset.

As there's no response I'd like to turn the call back over to Marine Hewitt for closing remarks.

Thank you so much and thank you to everyone who joined the call today. We appreciate your questions and your commitment to innovate and look forward to answering any additional questions you might have.

Okay.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Yeah.

[music].

Today's conference maybe recorded she didn't require any further assistance. Please press star zero I would now like to hand, the conference over to your host director of Investor Relations Ryan Kubota.

Yeah.

Thank you operator.

Good afternoon, and thank you all for joining innovators fiscal 2021 fourth quarter earnings call.

With me today are key members of our leadership team.

<unk>, President and CEO Jin Park this year.

Oh.

Today after the market close we issued a press release containing detailed information of our quarterly and annual results you may access the release on our company website.

<unk> Dot com.

For those listening to the rebroadcast of this presentation we.

We remind you that the remarks made herein are as of today Tuesday September 21, 2021 and have not been updated subsequent to the initial earnings call.

During this call.

We will refer to certain non-GAAP measures.

Reconciliation of these measures with the most directly comparable GAAP measures can be found on our fiscal fourth quarter 2021 press release, which is posted on the Investor Relations section of our website.

During our call, we will be making forward looking statements, including statements related to our growth prospects regulatory and other expectations and our outlook.

On a fiscal year 4043.

Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that can cause our actual results to differ materially from our current expectations.

We advise listeners to review the risk factors discussed in our IPO prospectus filed on March two 2021.

As long as our upcoming Form 10-K annual report for fiscal year 'twenty one.

That will be filed with the SEC on September 22021.

After the completion of our prepared remarks.

We will open the call to take your questions.

I'll now turn the call over to our President and CEO.

Lauren.

Laurie.

Thank you Ryan and thank you all for joining US. This afternoon I'm pleased to report that we had a strong finish to our fiscal year ended June 30, 2021.

Let me first provide a brief summary of our performance Bob will provide additional details on our fourth quarter and fiscal year end results as well as an update on our fiscal 2022 outlook in a few minutes.

As of June 32021, innovate served more than 6850 participants this.

This represents a nearly seven 5% increase year over year and it's just over the midpoint of the guidance we provided last quarter.

On our last call all of our innovation centers in the Western and Central regions were open and we expect it to open our centers in Pennsylvania, and Virginia. Shortly I'm pleased to say that we are able to open all of our centers to our participants as of July six consistent with the national decline in Covid trends.

We reported strong revenue of approximately 638 million for fiscal year 2021 exceeding the high end of our guidance estimate.

This represents an increase of approximately 12, 5% compared to the previous fiscal year. We also reported a center level contribution margin of 27, 3% or approximately a $174 million for fiscal year 2021. This is an inquiry.

<unk> of nearly $33 million compared to fiscal 2020.

I will now provide an update on our growth strategy. We have sites selected with signed leases for three de Novo centers, one in Louisville, Kentucky, and two centers in Florida, one in Orlando and one in Tampa in all three sites, we are renovating our plans to renovate existing.

Building and we are diligently working through the development process. We currently expect these three centers to open in fiscal year 2023.

Regarding acquisitions, we continue to pursue acquisition opportunities in new markets with experienced community partners, who have established footprints and where the economics make sense we.

We are also continuing to look for joint venture opportunities that provide strong strategic value.

Last month on August 4th we announced an equity investment in jet dock, and telehealth and virtual urgent care app dedicated to connecting users with medical professionals in an effective way.

Following the significant increase in telehealth services that we utilized during the pandemic, we determined that we needed a more pace specific telehealth solution. We are partnering with Jack dock to develop a virtual care and remote patient monitoring platform, specifically for a pace program model.

Innovation, Jack Doc has begun the design and development.

Pay specific patient experience.

<unk> an early biometric features that will be included in the final product. We expect the technology will continue to allow innovation clinical and administrative staff to connect with participants and their caregivers for improved continuity of care.

Regarding COVID-19.

Earlier this month, the White house mandated COVID-19 vaccines for all federal workers and employers with more than 100 employees.

Innovation continues to require we're legally permitted that all innovative employees and participants received the COVID-19 vaccine and the less they are entitled to an accommodation based on religious belief disability or other legally protected reasons.

We also continue to apply COVID-19, health and safety protocols in accordance with federal state and local public Health Authority guidance. This includes the requirement that appropriate PPE and symptom screening are in place for all participants in employees I am also pleased to announce that we achieved our goal.

For our centers.

We continue to carefully monitor COVID-19 trends in each of our markets and centers.

Should we experienced COVID-19 pressures at our centers.

Cause us to shut them down partially or fully we have the ability to do that.

We also have the ability to reopen them in a phased approach as pressures are relieved we remain deeply committed to participant safety and have the appropriate protocols necessary should any of our staff or participants test positive for COVID-19.

Enrollment growth has continued to improve throughout the quarter and has returned to pre COVID-19 levels are participants continue to serve as ambassadors for the <unk> brand.

The referrals, we receive from our own innovative participants have historically made up approximately 25% census growth.

From March 31 to the end of June leads on our web qualifier grew more than 80% and referrals grew nearly 60%.

I now want to discuss new additions to our team employee turnover and staffing as we have received a number of questions about this topic.

As we announced in today's earnings release, we are continuing to build out our leadership team with the addition of three key positions.

Nicole D'amato joined the company as Chief legal Officer, and corporate Secretary.

Overseas legal government affairs information security and compliance.

Nicole brings public company experience in of age most recently as senior Vice President and Chief intellectual property counsel at Macandrews, <unk>, Forbes and operating a company acquiring divesting and executing strategic long term management of diverse public and private companies.

Ranging from cosmetics to pharmaceuticals.

Emily Tanzania joined the company as our new Chief people Officer, Emily spent more than 13 years with Cvs health, while there. She led multiple organizational design and change management initiatives, including transitioning employees to work from home during COVID-19.

<unk>.

Oh that'd be a patent joins <unk> as our new Chief compliance officer.

She will lead regulatory internal audits, the monitoring of policies and procedures and company related staff training programs.

Olivia brings the depth of leadership experience in healthcare compliance, including developing training for CMS and Medicare policies and was most recently, a corporate compliance officer for United Healthcare and Phoenix, Arizona.

As of the end of our fiscal year ended June 32021.

We had approximately 1800 employees excluding contractors approximately 1200 of those employees are clinical professionals and interact with our participants on a regular basis.

It is no surprise that managing turnover and retention is challenging for all healthcare organizations due to the limited supply of workers and the competitive environment in which we operate.

We utilized recruitment process outsourcing alongside our internal recruiting team and utilize the locum tenants and temporary help to fill positions on an interim basis.

When included in our total employee count contracted and temporary labor accounts for less than 10% of the overall total workforce companywide.

Regarding retention.

Our operating leaders work with their HR counterparts to foster a work environment that is rewarding both personally and professionally.

We believe we have a unique culture and NIH and for the fourth year in a row innovate has been re certified as a great place to work.

You have a company culture that honors our participants since staff as individuals and as important contributors to innovate as a whole our team delivers care and support each other in a positive work environment I'm extremely proud to work alongside such a capable and committed team and.

<unk> senior care and all of our markets.

I will now provide a brief update on the reimbursement and regulatory environment.

<unk> is significant given the recent rate decrease we received last year due to the Covid pandemic.

Regarding the regulatory environment, we continue to see positive federal and state legislative activity at levels, we have not seen in recent memory.

This is a very encouraging sign for pace as interest in the program is at an all time high.

Due to the increased legislative activity and the state interest and pace innovation became a member of the National Pace Association or NPA as well as the leading Asia Association. These two organizations are focused on furthering the interest of participants advancing pace and aging.

Related services nationally at the state and local levels, we view our memberships with these two organizations as key additions to our overall legislative efforts when combined with our existing American health insurance plans or <unk> and the National Committee for quality assurance.

NCQA memberships. In addition, we are members of several state associations as pace is a community focused program and we will continue to join local organizations as we grow with new states looking to expand pace, we are actively monitoring stinks and local interest and.

This program.

To summarize current federal legislative activity.

The pending three five trillion budget reconciliation package could provide additional funding for pace providers through a home and community based services and beneficial policy changes that would increase access to pace.

That fit within the administration's mission of health access and equality.

The American Rescue Plan Act provides additional funding to states that are considering adding pace.

Including a 10% increase to the state federal match to Medicaid for home and community based services as well as the pace program.

We do not expect any new programs to be presented until the fall at the earliest.

But we are closely watching the planned New York has proposed with interest.

They are planning a pilot program that would expand pace to Medicare only beneficiaries in the state for a fee.

Regarding state legislation.

Pending California Assembly Bill $45.0 requires pace participants to be exempt from mandatory enrollment and to Medicare managed care plans.

It also requires that pace is presented as an option during the Medicare enrollment periods.

This bill is passed the House Committee and has been referred to appropriations.

California Assembly Bill five Q3 mix the flexibility that we're allowed during COVID-19 to become permanent.

These include telehealth verbal enrollment agreements and for adult day health care services to be provided in the home.

Yes.

And Michigan pending Senate Bill 203 provides for the establishment of a new pace program in a geographic area that is already being served by an existing pace organization.

And then the demonstration then an unmet need exists in that area among other requirements.

<unk> heard before the House Committee in April and is pending committee vote.

I will now provide a brief update on the status of our audits in Sacramento and Colorado as.

As a reminder, given the nature of our business and the participants we serve audits are a regular occurrence in our industry, including financial and Medicare part D audits.

We have and continue to work collaboratively with regulators as we seek to constantly improve our processes and outcomes to better serve our participants and their families.

In early May the centers for Medicare and Medicaid services began a routine scheduled audit of our Sacramento Center.

CMS completed their audit field work on May 21, and requested additional information, which we supplied promptly.

This past Friday September 17th we were notified that CMS has determined to freeze new enrollments at our Sacramento Center based on efficiencies detected in the audit.

Fishing vies relate to failures to provide coverage services provide accessible and adequate services managed participants medical situations and oversee use of specialists among others. The freeze will remain in effect until we correct. These deficiencies and we are working on developing a corrective action.

Plan to submit to CMS.

In addition, we have a right to provide a rebuttal and request a hearing.

This time given how recent the notices we are assessing options and are unable to estimate the duration of the freeze or the final outcome of this process.

This strength is limited to our Sacramento Center and does not extend to our San Bernardino Centre in California for context.

Less than 200 participants that Sacramento as of the beginning of this month, we are committed to quality improvement and comprehensive care coordination at each of our centers.

The pace program in Colorado has been the subject of three audits over the last several months conducted by the state and CMS.

<unk> completed the onsite audit work on July 20, <unk> and we received preliminary findings at that time.

<unk> completed their audit work in Colorado on July eight.

We anticipate receiving their report in early 2022, we also expect that the state will issue their report around the same time for consistency purposes.

Endings or to date.

These audits will continue to make our program better over the long term.

Before I turn the call over to Barb I would like to highlight that certification from the National Committee for quality assurance.

14 of our centers and patient centered medical homes.

Now I will turn the call over to Barbara to review, our financial performance in more detail and provide our outlook for 2020 to barb.

Thank you marine before.

Before we open the call to questions I want to provide some highlights from our fourth quarter and fiscal year end financial performance for 2021.

An update on Medicaid rates for fiscal year, 2022, and then provide our fiscal year 2022 outlook.

We produced strong financial results in the fourth quarter and ended our fiscal year with 18 centers.

And a census of just over 6850 participants as of June 32021.

Compared to the prior year. This represents an ending census increase of nearly seven 5%.

Member months for the fiscal year ended June 32021 of over 79400 were 6% higher than the prior year.

During the fourth quarter census growth and referrals continue to improve and return to levels experienced prior to the second wave of Covid, which impacted our business primarily in Q3.

We also continued to see indications that gross enrollments were trending above pre COVID-19 levels.

Bolstered by the realignment in our marketing strategy to focus more on digital channels to reach those searching for senior care alternatives.

Revenue grew approximately 12, 5% to $645.0 million for fiscal year 2021, primarily driven by an increase in part C and part D Medicare rates.

The temporary suspension of sequestration and census growth.

Fourth quarter revenue grew by nine 8% to $177.0 million compared to the previous quarter due to adjustments that included $9.0 million of risk adjustment factor RASK true up payments received from CMS.

One $8 million of part D bid reconciliation true up.

And an adjusted estimate of $9.0 million of revenue recorded in the fourth quarter, but related to full year performance.

External provider costs for the full year were $309.3 million.

$13, 4% higher than the prior year.

And $86.0 million for the fourth quarter, an increase of 12, 9% compared to the fiscal third quarter of 2021.

The year over year increase was due to an increase in cost per participant related to pharmacy expenses in.

Inpatient expenses associated with Covid, and outpatient and expenses as well as an increase in census.

During the quarter.

<unk> continued to normalize as COVID-19 transmission rates improved.

Which were impacted by Covid.

This is a 238 basis point improvement over the prior year.

For the fiscal fourth quarter, we reported a center level contribution margin of $48 million, an increase of nearly 16% compared to the fiscal third quarter of 2021.

For the fourth quarter sales and marketing expense of $16.0 million increased $5.0 million or 41, 3% quarter over quarter.

Primarily due to a shift in the timing of our marketing spend to the back half of fiscal year 2021.

Corporate general and administrative expense was $135.0 million for the fiscal year ended June 32021, an increase of 126% year over year.

The full year increase is primarily related to fees incurred as a result of the apex transaction in July 2020, and the IPO.

In connection with the apex transaction the company recorded $49.0 million related to the cancellation of stock options outstanding under the company's 2016 equity incentive plan.

An additional $14.0 million of transaction related costs.

In connection with the IPO the company recorded $6.0 million of transaction costs.

For the fourth quarter, corporate general and administrative expense increased 42, 1% to $30.0 million.

Net loss for the fiscal year ended June 32021 was $51.0 million compared to prior fiscal year net income of $33.0 million for.

For the fourth quarter, we reported net income of $9.0 million.

The loss for the fiscal year was expected and is primarily the result of the following.

Costs associated with the apex transaction and IPO.

Expenses related to the extinguishment of debt associated with our amended and restated credit agreement.

Other expenses due primarily to the warrants issued as part of our JV agreement for our Sacramento Center.

And an offsetting gain due to innovate Sacramento, becoming a consolidated entity as of January one 2021.

For fiscal year ended June 32021, we reported an earnings per share loss of 36.

Both basic and diluted.

Our fully diluted share count for the full year was $135 million 516513 shares at the end of fiscal year 2021.

Adjusted EBITDA, which we calculate by adding interest taxes, depreciation and amortization and one time adjustments for a transaction and offering related costs and other nonrecurring or exceptional cost to net income.

With $88.0 million for the fiscal year ended June 32021.

A 29, 5% increase over the prior year.

Adjusted EBITDA for the fiscal fourth quarter was $22.0 million.

A decrease of four 7% over the fiscal third quarter of 2021.

The quarter over quarter decrease is attributed to an increase in external provider cost per participant the reopening of our centers and an increase in costs associated with being a public company.

Partially offset by the adjustments to revenue made in the fourth quarter.

We do not add back any losses incurred in connection with our de Novo centers in the calculation of adjusted EBITDA.

Novo center losses, which we define as net losses related to the pre opening and start up ramp for our de Novo stores. The first 24 months of operations for.

For our Sacramento Centre in California, Our Penny Pack Center in Philadelphia, and our Louisville Center in Kentucky were $5.0 million for fiscal year 2021.

Adjusted EBITDA margin for the fiscal year ended June 32021 increased to 13, 4% as compared to 11, 7% in the prior year.

For the fiscal fourth quarter, we reported an adjusted EBITDA margin of 11, 3% a decrease from the fiscal third quarter of 172 basis points.

Turning to our balance sheet.

We ended the quarter with $206.0 million in cash and cash equivalents and had $90.0 million in total debt on the balance sheet.

Representing debt under our senior secured term loan plus capital leases and other commitments.

And the secured net leverage ratio of <unk> eight zero times as calculated pursuant to our credit agreement.

For the fiscal year ended June 32021, we had $24.0 million of capital expenditures.

Now I want to provide a brief update on fiscal year 2020 to Medicaid rates.

We received a combined rate increase of just over five 3% in Colorado, Pennsylvania, and Virginia for fiscal year 2022.

For Colorado, specifically, our mid single digit rate increase was significant.

Given the recent rate decrease we received last year due to the Covid pandemic.

Turning to guidance for fiscal year 2022.

We expect our ending census to be between 7000.507750.

We are expecting member months to be in the range of 86580.7800.

We are forecasting fiscal year 2022, total revenues in the range of $712 million to $725 million.

And adjusted EBITDA in the range of $60 million to $72 million.

In estimating adjusted EBITDA for fiscal 2022, we did not add back any expected losses associated with our de Novo centers, nor have we included any results from potential acquisitions.

De Novo losses for fiscal 2022 are expected to be approximately $10 million.

Our digital marketing program.

In summary, we would like to highlight that in addition to growing our top line revenue over 12% year over year, we generated double digit adjusted EBITDA margins and have historically generated positive cash flow from operations on a consistent basis.

That concludes our prepared comments operator, we'll now open the call to questions.

As a reminder to ask a question you will need to press star one on your Touchstone telephone to withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Vikram Cassava Butler of Baird. Your line is open.

Yeah, Hey, thanks for taking the question I wanted to start on the <unk> results in particular, it looks like you landed in your guidance range per census, and for member months, but it looks like you beat the high end of the revenue range. So would just love to understand some of the drivers of the outperformance. There I know you mentioned some of the rate increases, but it sounds like a lot of that took effect on July 1st so well.

Helpful to get some color on the factors that influence <unk> specifically.

Sure sure. Thanks for the question, it's Barb I'll take that yes, so in the fourth quarter as we as was outlined in my.

Remarks, just a few minutes ago, we had some additional.

Adjustments to revenue positive adjustments to revenue, which included the risk adjustment factor a true up payment from CMS, which is typical in the fourth quarter and that was about $9.0 million.

We had $9.0 million of our part D bid reconciliation true up.

In the quarter and then we had some additional $9.0 million of revenue that was recorded in the fourth quarter that really was relate.

Related to the entire fiscal year as a result of an internal reconciliation of rates with one of our states.

The revenue being outside.

The top end of the guidance range.

Okay, Great and then just to follow up on some of your comments about Colorado I. Appreciate it sounds like Youre getting the results of those findings in early 2022, but I guess could you just help us understand the range of outcomes that could come from those audits and I guess ultimately could Colorado result in a free use like what you described in Sacramento and maybe if you can give some color there just based on your historical experience.

As with those audits and just taking that a step further I mean, given the freeze that you called out in Sacramento and the ongoing orders in Colorado, What does your guidance for fiscal 'twenty to sensus and member months assume with respect to those regions. Thanks.

Yes.

Hi. This is more you know I'll start it off and then Barb you can talk a little bit as.

As well and add some color around it.

Around surveys and survey outcomes, our job and our job of our leadership our management clinicians and operations is to make sure that we have.

Adhere to compliance and have solid plans of correction and work with our state and federal regulators. So.

We can't give you any guidance around Colorado at this time and as soon as we know and I. There may be a question too that maybe there's some relationship between Sacramento and Colorado.

And we don't have any knowledge that those two things are related.

Thank you.

Yeah. This is barb as it relates to guidance generally speaking you know our guidance Jeff.

Flex what we believe are achievable results.

We have taken into consideration the enrollment freeze for Sacramento are in our guidance, we have taken that into consideration and then we'll also just remind you as was in the previous remarks, our guidance does not include any potential acquisitions as well.

Okay, great. Thank you.

Thank you. Our next question comes from Jeff Garro of Piper Sandler Your line is open.

Yeah. Thanks for taking the question so I'll, maybe follow up on the last comment on M&A.

Does seem like M&A processes have been elongated so was hoping for any further update on the near term pipeline and what might serve as a catalyst to get any deals over the finish line.

Barb.

Yes sure.

So I'll just talk a little bit about the pipeline in general So we've outlined our pipeline here.

And you know some of the catalysts that we've we've explained in the in the past that it is a.

It's a long process not necessarily all within our control that include state approvals in CMS approvals in fighting real estate and all that goes with that so well.

Well it might be on the back end Theres a couple in the elongated process I'll also note.

Compared to some of our earlier.

Thoughts, we've actually accelerated a couple of the de novo's as well so we are moving.

It's fast and furiously as we can as it relates to de Novo's as Maureen said in her remarks.

We've entered into leases and are in the construction phases and in three of those levers as we speak so we feel very positive about our de novo pipeline and our progress there.

Yeah.

That's great to hear maybe a couple of questions from me.

In FY, 'twenty, two guidance and particularly around enrollment growth in revenue.

Impacts the risk adjustment factor.

Thinking about potential.

Very ability of impact from Covid on E comm.

Sense, you could give on seasonality of enrollment growth beyond the first quarter would be helpful and expectations for our ability to capture accurate RAF scores care might've been deferred with impacts from COVID-19 over the last year or so.

Sure I'll start.

Maybe with a high level comment that that might answer some of that and that is as it relates to the to our to our guidance and the growth in that enrollment over the course of FY 'twenty two.

About just under 80% of that growth comes from volume and about 20, 22% actually comes from rate.

And so a couple of points there.

We've indicated that we have good visibility into the first quarter in our first quarter, we know we've grown 2% quarter over quarter.

We see some acceleration over the course of the year to achieve the full year growth.

So hopefully that gives you a little bit of sense of the timing.

In terms of the rate and that that 22% that I that I speak about in terms of the rate increases.

We are being what we consider to be neutral.

Kind of appropriately conservative if you will.

Related to the Medicare increases, particularly for the things that you mentioned, there's a lot of unknowns coming out of Covid, we feel very comfortable with our ability to capture.

The RAF scores in our coding.

But there's just still a lot of unknowns about the you know the trickle effect and the timing of some of those scores. So we were.

Neutral to appropriately conservative on the Medicare rates themselves and that's why there's a little bit lower.

Right to volume proportion.

Great. Thanks for taking the question.

Thank you. Our next question comes from Sarah James of Barclays. Please go ahead.

Thank you.

Hoping you could give us a little bit more color on 2022, what does guidance imply for center level contribution margin.

Sure Hi, Sarah it's Barb.

Yes, Scott you know, we don't typically we don't typically.

I should say, specifically outline or center level contribution margin, but I think it's fair to say, we expect that central level contribution margin to return to normal levels in the mid Twenty's.

That we have seen historically.

Okay.

And maybe if you could could you help us bucket out.

Some of the bridge between.

2021 margins and 2022, so how much is that conservatism in there for <unk> versus some of the other moving pieces that you spoke to.

Sure.

We so in terms of the rates so while I spoke of that conservatism, perhaps in the Medicare rates you know the flipside to that is we did receive as we indicated.

Very significant Medicaid increases so we feel very confident about that.

The biggest bridge between 'twenty, one and 'twenty two would be that central level contribution margin that you just asked about as we've indicated in our Q3 results.

For the first three quarters of the year, our centers were essentially closed and that resulted in higher than normal central level contribution margins, because we had lower operating costs in our centers and.

Things like outsourced transportation and maintenance and some of those type of things. So the biggest factor there.

Is really that central level contribution margin.

Okay, great. Thank you.

Thank you. Our next question comes from Ralph Giacobbe.

Citi. Your line is open.

Thanks, Good afternoon.

I just want to go back to the census guidance.

It's a little lower than we had expected I think it's at the midpoint about 11% growth I think.

You talked about sort of longer term in the mid teens or even 20% type question, I guess I understand sort of the freeze and maybe that impact it seems like.

There may be something more in terms of holding back some of the census.

Sales on that would be helpful.

Yeah.

Yeah, Yeah, yeah, so so Ralph.

Really it relates to a couple of things.

We factored in that freeze for Sacramento, but other than that and then the other thing again, we did not include any acquisitions.

In this in this guidance and so really we're.

Positioning our guidance on or our current run rates and our visibility.

What we can see for organic growth for the business as well as factoring with Lenovo.

Okay and have you shifted any timing of the opening of the de Novo's I thought there were a couple that were supposed to come on at the end of fiscal 'twenty two.

I guess is that is that just not the case or am I thought it was my timing off.

Your recollection is correct and we are still working toward that have good visibility on one and still working toward the second one opening in that timeframe.

Okay.

In the press release it talks about fiscal 'twenty three.

Ah, Yes, we've got well and it's really very close to the end of fiscal 2022.

Okay, Alright fair enough.

And then I guess, just one more I guess I'd have to go back to sort of the freeze.

And enrollment I guess.

Is there a risk to the current membership rolls off as well and doesn't that impact the ability to enroll even when the freezers lifted and then from a broader perspective how.

How much impact does it have even Joseph reputation Ali if you will in other areas that have seen the stories.

This is maureen so it does impact the current census of the facility that's number one.

And as I mentioned, you know with with adhering to our regulatory and surveys.

That's the risk that sometimes things can happen like this so what's most important.

Is that we work collaboratively.

<unk> with our regulators both at the state and federal level get those playing a correction than and I and I want to stress that we are all getting all of the staff are working diligently on that.

To ensure that the the freeze will get lifted in a timely manner. We just don't have an ability to see how long that will go or for how long. It will go as far as the risk to other centers. It's important to note that Sacramento has its own.

License a separate for example from San Bernardino is separate from other states as well so there is crossover.

From that regard.

As well, so hopefully you know and as from reputation. It if you do healthcare you're gonna now in long term care, there's a risk of that and the operations and clinical teams.

Yes, innovate buckled down and get their plans of corrections in place work with our compliance side of our organization to ensure that's going to happen.

Sure that all of the proper staffing and documentation documentation is in place and I say that twice because thats. So important when you think about your survey not to mention the importance of caring for frail seniors, which is what we do.

So it's gonna get addressed they're working on it.

And when we know more information.

We will disclose as we are required to do.

Okay fair enough. Thank you.

Thank you.

Thank you. Our next question comes from Matt Moreau.

William Blair Your line is open.

Yeah, Hi, good evening.

So Sacramento was at Novo launched in July 2020.

Less than a year and plenty audits started.

Yes.

Is that.

Part of the reason that maybe some of the other de novo it might be more extended or are you taking a look at the processes you've put in place to open these quality control more broadly I guess.

The fact that it that had these issues within a year what are we to make of.

Relative to your product the noble efforts.

Thank you for the question this is maureen.

So as I mentioned.

This de Novo, which you may recall opened up during the pandemic July 1st.

And as with all new pace programs MFS will survey new programs every year for the first three years to make sure things are in place.

So that's not something that we will continue to have that type of oversight by our regulators to ensure that we are giving good care the quality.

But what what is in with Sacramento, certainly we're going to have a lessons learned.

And we.

We will learn very quickly and be able to respond quickly.

And we're going to ensure that working with our new de novo than any lessons learned here get applied with them as well. So we're not anticipating any stall on the new ones.

Okay.

Just on the acceleration.

Enrollment throughout the year I mean, you know enrollment in the <unk>.

<unk>.

What are sort of the landmark as we've set out throughout the year that can help get things going on.

So this is Barbara let's talk about that just the timing of it there you know there's not a significant seasonality to our business, but we do see some some increases.

You know typically in the second quarter and in.

In the fourth quarter and it is it just really has to do with.

Timing of things like.

Like open enrollment for MAA and you know, we just we see a higher just to pick up in the spring. So we do see a little bit of seasonality. So I just didn't want to I didn't want to give the impression that its flat across <unk>.

Each quarter, we typically see a little bit of an increase over the course of the year.

Okay, then just lastly on.

On the labor side, I think relative to last quarter I think the rate update is it incrementally positive here, especially with respect to Colorado, Yes, the margin outlook.

I think relative to what the street was that based on your comments on <unk> Q is worse and so can you give us a sense in terms of the 10% in terms of the contract and temporary labor what is that like relative to historical what's contemplated about.

Bill guidance for FY 'twenty two.

Have you seen any meaningful changes in turnover or expected wage inflation since this summer.

I hope I've been clutch barb at least on the turnover voluntary turnover rate of the company.

It is currently approximately.

Approximately 26%, which is fairly consistent with our historical.

Voluntary turnover rate.

And as mentioned in our earlier discussion your prior ones.

This is an industry, where you will see turnover and certainly.

Pandemic has contributed probably to some of that but that being said, we're very committed and we've been staffing and certainly have plans around staffing and recruitment and retention across the company.

Sure.

Yes, and you know in terms of the cost profile.

You know, we're you know we're not seeing them.

Over the top increases as it relates to you know market pressure or those temporary costs.

We we.

Forecast according to staffing ratios. So you know based on our census, we.

Putting the cost correspondingly. So you know we're building and some cost increases, but we're not seeing anything alarming.

Okay. Thanks for taking the questions.

Thank you. Our next question comes from Jamie Pearce.

Goldman Sachs. Your question please.

Hey, Thank you good.

Good afternoon, I wanted to go back to the Sacramento audits in Colorado for a moment I think investors will naturally.

Question, what's what's different about.

Your service has been provided in Sacramento versus Colorado.

<unk>.

Basically the risk that you could have a similar outcome in Colorado So.

Maybe talk us through why Sacramento was more challenging than expected and why Colorado is different in terms of the the level of corporate services, you're providing your success with some of those things that you cited that were issues in the audit.

Yeah. So I think there are really two different kinds of surveys that occurred although they're both CMS surveys, they're a little different and Sacramento.

L. A as you know with a start up.

So lots of learning going on.

Well and you can also tell them the consensus much lower as well because it's a brand new.

New program, so with that it is a it is really about understanding continuously.

Trying to improve and learn and help those new teams learn to run a paste programs. So they're kind of two different things.

Thanks.

In Colorado.

That was three survey is going on as you recall.

CMS focus survey.

And as well as.

Our HIPAA healthcare policy, and finance survey and CDP H, So theyre very two different things.

Also Colorado was related as you may recall to a complaint so.

They are different and what we can't do for you today or what I can't do for you today is to describe the differences or even.

The similarities because they are really two different.

Points in time.

And types of surveys that were going on were similar but there's but there's obviously differences in the programs.

Okay understood.

Maybe just on the external provider cost you talked about those coming down across.

Fourth quarter, what are you seeing so far in <unk>.

The first quarter of your fiscal year end.

What's contemplated just generally speaking as you think about COVID-19 trend in a non COVID-19 utilization what are you.

Kind of contemplating in your guidance for external provider cost as a percent of revenue in fiscal 'twenty two.

Yeah. So this is barb so actually in quarter four when you compare this was in the prepared remarks.

Q4, compared to Q3, we actually saw.

A bit of an increase as the centers opened and in operations returned to normal there was a bit of a pent up demand with specialists out patient that's in their prepared remarks.

We see that normalizing going forward. So that was to be expected in Q4. Once we opened our centers those external provider costs were actually.

Higher than they were a quarter over quarter, but we do see that starting to normalize in this fiscal year.

So we believe it'll be get back to normal.

And just to clarify on that is that something we should start to expect early in the year. It is the first quarter.

To be challenged because of what's going on with Covid right now or you expect that the external provider Costco to start.

<unk> back to normal.

In the near term.

We think it'll start tracking back to normal in the near term.

Okay alright, thank you.

Thank you. Our next question comes from Gary Taylor of Cowen Your line is open.

Yes.

Hi, good afternoon.

Three questions from me the first.

My recollection was your Colorado revenue exposure was in the ballpark of almost 30% for the.

For the company is the.

I'm, sorry, I'm, drawing a blank not survey.

The audit related is that related to the entire Colorado operation. So if there were some.

Corrective action or whatever it would apply to the entire revenue base potentially.

That is correct of Colorado.

Okay.

And then this one for Barb I think of the roughly 10 million of revenue adjustments you called out for the fiscal for Q, How do we think about the margin contribution.

From that.

Is that just it was extra revenue that true up and the bulk of that flowed down through to EBITDA or is there offsets between the two numbers.

So the bulk of it.

Loews Dallas with the exception.

And part of some of the part D. So the bulk of it slows down.

And then the next part of I think the question will be because we did see some increase participant expenses in the fourth quarter.

Slightly above what we expected it to.

It's more investments in marketing and sales in the fourth quarter.

And we had some additional subsidies some slight additional G&A in the fourth quarter. So so it all doesn't translate down to the bottom line.

And that's really the bridge the reconciliation of those two.

Okay.

And then last question is I believe.

On the de Novo losses that you're contemplating for fiscal 'twenty, two you called out $10 million expectation.

It looks like that stuff.

A couple million dollars versus sort of preview.

Previous.

Expectations and it look like from your last press release, that's one the de Novo Scott.

<unk> it out just a little bit in terms of timing. So I don't know if there is maybe too deep in the weeds here, but I don't know if theres anything.

You can help us with just sort of thinking about.

Has why there might be additional de novo cost for the next year or so.

Maybe you don't agree if I'm looking at the numbers the right way.

No I think you are looking at them the right way.

Things are just really the timing of I think the capital expenditures and trying to get those get those de novo is up and running the capital and the Preopening losses.

And as I also indicated.

Although if you look we also indicate that there's some additional de novo.

In the pipeline.

Okay. Thank you.

Mhm.

Thank you our last question comes from the line of Sarah James of Barclays. Your question. Please.

Sir James Please make sure your line is immediate and if you're not a speaker phone lift your handset.

If theres no response.

To turn the call back over to Marine Hewitt for closing remarks.

Okay.

Scott.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 InnovAge Holding Corp Earnings Call

Request a DemoDemo

INNV

InnovAge Holding

Earnings