Q2 2024 InnovAge Holding Corp Earnings Call
Operator: www. InnovAge.com Good day, and thank you for standing by. Welcome to the InnovAge second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.
Okay.
Good day, and thank you for standing by and welcome to the innovative second quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.
Ask a question during this session you will need to press star one on your telephone.
The other major message is in your hands raised.
Operator: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I want to turn the conference over to your first speaker today, Ryan Kubota, Director of Investment Relations. Please go ahead.
Your question. Please press Star one again, please be advised that today's conference is being recorded Oh now I turn the conference over to your first speaker today right, but our director of Investor Relations. Please go ahead.
Ryan Kubota: Thank you, Operator. Good afternoon, and thank you all for joining the InnovAge Fiscal 2024 second quarter earnings call. With me today is Patrick Blair, President and CEO, and Ben Adams, CFO. Dr. Rich Pfeiffer, Chief Medical Officer, will also be joining the Q&A portion of the call. Today, after the market closed, we issued a press release containing detailed information on our quarterly results for our fiscal second quarter 2024. You may access the release on our investor relations section or company website, InnovAge.com. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, February 6, 2024, and have not been updated subsequent to this call. During our call, we refer to certain non-GAAP measures.
Thank you operator, good afternoon, and thank you all for joining the innovative fiscal 2024 second quarter earnings call.
With me today is Patrick Blair, President and CEO.
You bet Adam CFO.
Dr. Rich Fifer Chief Medical Officer will also be joining in the Q&A portion of the call.
Today after the market close we issued a press release containing detailed information on our quarterly results.
Our fiscal second quarter 2024.
You may access the release on our Investor Relations section of our company website Innovates Dot com.
For those listening to the rebroadcast of this call and remind you that the remarks made herein are as of today Tuesday February six 2024.
Have not been updated subsequent to this call.
During our call we refer to certain non-GAAP measures a reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release posted on our website.
Ryan Kubota: A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release posted on our website. We will also be making forward-looking statements, including statements related to our full fiscal year projection, future growth prospects, Florida DeNova Centers, or Acquisition of Concerto Care.
We will also be making forward looking statements.
Leading statements related to our full fiscal year projections.
Your growth prospects, Florida de Novo centers, our acquisition of Concerto care.
Ryan Kubota: Repair Capabilities, and Clinical Value Initiatives; Status of Current and Future Regulatory Actions, and other expectations. Listeners are cautioned that all of our forward-looking statements involve certain assumptions and are inherently subject to risk 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 Form 10-K Annual Report for fiscal year 2023 and our subsequent reports filed with the FCC, including our most recent quarterly report on Form 10-Q. After the completion of our prepared remarks, we will open the call for questions. I will now turn the call over to our President and CEO. Patrick Blair
A pair capabilities.
Michael value initiatives.
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Other expectations.
Listeners are cautioned that all of our forward looking statements involve certain assumptions and are inherently subject to risks and uncertainties that could cause our actual results to differ materially from our current expectations.
We advise listeners to review the risk factors discussed in our Form 10-K annual report for fiscal year 2023, and our subsequent reports filed with the SEC, including our most recent quarterly report on Form 10-Q.
After the completion of our prepared remarks, we will open the call for questions.
I will now turn the call over to our President and CEO.
Patrick Blair.
Patrick Blair: Patrick? Thank you, Ryan, and good afternoon, everyone. I want to begin by expressing my continued appreciation to our colleagues, participants, government partners, and the investor community who supported InnovAge. The company's second quarter results were consistent with our expectations and highlight the ongoing performance improvement across the business, further demonstrating incremental progress in our broader transformation to accelerate responsible growth while restoring operating margin lost during the regulatory sanction period. We reported revenue of $189 million for the quarter, an increase of approximately 3.5% compared to the first quarter, and Center-Level Contribution Margin of $34 million, which represents a 17.8% margin. Adjusted EBITDA was $7.8 million for the quarter, which represents a significant improvement compared to the first quarter, which was approximately 2.2 million. The census increased to 6,780, which represents a quarter-over-quarter improvement of 3%. Now, a few highlights.
Patrick.
Thank you Ryan and good afternoon, everyone I want to begin by expressing my continued appreciation to our colleagues participants government partners and the Investor community, who support innovation.
The company's second quarter results were consistent with our expectations and highlighting ongoing performance improvement across the business.
It further demonstrates incremental progress in our broader transformation plan to accelerate responsible growth, while restoring operating margin loss during the regulatory restriction period.
We reported revenue of $189 million for the quarter, an increase of approximately three 5% compared to the first quarter in.
And central level contribution margin of $34 million.
Which represents a 17, 8% margin.
Adjusted EBITDA was $7 $8 million for the quarter.
Each represents a significant improvement compared to the first quarter, which was approximately $2 2 million.
Since this increased to 6780, which represents a quarter over quarter improvement of 3%.
Now a few highlights.
Patrick Blair: Participant net enrollment growth for the quarter was solid at 195, which continues to strengthen our confidence in the value proposition we are. Our Clinical Value Initiatives, CVIs, as we refer to them, which focus on unnecessary utilization and lowering medical cost trends, are maturing in line with our expectations and beginning to translate into enhanced quality and greater operational efficiency, as evidenced by a quarter over quarter decrease in our participant expense PMPM of 0.7 percent. We're still in the early innings of this work, but we're pleased with the progress we're making. We are managing our non-center costs effectively in our enterprise service functions, resulting in a sequential decrease in general and administrative expenses as a percentage of revenue from 15.9% to 13.4%, and we have completed the implementation of the new EPIC EMR in all locations. On December 1st, we acquired Concerto Care Pace, which added two new centers in the highly strategic Southern California market. On January 1st, we officially opened our new center in Tampa, and we are now operational in six states. Colorado, California, Pennsylvania, New Mexico, Virginia, and Florida.
Participant net enrollment growth for the quarter was solid at 195, which continues to strengthen our confidence in the value proposition here delivery.
Our clinical value initiatives CVI is as we refer to them, which focus on unnecessary utilization and lowering medical cost trends are maturing in line with our expectations and beginning to translate into enhanced quality and greater operational efficiency.
As evidenced by our quarter over quarter decrease in our participant expense Pnp M. A four 7% we are still in the early innings of this work, but we're pleased with the progress we're making.
We are managing our non center cost effectively in our enterprise service functions, resulting in a sequential decrease in general and administrative expenses as a percentage of revenue from 15, 9% to 13, 4%.
And we completed the implementation of the new epic EMR in all locations.
On December <unk>, we acquired concerto care pace, which added two new centers into highly strategic southern California market.
On January one we officially opened our new center in Tampa and are now operational, but six states, Colorado, California, Pennsylvania, New Mexico, Virginia and Florida.
Patrick Blair: With half our fiscal year behind us, we're pleased with our progress and remain laser focused on exiting fiscal 24 with solid earnings momentum. While we have demonstrated strong sequential quarter-over-quarter progress, significant work remains to achieve our financial goals for the second half of fiscal year and to create a glide path for a successful fiscal 2020. As I mentioned last quarter, we have a great team, and confidence in our plan, and it continues to come down to consistent execution.
With half of our fiscal year behind US, we're pleased with our progress and remain laser focused on exiting fiscal 'twenty four with solid earnings momentum.
While we have demonstrated strong sequential quarter over quarter progress significant work remains to achieve our financial goals for the second half of fiscal 'twenty, four and to create a glide path for successful fiscal 'twenty five.
As I mentioned last quarter, we have a great team confidence in our plan and it continues to come down to consistent execution.
Patrick Blair: We remain focused on the levers that drive near-term performance while continuing to build a long-term foundation of compliance and operational excellence. Simply put, we believe we're on track to unlocking the full potential of the organization at an intentional pace, which will take perseverance and time. Before turning to our quarterly performance, I want to take a moment to address the California Regulatory Update included in our 10-Q. As you recall, we were released from enrollment sanctions in our Sacramento Center by CMS in November of 2020 and by the California Department of Health Care Services in May of 2023. Underpinning that release was validation from both agencies that corrective actions had been resolved to their satisfaction and that there were no remaining systemic concerns in October of 2020. CMS and DHCS conducted the final annual routine audit of our sacramental center, as required for all new PACE centers during their first three years of operations. Following that audit, CMS approved our corrective actions in accordance with their findings. DHCS notified us two weeks ago that it had identified a deficiency.
We remain focused on the levers that drive near term performance, while continuing to build a long term foundation of compliance and operational excellence simply put we believe we're on track to unlocking the full potential of the organization added intentional pace, which will take perseverance and time.
Before turning to our quarterly performance I want to take a moment to address the California regulatory update included in our 10-Q.
And as you'll recall, we were released from enrollment sanctions or sacramental center by CMS in November of 2022.
And by the California Department of Health care services in May of 2023.
Underpinning that release was validation from both agencies that corrective actions had been resolved to their satisfaction and that there were no remaining systemic concerns.
In October of 2023, CMS and D. HCS conducted the final annual routine audits of our sacramental center.
As required for all new <unk> centers during their first three years of operations.
Following that audit CMS approved our corrective actions in accordance with their findings.
DHS notified us two weeks ago.
Identified deficiencies last week they shared the specific findings with us after careful review of the findings, which are similar to the CMS findings, which were in the process of remediation. We are confident that we have in place the policies processes and systems to correctly identified issues.
Patrick Blair: Last week, they shared the specific findings with us. After careful review of the findings, which are similar to the CMS findings, which we are in the process of remediating, we are confident that we have in place the policies, processes, and systems to correct the identified issues. DHCS also communicated that it will be conducting a targeted medical review of our San Bernardino. DHCS has suspended its state attestations in support of our Plan de Novo centers in Downey and Bakersfield, which were scheduled to open this summer, but as indicated, it will evaluate lifting the suspension upon resolution of the matter.
The HCS also communicated that it will be conducting a targeted medical review of our San Bernardino sooner.
<unk> has suspended it stayed at test stations in support of our planned de Novo centers and downy in Bakersfield, which were scheduled to open. This summer but has indicated it will evaluate lifting the suspension upon resolution of the matter.
Patrick Blair: We remain confident that we will successfully address any issues to the full satisfaction of DHCS, and upon satisfactory remediation, DHCS will reinstate the attestations. We also remain confident with regard to our expansion plans. This is a highly regulated area, rightfully so. Audits and corrective actions are a normal course for all PACE organizations, given the populations we serve. We have seen the benefits of the foundational changes we've made in every center over the last two years to provide high-quality care. We work closely with our regulators on their audits and conduct our own audits in each center every month. And we've consistently seen a clear positive trend line. When opportunities for improvement at one center are identified, we make them quickly and then cascade learnings across. I want to be clear, compliance has been my North Star since I joined this company two years ago, and that will always be the case.
We remain confident that we will successfully address any issues to the full satisfaction of DHS and upon satisfactory remediation the DHS will reinstate the attestation.
We also remain confident with regard to our expansion plans.
This is a highly regulated area rightfully. So odyssey corrective actions are normal course, where all pace organizations given the populations. We serve we have seen the benefits of the foundational changes we've made in every center over the last two years to provide high quality care.
We work closely with our regulators on their audits and conduct our own origin. Each center every month and we've consistently seen a clear positive trend line.
When opportunities for improvement at one center are identified we make them quickly and then cascade learnings across the organization.
I want to be clear compliance has been my Northstar since I joined the company two years ago and that will always be the case, our leaders share my commitment to transparency and embraced the opportunity to collaborate with state and federal regulators to continuously improve our business I felt it was important to share this context and draw.
Patrick Blair: Our leaders share my commitment to transparency and embrace the opportunity to collaborate with state and federal regulators to continuously improve our business. I felt it was important to share this context and draw the critical distinction of where we are today relative to two and a half years ago. Now I'll turn to details about our recent performance, starting with existing center growth. New participant monthly enrollment continues to be above pre-sanctioned levels for the second consecutive quarter, consistent with our expectations. As I mentioned at the outset, we enrolled 195 participants in the quarter and have enrolled more than 375 participants in the first half of the fiscal year. We anticipate some modest seasonality related to the Medicare Annual Enrollment.
The critical distinction, where we are today relative to two and a half years ago.
Now I'll turn to details about our recent performance starting with existing center growth.
New participant monthly enrollment continues about pre sanction levels for the second consecutive quarter consistent with our expectations.
Initially at the outset, we enrolled 195 participants in the quarter and have enrolled more than 375 participants in the first half of the fiscal year.
As we approached the third fiscal quarter, we anticipate some modest seasonality related to the Medicare annual enrollment period.
Patrick Blair: This organic growth contributes to two key objectives, efficiently utilizing excess capacity in our centers, and new growth, especially in Colorado, helps rebalance the overall mix of our participant risk. We're pleased to see that our new participants reflect an appropriate balance of individuals living independently in the community and those that may require some level of supportive housing. We continue to see strong demand for our integrated solution that allows seniors to stay in their homes and communities and out of nursing homes. This demand is most evident in the sequential increase in total sales qualified leads, which is up approximately 11% from the prior quarter.
This organic growth contributes to two key objectives efficiently utilizing excess capacity in our centers and new growth, especially in Colorado helps rebalance the overall mix of our participant risk pool.
We're pleased to see that our new participants reflect an appropriate balance of individuals living independently in the community and those that may require some level of supportive housing.
We continue to see strong demand for our integrated solution that allows seniors to stay in their homes and communities.
Nursing homes. This demand is most evident in the sequential increase in total sales qualified leads which is up approximately 11% from the prior quarter.
Patrick Blair: Last quarter, we touched on enrollment as a joint effort between InnovAge and our state partners. While we are seeing aggregate enrollment consistent with our expectations, we continue to observe challenges in select markets which have resulted in enrollment processing delays, in part due to Medicaid redetermination. The barriers we're experiencing include state enrollment resource constraints, post-public health emergency policy changes that now require in-person level of care assessments versus telephonic, and new state vendors who are still ramping up to targeted service levels. Recall that this does not affect the eligibility of potential participants, but rather the speed through which we can get them enrolled into PACE. However, lengthy delays can result in prospects evaluating other options and can translate into missed enrollment opportunities.
Last quarter, we touched on enrollment as a joint effort between innovation of our state partners.
While we are seeing aggregate enrollment consistent with our expectations. We continue to observe challenges in select markets, which have resulted in enrollment processing delays in part due to Medicaid redetermination.
The barriers were experiencing include state enrollment resource constraints post.
Post public health emergency policy changes that now require in person level of care assessments versus telephonic.
And new state vendors, who are still ramping up to targeted service levels were.
Recall that this does not affect the eligibility of potential participants.
But rather the speed to which we can get them enrolled into pace. However, lately delays can result in prospects are evaluating other options and can translate into mist enrollment opportunities. Our state partners remain active and committed to resolving these issues with us as rapidly as possible.
Patrick Blair: Our state partners remain active and committed to resolving these issues with us as rapidly as possible. On the positive side, we're finding more eligible participants interested in joining InnovAge than are currently enrolling today. On the de novo front, we're pleased to announce that we're operational at our new Tampa Center. Recall, this state-of-the-art center is approximately 42,000 square feet and is expected to serve approximately 1,300 participants at maturity. Enrollment efforts are underway, and job number one is to begin expanding access to the many deserving eligible participants in the community. We believe Florida is an attractive sixth state given the number of eligible individuals and the lack of integrated solutions for the frail dual eligible population.
To state the positive we're finding more eligible participants interested in joining of aged and we're currently enrolling today.
On the de Novo front, we're pleased to announce that were operational at our new campus Center.
Call. This state of the Art Center is approximately 42000 square feet and is expected to serve approximately 1300 participants at maturity.
Enrollment efforts are underway and job number one is to begin expanding access to the many deserving eligible participants in the community.
We believe Florida is an attractive six state given the number of eligible individuals and a lack of integrated solutions for the frail dual eligible population.
Patrick Blair: We're also in the final push of pre-launch activities for our Lando system. Like Tampa, it's comparably sized and represents our latest best practices in terms of building design, technology enablement, and operating model. We anticipate Orlando Center will be ready to accept new participants in the fourth quarter, barring any unforeseen delays. On December 1st, we completed the acquisition of Coupé Centers in Southern California from Concerto.
We're also in the final push of prelaunch activities for Orlando Center like Tampa, It's comparably sized and represents our latest best practices in terms of building design technology enablement and operating model, we anticipate Orlando center will be ready to accept new participants in the fourth quarter barring any unforeseen.
Delays.
On December <unk>, we completed the acquisition of <unk> centers in Southern California from Concerto care, we consider this transaction more of a hybrid between an acquisition and it de Novo as it included a recently opened sooner in the <unk> neighborhood of Los Angeles with minimal census, and a center in the final stages of the.
Patrick Blair: We consider this transaction more of a hybrid between an acquisition and a de novo, as it included a recently opened center in the Crenshaw neighborhood of Los Angeles with a minimal census and a center in the final stages of the application for licensure in Bakersfield. We've been evaluating several alternatives to continue responsible growth in this market, and these centers facilitate a faster and more cost-effective expansion compared to building the centers from scratch while enabling us to implement our operating model from day one. Of note, we anticipate these centers will add modest operating losses to our fully consolidated EBITDA in the near term as we work through the maturity curve. Taken together, we believe these new centers, along with our pending DeNovo Center endowment, demonstrate our ability to augment existing center growth with cost-effective expansion.
<unk> for licensure in Bakersfield, we have been evaluating several alternatives to continue responsible growth in this market.
These centers facilitate a faster and more cost effective expansion compared to building the centers from scratch, while enabling us to implement our operating model from day. One of note. We anticipate these centers will add modest operating losses to our fully consolidated EBITDA near term as we work through the maturity curve.
Taken together, we believe these new centers, along with our pending de Novo center in Downey demonstrate our ability to augment existing center growth with cost effective expansions. We are excited for the opportunity to serve more seniors in more geographies over the next several months, while also increasing our overall portfolio capacity by approximately 30%.
Patrick Blair: We are excited for the opportunity to serve more seniors in more geographies over the next several months while also increasing our overall portfolio capacity by approximately 30% once all of these centers are open, which we believe will be a meaningful driver of growth in the near term and represent a significant uplift in embedded earnings over the long term. You'll recall that we measure and drive accountability for results through our five-pillar performance framework, which includes people, service, quality, growth, and financial KPIs. We measure these in every center every month.
Once all of these centers are open, which we believe will be a meaningful driver of growth in the near term and represents significant uplift and embedded earnings long term.
Youll recall that we measure and drive accountability for results to our five pillar performance framework, which includes people service quality growth and financial Kpis. We measure these and every center every month, we continue to see strong results across our people service and quality pillars and will continue to.
Patrick Blair: We continue to see strong results across our people, service, and quality pillars and will continue to invest in the people and resources necessary to further strengthen quality and compliance in each of our centers. Additionally, we continue to see improvements in reducing external provider costs as our portfolio of clinical value initiatives mature. In the aggregate, we're trending ahead of internal targets on most initiatives fiscal year to date, with strong progress in areas such as inpatient admissions and skilled short-stay utilization. We've also observed meaningful improvement this quarter in areas such as reduced end-of-life costs and contract transportation costs. One new area of focus in the last quarter is ensuring we have the highest performing supportive housing network from a quality, compliance, and cost perspective.
And the people and resources necessary to further strengthen quality and compliance in each of our centers separately, we continue to see improvements in reducing external provider costs as our portfolio of clinical value initiatives mature.
In the aggregate we're trending ahead of internal targets on most initiatives fiscal year to date with strong progress in areas such as inpatient admissions and skilled short stay utilization. We've also observed meaningful improvement this quarter in areas such as reduced end of life cost and contract transportation cost.
One new area of focus in the last quarter is ensuring we have the highest performing supportive housing network from a quality compliance and cost perspective, we're continually learning and improving as we go through compliance and quality audits one of our key learnings is how dependent are quality compliance and financial performance.
Patrick Blair: We're continually learning and improving as we go through compliance and quality audits. One of our key learnings is how dependent our quality, compliance, and financial performance is on the quality of nursing facilities and assisted living facilities in our network, given we have ultimate accountability for the care that is provided and administered in these settings. With this in mind, we have increased our focus on the quality and value of our supportive housing network. By ranking our providers on the dimensions of quality of care, compliance, cost, and cooperation, and by narrowing our network around higher-performing facilities, we're able to ensure our participants have access to the highest-performing providers in their community.
Yes on the quality of nursing facilities and assisted living facilities in our network given we have ultimate accountability for the care that is provided and administered in these settings with this in mind, we have increased our focus on the quality and value of our supportive housing network by ranking our providers on the dimensions of quality of care comply.
<unk> cost and cooperation and by narrowing our network around higher performing facilities, we're able to ensure our participants have access to the highest performing providers in their community.
We're seeing similar progress in the management of our general administrative expenses. This quarter, we saw a sequential decrease in G&A of approximately $3 6 million importantly.
Patrick Blair: We're seeing similar progress in the management of our general administrative expenses. This quarter, we saw a sequential decrease in G&A of approximately $3.6 million. Importantly, ongoing growth will help to right-size our overall cost structure as we continue to expand revenue through existing center enrollment and new center development. Lastly, we're pleased to report that we're now operational across our entire portfolio with the first-ever PACE-specific instance evaluation. As we've discussed previously, this was a significant investment in dollars and time for the organization, and we view our new EMR as a chief enabler of increased operational productivity, efficiency, compliance, and clinical staff satisfaction going forward. While it will take some time to achieve full adoption and the expected benefits in our newer markets, we're already seeing early wins in terms of operational and clinical efficiency. In summary, we believe we are improving the business every quarter. And I, again, want to thank my 2,100 InnovAge colleagues nationwide who are working tirelessly to make this wonderful program a reality for participants every single day.
Importantly, ongoing growth will help to rightsize, our overall cost structure as we continue to expand revenue through existing center enrollment and New Center development.
Lastly, we're pleased to report that we're now operational across our entire portfolio with the first ever pay specific instance of epic.
As we've discussed previously this was a significant investment in dollars and time for the organization and we view our new EMR is a chief enabler of increased operational productivity efficiency compliance and clinical staff satisfaction going forward, while it will take some time to achieve full adoption and the expected benefits and.
Our newer markets, we're already seeing early wins in terms of operational and clinical efficiencies.
In summary, we believe we are improving the business every quarter.
And I again want to thank my 'twenty 100 innovative colleagues nationally who are working tirelessly to make this wonderful program a reality for participants every single day, we remain focused on the actions that are unlocking both near term and long term value and believe it will translate into both enhance competitive.
<unk> in the marketplace as well as improved financial performance.
Finally, I want to remind the audience that we're excited to be hosting our first investor day on February 27th in New York, where we will provide more details on the journey we're on.
Patrick Blair: We remain focused on the actions that are unlocking both near-term and long-term value and believe it will translate into both enhanced competitive differentiation in the marketplace, as well as improved financial performance. Finally, I want to remind the audience that we're excited to be hosting our first Investor Day on February 27th in New York, where we will provide more details on the journey we are on. And with that, I'll turn it over to Ben to walk through our quarterly financial performance. Thank you, Patrick.
And with that I'll turn it over to Ben to walk through our quarterly financial performance.
Thank you Patrick today I'll provide some highlights from our second quarter fiscal year 2024 financial performance.
Reaffirmation of our fiscal 2020 for guidance.
Insight into some of the trends we are seeing heading into the spring.
Ben Adams: Today, I'll provide some highlights from our second quarter fiscal year 2024 financial performance, a reaffirmation of our fiscal 2024 guidance, and some insight into some of the trends we are seeing heading into the spring. While it is still early in our margin improvement initiatives, we continue to track to our internal targets and are pleased with the progress we have made so far this fiscal year, starting with the census. We ended the second quarter of fiscal year 2024 with 18 centers and approximately 6,780 participants as of December 31, 2023. We also reported 20,130 member months in the second quarter, a 3% increase in both the ending census and member months compared to the first quarter. Total revenue increased by 3.5 percent to $188.9 million in the second quarter compared to the first quarter, due primarily to an increase in member months coupled with an increase in capitation rates, primarily due to a one-time Medicare true-up outside the regular payment cycle.
While it is still early in our margin improvement initiatives, we continue to track to our internal targets and are pleased with the progress we have made so far this fiscal year.
Starting with <unk> we.
Ended the second quarter of fiscal year 2024, with 18 centers at approximately 6780 participants as of December 31 2023.
We also reported 20130 member months in the second quarter, a 3% increase in both ending fences and member months compared to the first quarter.
Total revenue increased by three 5% to $188 9 million in the second quarter compared to the first quarter.
Due primarily to an increase in member months, coupled with an increase in capitation rates, primarily due to a onetime Medicare true up outside the regular payment cycle recorded in the second quarter.
We incurred $101 million of external provider costs during the second quarter of fiscal 2024.
One, 6% increase compared to the first quarter.
The sequential increase was driven by an increase in member months, partially offset by a decrease in cost per participant.
Ben Adams: We incurred $101 million of external provider costs during the second quarter of fiscal 2024, a 1.6% increase compared to the first quarter. The sequential increase was driven by an increase in member months, partially offset by a decrease in cost per participant. The cost-per-participant decrease was driven by lower permanent nursing facility utilization, although partially offset by an increase in inpatient utilization, which is not uncommon in the winter months. Cost of care, excluding depreciation and amortization, of $54.3 million decreased 1.7% compared to the first quarter. The decrease was due to lower costs per participant, partially offset by the increase in member months. The cost-per-participant decrease was driven by a reduction in fleet expenses, including contract transportation.
The cost per participant decrease was driven by lower permanent nursing facility utilization.
Partially offset by an increase in inpatient utilization, which is not uncommon in the winter months.
Cost of care, excluding depreciation and amortization.
$54 $3 million decreased one 7% compared to the first quarter.
The decrease was due to lower cost per participant partially offset by the increase in member month.
The cost per participant decrease was driven by a reduction in fleet expense, including contract transportation fuel cost and vehicle repairs and maintenance as well as a reduction in supplies expense.
This was partially offset by an increase in ftes and annual wage rate increases.
Federal level contribution margin, which we define as total revenue less external provider costs and cost of care, excluding depreciation and amortization.
Ben Adams: Fuel Costs, and Vehicle Repairs and Maintenance, as well as a reduction in supplies expense. This was partially offset by an increase in FTEs and annual wage rate increases. Center-Level Contribution Margin, which we define as total revenue less external provider costs and cost of care, excluding depreciation and labor, was $33.6 million for the quarter compared to $27.9 million in the first quarter.
It was $33 6 million for the quarter compared to $27 9 million in the first quarter.
As a percentage of revenue center level contribution margin increased to 17, 8% compared to 15, 3% in the first quarter, reflecting an improvement in the quality of our earnings in our centers.
Ben Adams: As a percentage of revenue, the center-level contribution margin increased to 17.8% compared to 15.3% in the first quarter, reflecting an improvement in the quality of our earnings in our center. Sales and marketing expense were $5.9 million, an increase of approximately $500,000 compared to the prior year. The increase was primarily due to increased marketing, as we launched our new marketing campaign in November and increased headcount. Corporate general and administrative expense declined to $25.2 million, a $3.7 million decrease compared to the first quarter.
Sales and marketing expense was $5 9 million, an increase of approximately $500000 compared to the prior quarter.
The increase was primarily due to increased marketing spend as we launched our new marketing campaign in November and increased head count.
Corporate general and administrative expense declined to $25 2 million.
A $3 $7 million decrease compared to the first quarter.
Ben Adams: The decrease was primarily due to a reduction in third-party costs related to legal, consulting, and financial reporting and decreased implementation costs associated with EPIC. However, the decrease was partially offset by an increase in IT license fees, inclusive of EPIC, in Baghdad. The net loss was $3.8 million compared to a net loss of $11 million in the first quarter. We recorded a net loss per share of $0.03 on both a basic and diluted basis, and our weighted average share count was approximately 135.9 million shares for the quarter on both a basic and fully diluted basis.
The decrease was primarily due to a reduction in third party costs related to legal consulting and financial reporting.
And decreased implementation costs associated with epic.
The decrease was partially offset by an increase in license fees inclusive of epic.
And bad debt.
Net loss was $3 8 million compared to net loss of $11 million in the first quarter.
We recorded a net loss per share of <unk> on both a basic and diluted basis and our weighted average share count was approximately $135 9 million shares for the quarter on both a basic and fully diluted basis.
Ben Adams: Adjusted EBITDA, which we calculate by adding interest expense, taxes, depreciation and amortization, M&A, and DeNovo Center development expenses, and other non-recurring or exceptional causes to net loss, was $7.8 million for the quarter, compared to $2.2 million in the first. Our adjusted EBITDA margin was 4.1% for the second quarter, compared to 1.2% in the first. De Novo losses for the second quarter were $2.2 million and related to our acquisition of Concerto Pace, which occurred on December 1st, and our centers in Florida. This compares to $1.6 million of DeNovo losses in the first year. Turning Doorbells On the balance sheet, we ended the quarter with $54.1 million in cash and cash equivalents, plus $44.7 million in short-term investments. We had $83.7 million in total debt on the balance sheet, representing debt under our Senior Secured Term Loan plus finance, lease obligations, and other commitments. For the second quarter, we recorded negative cash flow from operations of $9.3 million, and we had $1.6 million in capital expenditure, excluding the purchase price of concerto pay.
Adjusted EBITDA, which we calculate by adding interest expense.
Depreciation and amortization M&A and de Novo Center development expenses, and other non recurring or exceptional costs.
Net loss.
Was seven $8 million for the quarter.
Compared to $2 $2 million in the first quarter.
Our adjusted EBITDA margin was four 1% for the second quarter compared to one 2% in the first quarter.
De Novo losses for the second quarter were $2 2 million in related to our acquisition of concerto pace, which occurred on December one and.
And our centers in Florida.
This compares to $1 6 billion.
Up to novo losses in the first quarter.
Turning to our balance sheet, we ended the quarter with $54 $1 million in cash and cash equivalents plus.
Plus $44 7 million and short term investments.
We had $83 7 million and total debt on the balance sheet, representing debt under our senior secured term loan plus finance lease obligations and other commitments.
For the second quarter, we recorded negative cash flow from operations of $9 3 million and we had $1 6 million in capital expenditures, excluding the purchase price of concerto pace.
Ben Adams: We are reaffirming our fiscal 2024 guidance, which now includes the concerto pace acquisition, based on the information as of today. We expect our ending census for fiscal year 2024 to be between 6,800 and 7,400 participants, and member months to be in the range of $79,000 to $83,000. We are projecting total revenue in the range of $725 million to $775 million and adjusted EBITDA in the range of $12 million to $18 million. Finally, we anticipate that NOVA's losses for fiscal 2024 will be in the $10 to $12 million range, which again is inclusive of our recent acquisition of ConcertoPay.
We are reaffirming our fiscal 2024 guidance, which now includes the concerto pace acquisition.
Based on the information as of today.
We expect our ending fences for fiscal year 2024 to be between 6000 807400 participants.
And remember month to be in the range of 79.
283.
We are projecting total revenue in the range of $725 million to $775 million.
And adjusted EBITDA in the range of 12 million to $18 million.
Finally, we anticipate that the novo losses for fiscal 2024 will be in the $10 million to $12 million range, which again is inclusive of our recent acquisition of concerto pace.
Operator: In closing, I want to reiterate Patrick's comments as we believe we are continuing to make improvements to the business every quarter. We remain focused on all aspects of the business to drive near-term and longer-term value, and we look forward to providing more details at our upcoming Investor Day on the 27th of February. We will provide details on the event later this week. Operator, that concludes our prepared remarks. Please open the call for questions. Thank you. And at this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
In closing I want to reiterate Patrick's comments as we believe we are continuing to make improvements to the business every quarter.
We remain focused on all aspects of the business to drive near term and longer term value.
And we look forward to providing more details at our upcoming Investor day on the 27th of February.
We will provide details on the event later this week.
Operator that concludes our prepared remarks, please open the call for questions.
Thank you and at this time, we will conduct a question and answer session. As a reminder to ask a question you May press star one on your telephone and wait for your name to be announced to try a question. Please press star one again, please and biologics upon the Q&A roster.
Operator: Please sign by while we compile the Q&A roster. One moment for our first question. The first question will come from Jason Casorla from Citi. Your line is open.
One moment for your first question.
Our first question will come from the line of Jason Cazorla from Citi. Your line is open.
Jason Casorla: Great, thanks for taking my questions. Then you noted a Medicare true-up in the quarter. Apologies if I missed this, but can you help size that true-up?
Alright, great. Thanks for taking my questions.
And then you noted a Medicare true up in the quarter I apologies if I missed this but can you help size that true up.
Ben Adams: And I guess in that context, you've previously discussed or suggested a strong kind of back half, even a ramp, as the fruits of your clinical value initiatives come to fruition. But, you know, in your prepared remarks, you talked about seasonality related to the MA open enrollment period and other nuances. In all that, can you just walk through how you're thinking about even a progression for the rest of 2024? Sure. Sure. And it's nice to hear your voice.
And I guess in that context, you've previously discussed suggested a strong kind of back half EBIT of ramp as the fruits of your clinical value initiatives come to fruition, but your prepared remarks, you talked about seasonality related to open enrollment period and other nuances maybe.
And all of that can you just walk through how youre thinking about EBIT progression goes up to 2024 as well.
Sure sure.
Okay.
Nice to hear your voice.
Ben Adams: So a couple of things are embedded in that question. The first is, sorry, the first is that we are on track for our guidance that we issued earlier in the year. So we're reaffirming our guidance. I'd say over the course of the year, not unexpectedly, there are some puts and takes that get us there.
So a couple of things that are embedded in that question.
The first is the.
The first is that we are on track for our guidance.
We issued earlier in the year. So we are reaffirming our guidance.
Tell you over the course of the year.
And not unexpectedly there are some puts and takes that get us there.
Ben Adams: So we had a final, final adjustment, which was a rate true-up related to 2022. And it had to do with the fact that CMS gave us a little extra time in terms of submitting that. And it was a COVID-related factor.
So we had a final final adjustment, which was a rate a rate true up related to 2022.
It had to do with the fact that CMS gave us a little extra time in terms of submitting that and it was.
Covid related factor that came through in the second quarter and that was sort of a meaningful increase to what we received in terms of Medicare rates in that quarter, we havent disclosed or broken out the numbers specifically in part because there are a number of factors that go into the course of the year, we just chose not to break out.
Ben Adams: That came through in the second quarter. And that was a sort of meaningful increase to what we received in terms of Medicare rates in that quarter. We haven't disclosed or broken out the numbers specifically, in part, because there are a number of factors that go into the course of the year. We just chose not to break out individual ones.
Ben Adams: But that gave us a good boost going into the back half of the year. Another factor that came into play here was a reduction in rates in California, which we're going to see in the back half of the year. There was an unexpected reduction versus a modest increase that we had in the forecast or in the budget going forward. And those two items, you know, to a large extent sort of offset each other.
Individual ones, but that gave us a good boost going into the back half of the year. Another factor that came into play here was a reduction in rates in California.
Which we're going to see in the back half of the year that was an unexpected reduction versus a modest increase that we had in our forecast. We are in the budget going forward and those two items to large extent sort of offset each other.
Ben Adams: And so that puts us on the path towards getting to guidance for the back of the year. A couple other things I would say about enrollment. There is a seasonal component to enrollment, and Patrick, I know, will want to comment on that a little bit further.
And so that puts us on path towards getting to guidance for the back of the year. A couple of other things I would say about enrollment there is a seasonal component to enrollment and Patrick I know you want to comment on that a little bit further but that affects us as we go into the first quarter of the year.
Patrick Blair: But that affects us as we go into the first quarter of the year. But, by and large, all of these things together end up with us reaffirming guidance and ending up with us being where we think we're going to come out. But, you know, as we indicated earlier in the year, we're quite confident about the destination towards which we're heading. But, you know, in any particular quarter or so, we'll have slightly different factors that get us to that. Hey Jason, good to hear from you.
But by and large all of these things together as we look at the components together and with US reaffirming guidance ending up with us being where we think we're going to come out.
We indicated earlier in the year.
Im confident on the destination towards which we are heading but.
Any one particular quarter or will have slightly different factors that get us to that destination.
Hey, Jason good to hear from you.
Patrick Blair: Just two things maybe I can add to what Ben said. As it relates to risk adjustment accuracy, you probably recall us highlighting that as one of the core sort of pillars of building out our payer capabilities, and CMS had extended the deadline for submission of 2022, calendar year 2022 risk scores. And so it gave us some extra time, and we were probably a little conservative on, given it was the first time we'd gone through it really as a team, an initiative like that, a bit conservative on our accrual. I think we're dialing that in and getting a better sense of it. And we've got some third parties helping us to produce better estimates of risk or accuracy.
Two things, maybe I may add to what Ben said is there as it relates to risk adjustment accuracy, you probably recall is highlighting that as one of the core pillars of building out our payer capabilities in <unk>.
<unk> extended the deadline.
For submission of 2022 calendar year 2022 risk scores and so it gave us some extra time and we were probably a little conservative on given it was the first time, we've gone through it really isn't team an initiative like that a bit conservative on our accrual.
I think we are dialing that in and get a better sense of that and we've got some third parties helping us.
<unk> better estimates of risk score accuracy changes I think in the future.
Patrick Blair: I think in the future, you know, I'm hoping that it's going to optimize our forecasting as well, and we'll be, you know, we'll just do a better job of understanding what period things are going to hit and how it compares to our accrual. And then on Ben's point related to, you know, seasonality, you know, this was a... Fairly sort of loud and frenetic Medicare Advantage, you know; there was more direct-to-consumer marketing than I think we've ever seen in our markets.
Hoping that it's going to optimize our forecasting as well it will be.
Do a better job of understanding what period things are going to hit and how does it compare to our accrual.
And then on bids point related to seasonality.
This was up.
Fairly sort of Loudon frenetic Medicare advantage there was there was more.
Direct to consumer marketing than I think we've ever seen in our markets.
Patrick Blair: And I think what Ben's hitting on is we'd really like to get a full fiscal year under our belts to see all the cycles, to see all the seasonality that's relevant to our business. And I think for those reasons, some of what's coming from that kind of annual election period doesn't hit us until Q3, and we're starting to, you know, try to understand what that means and whether it has any impact on our growth, et cetera. And then the CDI delays, I can, you know, I won't call out a specific example, but for example, we had a nice opportunity that we saw where we were paying significantly above market rates for some ancillary services, and we were very successful in negotiating the contract. We're probably under-estimating the implementation complexity to get that rolled out on the timeline that we thought.
And I think what <unk>, we'd really like to get a full fiscal year under our belt to see all the cycles to see all the seasonality, that's that's relevant to our business and.
I think for those reasons.
Some of whats coming from that kind of annual election period doesn't hit us into Q3, and we're starting to try to understand what that means and does it have any impact on our growth et cetera.
And then the.
The CVI delays.
I can.
Call out a specific but for example, we had a.
Nice opportunity that we saw when we repeat significantly above market rates for some ancillary services and we were very successful in negotiating the contract we probably under club the implementation complexity to get that rolled out on the timeline that we thought it as a result that CVI impact is delayed to later in the year and I think thats the kind of thing.
Patrick Blair: And as a result, that CDI impact is delayed to later in the year, and I think that's the kind of thing that Ben's hitting on by suggesting we're going to sort of stick with our guidance because there are a lot of puts and takes. Yeah, and I think of that one CVI point: it's important to recognize that we're going to get the targeted amount of dollar savings that we always intended to get, but the contract really just started a couple months later because it took a little longer to implement and negotiate. Okay, all very helpful. I appreciate it.
Bids hitting on by suggesting we're going to sort of stick with our guidance because there's a lot of puts and takes.
Yes, and I think of that one CVI point.
It's important to recognize that we are.
We're going to get that targeted amount of dollar savings that we always intended to get the contract really just started a couple of months later, because it took a little longer to implement and negotiated.
Got it okay. All very helpful. Appreciate it.
Jason Casorla: Maybe to the point around California, right? I wanted to ask just broadly around the PMPM rate development backdrop, you know, how should we think about the moving pieces on the Medicaid side, right? Perhaps, you know, if you expect any other material changes to kind of mid-calendar year rate development, you know, how rate discussions with state partners are developing now that the enhanced FMAP is winding down. And then just on the MA component, right, the proposed 2025 rate would suggest another sort of kind of tough year on that front. I guess I'm curious about how you're thinking about the MA side of the rate equation for the second half of this fiscal year and, you know, moving into 2025 would be helpful. I'll start, and maybe you can clean me up.
The point on California, I wanted to ask just broadly around the PM pm rate development backdrop.
How should we think about the moving pieces on the Medicaid side right. Perhaps if you expect any other material changes to your kind of mid calendar year rate development.
All right discussions with great partners developing.
Now does that enhance asset map is winding down and then.
Just on the I may component right. The proposed 25 rate would suggest another sort of tough year on that front I guess I'm curious on how youre thinking about the MA side of the rate equation for the second half of this fiscal year end.
Moving into 2025 will be helpful. Thanks.
I'll start and BBB cleaning up you know I think.
Patrick Blair: I think we're probably more focused on Medicaid rates, and it's still probably a bit too early to know what that's going to look like in the next fiscal year. I think what Ben pointed out is that in California, we came in below what we had targeted. You know, I would qualify that by saying that, you know, think of that as an industry impact in terms of pace and not an InnovAge specific impact. Lots of moving parts, but one notable part, a notable driver would be the periods of time that states use in the rate buildup.
We're probably more focused on Medicaid rates, it's still probably a bit too early to know what that's going to look like into next fiscal year I think what bill pointed out is in California. We came in below what we had targeted.
Qualify that by saying that you would think of that as an industry impact in terms of case.
Innovate specific impact.
Lots of moving parts, but one notable part.
Notable driver would be the.
Periods of time that stage using the rate buildup.
Patrick Blair: With the passage of time, the further we get from COVID, the more reflective actual experiences are of future experiences from a claims perspective. There's still a lot of noise, if you will, in the rate setting process that I think is a little bit of the lingering impacts of the data set related to COVID. So, California's, I think, are only staying for the fiscal year. So, you know, it's having an unexpected impact on the back half of this fiscal year. No, I think it's absolutely right.
With the passage of time to further we get through Covid, the more reflective actual experiences predicting future experience from a claims perspective, there's still a lot of noise. If you will.
<unk>.
In the rate setting process that I think is a little bit of the lingering impacts of the dataset related to COVID-19.
So, California, so I think where we stand on the fiscal year show.
Ben Adams: Okay, understood. Thanks. If I could squeeze in one last one,
Unexpected impact in the back half of this fiscal year.
No I think it's absolutely right.
Jason Casorla: I just wanted to quickly follow up on cash flow. It looks like there's a $25 million headwind on deferred revenue year-to-date. Can you just help reconcile what that was related to, if there's any color there?
Okay understood. Thanks, if I could squeeze in one last one I just wanted to quickly follow up on cash flow. It looks like there's a $25 million headwind on deferred revenue year to date can you just help reconcile what that was related to if there's any color there.
Ben Adams: Yeah, deferred revenue really relates to Medicare, and it relates to how the first day of the month falls relative to the weekend. So what happens is, if the first of the month falls on, like, a Sunday, if you will, well, if Medicare payments or reimbursements are due on the first of the month, what happens is we receive them on the Friday beforehand, so essentially in the prior month, if you will, by a couple of days. So when that occurs, we set up a deferred revenue account to adjust for that. When, all of a sudden, the first of the month falls on a weekday, that gets cleaned up in the following quarter. So when you think about that deferred revenue payment, think about it as, does the first of the month fall on a weekend or not, and how does that impact the timing of Medicare? Okay, fair enough. Thank you very much.
The deferred revenue really relates to Medicare and it relates to how the first day of the month falls relative to a weekend. So what happens is if you.
If the first of the month falls on a Sunday, if you will well Medicare payments to reimbursements are due in the first month. What happens is we received it on the Friday beforehand. So essentially in the prior month. If you will by a couple of days. So when that occurs we set up a deferred revenue account to adjust for that win.
All of a sudden first of all a month falls on a weekday that gets cleaned up in the following quarter. So when you think about that deferred revenue payments think about it is just the first of the month fall on a weekend or not and how does that impact the timing of the Medicare bid.
Okay fair enough. Thank you very much.
Thank you one moment for our next question.
Jason Casorla: Thank you. One moment for our next question. And our next question will come from the line of Jared Haste from William Blair. Your line is open, yeah hey guys good afternoon and thanks for taking the questions um the first one from us we're just just hoping to dig into the de novo ramp a little bit uh congrats on on getting the tampa facility open could you maybe just walk through or remind us a little bit on sort of what the expectations are in terms of how both census and profitability ramp for a de novo facility and i think a related question here obviously with the concerto acquisition in mind you know maybe you could talk a little bit about you know how uh that that sort of profitability ramp kind of informs the equation in terms of your perception of sort of a build versus buy opportunity just in terms of future growth thanks, Yeah, sure. Why don't I, I'll start it off here, and then Patrick will jump in with some comments here.
And our next question comes from the line of Jared Hayes from William Blair. Your line is open.
Yeah, Hey, guys good afternoon, and thanks for taking the questions.
The first one from us.
Just hoping to dig into the de Novo ramp a little bit congrats on getting the Tampa facility open could you, maybe just walk through or remind us a little bit on sort of what the expectations are in terms of how both sensus and profitability ramp for a de Novo facility and I think a related question here, obviously with that.
The <unk> acquisition in mind, maybe you could talk a little bit about how.
That's sort of profitability ramp kind of informs the equation in terms of your perception of sort of a build versus buy opportunity just in terms of future growth. Thanks.
Sure why don't I I'll start it off here and then Patrick will jump in with some comments here.
First of all thanks for the.
Ben Adams: First of all, thanks for the congratulations. It was a great transaction for us. We're really excited about it. If you were to think about the Concerto acquisition, I guess you should really think of it as, you know, two facilities. You know, there's one in Crenshaw, which is up and running, but it's a very small census.
Congrats it was a great transaction for US we're really excited about it.
If you were to think about the concerto acquisition I guess really think of it as two facilities. There is one which is <unk> crenshaw, which is up and running but it's a very small sensors. So think of that as almost like a de risked de novo because our census is in the call. It 2020 folks.
And then think about the Bakersfield, one which is a center thats essentially fully constructed basically awaiting.
Ben Adams: So think of that as almost like a de-risked de novo because our census is in the, you know, call it 20 folks. And then think about the Bakersfield one, which is a center that's essentially fully constructed, basically awaiting approval to open, right? So when we look at that acquisition, we think of it as a basically de-risked de novo. But generally, the way we think about de novos is that, you know, it will take us on the order of six quarters, probably, to fill them up to the point where we get to a positive center-level contribution margin. And then it'll take us some time beyond that before they reach maturity.
Approval to open right. So when we look at that acquisition, we think of it as a basically derisked de novo, but generally the way we think about de novo's is that it will take us on the order of six quarters, probably to fill them up to the point, where we get to a positive center level contribution.
Margin.
And then it'll take us some time beyond that before they hit maturity, but really it's in that first six quarters that we really watch the cash flow impact, especially carefully because we obviously want to get them up to be contributors as quickly as possible and so when we do our forecasting and we go through our strategic analysis about do we wanted to.
Ben Adams: But really, it's in those first six quarters that we really watch the cash flow impact, especially carefully, because we obviously want to get them up to be contributors as quickly as possible. And so when we do our forecasting and we go through our strategic analysis about whether we want to do de novos, or do we want to do acquisitions, or, in this case, kind of a hybrid de novo, that's the way we model out the business. Yeah, I'll just add, you know, I mentioned Investor Day on February 27th. One of our goals at Investor Day is to bring more clarity to the DeNovo ramp-up and sort of the unit economics of the business. So we'll do that. You know, in terms of what to expect with the DeNovo, you know, each market is different.
De novo's or do we want to do acquisitions or in this case kind of a hybrid to novo.
That's the way we model out the business.
Yes, I'll just I'll just add.
The Investor Day on February 27th one of our.
Goals at Investor Day is to is to bring more clarity to the de novo ramp up in the sort of the unit economics of the business. So we will do that in terms of what to expect with the de novo each market is different there's different density theres different managed care landscape different alternatives.
But I would say that sacramento's probably in data.
A bad proxy for what we think we can accomplish.
Example of were in Orlando.
Patrick Blair: You know, there's different density, there's different managed care landscape, different alternatives. But I would say that, you know, Sacramento's probably not a bad proxy for, you know, what we think we can accomplish in, say, Tampa or in Orlando. You know, it's a big market, there's a lot of opportunity, and we feel pretty good about our offering. And we've got a great team on the ground, and we've got a grand opening scheduled, I think, on March 3rd or 4th, excuse me, and so we've got a great opportunity just to introduce that product to the community, and we're feeling really good about it. And we're also feeling good about Sacramento Growth, just as, you know, while it's not a new market, in terms of a time limit, it was sanctioned not long after it was operational.
It's a big market there is a lot of opportunity and we feel pretty good about our offering and we've got a.
Great team on the ground.
We've got a grand openings scheduled I think on March 3rd Suite Force excuse me and so we've got a great opportunity to introduce that product to the community and we're feeling really good about it and we're also feeling good about Sacramento growth.
Just as while it's not a new market in terms of a timeline. It was it was sanctioned not long after it was operational so in many ways Sacramento is a new market.
As we think about the ramp.
We're really pleased with how the team is doing there.
Okay. That's super helpful. Thank you for that and then I wanted to follow up and I think this team.
Administrative delays kind of at the state level, that's maybe creating a little bit of a headwind for enrollment trends I think thats come up in recent quarters. I was curious is there anything that you guys are able to do internally in terms of once you've identified an eligible potential participants sort of working with them working with their.
Patrick Blair: So, in many ways, Sacramento is a new market as we think about the ramp, and we're really pleased with how the team is doing. Okay, that's super helpful.
Jared Haste: And then I wanted to follow up, and I think this theme of some administrative delays kind of at the state level is maybe creating a little bit of a headwind for enrollment trends. I think that's come up in recent quarters. I was curious, is there anything that you guys are able to do internally in terms of once you've identified an eligible potential participant, sort of working with them, working with their families, maybe helping them get through that process and maybe speeding up some of that time? Is that something that you have any control over? Or is it largely out of your control?
<unk>, maybe helping them get through that process and maybe speed up some of that time is that something that you have any control over or is it largely out of your hands.
Well it is a great question.
To ask the team the same question as well when there are delays that are sort of outside of our locus of control are there things. We can do to still help the family see the end of the see the end of the process and feel confident that this is going to be the right solution and it's kind of worth.
So we certainly do engage with individuals and their family and make them aware of.
Patrick Blair: Well, it is a great question. You know, I tend to ask the team the same question as well, when there are delays that are sort of outside of our locus of control, are there things we can do to, you know, still help the family see the end of the process and feel confident that this is going to be the right solution and it's kind of worth the wait. So we certainly do engage with individuals and their families and make them aware of administrative processing delays and set their expectations of when we think enrollment will occur. And, you know, more times than not, we're certainly able to achieve that and, you know, keep that individual in the funnel and get them access to the services that they need. At the same time, we're dealing with a very vulnerable population, and most of the individuals that are looking to access PACE are in need of rather immediate services. And so delays with the processing of applications at the state level can and do result in people making alternative choices. Sometimes it's going back into the state fee-for-service program.
Administrative processing delays and set their expectations of when we think enrollment will occur in.
More times than not we're certainly able to achieve that keep that individual in the funnel and get them access to the services that they need at the same time, we're dealing with the very vulnerable population again most of the individuals that are looking to access pace or in need of rather than <unk>.
It services and so delays with the processing of applications at the state can and do result in people, making alternative choices, sometimes it's pulling back into the state fee for service program <unk>.
Sometimes it could be in California could be with a competitor in the same territory or they can pursue maybe Medicare advantage and the belief that there is an option there but.
It is it is definitely something we do our best to manage we're working very closely with our states audit. The states have been great partners. It's just a reality that they often use subcontractors for this work and.
Patrick Blair: Sometimes it could be, you know, if it's in California, it could be with a PACE competitor in the same territory, or they could pursue maybe Medicare Advantage in the belief that there's an option there. But it is definitely something we do our best to manage. We're working very closely with our states on it. The states have been great partners.
That adds a layer of complexity for us to manage.
Okay.
Sense and appreciate the context, there and maybe I'll just sneak in one more question.
It sounded like you launched a new marketing campaign during the quarter wed love to just hear any specifics in terms of anything that's unique or has changed from prior years in terms of just how you are sort of communicating the message about innovative services.
Patrick Blair: It's just the reality that they often use subcontractors for this work. And, you know, that adds a layer of complexity for us to manage. Okay, that makes sense, and I appreciate the context there. And maybe I'll just sneak in one more question.
Yes, another another great question.
We'll be sharing some of our latest creative if you will at our Investor day, and so people get a better sense for if they haven't seen at least our broadcast TV.
Jared Haste: It sounded like you launched a new marketing campaign during the quarter. I would love to just hear any specifics in terms of anything that may be unique or has changed from prior years in terms of just how you're sort of communicating the message about InnovAge's services. Yeah, another great question.
At work.
I think one of the things that we're trying to do is to dispel that pace.
Pes is only for the absolute most vulnerable.
Patrick Blair: We'll be sharing some of our latest creative, if you will, at our investor day, so people get a better sense for if they haven't seen at least our broadcast TV, at work. I think one of the things that we're trying to do is to dispel the idea that, you know, pace is only for the absolute most vulnerable. You know, there are a lot of individuals that qualify for pace, that see pace as a place to enjoy socialization, meet new friends, address nutritional deficits, and that's a large, you know, large senior population, and so I think we've tried to use our creativity to drive a message home that Pace is a real resource to a broad segment of the frail senior community.
There are a lot of individuals that qualify for pace.
That.
C pace as a place to.
Enjoy socialization.
New friends.
Address nutritional deficits.
And that's a large.
Large senior population and so I think we've tried to use our creative tools to drive the message home that.
Paces, a real resource to a broad segment of the frail senior community I think maybe a second thing that's new is.
We're trying to appeal more directly to family members.
Patrick Blair: I think maybe a second thing that's new is we're trying to appeal more directly to family members. You know, I think in many cases, family members find Pace as much a solution for them as it is for their loved one, and I think our messaging is starting to appeal, you know, to the eldest daughter. Our data will tell us that that's a big decision maker, as an example, and so I think we're just trying to appeal to a broader market segment, and I think we've been successful at that. We've got a lot of great feedback on the creative. Perfect. It makes a lot of sense. I'll go ahead and leave it there and hop back in the queue.
I think in many cases family members find pace as much a solution for them as they do for their loved one.
Think our messaging is starting to appeal.
To the eldest daughter or data will tell us that that's a big decision makers as an example.
And so I think we're just.
Trying to appeal to a broader.
<unk> market segment, and I think we've been successful at that we've got a lot of great feedback on the creative.
Perfect. It makes a lot of sense I'll go ahead and leave it there and hop back in the queue. Thank you.
Jared Haste: Thank you. Thank you. And as a reminder, that's Star One for questions, Star One, one moment for our next question. Our next question will come from Jamie Pearce from Goldman Sachs. Your line is open. Hey, thanks. Good afternoon.
Thank you.
And as a reminder, that star one for questions are one one moment for our next question.
Our next question will come from the line of Jamie Pierce from Goldman Sachs. Your line is open.
Hey, Thanks, good afternoon.
Jamie Pearce: Maybe just starting with the Colorado enrollment trends, can you provide a little more detail on just the Census Rebuild there and patient mix that you're getting? I think you mentioned, you know, some balance between community versus facility patients broadly, but any surprises there just in terms of the patient mix and the broader trends in Colorado Census Rebuild? You know, Jamie, I think I would say that everything's going as we expected and hoped in Colorado. I think we're on the other side of what might have been some pent-up demand. And, you know, and I would say that that pent-up demand was maybe less reflective of a traditional participant mix.
Maybe just starting with the Colorado enrollment trends can you provide a little more detail on just the census rebuild there.
Patient mix that you are getting I think you mentioned some balance between community diverse facility patients broadly, but any any surprises there just in terms of the patient mix.
And the broader trends on Colorado census, rebuild.
Jamie I think I would say that everything is going as we expected and hoped in Colorado.
I think we're on the other side of what might have been some pent up demand.
And I would say that that pent up demand was maybe less reflective of our traditional participant mix I think we're on the other side of that.
Patrick Blair: I think we're on the other side of that. At the same time, I think that, you know, at least our gross enrollments are back to sort of the best period in the company's history. So, you know, coming out of sanctions, we set a goal for ourselves, at least near-term, to get the company back on kind of the track it was on, you know, doing all the right things. And I think we're seeing that. At the same time, you know, it's an example of a market where, you know, the demand is probably a bit larger than what's getting processed through the funnel.
At the same time, I think that at least our gross enrolments.
Our back to sort of the best period in the Companys history. So.
Coming out of the sanctions, we set a goal for ourselves at least near term to let's get the company back on kind of the track it was in sort of <unk>.
Doing all the right things and I think we're seeing that.
At the same time.
It's an example of a market where demand is probably a bit larger than what's getting processed through the funnel.
Patrick Blair: And we are working closely, you know, on that issue. But still, you know, it's leading to responsible growth in Colorado. And we're feeling really good about it.
And we are working closely on that issue.
But still.
It's leading to responsible growth in Colorado.
Feeling really good about it.
Patrick Blair: Okay, thanks for that. And then just on the seasonality comments, you talked about inpatient stays in the quarter. Any way to put numbers on that just in terms of, you know, how that impacted external provider costs in the quarter? And then as we think about your third fiscal quarter, how should we, you know, be modeling that rolling off? What's typical from a seasonality perspective as some of those inpatient costs come down? You know, first, I would say the seasonality, the relevance of a seasonality consideration, you know, is probably more appropriate through the lens of the third quarter versus the second quarter, because people are going through the annual election period, and it's really going to hit us if people decide to leave PACE for Medicare Advantage. We're just now kind of seeing that in the numbers. I don't think we actually have a good read yet on what the right seasonality cycle for the business is. One day we will see information that, you know, I think gives us confidence that the seasonality could be muted, and the next day, we see something to the contrary.
Okay. Thanks for that and then just on the seasonality comment you talked about inpatient in the quarter.
Any way to put numbers to that just in terms of.
How that impacted external provider costs in the quarter.
And then as we think about the third fiscal quarter, how should we be modeling that rolling off what's typical from a seasonality perspective as some of those inpatient costs come down.
First I would say the seasonality and the relevance of a seasonality consideration.
Probably more appropriate through the lens of the third quarter versus the second quarter because people are.
People are going through the annual election period, and it's really going to hit us if people decided to lead pace for Medicare advantage.
We're just now kind of seeing that in the numbers I don't think we actually have a good read yet on whats the right seasonality.
Sort of cycle for the business.
Yes.
One day, we will see information that.
I think gives us confidence that the seasonality could be muted in the next day, we see some some.
Ben Adams: And so I think we're still trying to figure out exactly what's the right guidance around seasonality, and, you know, it's just going to take some real-time experience to offer that. Ben, anything you would add in terms of... No, I think the second part of your question, I think, was really geared towards how do I think about census and member months for the back half of the year. And I guess I would tell you that, you know, we're not really providing any guidance on a quarter-by-quarter basis. You've got the data now on enrollment and member months for Q1 and Q2. If there's any seasonality in enrollment, it's really probably related to the third quarter, which tends to be a little bit lower for the reasons that Patrick just articulated.
Something to the contrary and so I think we're still trying to figure out exactly what's the right guidance around seasonality.
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It's just going to take it's going to take some experience real time to offer that be anything you would add in terms of.
No I think the second part of your question I think it was really geared towards how do I think about sensus in member months for the back half of the year.
And I guess I would tell you that we're not really providing any guidance on a quarter by quarter basis, you've got the data now on enrollment in member months for Q1 and Q2.
If there's any seasonality in enrollment, it's really probably related to the third quarter, which tends to be a little bit lower for the reasons that Patrick just articulated but then if you think about where we are in terms of our guidance targets being unchanged from where we were originally I think you can take those three pieces of information and put it together.
Ben Adams: But then, if you think about where we are in terms of our guidance targets being unchanged from where we were originally, I think you can take those three pieces of information, put them together, and come up with a reasonable expectation for how we might perform over the back half of the year. Okay, and then last quick one for me, just on maybe longer-term gross margin progression. You've talked in the past about rebuilding that, you know, maybe with different building blocks between the COGS lines.
Come up with a reasonable expectation for how we might perform over the back half of the year.
Okay, and then Lee.
Last quick one from me just on <unk>.
Maybe longer term gross margin progression you've talked in the past about rebuilding that maybe.
Maybe with different building blocks between the Cogs lines, how are you feeling broadly about that margin recovery.
Jamie Pearce: How are you feeling broadly about that margin recovery? You know, any areas you'd flag as being, you know, ahead or behind your expectations and level of confidence in rebuilding that over the next 12 to 18 months? Yeah, great question.
Any areas that you would flag as being ahead or behind of your expectations, then and level of confidence and rebuilding that over the next 12 to 18 months.
Yes, great question I'll start with Ben.
Patrick Blair: I'll start and let Ben weigh in. You know, I would, when I think about margin, I think we're beginning to think about it across two dimensions in the business. I think the first priority is to get our overall sitter-level contribution margin above 20%, and we want to do that across the portfolio. And that's inclusive of the investments we've made to fortify quality, compliance, and technology over the last year. But then, I think the next consideration is more around this adjusted EBITDA target. We believe we can substantially achieve a high single-digit, low double-digit adjusted EBITDA. But as we've talked about before, it could have a little different composition in how it's achieved because we're running a little heavier on the salaries, wages, and benefits in the market, not only because we've hired more staff and fortified our operating model, but there are natural inflationary factors that are a part of that as well that we and other health care organizations are dealing with. And the long-term margin targets, I think we think of those inclusive of additional scale over time because as we grow, we're going to continue to leverage our corporate G&A, our EPIC investment, et cetera.
No.
I would when I think about margin.
I think we're beginning to think about it.
Cross two dimensions in the business I think the first priority is to get our overall center level contribution margin above 20% and we wanted to do that across the.
The portfolio and that's inclusive of the investments we've made to fortify quality and compliance technology over the last.
Over the last year.
And then I think sort of the next consideration is more around this adjusted EBITDA target.
Believe we can substantially achieve a high single digit low double digit adjusted EBITDA, but as we've talked about before it can have a little different composition.
On how it's achieved because we're running a little heavier on the salaries wages and benefits in the market not only because we've hired more staff and fortified our operating model, but theres national.
Natural inflationary factors that are.
Part of that as well that we and other health care organizations.
Are dealing with and.
The long term margin targets I think we think of those inclusive of additional scale over time, because as we grow we're going to continue to leverage our corporate G&A our epic investment.
Patrick Blair: So at this stage... I think we're feeling confident, but we're very focused on the CLCM as sort of that leading indicator of what's achievable further down on the. Have you eaten yet? No, I think you captured it perfectly.
Et cetera show at this stage.
I think we're feeling confident but were very focused on the <unk> is sort of that leading indicator of what's achievable further down on the P&L.
Ben you didn't yet I think you captured it perfect.
Ben Adams: I appreciate it. Thank you. Thank you. I'm not asking any further questions at this time.
I appreciate it thank you.
Thank you I'm not showing any further questions at this time I would now like to turn it back to Patrick Blair for any closing remarks.
Patrick Blair: I would now like to turn it back to Patrick Blair for any closing remarks. Well, I appreciate those of you who took the time to dial in and hear more about our progress. I think I'll close with how I opened. We're improving the business every quarter. Delivering on that commitment is extremely important to myself and to the team, and I think the second thing is just transparency. You know, we're trying to provide as much information as possible to help you really understand how the business is operating, and you can count on us to be as transparent as possible with everything that we face as we transform the company. And then, I just would like to encourage everyone to join us, whether that's in person or through a recorded call, for Investor Day on February 27th. The goal there is to sort of reintroduce you to the company with Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day, www. InnovAge.com
Well.
I appreciate those of you who took the time to dial in and hear more about our progress.
I'll close with how I opened we're improving the business every quarter.
Delivering on that commitment is extremely important to myself and to the team.
And I think the second is just transparency.
<unk>.
We are.
Trying to provide as much information as possible to help you really understand how the business is operating and you can count on us to be as transparent as possible with <unk>.
With everything that we face as we transform the company and then I just would like to encourage.
Everyone to join us whether that's in person or through a recorded call.
Investor Day on February 27th.
The goal there is to sort of reintroduce you to the company.
With a bit more detailed and we're able to provide here on these calls.
And answer to your questions.
I'll give you just a deeper look at the business and introduce you to what I think is a fantastic leadership team.
That can run.
A much larger company and we're excited to share the story with you.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Okay.
[music].
Okay.