Q3 2025 InnovAge Holding Corp Earnings Call
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Good afternoon, and thank you all for joining the <unk> 2025 fiscal third quarter earnings call.
Patrick Blair: With me today is Patrick Blair CEO.
<unk> been out of the CFO.
Michael Scarborough, President and COO will also be joining for the Q&A portion of the call.
Patrick Blair: Today after the market closed we issued an earnings press release containing detailed information on our fiscal third quarter results.
Patrick Blair: You may access the release on the Investor Relations section of our company website innovations Dot com.
Patrick Blair: For those listening to the rebroadcast of this call. We remind you that the remarks made herein are as of today Tuesday may six 2025 and have not been updated subsequent to this call.
Patrick Blair: During our call we will refer to certain non-GAAP measures.
Patrick Blair: A conciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release posted on our website.
Patrick Blair: We may also make statements that are considered forward looking.
Patrick Blair: Including those related to our 2025 fiscal year projections and guidance.
Patrick Blair: Future growth prospects and growth strategy.
Patrick Blair: Our clinical and operational value initiatives.
Patrick Blair: Medicare rate increases.
Patrick Blair: <unk> headwinds.
Patrick Blair: The status of current and future regulatory actions and other expectations.
Patrick Blair: Listeners are cautioned that all of our forward looking statements involve certain assumptions and are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations.
Patrick Blair: We advise listeners to review the risk factors discussed in our annual report on Form 10-K for fiscal year 2024, and any subsequent reports filed with the SEC, including our most recently quarterly report on Form 10-Q.
Patrick Blair: After the completion of our prepared remarks, we will open the call for questions.
Speaker Change: I will now turn the call over to our CEO Patrick Blair Patrick.
Speaker Change: Thank you Ryan and good afternoon, everyone I'll begin by expressing my appreciation to our colleagues our participants and their families our government partners and the investment community.
Speaker Change: Each of whom plays a vital role in supporting <unk> mission.
Speaker Change: We delivered third quarter results that met our expectations and we are reaffirming our fiscal 2025 earnings guidance.
Speaker Change: Behind the numbers as a company operating with disciplined focus and growing confidence.
Speaker Change: In the health care environment clouded by policy uncertainty.
Speaker Change: What we need to do and we're doing it steadily and consistently that focus is translating into meaningful operational gains and financial improvement.
Speaker Change: Innovation cares for the nation's most vulnerable seniors individuals whose needs don't have inflow with economic cycles, we're shifting political priorities their care isn't optional into.
Speaker Change: It is federal estate programs fees growing scrutiny, we're not just participating in Medicare and Medicaid were helping make them stronger.
Speaker Change: We continue to see rising demand for care models that allows seniors to remain safely at home and we believe pace stands out as a proven high value solution for a population with the most complex needs.
Speaker Change: This quarter, we stepped up our engagement with both state and federal policymakers to make clear piece works for seniors for the system and for taxpayers.
Since individual part is who we serve as well as how we deliver and coordinated care.
Speaker Change: Turning to our third quarter financials, we reported revenue of $218 1 million.
Speaker Change: An approximate 13% increase on a year over year basis central level contribution was $47 million representing.
Speaker Change: Representing an 18, 7% margin and an improvement of approximately 110 basis points year over year.
Speaker Change: Adjusted EBITDA was $2 $8 million were up four 9% margin, which represents an improvement of more than three five times over third quarter 2024, adjusted EBITDA of $3 million census grew to approximately 7530 participants an approximate 10% increase.
Speaker Change: These results reflect continued strength in top line growth disciplined cost management and effective medical expense control, we're especially pleased with this progress given that the quarter coincided with Medicare annual enrollment period that intensifies competition across the senior care landscape. Despite these seasonal dynamics we continue to.
Speaker Change: Build momentum.
Speaker Change: As we shared last quarter innovation has shifted from operational stabilization to enterprise transformation and this quarter marks early progress on that journey.
Speaker Change: <unk> transformation, we are undertaking is more ambitious far reaching and the improvement initiatives. The three previous years, it's a comprehensive effort to re imagine how we operate how we create value and how we deliver on our mission.
Speaker Change: Over the past 90 days, we've launched numerous cross functional work streams focused on operational excellence and greater organizational efficiency.
Speaker Change: These initiatives are designed to not only improve how we serve participants today, but also to build the kind of scalable tech enabled platform that will allow us to grow sustainably differentiate on quality and operate efficiently.
Speaker Change: We are methodical in our approach clear eyed about the opportunity and confident in our belief that the foundation, we have laid will position us to drive meaningful performance and strong results in the quarter ahead and in fiscal 2026.
Speaker Change: Organically, we continue to grow this quarter with sensus rising to approximately 7530 participants representing more than 10% year over year growth.
Speaker Change: While sequential growth was modest as expected due to seasonal headwinds during medicare's annual enrollment period or AEP, we're pleased with the results, which reflect both our proactive strategy and disciplined execution.
Speaker Change: We've previously noted the competitive dynamic pace phases, III ADP, particularly for Medicare advantage special needs plans that offer cash equivalent supplemental benefits. This.
Speaker Change: This year, we took early and targeted action to educate both existing and prospective participants about the broader value proposition pace offers from comprehensive care to wrap around social support.
Speaker Change: We believe these efforts were effective in mitigating churn and reinforcing our differentiation in the market.
Speaker Change: In parallel we also delivered on the commitment we made last quarter to work with our state partners and address state driven enrollment processing delays, particularly in California. We're pleased to report that the backlog is returning to normalized levels, reducing the potential for payment variability in bad debt exposure.
Speaker Change: We appreciate the state's collaboration resolving these issues and we will continue to actively manage these relationships moving forward.
Speaker Change: Looking ahead, we remain focused on driving sustainable growth across our balanced geographic footprint. This disciplined approach will remain a top priority in the quarters to come.
Speaker Change: This quarter the strength of our integrated center based care model was on full display as many healthcare organizations face financial pressure from higher than expected medical cost tied to seasonal illness, we've been able to maintain strong cost discipline, while continuing to deliver quality outcomes for our participants to.
Despite what many are calling a quad gimmick flu COVID-19 RSV and norovirus, we kept external provider cost essentially flat quarter over quarter and $108 million. In fact, we improved on a per participant basis with <unk> spending declined from $4857 in Q2.
Speaker Change: <unk> $4786 in Q3.
Speaker Change: A key reason for this performance is our proactive clinical model since our participants visit our centers regularly and receive personalized wrap around care, we're in a better position to keep them, helping engaged our flu vaccination rate. This fiscal year is 77% well above the national average of 47% for seniors.
Speaker Change: This is not just a number it's a reflection of our hands on approach with each participant and how our teams are able to act early to help prevent small issues from becoming cost liquids.
Speaker Change: While other managed care organizations have flagged rising utilization as a headwind or differentiated experience this quarter reinforces the value of our tightly integrated care model in managing medical trend volatility.
Speaker Change: This ability to manage medical cost and quality simultaneously is exactly the kind of operational discipline, we're continuing to instill across the organization.
Speaker Change: As we say internally our employees have an owner's mindset and our caregivers heart further we continue to focus on areas of potential improvement from standardization across centers to increase rigor and performance management as well as the process through which we identify and prioritize new value drivers are.
Speaker Change: Our president and COO, Michael Scarborough has jumped right in and is leading these efforts. We're pleased to see these improvements beginning to show up in our internal operational and financial metrics.
Speaker Change: As Youll recall, we track our operational performance using a five pillar framework.
Speaker Change: <unk> engagement participant satisfaction quality compliance and financial results. This.
Speaker Change: This quarter, we saw sequential improvement in nearly every pillar with especially meaningful gains in employee sentiment and service level consistency.
Speaker Change: Our teams are energized our focus is sharp and we are executing with greater precision everyday.
Speaker Change: Regarding our leadership team as referenced in our press release, Dr. Rich Pfeiffer innovators Chief Medical Officer has left the organization to pursue opportunities outside the organization. We have a transition plan in place to ensure continuity in leadership and clinical oversight. We thank him for his meaningful contributions over the last two and a half years and we wish him well in his.
Speaker Change: Future pursuits, we have also made strategic progress under pharmacy initiatives last quarter, we announced the acquisition of pharmacy in Colorado to bring key capabilities in house I am pleased to report that the transition has been completed and we successfully migrated almost all of our pharmacy distribution and management to the new organization.
Speaker Change: This initiative was driven by our belief that greater control over pharmaceutical fulfillment will allow us to improve medication adherence enhanced participant outcomes reduce costs and simplify logistics, while it's still early we have strong confidence in this decision and we are seeing tangible benefits. We believe there is a long term value.
Speaker Change: Creation opportunity by further integrating pharmacy services into our clinical model.
Speaker Change: Looking ahead, our transformation efforts remain anchored and cost discipline operational excellence and our commitment to high quality care.
Speaker Change: Continuing to explore how best to balance in sourcing and outsourcing to maximize the quality and efficiency across the organization.
Speaker Change: Ultimately our vision is to build a best in class scalable paste platform, one that not only delivers consistent high quality care for today's participants, but also positions us as the partner of choice for future growth and strategic expansion.
Speaker Change: In an uncertain policy environment, our model can offer a level of resilience and operational predictability that we believe will distinguish innovate through the quarters and years ahead.
Speaker Change: In summary, we're proud of the steady progress we've made through the first three quarters of the year and we're confident in the road ahead each quarter, we're executing more consistently uncovering new opportunities to improve care and reduce cost and scale smarter. Our model continues to prove its strength, especially in volatile environments.
Speaker Change: Because it's built on proactive personalized care and a disciplined operating foundation in.
Speaker Change: In the face of policy uncertainty our conviction in the long term value of the pace model remains strong. We believe innovation is well positioned to thrive in this space are operational rigor is deepening our teams are energized and our strategy is coming to life in tangible ways from clinical performance to cost control to targeted investments.
Speaker Change: Our pharmacy acquisition.
Speaker Change: This is more than incremental improvement it's real transformation. We are working to build a next generation <unk> platform, one that delivers better outcomes for participants meaningful savings for the health care system and long term value for our shareholders. We're focused we're aligned and we're just getting started with that I'll turn it over to Ben to walk.
Ben: Through our financial performance for the quarter.
Ben: Thank you Patrick today, I will provide some highlights from our third quarter of fiscal year 2025 financial performance and insight into some of the trends we are seeing in the current quarter.
Ben: Starting with census, we served approximately 7530 participants across 20 centers as of March 31, 2025, which represents annual growth of 10, 4% compared to the third quarter of fiscal year 2024, and sequential growth of 0.7.
Ben: Percent.
Ben: We reported 22550 member months in the third quarter, an increase of approximately 10, 7% compared to the third quarter of fiscal year 2024, and an increase of approximately one 6% over the second quarter.
Ben: Total revenues of $218 $1 million increased 13% compared to $193 1 million in the third quarter of fiscal year 2024, driven by an increase in member months and capitation rates.
Ben: The increase in member months was primarily due to growth in our existing California, and Colorado centers and to a lesser extent due to the addition of de Novo centers in Florida, and the acquired center from Concerto.
Ben: The increase in capitation rates was primarily due to an increase in Medicaid and Medicare competition rate, partially offset by a portion of what was recorded as bad debt in previous years, which is now recorded as revenue reserve and.
Ben: And Medicare risk score true up accrual time.
Ben: Compared to the second quarter of fiscal year 2025, total revenues increased four 4% due to an increase in capitation rates and member months.
Ben: The increase in capitation rates was driven by annual rate increases in California, and Pennsylvania, partially offset by revenue reserve and an annual Medicare rate increase all effective January one 2025.
Ben: We incurred $107 $9 million of external provider cost during the third quarter of fiscal year 2025, an increase of seven 9% compared to the third quarter of fiscal year 2024.
Ben: The increase was driven by an increase in member months, partially offset by a decrease in cost per participant.
Ben: The decrease in cost per participant was primarily driven by a decrease in assisted living permanent nursing facility and short stay skilled nursing facility utilization a decrease in external hospice care associated with the transition of this function to internal clinical resources and a deep.
Ben: Kris and pharmacy expense associated with higher rebates and the transition to in house pharmacy services.
Ben: This decrease was partially offset by an increase in inpatient unit cost and an annual increase in assisted living and permanent nursing facility unit costs.
Ben: Compared to the second quarter external provider costs were essentially flat.
Ben: This was driven by an increase in member months, which was offset by a decrease in cost per participant.
Ben: The decrease in cost per participant was primarily due to lower pharmacy expenses associated with higher rebates and the transition to in house pharmacy services and a decrease in assisted living and permanent nursing facility utilization, partially offset by a seasonal increase in inpatient utilization and unit costs.
Ben: Yeah.
Ben: Cost of care, excluding depreciation and amortization was $69 5 million, an increase of 17, 6% compared to the third quarter of fiscal year 2020 for the.
Ben: The increase was due to an increase in member months, coupled with an increase in cost per participant.
Ben: The increase in expense was primarily driven by higher salaries wages and benefits associated with increased head count and a higher wage rates and increase in contract provider expenses in California associated with growth.
Ben: Third party fees and shipping costs associated with in House pharmacy services and fleet costs inclusive of contract transportation.
Ben: Cost of care, excluding depreciation and amortization increased eight 5% compared to the second quarter the.
Ben: The increase was due to an increase in cost per participant coupled with an increase in member months.
Ben: The increase in cost per participant was primarily driven by in house pharmacy third party fees and shipping costs.
Ben: An increase in salaries wages and benefits primarily associated with the annual reset of employee benefits and taxes and fleet costs, including contract transportation.
Ben: Central level contribution margin, which we define as total revenues less external provider costs and cost of care, excluding depreciation and amortization, which includes all medical and pharmacy cost was $40 7 million for the quarter compared to $37 1 million for the.
Ben: Quarter of fiscal year 2025.
Ben: As a percentage of revenue center level contribution margin of 18, 7% increased by approximately 100 basis points in the quarter compared to 17, 7% in the second quarter of fiscal year 2025.
Ben: Sales and marketing expenses of approximately $6 $9 million decreased three 6% compared to the third quarter of fiscal year 2024, primarily due to lower marketing expense, partially offset by increased head count to support growth.
Ben: Sales and marketing expenses decreased by approximately 10, 2% compared to the second quarter of 2025, primarily due to lower marketing expense as a result of increased media investment and campaign activity in the second quarter.
Ben: Corporate general and administrative expenses of $38 $6 million increased 41% compared to the third quarter of fiscal year 2024.
Ben: The increase was primarily due to the accrual of $10 $7 million with respect to the anticipated settlement of a previously disclosed stockholder lawsuit recorded during the quarter.
Ben: The remaining increase in corporate general administrative expenses of approximately $400000 was primarily due to an increase in employee compensation and benefits as a result of greater head count and wage rates to support compliance and bolster our organizational capabilities and fees associated with claims payment integrity.
Ben: Audits.
Ben: These increases were partially offset by a decrease in software license and recruiting fees and a reduction in insurance consulting and contract service expenses.
Ben: Corporate general and administrative expenses increased by 37, 3% or $10 5 million compared to the second quarter. The increase was due to the accrual with respect to the anticipated settlement of the stockholder lawsuit.
Ben: Net loss was $11 1 million compared to a net loss of $6 2 million in the third quarter of fiscal year 2024.
Ben: We reported a net loss per share of <unk> <unk> on both a basic and diluted basis and our weighted average share count was approximately $135 2 million shares for the quarter on both a basic and fully diluted basis.
Ben: Adjusted EBITDA was $10 8 million for the quarter compared to $3 million in the third quarter of fiscal year, 2024, and $5 9 million in the second quarter of fiscal year 2025.
Ben: Our adjusted EBITDA margin was four 9% for the third quarter compared to one 5% in the third quarter of fiscal year 2024, and two 8% in the second quarter of fiscal year 2025.
Ben: We do not add back losses incurred with our de Novo centers in the calculation of adjusted EBITDA.
Ben: De Novo center losses are defined as net losses related to Preopening and startup ramp through the first 24 months of de Novo operations.
Ben: For the third quarter de Novo losses were $3 $5 million and are primarily related to our Bakersfield and Crenshaw centers acquired from concerto in fiscal year, 2024, and our Tampa and Orlando Sanders and Florida.
Ben: This compares to $4 $1 million of de Novo losses in the third quarter of fiscal year, 2024, and $4 million of de Novo losses in the second quarter of fiscal year 2025.
Ben: Turning to our balance sheet, we ended the quarter with $60 $5 million in cash and cash equivalents.
Ben: $41 3 million and short term investments.
Ben: We had $77 3 million and total debt on the balance sheet, representing debt under our senior secured term loan convertible term loan and finance leases.
Ben: For the third quarter, we recorded positive cash flow from operations of $24 6 million and had $2 9 million of capital expenditures.
Ben: We repurchased approximately 315000 shares of common stock for an aggregate of approximately $1 $1 million under the company's share repurchase program during the quarter.
Ben: We are reaffirming our fiscal year 2025 guidance, which we laid out back in September based on information as of today, we expect our ending sensors for fiscal year 2025 to be between 7000, 307750 participants and member months.
Ben: To be in the range of 86000 to $89.
Ben: We are projecting total revenue in the range of $815 million to $865 million and adjusted EBITDA in the range of $24 million to $31 million.
Ben: And we anticipate de Novo losses for fiscal 2025 will be in the $18 million to $20 million range.
Ben: In closing we are pleased with our results and with the company's performance to date.
Ben: We remain focused on day to day operational execution and believe that the comprehensive personalized model of care pace requires remains a proven high value solution for seniors with complex care needs.
Ben: We look forward to providing an update on our full year results. During our next earnings call in September.
Speaker Change: Operator that concludes our prepared remarks, please open the call for questions.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Benjamin Rafi with J P. Morgan. Your line is now open.
Benjamin Rafi: Hey, thanks for the.
Benjamin Rafi: Question here. So on initial 2020 guidance I know, it's early here, but just as you're putting together guide can you just walk us through how to think about Medicare and Medicaid rate development over the course of the calendar year I believe last quarter, you mentioned the favorable rates in the mid single digits to high single digit screens coming in through California, and Pennsylvania, just curious if those rapidly.
Benjamin Rafi: The catch ups are coming through on Medicaid rates for those members for the remainder of the year.
Benjamin Rafi: Sure, Thanks, I'm going to be able to kick that over to you yes sure.
Benjamin Rafi: Guess, what I would say is.
Benjamin Rafi: It is early obviously for 'twenty.
Benjamin Rafi: We're just going through our budgeting process right now.
Benjamin Rafi: I think what we're what we're seeing is.
Benjamin Rafi: I expect we're going to have reasonable Medicare rates going into 2026.
Benjamin Rafi: And on a state basis I would say that we also at this point based on what we know about the about the states is that the rates earlier in the year for July one we think they are looking okay. In some cases, we've got some indications by the headline numbers, but we don't.
Benjamin Rafi: Really know what the policy changes are going to be so we haven't yet been able to understand what the full net impact is going to be there are other states like California, which are important states for us, which don't set their rates until later in the year.
Benjamin Rafi: For those ones, we don't have a lot of visibility right now and obviously with some of the changes in play in Washington, It's probably going to be a little bit.
Benjamin Rafi: While before we do so I guess, what I would say is.
Benjamin Rafi: Medicare we think we'll be okay.
Benjamin Rafi: We've seen so far in the Medicaid rates may be okay, but theres, obviously, a lot going on in Washington, So it's very hard to predict at this point.
Benjamin Rafi: Got it I appreciate the detail there and then just as a follow up on on Pharmacy services, you mentioned integrating some of the variances in your clinical model.
Benjamin Rafi: Thinking about pharmacy spend on your member base with the part the out of pocket maximum NAV down $2000.
Benjamin Rafi: First calendar quarter under our belt, if you've noticed any changes in pharmacy utilization trend across your member base between last quarter and this most recent quarter.
Patrick Blair: This is Patrick no we haven't noticed any changes in trend and I would just remind you that out of pocket costs and things of that nature that are hallmarks of the MAA part D program really don't apply to US we've got kind of a re a different reimbursement model.
Benjamin Rafi: Still follow up part D bid.
Benjamin Rafi: Bid process, but the mechanics of our revenue and costs and how they play through ultimately in our PMT and payments are different than Medicare advantage.
Benjamin Rafi: OPEC pocket cost are zero.
Benjamin Rafi: Great. Thanks for the clarification.
Benjamin Rafi: Okay.
Benjamin Rafi: Our next question.
Speaker Change: Our next question comes from the line of Jared <unk> of William Blair <unk> Company. Your line is now open.
Jared: Hey, good afternoon, and congrats on a nice result here. Thanks for taking the questions and Patrick I. Appreciate your comments about stepping up the engagement advocacy efforts with regulators and policymakers to sort of communicate the value of pace.
Jared: To hear a little bit more just about the nature of those conversations how they've been going and I guess really the main question is do you feel like the value of paces, well understood as youre kind of having that dialogue with people.
Jared: Yes. Thanks for the question. It's a great question, Yeah, we really have.
Jared: Stepped up our efforts to engage.
Jared: In direct discussions not only with.
Jared: State regulators and policymakers, but also at the federal level level than we have.
Jared: Additional.
Jared: Engagements and meetings planned here over the next several months.
Jared: I would say you're correct in that the questions. We most commonly get about pace.
Speaker Change: Are related to.
Jared: Why isn't bigger.
Speaker Change: What would it take in order to.
Speaker Change: Allow this program to serve more seniors I think underlying that initial kind of set of questions is.
Speaker Change: Interest in the populations, we serve I think people.
Speaker Change: Certainly understand.
Speaker Change: And are beginning to understand I think even more broadly that we serve a very.
Speaker Change: <unk>.
Speaker Change: Frail and elderly population.
Speaker Change: And.
Speaker Change: I'm not sure.
Speaker Change: All policymakers and really understood that when you think about Medicaid covers a lot of different populations.
Speaker Change: We're on the.
Speaker Change: The end of that spectrum, and so I think we're getting a lot of questions about what are some changes that could be made that could help pay serve more.
Speaker Change: More individuals.
Speaker Change: And we're getting a lot of interest I think in sort of what we do.
Speaker Change: Clearly, we're following the daily dynamics that exist on a regulatory and policy front and it's difficult for us.
Speaker Change: Sort of form a point of view, but when we think about the risks in our business I think we think about either direct risks and indirect risk.
Speaker Change: On the direct side, it's really a question that maybe other organizations face, which is are there going to be changes to koos eligible for services and of course anything that could directly impact.
Speaker Change: Who is eligible for pace and ultimately our growth and our census.
Speaker Change: Can you kind of consider that direct risk.
Speaker Change: Not hearing or seeing anything to suggest that pace is a target.
Speaker Change: Of reductions of any sort I think where.
Speaker Change: We're hearing sort of most of the rhetoric.
Speaker Change: I'm sure you do as well as things that could be more of an indirect risks whether it was in <unk>.
Speaker Change: If map reduction or changes to provider tax mechanics are block grants or work requirements you name it.
Speaker Change: All of those things could put some pressure on state budgets and anyone working with the state has been exposed to some some indirect risks but.
Speaker Change: I think for us.
Speaker Change: We're kind of in the business.
Speaker Change: <unk>.
Speaker Change: Of cyclical periods with states and we've got a great team that's created a business model that we feel like can adapt to whatever volatility we face.
Speaker Change: But we're very heartened by the fact that pace is something that states and CMS are very interested in during this period of transition.
Speaker Change: That's happening this will more than you asked for but certainly want you to have a perspective.
Speaker Change: No that's great I really appreciate all the color.
Speaker Change: And then maybe I'll ask a follow up just on the guidance.
Speaker Change: Specifically, obviously, you're reaffirming the outlook and maybe I'll ask it on the census guide, leaving to low end intact and I think youre already at the mid point after the third quarter results. So I'm wondering just how should we think about is that largely leaving conservatism here or anything else you would call out that we should be aware of for the last quarter of the year.
Speaker Change: Yes ill flip them.
Speaker Change: Yes, I was going to jump in here Patrick.
Speaker Change: I think what I'd say is we guide on I think four or five different metrics.
Speaker Change: And so I would think about that collectively as guidance.
Speaker Change: And the other thing I would say is Q4 can sometimes be a little tricky for us because we get our risk or true ups right at the end of the year.
Speaker Change: So given the fact that there can be some variability associated with those.
Speaker Change: And given that we're sort of approaching the low end of the range kind of three quarters of the way through the year on average I think we're sort of happy with where guidance is in and we're going to let it stand for the rest of the year, but we will come out obviously with new guidance after the fiscal year end.
Speaker Change: Great. That's helpful. Thanks, guys.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Matthew Gilmore of Keybanc. Your line is now open.
Speaker Change: Hey, Thanks for the question.
Speaker Change: I wanted to ask about the decline in the external cost PMT Amazon I know, there's probably a little bit of noise with.
Speaker Change: Some of the in sourcing efforts, but it did seem like one area of real success was around lower utilization with assisted living in snap, which is really great to see and you get kind of argue that's the point of pace.
Speaker Change: I was curious if you could unpack that a little bit is is that driven by any particular clinical initiatives that you've talked about in the past and sort of any details on what you think is driving the lower utilization for <unk> this quarter.
Speaker Change: Well a great question and I think you answered some of the question yourself for sure, but as you recall, we've talked about this notion of CDI or clinical value initiatives, which as a portfolio of.
Speaker Change: Work that we undertake.
Speaker Change: Each year and each quarter end.
I think it's been has done a good job explaining in the past some of those initiatives just take longer to bear fruit.
Speaker Change: There's a lot of work that goes upfront, sometimes they require policy changes, sometimes they require system changes, sometimes they require business process changes and so I think what we're we're starting to see now and I'm really proud of all the work that's been happening is that we've really laid the foundation over the last couple of years as it.
Speaker Change: <unk> two.
Speaker Change: Medical expense management, and we've done a great job.
Our inpatient utilization we've done I think.
Speaker Change: Handing job on our short stay skilled nursing care, that's a very common service as someone gets discharged from an acute setting.
Speaker Change: And so we've built a robust components around that we've also.
Speaker Change: Built programs related to in home nursing care for people at the highest risk we built after hours nursing programs that allow us to address after hours issues more effectively and ultimately that can help us with ER admissions.
Speaker Change: Which then impacts inpatient admissions so in some ways. If you think about all the major categories of cost for US we built initiatives around those the last year plus.
Speaker Change: Now, we're starting to see the benefits of those sort of flow through in terms of utilization and then I think as we've mentioned before.
Speaker Change: We've got this is something that we've got to continuously add new initiatives to the mix and as we look forward to the more transformative stages of our growth and development. We've got a lot of great ideas to two to further.
Speaker Change: We deliver great quality, great outcomes and efficient care, but I'm going to ask our CFO, Michael just to maybe say a few words because he spends a lot of time with our clinical teams in this area.
Michael Scarborough: Yes, so Matthew I would just I would just add in addition to everything Patrick said.
Speaker Change: Do you think about our continued growth and as we continue to grow. Our census is also having a significant positive impact and just our overall mix of participants and so obviously as we add add new participants to our program most of them are living independently at enrollment and so fewer and fewer of them.
Speaker Change: Or in a nursing facility or in and out when they're when they're joined innovate and so that's also having a significant impact in addition to all the other clinical programming that we're doing.
Speaker Change: Great.
Speaker Change: Very helpful.
Speaker Change: One of the initiatives.
Speaker Change: I believe I heard you talk about in prior calls was around provider network management.
Speaker Change: That was an area that was of interest to me and I presume that.
Speaker Change: That has to do with how you're contracting with third party providers and perhaps higher higher paying clients.
Speaker Change: Making sure that the claims are valid.
Speaker Change: Hoping you could sort of update us where you stand there.
Speaker Change: What you think the future state might look like with that initiative.
Speaker Change: You bet, Mike we would take that I'll take it so I would just say absolutely Matthew.
Speaker Change: Our contracting we contract with a network of providers, just like Medicare advantage or managed Medicaid plans do and so it's both how we contract the rate that we pay but also to your point, how we administer the claims.
Speaker Change: Payment integrity efforts utilization management case management care management activities all of that work and so as a part of our transformation efforts, we continue to make efforts to edit and investments in our payer capabilities to continue to grow.
Speaker Change: Our capability in that space the impact that we're having and as we look ahead to fiscal year 'twenty six.
Speaker Change: We continue to make significant strides to improve in that area.
Speaker Change: Alright. Thank you appreciate the comments.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Jamie Paris of Goldman Sachs. Your line is now open.
Jamie Paris: Hey, Thanks, good afternoon.
Speaker Change: Can you talk about the new centers just for a moment.
Speaker Change: Obviously, you've had those open a couple of quarters now.
Speaker Change: The de Novo losses have come down about 500000 per quarter to $3 5 million in this quarter can you just speak to the enrollment trends and how you are progressing operationally and then how should we think about the de novo losses.
Speaker Change: Over the next few quarters and time to profitability or at least breakeven on on the new centers.
Benjamin Rafi: Yes, I might let Ben comment on the noble losses, but I would say.
Speaker Change: Overall everything is tracking with our expectations.
Speaker Change: Since this is sort of consistent with the expectations. We said took us a little longer to get out of the gate and kind of get to ramming speed, but I feel like that we're starting to see nice momentum in all of our markets, both Florida and crucial market in la.
Speaker Change: Some variability on the cost side of the ledger.
Speaker Change: We've probably had some more transportation costs than we anticipated in Florida. As an example, so we've had to sort of manage through some some sort.
Speaker Change: Sort of volatility on that front.
Speaker Change: But I would say consistent with everything that we've <unk>.
Speaker Change: <unk> out before and.
Speaker Change: The teams are starting to come together.
Speaker Change: Become more integrated into the community the ability to referral sources.
Speaker Change: And I think are doing a great job managing.
Speaker Change: The care and delivering great quality.
Speaker Change: Orlando Health has been a great hospital partner I think.
Speaker Change: The joint venture there.
Speaker Change: And they're doing a great job working closely with us to make sure seniors are getting the best possible care there in Orlando So.
Speaker Change: I think it's.
Speaker Change: It is a great example of the ability to bring up new centers and get them on the right chart crack.
Speaker Change: And in case of Crenshaw, I think it's a great example of being able to find an opportunity to bring a center into the <unk> family and quickly demonstrate that we can do we can grow it and <unk>.
Speaker Change: And we're really pleased with that.
Speaker Change: Yes, Im not sure I have a whole lot to add to that.
Speaker Change: I think Patrick sort of encapsulated whats going on with the centers right now.
Speaker Change: I think that the trends you identify them de novo losses, probably a reasonable one to keep your eye off and as we get through the end of the year, we'll have some updated guidance for the following year and we'll put out some guidance around losses as well.
Speaker Change: Okay.
Speaker Change: And then just on cost of care that stepped up about $5 5 million sequentially.
Speaker Change: Your revenue growth is 12% year to date.
Speaker Change: The cost of care is up 17% a year.
Speaker Change: Investing in capacity and.
Speaker Change: Both with the new centers and add more broadly operationally.
Speaker Change: Can you speak to some of the investments youre, making and at what point should we start to see maybe some leverage on the cost of Caroline.
Speaker Change: Yes.
Patrick Blair: Sorry go ahead Patrick.
Patrick Blair: Okay, Yeah, I'll get you started and maybe you can dive in but as I mentioned.
Patrick Blair: Theres been a couple of programs that we've put in place over the last year.
Patrick Blair: One we've in sourced a great deal of hospice care in those investments that we made in order to do that but I think thats reduced our end of life care liability from a cost perspective going forward.
Patrick Blair: We also have the visiting nurses program because the after hours nursing program. The comfort care program. Those are also.
Patrick Blair: Investments we made.
Patrick Blair: We werent doing before or where Dow in sourcing services that we were sub contracting to some someone else and.
Patrick Blair: All of those things are starting to show up I think in our P&L, but there were costs associated with getting them off the ground, but anything to add to that yes. I mean, I think you hit on the big points. There I think a lot of it has to do with in sourcing certain activities.
Patrick Blair: So if you actually were to go and sort of strip out some of the activities that we've taken on we brought in house and sort of looked at.
Patrick Blair: Kind of a core trend in cost of care I think you'd find its actually in the low single digits. So I think what <unk> seen here is kind of a onetime step up in costs from in sourcing certain activities and youll see a more normalized growth rate going forward.
Patrick Blair: It's really a good question I might just add one more thought there because one of the things that we grapple with internally as we evaluate our business case for something is that we'll see the cost hit different components of the P&L. So in this example.
Patrick Blair: <unk>.
Patrick Blair: We're seeing the medical costs go down because of the.
Patrick Blair: Bob.
Patrick Blair: The impact were having from the investments, we're making but we could be seeing the investment cost hit another portion of the P&L, mainly through cost of care, maybe through SG&A, but.
Patrick Blair: It's not all happening in the medical expense line item and so thats, sometimes you got to tease that out to really understand the full benefit.
Patrick Blair: Okay.
Patrick Blair: And I'll take one more crack at the guidance question from earlier, obviously with just with one quarter left the EBITDA guidance.
Patrick Blair: Mid clients would imply like $4 5 million in EBITDA that that'd be the lowest performance of the year.
Patrick Blair: Just to make sure we're clear on what the messages coming off the call is there any reason why.
Patrick Blair: You know you'd be at the midpoint or low end of the range does that any any color on how we should think about the EBITDA guidance range implied <unk>. Thank you.
Patrick Blair: I'm not going to give any sort of indication of how we're going to land versus guidance at this point other than to say, we think the guidance is good guidance at this point.
Patrick Blair: And again I'm not trying to be coy about it but when you do come into Q4, and you deal with some of these risks or true up numbers, there tends to be a fair amount of variability in those.
Patrick Blair: And so I think given the variability in those numbers and where we are relative to guidance for happy to select guidance stand ordinance.
Speaker Change: Fair enough. Thank you.
Speaker Change: I'm showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program you may now disconnect.
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