Q2 2026 InnovAge Holding Corp Earnings Call

February 3, 2026

Operator: Good day, and thank you for standing by. Welcome to the InnovAge Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations.

Speaker #1: Good day, and thank you for standing by. Welcome to the InnovAge second quarter. 2026 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker #1: Please be advised that today's conference is being recorded. After the speakers' presentations, there will be a question-and-answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker #1: To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations.

Speaker #2: Thank you, Operator. Good afternoon, and thank you all for joining the InnovAge 2026 fiscal second quarter earnings call. With me today is Patrick Blair, CEO.

Ryan Kubota: Thank you, operator. Good afternoon, and thank you all for joining the InnovAge 2026 Fiscal Q2 Earnings Call. With me today is Patrick Blair, CEO, and Ben Adams, CFO. Today, after the market closed, we issued an earnings press release containing detailed information on our fiscal Q2 results. You may access the release on the investor relations section of our 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, 3 February 2026, and have not been updated subsequent to this call. During our call, we will 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.

Q2 2026 InnovAge Holding Corp Earnings Call

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InnovAge Holding

Earnings

Q2 2026 InnovAge Holding Corp Earnings Call

INNV

Tuesday, February 3rd, 2026 at 10:00 PM

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Speaker #2: And Ben Adams, CFO. Today, after the market closed, we issued an earnings press release containing detailed information on our fiscal second quarter results. You may access the release on the Investor Relations section of our company website.

Speaker #2: 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 3, 2026, and have not been updated subsequent to this call.

Speaker #2: On our call, we will 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.

Speaker #2: We will also make statements that are considered forward-looking. Including those related to our 2026 fiscal year projections and guidance, future growth prospects and growth strategy, our clinical and operational values, Medicare and Medicaid rate increases, the effects of recent legislation and federal budget cuts, enrollment and redetermination processing delays, seasonality of cost trends, the status of current and future regulatory actions, and other expectations.

Ryan Kubota: We will also make statements that are considered forward-looking, including those related to our 2026 fiscal year projections and guidance, future growth prospects and growth strategy, our clinical and operational values, Medicare and Medicaid rate increases, the effects of recent legislation and federal budget cuts, enrollment and redetermination processing delays, seasonality of cost trends, the status of current and future regulatory actions, and other expectations. Listeners are cautioned that all of our forward-looking statements involve certain assumptions that are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors and other discussions included in our annual report on Form 10-K for fiscal year 2025 and any subsequent reports filed with the SEC, including our most recent quarterly report on Form 10-Q.

Speaker #2: Listeners are cautioned that all of our forward-looking statements involve certain assumptions that are inherently subject to risk and uncertainties that can cause our actual results to differ materially from our current expectations.

Speaker #2: We advise listeners to review the risk factors and other discussions, included in our annual report on Form 10-K for fiscal year 2025, and any subsequent reports filed with the SEC.

Speaker #2: 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 CEO, Patrick Blair.

Ryan Kubota: After the completion of our prepared remarks, we will open the call for questions. I will now turn the call over to our CEO, Patrick Blair. Patrick?

Speaker #2: Patrick?

Speaker #3: Thank you, Ryan, and good afternoon, everyone. I'd like to start by thanking our colleagues, our participants and their families, our government partners, and our investors for joining us today and for their continued support.

Patrick Blair: Thank you, Ryan, and good afternoon, everyone. I'd like to start by thanking our colleagues, our participants and their families, our government partners, and our investors for joining us today and for their continued support. We appreciate the opportunity to share an update on our fiscal 2026 second quarter results and the progress we're making against our strategic priorities. Our second quarter results reflect continued momentum across the business and disciplined execution across our clinical, operational, and financial initiatives. For the quarter, we reported total revenues of $239.7 million, center level contribution margin of $52.8 million, Adjusted EBITDA of $22.2 million, and net income of $11.8 million.

Speaker #3: We appreciate the opportunity to share an update on our fiscal 2026 second quarter results and the progress we're making against our strategic priorities. Our second quarter results reflect continued momentum across the business and disciplined execution across our clinical, operational, and financial initiatives.

Speaker #3: For the quarter, we reported total revenues of $239.7 million, center-level contribution margin of 52.8 EBITDA of 22.2 million, and net income of $11.8 million.

Speaker #3: To put those results in context, we generated $39.8 million of adjusted EBITDA in the million, adjusted first half of the fiscal year, exceeding our full year fiscal 2025 adjusted EBITDA of $34.5 million.

Patrick Blair: To put those results in context, we generated $39.8 million of adjusted EBITDA in the first half of the fiscal year, exceeding our full year fiscal 2025 adjusted EBITDA of $34.5 million. Two years ago, at our Investor Day, we outlined an intermediate-term adjusted EBITDA margin target of 8% to 9% over a 2- to 4-year horizon. This quarter, for the first time, we achieved that target, delivering an adjusted EBITDA margin of 9.2%. It's important to emphasize that this level of margin is consistent with what's required to sustainably operate a full-risk, investment-intensive, highly regulated healthcare delivery model and to continue reinvesting in our people, infrastructure, and the quality of care we provide to our participants.

Speaker #3: Two years ago, at our investor day, we EBITDA margin target of 8 to 9 percent over a two to four-year horizon. This quarter, for the first time, we achieved outlined an intermediate-term adjusted that target.

Speaker #3: Delivering an adjusted EBITDA margin of 9.2 percent. It's important to emphasize that this level of margin is consistent with what's required to sustainably operate a full-risk, investment-intensive, highly regulated healthcare delivery model, and to continue reinvesting in our people, infrastructure, and the quality of care we provide to our participants.

Patrick Blair: As we talk about the strength of our first half results, I want to be clear about how we think about this performance and what's driving it. Over the past several years, InnovAge operated from a very different financial position as we worked through operational, compliance, and organizational challenges. The progress we're seeing today reflects a deliberate effort to rebuild and strengthen the foundation of the business across every dimension: our talent, clinical model, service delivery, operational discipline, compliance capabilities, and growth engine. Importantly, our financial performance is not the result of any single action or short-term lever. It's the natural outcome of delivering higher quality, more consistent care to a highly complex population, improving day-to-day utilization management, and operating with greater rigor and accountability. When the model works as intended, quality improves, outcomes improve, costs are better managed, and financial results follow.

Speaker #3: half results, I want to be clear about As we talk about the strength of our first how we think about this performance and what's driving it.

Speaker #3: InnovAge operated from a very different financial position over the past several years, as we worked through operational, compliance, and organizational challenges. The progress we're seeing today reflects a deliberate effort to rebuild and strengthen the foundation of the business across every dimension.

Patrick Blair: The progress we're seeing today reflects a deliberate effort to rebuild and strengthen the foundation of the business across every dimension: our talent, clinical model, service delivery, operational discipline, compliance capabilities, and growth engine. Importantly, our financial performance is not the result of any single action or short-term lever. It's the natural outcome of delivering higher quality, more consistent care to a highly complex population, improving day-to-day utilization management, and operating with greater rigor and accountability. When the model works as intended, quality improves, outcomes improve, costs are better managed, and financial results follow.

Speaker #3: Our talent, clinical model, service delivery, operational discipline, compliance capabilities, and growth engine—importantly, our financial performance is not the result of any single action.

Speaker #3: We're short-term lever. It's the natural outcome of delivering higher quality, more consistent care, to a highly complex population, improving day-to-day utilization management, and operating with greater rigor and accountability.

Speaker #3: works as When the model intended, quality improves, outcomes improve, costs are better managed, and financial results follow. This progress also reflects our commitment to being a strong, reliable partner to our federal and state regulators.

Patrick Blair: This progress also reflects our commitment to being a strong, reliable partner to our federal and state regulators. As we strengthen our financial position, we're better able to invest in our people, our centers, and our participants, and to serve more seniors in a model of care that improves quality while lowering total costs to the system. When InnovAge performs well, our government partners benefit as well, because more vulnerable seniors are cared for in a setting that delivers better outcomes and better value for taxpayers. We see this quarter as further evidence that we're delivering on the commitments we've made to participants, government partners, and investors, and that the model is increasingly operating as designed. Let me spend a few minutes on what drove our Q2 performance and why we exceeded expectations. First, we made meaningful progress strengthening revenue integrity, particularly around Medicaid eligibility and redeterminations.

Speaker #3: As we strengthen our financial position, we're better able to invest in our people, our centers, and our participants, and to serve more seniors in a model of care that improves quality while lowering total costs to the system.

Speaker #3: When InnovAge performs well, our government partners benefit as well, because more vulnerable seniors are cared for in a setting that delivers better outcomes and better value for taxpayers.

Speaker #3: We see this quarter as further evidence that we're delivering on the commitments we've made—to participants, government partners, and investors. And that the model is increasingly operating as designed.

Speaker #3: Let me spend a few minutes on what drove our second quarter performance and why we exceeded expectations. First, we made meaningful progress strengthening revenue integrity.

Patrick Blair: First, we made meaningful progress strengthening revenue integrity, particularly around Medicaid eligibility and redeterminations.

Speaker #3: Particularly around Medicaid eligibility and redeterminations. As discussed on prior calls, we encountered challenges last year that led to elevated revenue reserves and write-offs. Over the past few quarters, we've taken a comprehensive approach.

Patrick Blair: As discussed on prior calls, we encountered challenges last year that led to elevated revenue reserves and write-offs. Over the past few quarters, we've taken a comprehensive approach, investing in people, improving workflows, strengthening data and reporting, and upgrading technology. As a result, we've improved timeliness and accuracy, reduced reserves, and reinstated coverage for a number of participants where outcomes had been previously less certain. While there's more work to do, we're encouraged by the progress and the visibility we now have. Second, we continued to demonstrate strong medical cost management in an environment where many healthcare organizations are under pressure. This reflects the strength of the PACE model and the daily decisions made by our interdisciplinary teams. We saw particular strength in managing inpatient and skilled nursing utilization through proactive care coordination, earlier interventions, better length of stay management, and appropriate site of care decisions.

Speaker #3: Investing in people, improving workflows, strengthening data and reporting, and upgrading technology. As a result, we've improved timeliness and accuracy, increased coverage for a number of participants where reduced reserves and reinstated outcomes had been previously less certain.

Speaker #3: While there's more work to do, we're encouraged by the progress and the visibility we now have. Second, we continued to demonstrate strong medical cost management in an environment where many healthcare organizations are under pressure.

Patrick Blair: Second, we continued to demonstrate strong medical cost management in an environment where many healthcare organizations are under pressure. This reflects the strength of the PACE model and the daily decisions made by our interdisciplinary teams. We saw particular strength in managing inpatient and skilled nursing utilization through proactive care coordination, earlier interventions, better length of stay management, and appropriate site of care decisions.

Speaker #3: This reflects the strength of the PACE model and the daily decisions made by our interdisciplinary teams. We saw particular strength in managing inpatient and skilled nursing utilization through proactive care coordination, earlier interventions, better length of stay management, and appropriate site-of-care decisions.

Speaker #3: It's about delivering the right care, at the right time, in the right setting. Third, we're operating our centers more efficiently as the platform matures.

Patrick Blair: It's about delivering the right care at the right time, in the right setting. Third, we're operating our centers more efficiently as the platform matures. We've improved consistency in staffing models, scheduling, and throughput while maintaining a strong focus on quality, service, and participant experience. These gains come from standardizing best practices, better leveraging Epic, and strengthening local execution, not from one-time actions. Fourth, our SG&A performance reflects the structural work we've done to simplify the organization and improve accountability. The spans and layers work over the past year clarified roles, streamlined decision-making, and reduced unnecessary complexity. We're now seeing the benefit in a cost structure that better supports frontline care delivery. Stepping back, I want to touch briefly on the rate environment across both Medicaid and Medicare. On the Medicaid side, we're experiencing a slightly more favorable blended rate environment this fiscal year relative to our initial assumptions.

Speaker #3: We've improved consistency in staffing models, scheduling, and throughput while maintaining a strong focus on quality, service, and participant experience. These gains come from standardizing best practices, better leveraging EPIC, and strengthening local execution, not from one-time actions.

Speaker #3: Fourth, our SG&A performance reflects the structural work we've done to simplify the organization and improve accountability. The spans and layers work over the past year clarified roles, streamlined decision-making, and reduced unnecessary complexity.

Patrick Blair: We're now seeing the benefit in a cost structure that better supports frontline care delivery. Stepping back, I want to touch briefly on the rate environment across both Medicaid and Medicare. On the Medicaid side, we're experiencing a slightly more favorable blended rate environment this fiscal year relative to our initial assumptions.

Speaker #3: In a cost structure that better supports frontline care delivery, we're now seeing the benefit. Stepping back, I want to touch briefly on the rate environment across both Medicaid and Medicare.

Speaker #3: On the Medicaid side, we're experiencing a slightly more favorable blended rate environment this fiscal year relative to our initial assumptions. This reflects state-specific dynamics and timing, and is consistent with our conservative approach to forecasting, which assumes variability rather than relying on rate upside.

Patrick Blair: This reflects state-specific dynamics and timing and is consistent with our conservative approach to forecasting, which assumes variability rather than relying on rate upside. On the Medicare side, I want to address the CMS advance notice for calendar year 2027 Medicare Advantage rates released last week. PACE is subject to the same core Medicare payment mechanics as Medicare Advantage, including county rates, risk adjustment changes, coding intensity adjustments, fee-for-service normalization, and underlying cost trends. As a result, changes to Medicare Advantage policy do affect PACE. At the same time, PACE includes unique elements, most notably the frailty adjuster, based on activities of daily living, which recognizes that diagnosis-based risk adjustment alone does not fully predict costs for a highly frail population.

Speaker #3: On the Medicare side, I want to address the CMS Advance Notice for calendar year 2027 Medicare Advantage rates released last week. PACE is subject to the same core Medicare payment mechanics as Medicare Advantage, including county rates, risk adjustment adjustments, fee-for-service changes, coding intensity normalization, and underlying cost trends.

Speaker #3: As a result, changes to Medicare Advantage policy do affect PACE. At the same time, PACE includes unique elements. Most notably, the frailty adjuster. Based on activities of daily living, which recognizes that diagnosis-based risk adjustment alone does not fully predict costs for a highly frail population.

Speaker #3: CMS is also proposed a blended risk score for calendar year 2027 using 50% of the 2017 CMS HCC model and 50% of the proposed 2027 model, accelerating the transition relative to the prior timeline.

Patrick Blair: CMS has also proposed a blended risk score for calendar year 2027, using 50% of the 2017 CMS HCC model and 50% of the proposed 2027 model, accelerating the transition relative to the prior timeline. As we look ahead, we continue to have a robust portfolio of clinical and operational value initiatives that we believe can unlock additional value across participant experience, quality, compliance, efficiency, and revenue. One key area is participant experience. We're working to more clearly define the InnovAge participant experience end-to-end, from enrollment and onboarding through ongoing care, with a focus on early engagement, systematic feedback, consistent service recovery, and continuous improvement. We believe a more intentional experience will drive higher satisfaction, stronger engagement, and better retention over time. Another significant opportunity is reducing unwarranted variation in provider practice patterns.

Speaker #3: As we look ahead, we continue to have a robust portfolio of clinical and operational value initiatives that we believe can unlock additional value, across participant experience, quality, compliance, efficiency, and revenue.

Speaker #3: One key area is participant experience. We're working to more clearly define the InnovAge participant experience end-to-end—from enrollment and onboarding through ongoing care—with a focus on early engagement, systematic feedback, consistent service recovery, and continuous improvement.

Speaker #3: We believe a more intentional experience will drive higher satisfaction, stronger engagement, and better retention over time. Another significant opportunity is reducing unwarranted variation in provider practice patterns.

Speaker #3: Physician decision-making sits at the center of the PACE model, influencing nearly every aspect of care delivery. While this has always been actively managed, we see an opportunity to further improve consistency and appropriateness across the platform.

Patrick Blair: Physician decision-making sits at the center of the PACE model, influencing nearly every aspect of care delivery. While this has always been actively managed, we see an opportunity to further improve consistency and appropriateness across the platform. This work will take time and thoughtful change management, but we believe advances in AI can increasingly support physicians with peer benchmarks and evidence-based guidance, augmenting, not replacing, clinical judgment. We've also stabilized our pharmacy and sourcing and are now positioned to pursue additional opportunities across pharmacy distribution, utilization management, and care coordination. With greater visibility and control, we believe pharmacy can continue to improve outcomes, efficiency, and total cost of care.... Finally, we see continued opportunity to optimize center productivity, capacity, and care delivery while strengthening participant retention. We're exploring the application of advanced analytics and AI to scheduling and transportation, areas central to the PACE operating model.

Speaker #3: This work will take time and thoughtful change management, but we believe advances in AI can increasingly support physicians with peer benchmarks and evidence-based guidance, augmenting, not replacing, clinical judgment.

Speaker #3: We've also stabilized our pharmacy and sourcing, and are now positioned to pursue additional opportunities across pharmacy distribution, utilization management, and care coordination. With greater visibility and control, we believe pharmacy can continue to improve outcomes, care.

Patrick Blair: With greater visibility and control, we believe pharmacy can continue to improve outcomes, efficiency, and total cost of care.... Finally, we see continued opportunity to optimize center productivity, capacity, and care delivery while strengthening participant retention. We're exploring the application of advanced analytics and AI to scheduling and transportation, areas central to the PACE operating model.

Speaker #3: Finally, we see continued opportunity to optimize center productivity, capacity, and care delivery while strengthening participant retention. We're exploring the application of advanced analytics and AI to scheduling and transportation to improve efficiency and total cost.

Speaker #3: Areas central to the PACE operating model. This work is early, but our confidence is increasing that there is meaningful value to pursue. Taken together, these initiatives reinforce our belief that there is still substantial opportunity ahead.

Patrick Blair: This work is early, but our confidence is increasing that there is meaningful value to pursue. Taken together, these initiatives reinforce our belief that there is still substantial opportunity ahead. The progress we've made gives us confidence, not complacency. With that context, I want to briefly touch on how our governance is evolving to support the next phase of execution and oversight. As we've strengthened the operating, clinical, and compliance foundations of the company, we've continued to evolve our governance to support the next phase of execution. As part of that evolution, Tom Scully returned to the role of chairman of the board, and Pavithra Mahesh and Sean Traynor rejoined the board, effective 28 January. I also want to recognize Jim Carlson for his leadership as chairman since June 2022. Jim provided steady, thoughtful guidance during a very critical period, helping InnovAge navigate operational, compliance, and strategic change.

Speaker #3: The progress we've made gives us confidence, not complacency. With that context, I want to briefly touch on how our governance is evolving to support the next phase of execution and oversight.

Speaker #3: As we've strengthened the operating, clinical, and compliance foundations of the company, we've continued to evolve our governance to support the next phase of execution.

Patrick Blair: As part of that evolution, Tom Scully returned to the role of chairman of the board, and Pavithra Mahesh and Sean Traynor rejoined the board, effective 28 January. I also want to recognize Jim Carlson for his leadership as chairman since June 2022. Jim provided steady, thoughtful guidance during a very critical period, helping InnovAge navigate operational, compliance, and strategic change.

Speaker #3: returned to the role of chairman of the evolution, Tom Scully board and Pavithra Mahesh and Sean Traynor rejoined the board, As part of that effective January 28th.

Speaker #3: Carlson for his leadership as chairman, since June I also want to recognize Jim 2022. Jim provided steady, thoughtful guidance during a very critical period, helping InnovAge navigate operational, compliance, and strategic change.

Speaker #3: We're grateful for Jim's leadership and pleased that he'll continue to serve as an independent director. Together, this governance structure strengthens oversight, reinforces alignment, and positions the company well to continue delivering for participants, regulators, and shareholders.

Patrick Blair: We're grateful for Jim's leadership and pleased that he'll continue to serve as an independent director. Together, this governance structure strengthens oversight, reinforces alignment, and positions the company well to continue delivering for participants, regulators, and shareholders. Before turning to guidance, I want to briefly share how we think about pacing and expectations. As a full risk, value-based care organization, quarter-to-quarter results can be influenced by timing, rate dynamics, and the maturation of initiatives. We therefore focus less on any single period and more on sustained trends across multiple quarters. With that context, the results we've delivered through the first half of the fiscal year give us increased confidence in our outlook for the remainder of fiscal 2026. We believe the platform is increasingly operating as designed, while still recognizing the inherent variability in the model. As a result, we are raising our full-year fiscal 2026 guidance.

Speaker #3: Turning to guidance, I want to briefly share how we think about PACE and expectations. As a before full-risk, value-based care organization, quarter-to-quarter results can be influenced by timing, rate dynamics, and the maturation of initiatives.

Speaker #3: We therefore focus less on any single period and more on sustained trends across multiple quarters. With that context, the results we've delivered through the first half of the fiscal year give us increased confidence in our outlook for the remainder of fiscal 2026.

Speaker #3: We believe the platform is increasingly operating as designed, while still recognizing inherent variability in the model. As a result, we are raising our full-year fiscal 2026 guidance.

Patrick Blair: We believe the platform is increasingly operating as designed, while still recognizing the inherent variability in the model. As a result, we are raising our full-year fiscal 2026 guidance.

Speaker #3: We now expect member months between 95,700. Total revenue between $925 million and $950 million, and adjusted EBITDA between $70 million and $75 million. To close, we're performing.

Patrick Blair: We now expect member months between 92,900 and 95,700, total revenue between $925 million and $950 million, and Adjusted EBITDA between $70 million and $75 million. To close, we're encouraged by the progress we're making and proud of how the organization is performing. These results reflect a company executing with greater consistency, accountability, and purpose in service of a highly complex senior population. We've strengthened the foundation of the business and are seeing the benefits across quality, compliance, participant experience, and financial performance. We remain grounded in the realities of a full risk, highly regulated model and committed to managing the business with a long-term mindset. InnovAge is better positioned today than at any point in recent years, not because the work is finished, but because the platform is working as designed.

Speaker #3: These results reflect a pride in how the organization is consistently executing with greater accountability and purpose in service of a highly complex senior population.

Speaker #3: We've strengthened the foundation of the business and are seeing the benefits across quality, compliance, participant experience, and financial performance. We remain grounded in the realities of a full-risk, highly regulated model and committed to managing the business with a long-term mindset.

Speaker #3: InnovAge is better positioned years. Not because the work is today than at any point in recent finished, but because the platform is working as designed.

Speaker #3: We're committed to executing responsibly, investing thoughtfully, and aligning the interests of participants, government partners, and shareholders. With that, I'll turn it over to Ben for more detail on the financials.

Patrick Blair: We're committed to executing responsibly, investing thoughtfully, and aligning the interests of participants, government partners, and shareholders. With that, I'll turn it over to Ben for more detail on the financials.

Speaker #2: Thank you, Patrick. Today I will provide some highlights from our second quarter fiscal year 2026 financial performance, and insight into some of the trends we are seeing in the current quarter.

Ben Adams: Thank you, Patrick. Today, I will provide some highlights from our Q2 fiscal year 2026 financial performance, and insight into some of the trends we are seeing in the current quarter. Starting with census. We served approximately 8,010 participants across 20 centers as of 31 December 2025, which represents growth of 7.1% compared to the Q2 of fiscal year 2025, and sequential quarter growth of 1.5%. We reported 23,960 member months in the second quarter, an increase of approximately 7.9% compared to the Q2 of fiscal year 2025, and an increase of approximately 2% over the Q1 of fiscal year 2026.

Speaker #2: Starting with approximately 8,010 participants Census, we served across 20 centers as of December 31st, 2025, which represents growth of 7.1% compared to the second quarter of fiscal year 2025 and sequential quarter growth of 1.5%.

Speaker #2: We reported 23,960 member months in the second quarter, an increase of approximately 7.9% compared to the second quarter of fiscal year 2025, and an increase of approximately 2% over the first quarter of fiscal year quarter Census growth exceeded 2026.

Speaker #2: Our second our continued success in lost Medicaid reinstating participants who had previously coverage. Total revenues of $239.7 million increased 14.7% compared to $209 million in the second quarter of fiscal year 2025, driven by an increase in member months and capitation rates.

Ben Adams: Our Q2 census growth exceeded expectations, driven primarily by our continued success in reinstating participants who had previously lost Medicaid coverage. Total revenues of $239.7 million increased 14.7% compared to $209 million in Q2 of fiscal year 2025, driven by an increase in member months and capitation rates. The increase in member months was primarily due to growth in our existing California, Florida, and Colorado centers. The increase in capitation rates was primarily due to an annual increase in Medicaid and Medicare capitation rates, partially offset by revenue reserve. Compared to Q1 of fiscal year 2026, total revenues increased 1.5% due to an increase in member months.

Speaker #2: The increase in member months was primarily due to growth in our existing California, Florida, and Colorado centers. The increase in capitation rates was primarily due to an annual increase in Medicaid and Medicare capitation rates, partially offset by revenue reserve.

Speaker #2: Compared to the first quarter of fiscal year 2026, total revenues increased 1.5% due to an increase in member months. We incurred $112 million of external provider costs 2026.

Ben Adams: We incurred $112 million of external provider costs during Q2 of fiscal year 2026, an increase of 3.8% compared to Q2 of fiscal year 2025. The increase was driven by an increase in member months, partially offset by a decrease in cost per participant. The decrease in cost per participant was primarily driven by a decrease in permanent nursing facility utilization and a decrease in pharmacy expense associated with the transition to in-house pharmacy services. This decrease in cost per participant was partially offset by an annual increase in assisted living and permanent nursing facility unit cost, an increase in assisted living utilization, and an increase in inpatient unit costs. Compared to Q1 of fiscal year 2026, external provider costs increased 2.9%.

Speaker #2: An increase of 3.8% compared to the second quarter of fiscal year 2025. The increase was driven by an increase in member months partially offset by a decrease in cost per participant.

Speaker #2: The decrease in cost per participant was primarily driven by a decrease in permanent nursing facility utilization and a decrease in pharmacy expense associated with the transition to in-house pharmacy services.

Speaker #2: This decrease in cost per participant was partially offset by an annual increase in assisted living and permanent nursing facility unit cost, an increase in assisted living utilization, and an increase in inpatient unit cost.

Speaker #2: Compared to the first quarter of fiscal year 2026, external provider costs increased 2.9%. The increase was primarily driven by the increase in member months and a modest increase in cost per participant due to seasonal growth in inpatient admissions.

Ben Adams: The increase was primarily driven by the increase in member months and a modest increase in cost per participant due to seasonal growth in inpatient admissions. Cost of care, excluding depreciation and amortization, was $74.9 million, an increase of 16.9% compared to Q2 of fiscal year 2025. The increase was due to an increase in cost per participant, coupled with an increase in member months. The total increase in cost was primarily driven by a net increase in salaries, wages, and benefits due to higher wage rates and costs associated with organizational restructure, partially offset by a reduction in headcount, higher third-party fees and shipping costs associated with in-house pharmacy services, and higher fleet costs, inclusive of contract transportation. Cost of care, excluding depreciation and amortization, decreased 1.3% compared to Q1 of fiscal year 2026.

Speaker #2: Cost of care excluding depreciation and amortization was $74.9 million. An increase of 16.9% compared to the second quarter of fiscal year 2025. The increase was due to an increase in cost per participant coupled with an increase in member months.

Speaker #2: The total increase in cost was primarily driven by a net increase in salaries, wages, and benefits due to higher wage rates and costs associated with organizational restructuring.

Speaker #2: Partially offset by a reduction in headcount. Higher third-party fees and shipping costs associated with in-house pharmacy services, and higher fleet costs inclusive of contract transportation.

Speaker #2: Cost of care excluding depreciation and amortization decreased 1.3% compared to the first quarter of fiscal year 2026. The decrease was primarily driven by reduced headcount associated with organizational restructuring and the timing of benefits and supply expense, partially offset by higher contract transportation costs.

Ben Adams: The decrease was primarily driven by reduced headcount associated with organizational restructuring and the timing of benefits, and supply expense, partially offset by higher contract transportation costs. Center 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 costs, was $52.8 million in the quarter, compared to $37.1 million for Q2 of fiscal year 2025. As a percentage of revenue, center level contribution margin of 22% increased approximately 430 basis points in the quarter, compared to 17.7% in Q2 of fiscal year 2025.

Speaker #2: 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 costs was 52.8 million in the quarter compared to 37.1 million for the second quarter of fiscal year 2025.

Speaker #2: As a percentage of revenue, central level contribution margin of 22% increased approximately $430 basis points in the quarter compared to 17.7% in the second quarter of fiscal year 2025.

Speaker #2: Compared to 2026, central level contribution margin increased 2.7% from $51.4 million, and as a percentage of revenue, increased 20 basis points compared to 21.8% in the same period.

Ben Adams: Compared to Q1 of fiscal year 2026, center level contribution margin increased 2.7% from $51.4 million, and as a percentage of revenue, increased 20 basis points compared to 21.8% in the same period. Sales and marketing expenses of approximately $8.1 million increased 4.9% compared to Q2 of fiscal year 2025, due to higher wage rates. Sales and marketing expenses increased by approximately 6.2% compared to Q1 of fiscal year 2026, driven by marketing spend timing. Corporate, general, and administrative expenses of $26.6 million decreased 5.3% compared to Q2 of fiscal year 2025. The decrease was primarily due to a decrease in legal and consulting fees.

Speaker #2: Sales and marketing expenses of approximately $8.1 million increased 4.9% compared to the second quarter of fiscal year 2025 due to higher wage rates. Sales and marketing expenses increased by approximately 6.2% compared to the first quarter of fiscal year 2026, driven by marketing spend timing.

Speaker #2: Corporate general and administrative expenses of 26.6 million decreased 5.3% compared to the second quarter of fiscal year 2025. The decrease was primarily due to a decrease in legal and consulting fees.

Speaker #2: Corporate general and administrative expenses decreased 12.1% compared to the first quarter of fiscal year 2026, primarily due to reduced headcount associated with organizational restructuring; lower contract and consulting costs; decreased legal expenses; and the timing of software license fees.

Ben Adams: Corporate, general, and administrative expenses decreased 12.1% compared to Q1 of fiscal year 2026, primarily due to reduced headcount associated with organizational restructuring, lower contracts and consulting costs, decreased legal expenses, and the timing of software license fees. Net income was $11.8 million for the quarter, compared to net loss of $13.5 million in Q2 of fiscal year 2025. We reported net income per share of $0.08, and our weighted average share count was approximately 136.4 million shares for the quarter on a fully diluted basis. Adjusted EBITDA was $22.2 million for the quarter, compared to $5.9 million in Q2 of fiscal year 2025 and $17.6 million in Q1 of 2026.

Speaker #2: Net income was $11.8 million for the quarter, compared to a net loss of $13.5 million in the second quarter of fiscal year 2025. We reported net income per share of $0.08.

Speaker #2: And our weighted average share count was approximately 136.4 million shares for the quarter on a fully diluted basis. Adjusted EBITDA was $22.2 million for the quarter, compared to $5.9 million in the second quarter of fiscal year 2025 and $17.6 million in the first quarter of 2026.

Speaker #2: Our adjusted EBITDA margin was 9.2% for the quarter, compared to 2.8% in the second quarter of fiscal year 2025 and 7.5% in the first quarter of fiscal year 2026.

Ben Adams: Our adjusted EBITDA margin was 9.2% for the quarter, compared to 2.8% in Q2 of fiscal year 2025 and 7.5% in Q1 of fiscal year 2026. We do not add back losses incurred by our de novo centers in the calculation of adjusted EBITDA. De novo center losses are defined as net losses related to pre-opening and startup ramp through the first 24 months of de novo operations. For the second quarter, de novo losses were $4.7 million, primarily related to our Tampa and Orlando centers in Florida. This compares to $4 million of de novo losses in Q2 of fiscal years 2025 and $3.9 million of de novo losses in Q1 of fiscal year 2026.

Speaker #2: We do not add back losses incurred by our de novo centers in the calculation of adjusted EBITDA. De novo center losses are defined as net losses related to pre-opening and startup ramp through the first 24 months of de novo operations.

Speaker #2: For the second quarter, de novo losses were $4.7 million, primarily related to our Tampa and Orlando centers in Florida. This compares to $4.0 million of de novo losses in the second quarter of fiscal year 2025, and $3.9 million of de novo losses in the first quarter of fiscal year 2026.

Speaker #2: Turning to our balance sheet, we ended the quarter with $83.2 million in cash and cash equivalents. Plus $42.8 million in short-term investments. We had $69.9 million in total debt on the balance sheet, representing debt under our senior secured term loan revolving credit facility and finance leases.

Ben Adams: Turning to our balance sheet, we ended the quarter with $83.2 million in cash and cash equivalents, plus $42.8 million in short-term investments. We had $69.9 million in total debt on the balance sheet, representing debt under our senior secured term loan, revolving credit facility, and finance leases. For Q2, we recorded positive cash flow from operations of $21.4 million and had $2.4 million of capital expenditures. Building on the strength we saw in the first half of fiscal 2026, I would now like to walk through our updated fiscal year 2026 guidance. Based on information as of today, we are revising our fiscal year outlook from the guidance we shared in September, except for our ending census, which remains unchanged.

Speaker #2: For the second quarter, we recorded positive cash flow from operations of $21.4 million and had $2.4 million of capital expenditures. Building on the strength we saw in the first half of fiscal 2026, I would now like to walk through our updated fiscal year 2026 guidance.

Speaker #2: Based on information as of today, we are revising our fiscal year outlook from the guidance we shared in September, except for our ending census, which remains unchanged.

Speaker #2: We expect our ending census for fiscal year 2026 to be between 7,900 and 8,100 participants, and member months to be in the range of 92,900 to 95,700.

Ben Adams: We expect our ending census for fiscal year 2026 to be between 7,900 and 8,100 participants, and member months to be in the range of 92,900 to 95,700. We are projecting total revenue for fiscal year 2026 in the range of $925 million to $950 million, and Adjusted EBITDA in the range of $70 million to $75 million. And finally, we anticipate that de novo losses for fiscal year 2026 will be in the $11.5 to $13.5 million range. As we look toward the second half of fiscal 2026, we have increased our guidance based on the following factors: First and foremost, we are seeing continued improvement in the operations of the business each quarter as our operational and clinical value initiatives produce results.

Speaker #2: We are projecting total revenue for fiscal year 2026 in the range of $925 million to $950 million, and adjusted EBITDA in the range of $70 million to $75 million.

Speaker #2: And finally, we anticipate that de novo losses for fiscal year 2026 will be in the 11.5 to 13.5 million range. As we look toward the second half of fiscal 2026, we have increased our guidance based on the following factors: first and foremost, we are seeing continued improvement in the operations of the business each quarter as our operational and clinical value initiatives produce results.

Speaker #2: Second, we have had success in reinstating participants who had previously lost Medicaid coverage, which reduced the impact on member months and top-line revenue relative to our original expectations.

Ben Adams: Second, we have had success in reinstating participants who had previously lost Medicaid coverage, which reduced the impact on member months and top-line revenue relative to our original expectations. Third, Medicaid rates for the fiscal year are higher than our original estimates. And fourth, Medicare risk scores were less effective than we originally anticipated due to the phased-in implementation of Risk Adjustment Model version 28, effective January 1. Overall, these factors contribute to improved visibility and give us more confidence in our performance for the remainder of fiscal year 2026. In closing, we remain focused on disciplined execution for the remainder of the fiscal year. We believe our updated guidance more closely reflects our stronger-than-expected performance to date and our current view of the operating environment. Operator, that concludes our prepared remarks. Please open the call for questions.

Speaker #2: Third, Medicaid rates for the fiscal year are higher than our original estimates. And fourth, Medicare risk scores were less effective than we originally anticipated due to the phased-in implementation of risk adjustment model version 28, effective January 1st.

Speaker #2: Overall, these factors contribute to improved visibility and give us more confidence in our performance for the remainder of fiscal year 2026. In closing, we remain focused on disciplined execution for the remainder of the fiscal year.

Speaker #2: We believe our updated guidance more closely reflects our stronger-than-expected performance to date and our current view of the operating environment. Operator, that concludes our prepared remarks.

Speaker #2: Please open the call for questions.

Speaker #1: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. And our first question comes from Benjamin Rossi with J.P. Morgan. You may proceed.

Speaker #1: One moment for questions. And our first question comes from Benjamin Rossi with JP Morgan. You may

Speaker #1: proceed. Hi.

Benjamin Rossi: Hi. Good afternoon, everyone. Thanks for taking my questions. So just on the back half EBITDA progression following the raise, in context of your year-to-date adjusted EBITDA margin coming in north of about 8%, my math here kind of suggests back half margins are coming maybe closer to a mid-7% EBITDA margin as you move forward with these restructured operating costs. Can you just walk through some of the variables going into those margin expectations and maybe how you're thinking about margin progression for the remainder of the year?

Speaker #3: Good afternoon, everyone. Thanks for taking my questions. So just on the back half of EBITDA progression, following the raise, in context of your year-to-date adjusted EBITDA margin, coming in north of about 8%, my math here kind of suggests back half margins are coming maybe closer to a mid-7% EBITDA margin as you move forward with these restructured operating costs.

Speaker #3: Can you just walk through some of the variables going into those margin expectations and maybe how you're thinking about margin progression for the remainder of the year?

Speaker #2: Yeah, yeah. Hey Ben, it's Ben Adams. How are—listen, remember that the third quarter for us is always the soft quarter. And there are probably a couple of things going on in there.

Ben Adams: Yeah. Yeah. Hey, Ben, it's Ben Adams. How are you? Yeah, what I would say is, remember that Q3 for us is always the soft quarter, and there are probably a couple of things going on in there. One is when we go through open enrollment period at the end of the year, we often have, you know, slower enrollment gains in the first couple of months of Q3. You've seen that happen over the last several years, and I think our expectation is you'll probably see something similar like that evolve this year. The other thing I think to be mindful of is, you know, the flu season, which has been, you know, particularly bad this year.

Speaker #2: One is when we go through open enrollment period at the end of the year, we often have slower enrollment gains in the first couple of months of the third quarter.

Speaker #2: You've seen that happen over the last several years, and I think our expectation is you'll probably see something similar like that evolve this year.

Speaker #2: The other thing I think to be mindful of is the flu season, which has been particularly bad this year. We were talking earlier about the fact that the vaccine was only partially effective against the flu.

Ben Adams: We were talking earlier about the fact that the vaccine was only partially effective against the flu, and we saw a relatively high incidence of the flu going into year-end and through January. So our expectation is, we may see a little additional pressure on that side in Q3. You know, it's all, you know, it's all preliminary at this point because the data is just coming in. But because of that, I think what you'll see is, you know, sort of the softer third quarter that we typically exhibit, and then you'll see a return to, a more normalized, you know, Q4 growth rate that you've seen. So that will just play through the margins just naturally.

Speaker #2: And we saw a relatively high incidence of the flu going into year-end and through January. And so our expectation is we may see a little additional pressure on that side in Q3.

Speaker #2: It's all preliminary at this point, because the data is just coming in. But because of that, I think what you'll see is sort of the softer third quarter that we typically exhibit, and then you'll see a return to a more normalized Q4 growth rate that you've seen.

Speaker #2: So that will just play through to margins just naturally. I might add to that just the continued work we're doing on the Medicaid redeterminations as I shared in my prepared comments.

Patrick Blair: Ben, I might, I might add, to that, just the continued work we're doing on the Medicaid redeterminations. You know, as I shared in my prepared comments, we made a tremendous amount of progress, and some aspects of that work has worked out better than expected. But it's still a work in progress, still a continued effort to ensure that our enrollment and our enrollment applications are being processed in a timely fashion. And so I think we were also, cognizant of that as we put the guidance forward.

Speaker #2: We made a tremendous amount of progress in some aspects of that work has worked out better than expected. But it's still a work in progress, still a continued effort to ensure that our enrollment and our enrollment applications are being processed in a timely fashion.

Speaker #2: And so I think we're also cognizant of that as we put the guidance

Speaker #2: forward. Great.

Benjamin Rossi: Great. Appreciate that. And I, I just kind of flipping over to with the shift in V28 beginning earlier this year, I know you're only a month in, but just hoping to better understand your thinking on the impact to your maybe your raw risk scores and how that might flow through to subsequent RAF scoring for some of your members. I appreciate there's a lot of variables in here with some of the changes to the HCCs for conditions like dementia and CKD, and you might have the frailty score come in there. Just following the guidance rates, can you just maybe help us understand how any of the back half guidance factors, those changes flowing through?

Speaker #1: Appreciate that. And just kind of flipping over to the shift in V28 beginning earlier this year. I know you're only a month in, but just hoping to better understand your thinking on the impact to maybe your raw risk scores and how that might flow through to subsequent RAF scoring for some of your members.

Speaker #1: I appreciate there's a lot of variables in here with some of the changes to the HCCs for conditions like dementia and CKD. And you might have the frailty score come in there.

Speaker #1: Just following the guidance phrase, could you just maybe help us understand how any of the back half guidance factors, those changes flowing through? I know it's only 10% at this point, but just trying to get an idea of how that maybe impacts your rates or how that could be impacted maybe overall by rates and whatnot.

Benjamin Rossi: I know it's only 10% at this point, but just trying to get an idea of how that maybe impacts your rates, or how that could be impacted maybe overall by rates and whatnot on the other side of the variables.

Speaker #1: On the other side of the variables.

Patrick Blair: ... Yeah, I mean, I'll start with more of kind of a macro view, and then let Ben talk about the flow-through to actual risk scores. You know, I think the first point is, we share more in common with, you know, the Medicare risk adjustment model than we share differences. You pointed out, you know, a couple differences, you know, but I also just remind folks that only about 45% of our total per member month premium is actually Medicare. And so for that reason, and the fact that V28 is a phase-in for PACE, it has moved from a 5-year phase-in to a 3-year phase-in, but it still is a phase-in. So we're sort of structurally less exposed to V28, you know, when comparing to other MA plans.

Speaker #2: with more of kind of a macro view, and then talk about the Yeah. flow through to actual risk I mean, I'll start scores. I think the first point is we share more in common with the Medicare rate adjustment model than we share differences.

Speaker #2: You pointed out a couple. I’ll also just remind folks that only a few of those are differences. But about 45% of our total per-member-per-month premium is actually Medicare.

Speaker #2: And so for that reason, and the fact that V28 is a phase-in for PACE, it has moved from a five-year phase-in to a three-year phase-in, but it still is a phase-in.

Speaker #2: So we're sort of structurally less exposed to V28 when comparing to other MA plans. And when you think about the frailty adjustment, that is not inconsequential as it were.

Patrick Blair: And when you think about the frailty adjuster, you know, that is not inconsequential, you know, as it were. It is one of the, some of the beauty of the system for PACE is that it, you know, it captures the disability and functional status that wouldn't otherwise be reflected, you know, in a diagnosis alone. You know, someone can have a severe set of functional disabilities that relates to bathing, dressing, eating, you know, using the toilet, walking without necessarily having a dramatically different diagnosis than someone that, say, has fewer diagnoses. So there is a real opportunity for us as it relates to the differences that exist. And, you know, there actually is a floor on that frailty adjuster of, I think it's 0.129.

Speaker #2: Some of the beauty of it is, one of the systems for PACE is that it captures the disability and functional status that wouldn't otherwise be reflected in a diagnosis alone.

Speaker #2: Someone can have a severe set of functional disabilities that relate to bathing, dressing, eating, using the toilet, and walking—without necessarily having a dramatically different diagnosis than someone that, say, has fewer diagnoses.

Speaker #2: So, there is a real opportunity for us as it relates to the differences that exist. And there is actually a floor on that frailty adjuster of, I think, it's 0.129.

Speaker #2: So I just want to point out that we do share a lot of the same challenges that the rate notice revealed. Preliminary rate notice revealed last week, but at the same time, there are some notable differences.

Patrick Blair: So, you know, I just want to point out that we do share a lot of the same challenges that the preliminary rate notice revealed last week, but at the same time, there are some notable differences. And I'll let Ben maybe share through how he thinks about the flow-through.

Speaker #2: And I'll let Ben

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