Q3 2026 InnovAge Holding Corp Earnings Call

May 5, 2026

Operator: Good day, and thank you for standing by. Welcome to the InnovAge 2026 Fiscal Q3 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. Please be advised that this conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Kubota. Please go ahead.

Speaker #1: After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star 11 on your telephone.

Speaker #1: You will then hear an automated message device in your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would like to end the conference over to your speaker today, Ryan Kubota. Please go ahead.

Speaker #2: Thank you, Operator. Good afternoon, and thank you all for joining the InnovAge 2026 Fiscal Third 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 third quarter 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 third quarter 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, 5 May 2026, and have not been updated subsequent to this call. During our call, we refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release posted on our website.

Speaker #2: And Ben Adams, CFO. Today, after the market closed, we issued an earnings press release containing detailed information on our fiscal third 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, May 5th, 2026, and have not been updated subsequent to this call.

Speaker #2: 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.

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 value initiatives, the effects of recent legislation, and federal budget cuts, including Medicare and Medicaid rate pressures, seasonality of cost trends, the status of current and future legal proceedings and 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 Value Initiatives, the effects of recent legislation and federal budget cuts, including Medicare and Medicaid rate pressures, seasonality of cost trends, the status of current and future legal proceedings and 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 risks and uncertainties that can cause our actual results to differ.

Speaker #2: Securely 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 FTC.

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 begin by thanking our InnovAge colleagues, our participants and their families, our government partners, and our investor community for your continued trust and support.

Patrick Blair: Thank you, Ryan, and good afternoon, everyone. I'd like to begin by thanking our InnovAge colleagues, our participants and their families, our government partners, and our investor community for your continued trust and support. The work our teams do every day to care for a very complex and vulnerable population is what drives our performance, and I'm proud of the progress we're making and the consistency we're beginning to demonstrate as an organization. We delivered a solid Q3 and continue to see steady momentum across the business. These results reflect stronger operating execution and the benefits of the investments we've made over the past few years to strengthen the platform. For the quarter, we reported approximately $252 million in total revenue, center-level contribution margin of $61 million, and adjusted EBITDA of $30 million.

Speaker #3: The work our teams do every day to care for a very complex and vulnerable population is what drives our performance, and I'm proud of the progress we're making and the consistency we're beginning to demonstrate as an organization.

Speaker #3: We delivered a solid third quarter, and continue to see steady momentum across the business. These results reflect stronger operating execution and the benefits of the investments we've made over the past few years to strengthen the platform.

Speaker #3: For the quarter, we reported approximately $252 million in total revenue, center-level contribution margin of 61 million, and adjusted EBITDA of $30 million. We ended the quarter serving approximately 8,050 participants in six states across 20 centers.

Patrick Blair: We ended the quarter serving approximately 8,050 participants in 6 states across 20 centers. Based on our year-to-date operating trends and financial performance, we are once again raising our fiscal year 2026 guidance for revenue and adjusted EBITDA. We now expect revenue in the range of $950 to 975 million and adjusted EBITDA in the range of $85 million to 90 million. Overall, our performance continues to show steady year-over-year improvement across key operational and clinical metrics. Our performance this year has been supported by several in-year factors that came in more favorably than we expected, including better-than-expected Medicaid rates, favorable Medicare risk scores, and continued discipline across medical management.

Speaker #3: Based on our year-to-date operating trends and financial performance, we are once again raising our fiscal year 2026 guidance for revenue and adjusted EBITDA. We now expect revenue in the range of $950 to $975 million and adjusted EBITDA in the range of $85 million to $90 million.

Speaker #3: Overall, our performance continues to show steady year-over-year improvement across key operational and clinical metrics. Our performance this year has been supported by several in-year factors that came in more favorably than we expected, including better-than-expected Medicaid rates, and favorable Medicare risk scores, and continued discipline across medical management.

Speaker #3: So as we think about our momentum, we believe it is real and increasingly durable, but we are also being thoughtful about our assumptions as we look ahead to fiscal 2027.

Patrick Blair: As we think about our momentum, we believe it is real and increasingly durable, but we are also being thoughtful about our assumptions as we look ahead to fiscal 2027. Just as importantly, we view our improving financial performance as an enabler, not an endpoint. The progress we're making is allowing us to reinvest in the business in ways that we believe directly benefit participants and strengthen the model over the long term. That includes continued investment in our clinical teams and interdisciplinary model, advancing our technology platform, including early and closely monitored applications of AI to improve care coordination and participant experience, and strengthening how we measure and manage quality. We are also investing in growth, including our new centers in Florida, which are still maturing from an operations and financial perspective. Given the complexity of the PACE population we serve, these long-term investments are essential.

Speaker #3: Just as importantly, we view our improving financial performance as an enabler, not an endpoint. The progress we're making is allowing us to reinvest in the business in ways that we believe directly benefit participants and strengthen the model over the long term.

Speaker #3: That includes continued investment in our clinical teams and interdisciplinary model, advancing our technology platform, including early and closely monitored applications of AI to improve care coordination and participant experience, and strengthening how we measure and manage quality.

Speaker #3: We are also investing in growth, including our new centers in Florida, which are still maturing from an operations and financial perspective. Given the complexity of the pace population we serve, these long-term investments are essential.

Speaker #3: Our goal is to deliver strong, sustainable performance while continuing to invest in the model and be a responsible partner to states and the federal government.

Patrick Blair: Our goal is to deliver strong, sustainable performance while continuing to invest in the model and be a responsible partner to states and the federal government. In the PACE model, financial performance and quality are not separate. They are directly linked. When we improve quality, we see better participant outcomes, more consistent engagement, lower unnecessary utilization, and ultimately better fiscal management for our state and federal partners. We track a wide range of required quality and utilization metrics, these remain an important part of how we manage the business day to day. We also recognize that many of these measures, while necessary, don't fully capture what matters most to our participants or to the full value of the model.

Speaker #3: In the pace model, financial performance and quality are not separate. They are directly linked. When we improve quality, we see better participant outcomes, more consistent engagement, lower unnecessary utilization, and ultimately better fiscal management for our state and federal partners.

Speaker #3: We track a wide range of required quality and utilization metrics, and these remain an important part of how we manage the business day to day.

Speaker #3: But we also recognize that many of these measures, while necessary, don't fully capture what matters most to our participants, or to the full value of the model.

Speaker #3: At its core, our focus is helping participants maintain their independence, remain in the community for as long as possible, and receive care that is individualized and aligned with their goals.

Patrick Blair: At its core, our focus is helping participants maintain their independence, remain in the community for as long as possible, and receive care that is individualized and aligned with their goals. This includes supporting caregivers, coordinating care across the continuum, and intervening early before issues escalate. Over the past several years, we have made meaningful investments in our clinical teams, our care model, and our operational infrastructure to strengthen our ability to deliver on those outcomes. More recently, we have begun to invest more intentionally in how we measure them. We're in the early stages of developing a more comprehensive set of outcome-oriented measures focused on areas like functional trajectory, the ability of participants to remain in the community, and further aligning care with participant goals. These are areas where we believe the PACE model delivers meaningful value.

Speaker #3: This includes supporting caregivers, coordinating care across the continuum, and intervening early before issues escalate. Over the past several years, we have made meaningful investments in our clinical teams, our care model, and our operational infrastructure to strengthen our ability to deliver on those outcomes.

Speaker #3: More recently, we have begun to invest more intentionally in how we measure them. We're in the early stages of developing a more comprehensive set of outcome-oriented measures focused on areas like functional trajectory, the ability of participants to remain in the community, and further aligning care with participant goals.

Speaker #3: These are areas where we believe the pace model delivers meaningful value. Our initial focus is on building the data, processes, and operational consistency required to measure these outcomes reliably.

Patrick Blair: Our initial focus is on building the data, processes, and operational consistency required to measure these outcomes reliably. As the capabilities mature, we expect to incorporate them more formally into how we manage the business. We believe this is an important step, not only in demonstrating the full value of the PACE model, but also in ensuring that our continued financial progress is clearly aligned with better outcomes for the participants we serve and the partners we support. AI is another area in which we are investing more heavily.

Speaker #3: As the capabilities mature, we expect to incorporate them more formally into how we manage the business. We believe this is an important step, not only in demonstrating the full value of the PACE model, but also in ensuring that our continued financial progress is clearly aligned with better outcomes for the participants we serve and the partners we support.

Speaker #3: AI is another area in which we are investing more heavily. When we think about the objectives we share with our regulators, improving participant experience and enhancing outcomes for a complex population, and doing so in a cost-effective way, we believe AI, with the appropriate oversight, has the potential to be a meaningful enabler.

Patrick Blair: When we think about the objectives we share with our regulators, improving participant experience, enhancing outcomes for a complex population, and doing so in a cost-effective way, we believe AI, with the appropriate oversight, has the potential to be a meaningful enabler. While still early, the work we've done over the past several months increases our confidence that these capabilities can have a real impact on both the quality and efficiency of our model. Much of our clinical AI work is being led by Dr. Paul Taheri. Although Paul has only been with us a short time, he has quickly stepped in to help shape our approach, bring a strong focus on practical application, clinical rigor, and ensuring these tools are designed to support, not replace, clinical judgment. We're piloting a range of use cases designed to support our clinicians and to streamline operations.

Speaker #3: While still early, the work we've done over the past several months increases our confidence that these capabilities can have a real impact on both the quality and efficiency of our model.

Speaker #3: Much of our clinical AI work is being led by Dr. Paul Taheri. Although Paul has only been with us a short time, he has quickly stepped in to help shape our approach, bring a strong focus on practical application, clinical rigor, and ensuring these tools are designed to support, not replace, clinical judgment.

Speaker #3: We're piloting a range of use cases designed to support our clinicians and to streamline operations. In our clinical workflows, we're piloting AI tools to help synthesize information across the participant record, to support care planning, and to identify potential risks such as medication interactions or avoidable acute events.

Patrick Blair: In our clinical workflows, we're piloting AI tools to help synthesize information across the participant record to support care planning and to identify potential risks, such as medication interactions or avoidable acute events. The goal is to increase the quality of the care we provide for our participants and enable our teams to operate more effectively at the top of their license. We are also applying these capabilities to operational areas such as scheduling, transportation, and care coordination, where we see meaningful opportunity to reduce friction, improve the participant experience, and better utilize our existing capacity. One area we are particularly focused on is how we schedule and deliver services across our centers. Today, there are structural inefficiencies that can lead to cancellations, unused capacity, and administrative burden.

Speaker #3: The goal is to increase the quality of the care we provide for our participants and enable our teams to operate more effectively at the top of their license.

Speaker #3: We are also applying these capabilities to operational areas such as scheduling, transportation, and care coordination. Where we see meaningful opportunity to reduce friction, improve the participant experience, and better utilize our existing capacity.

Speaker #3: One area we are particularly focused on is how we schedule and deliver services across our centers. Today, there are structural inefficiencies that can lead to cancellations, unused capacity, and administrative burden.

Speaker #3: We believe AI-enabled scheduling and coordination can help address these challenges, allowing us to improve the experience, to serve more participants within our existing footprint, and to increase capacity over time.

Patrick Blair: We believe AI-enabled scheduling and coordination can help address these challenges, allowing us to improve the experience, to serve more participants within our existing footprint, and to increase capacity over time. Importantly, we are approaching this work with discipline. We are testing, learning, and measuring impact before scaling, and we are focused on use cases where we see clear alignment between improved outcomes, better participant experience, and more efficient operations. Over time, we believe these investments will further strengthen our platform and expand our ability to deliver high-quality coordinated care at scale. Stepping back, one of the things these results and the progress we have made over the past several years now allow us to do is to take a more forward-looking view on growth.

Speaker #3: Importantly, we're approaching this work with discipline, where testing, learning, and measuring impact before scaling, and we're focused on use cases where we see clear alignment between improved outcomes and better participant experience and more efficient operations.

Speaker #3: Over time, we believe these investments will further strengthen our platform and expand our ability to deliver high-quality, coordinated care at scale. Stepping back, one of the things these results and the progress we've made over the past several years now allow us to do is to take a more forward-looking view on growth.

Speaker #3: Over the last four years, our focus has been on stabilizing and strengthening the platform. As a result of that work, we're now beginning to generate more consistent earnings and cash flow, which gives us greater strategic flexibility as we look ahead.

Patrick Blair: Over the last 4 years, our focus has been on stabilizing and strengthening the platform, and as a result of that work, we're now beginning to generate more consistent earnings and cash flow, which gives us greater strategic flexibility as we look ahead. That flexibility allows us to take a more proactive and thoughtful approach to growth. First, we continue to see meaningful opportunity within our existing footprint by filling our current centers, strengthening our sales capabilities, and expanding our reach through new channels and partnerships. At the same time, we're beginning to evaluate a broader set of potential growth alternatives that could allow us to expand our model to more seniors over time. These may include acquisitions, joint ventures, partnerships, or participation in new programs and demonstration models that align with our capabilities.

Speaker #3: That flexibility allows us to take a more proactive and thoughtful approach to growth. First, we continue to see meaningful opportunity within our existing footprint.

Speaker #3: By filling our current centers, strengthening our sales capabilities, and expanding our reach through new channels and partnerships. At the same time, we're beginning to evaluate a broader set of potential growth alternatives that could allow us to expand our model to more seniors over time.

Speaker #3: These may include acquisitions, joint ventures, partnerships, or participation in new programs and demonstration models that align with our capabilities. Overall, we're entering the next phase as an organization, one that positions us well to expand access to our model and to serve more seniors who can benefit from it.

Patrick Blair: Overall, we're entering the next phase as an organization, one that positions us well to expand access to our model and to serve more seniors who can benefit from it. Before I conclude, I'd like to spend a few minutes on the rate environment. As we know, this is an important area of focus for everyone. Ben will provide more detailed visibility into our fiscal 2027 outlook, including rates on our Q4 and fiscal year earnings call in early September. Given where we sit today, we thought it would be helpful to share some early perspective on how we're thinking about the environment, recognizing that our visibility is still evolving. Starting with Medicare, the final 2027 rate notice came in more favorable than initially proposed, particularly for Medicare Advantage plans.

Speaker #3: Before I conclude, I'd like to spend a few minutes on the rate environment. As we know, this is an important area of focus for everyone.

Speaker #3: Ben will provide more detailed visibility into our fiscal 2027 outlook, including rates on our fourth quarter and fiscal year earnings call in early September.

Speaker #3: But given where we sit today, we thought it would be helpful to share some early perspective on how we're thinking about the environment, recognizing that our visibility is still evolving.

Speaker #3: Starting with Medicare, the final 2027 rate notice came in more favorable than initially proposed, particularly for Medicare Advantage plans. That improvement was driven in part by deferred changes to the V-28 risk model transition, which had a more meaningful impact on MA than on pace.

Patrick Blair: That improvement was driven in part by deferred changes to the V28 risk model transition, which had a more meaningful impact on MA than on PACE. For PACE, our rate-setting framework and transition timeline are different. Given the complexity of the population we serve, the benefit from the deferred changes to V28 is more limited. The net result is that we expect Medicare rates to increase approximately 1.5% to 2% in fiscal year 2027, which is more modest an increase than what will likely be experienced by MA plans. On the Medicaid side, we're beginning to see early indications from our state partners that budget pressures are increasing. That said, it's important to step back and view Medicaid rates and PACE over a longer horizon. This has always been a program with some degree of year-to-year variability.

Speaker #3: For pace, our rate-setting framework and transition timeline are different, and given the complexity of the population we serve, the benefit from the deferred changes to V-28 is more limited.

Speaker #3: The net result is that we expect Medicare rates to increase approximately 1.5% to 2% in fiscal year 2027, which is more modest an increase than what will likely be experienced by MA plans.

Speaker #3: On the Medicaid side, we're beginning to see early indications from our state partners that budget pressures are increasing. That said, it's important to step back and view Medicaid rates and pace over a longer horizon.

Speaker #3: This is always been a program with some degree of year-to-year variability. There are periods where rates run ahead of cost trend and margins expand, and periods like the one we're planning for where cost trends may outpace rate growth and margins can tighten, without other offsetting improvements.

Patrick Blair: There are periods where rates run ahead of cost trend and margins expand, and periods like the one we're planning for, where cost trends may outpace rate growth and margins can tighten without other offsetting improvements. Over time, these dynamics tend to balance out. Rates have kept pace with the underlying cost of caring for this population and have supported appropriate and sustainable margins for operators who execute well at scale. We believe we're seeing normal cycle variability, not a change in the underlying economics of the model. Importantly, this is where the strength of our model matters. Because we are fully accountable for both the clinical and cost side of the equation, we can manage through periods like this and protect performance over time.

Speaker #3: Over time, these dynamics tend to balance out. Rates have kept pace with the underlying cost of caring for this population and have supported appropriate and sustainable margins for operators who execute well at scale.

Speaker #3: We believe we're seeing normal cycle variability, not a change in the underlying economics of the model. Importantly, this is where the strength of our model matters.

Speaker #3: Because we are fully accountable for both the clinical and cost side of the equation, we can manage through periods like this and protect performance over time.

Speaker #3: So while we have benefited from a more favorable rate environment in fiscal 2026 and are planning for a more tempered environment in fiscal 2027, we remain confident in the durability of the model and our ability to execute through the cycle.

Patrick Blair: While we have benefited from a more favorable rate environment in fiscal 2026 and are planning for a more tempered environment in fiscal 2027, we remain confident in the durability of the model and our ability to execute through the cycle. As we approach the end of the fiscal year, we believe InnovAge is operating from a position of strength. The work we've done over the past several years is translating into more consistent performance and a more disciplined, integrated operating model. We're focused on continuing to deliver strong, sustainable performance while investing in the model, supporting our participants, and being a responsible partner to the states and the federal government. With that, I'll turn it over to Ben to walk through our financial performance in more detail.

Speaker #3: As we approach the end of the fiscal year, we believe InnovAge is operating from a position of strength. The work we've done over the past several years is translating into more consistent performance and a more disciplined, integrated operating model.

Speaker #3: We're focused on continuing to deliver strong, sustainable performance, while investing in the model supporting our participants and being a responsible partner to the states and the federal government.

Speaker #3: With that, I'll turn it over to Ben to walk through our financial performance in more detail.

Speaker #2: Thank you, Patrick. Today, I will provide some highlights from our third quarter fiscal year 2026 financial performance, and insight into some of the trends we saw during the fiscal third quarter.

Ben Adams: Thank you, Patrick. Today, I will provide some highlights from our Q3 fiscal year 2026 financial performance and insight into some of the trends we saw during the fiscal Q3. Starting with census, we served approximately 8,050 participants across 20 centers as of 31 March 2026, which represents growth of 6.9% compared to the Q3 of fiscal year 2025 and sequential quarter growth of 0.5%. We reported 24,060 member months in the Q3, an increase of approximately 6.7% compared to the Q3 of fiscal year 2025, and an increase of approximately 0.4% over the Q2 of fiscal year 2026. Our Q3 census increase reflects normal seasonal growth resulting from the Medicare Advantage open enrollment period.

Speaker #2: Starting with census, we served approximately 8,050 participants across 20 centers as of March 31st, 2026, which represents growth of 6.9% compared to the third quarter of fiscal year 2025 and sequential quarter growth of 0.5%.

Speaker #2: We reported 24,060 member months in the third quarter and increase of approximately 6.7% compared to the third quarter of fiscal year 2025 and an increase of approximately 0.4% over the second quarter of fiscal year 2026.

Speaker #2: Our third quarter census increase reflects normal seasonal growth resulting from the Medicare Advantage open enrollment period. Total revenues of $251.9 million increased 15.5% compared to $218.1 million in the third quarter of fiscal year 2025, driven by higher capitation rates and growth in member months.

Ben Adams: Total revenues of $251.9 million increased 15.5% compared to $218.1 million in Q3 of fiscal year 2025, driven by higher capitation rates and growth in member months. The capitation rate increase reflects annual Medicaid and Medicare rate increases and a lower revenue reserve, while member month growth was driven by enrollment expansion across our California, Colorado, and Florida centers. Compared to Q2 of fiscal year 2026, total revenues increased 5.1%, primarily due to higher capitation rates driven by annual rate increases in California and Medicare, both effective 1 January 2026.

Speaker #2: The capitation rate increase reflects annual Medicaid and Medicare rate increases and a lower revenue reserve. While member month growth was driven by enrollment expansion across our California-Colorado and Florida centers.

Speaker #2: Compared to the second quarter of fiscal year 2026, total revenues increased 5.1%, primarily due to higher capitation rates driven by annual rate increases in California and Medicare both effective January.

Speaker #2: On the 21st, 2026, we incurred $113.2 million of external provider costs in the third quarter of fiscal year 2026, representing an increase of 5% compared to the third quarter of fiscal year 2025.

Ben Adams: We incurred $113.2 million of external provider costs in Q3 of fiscal year 2026, representing an increase of 5% compared to Q3 of fiscal year 2025. The year-over-year increase was driven by growth in member months, partially offset by a reduction in cost per participant. Lower cost per participant was primarily attributable to reduced permanent nursing facility utilization and lower pharmacy expense following the transition to in-house pharmacy services. These improvements were partially offset by annual rate increases for assisted living and permanent nursing facility services, as well as higher assisted living utilization.

Speaker #2: The year-over-year increase was driven by growth in member months, partially offset by a reduction in cost per participant. Lower cost per participant was primarily attributable to reduced permanent nursing facility utilization and lower pharmacy expense following the transition to in-house pharmacy services.

Speaker #2: These improvements were partially offset by annual rate increases for assisted living and permanent nursing facility services, as well as higher assisted living utilization. Compared to the second quarter of fiscal year 2026, external provider costs increased 1.1%, driven by modest growth in member months and a slight increase in cost per participant related to seasonal growth in the volume and cost of inpatient admissions.

Ben Adams: Compared to Q2 of fiscal year 2026, external provider costs increased 1.1%, driven by modest growth in member months and a slight increase in cost per participant related to seasonal growth in the volume and cost of inpatient admissions. Cost of care, excluding depreciation and amortization, was $77.7 million in Q3, an increase of 11.8% compared to Q3 of fiscal year 2025. The year-over-year increase reflects growth in member months and higher cost per participant. The increase was primarily driven by a net increase in salaries, wages, and benefits due to higher wage rates, partially offset by reduced headcount, higher third-party fees and shipping costs associated with in-house pharmacy services, and higher contract services and fleet costs inclusive of contract transportation.

Speaker #2: Cost of care excluding depreciation and amortization was $77.7 million in the third quarter, an increase of 11.8% compared to the third quarter of fiscal year 2025.

Speaker #2: The year-over-year increase reflects growth in member months and higher cost per participant. The increase was primarily driven by a net increase in salaries, wages, and benefits due to higher wage rates, partially offset by reduced headcount, higher third-party fees, and shipping costs associated with in-house pharmacy services, and higher contract services and fleet transportation.

Ben Adams: Cost of care, excluding depreciation and amortization, increased 3.7% compared to Q2 of fiscal year 2026, driven by higher salaries, wages, and benefits associated with the annual reset of employee benefits and payroll taxes, as well as an increase in consulting expense, partially offset by lower contract transportation. 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 $61 million for the quarter compared to $40.7 million for Q3 of fiscal year 2025. As a percentage of revenue, center-level contribution margin of 24.2% increased by approximately 550 basis points in the quarter compared to 18.7% in Q3 of fiscal year 2025.

Speaker #2: Cost of care excluding depreciation and amortization increased 3.7% compared to the second quarter of fiscal year 2026, driven by higher salaries, wages, and benefits associated with the annual reset of employee benefits and payroll taxes, as well as an increase in consulting expense partially offset by lower contract transportation.

Speaker #2: 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 $61 million for the quarter, compared to $40.7 million for the third quarter of fiscal year 2025.

Speaker #2: As a percentage of revenue, center-level contribution margin of 24.2% increased by approximately $550 basis points in the quarter compared to $18.7% in the third quarter of fiscal year 2025.

Speaker #2: Compared to the second quarter of fiscal year 2026, center-level contribution margin increased 15.5% from 52.8 million and as a percentage of revenue increased 220 basis points compared to 22% over the same period.

Ben Adams: Compared to the Q2 of fiscal year 2026, center-level contribution margin increased 15.5% from $52.8 million, and as a percentage of revenue increased 220 basis points compared to 22% over the same period. Sales and marketing expenses of approximately $8.7 million increased 26.3% compared to the Q3 of fiscal year 2025, primarily driven by higher wage rates and increased marketing spend to support growth. Sales and marketing expenses increased by approximately 8.2% compared to the Q2 of fiscal year 2026, driven by sales compensation and marketing spend timing. Corporate general and administrative expenses of $76.5 million increased 98.3% compared to the Q3 of fiscal year 2025, primarily driven by an increase in litigation liability.

Speaker #2: Sales and marketing expenses of approximately $8.7 million increased 26.3% compared to the third quarter of fiscal year 2025, primarily driven by higher wage rates and increased marketing spend to support growth.

Speaker #2: Sales and marketing expenses increased by approximately 8.2% compared to the second quarter of fiscal year 2026, driven by sales compensation and marketing spend timing.

Speaker #2: Corporate general and administrative expenses of $76.5 million increased 98.3% compared to the third quarter of fiscal year 2025, primarily driven by an increase in litigation liability.

Speaker #2: Corporate general and administrative expenses increased $187.6% compared to the second quarter of fiscal year 2026, primarily due to the litigation liability. Net loss was $29.9 million, for the quarter, compared to net loss of $11.1 million in the third quarter of fiscal year 2025.

Ben Adams: Corporate general and administrative expenses increased 187.6% compared to Q2 of fiscal year 2026, primarily due to the litigation liability. Net loss was $29.9 million for the quarter compared to net loss of $11.1 million in Q3 of fiscal year 2025. We reported a net loss of $0.22 per share, and our weighted average share count was approximately 135.7 million shares for the quarter on a fully diluted basis. Adjusted EBITDA was $30.5 million for the quarter compared to $10.8 million in Q3 of fiscal year 2025 and $22.2 million in Q2 of 2026.

Speaker #2: We reported a net loss of $22 cents per share. And our weighted average share count was approximately 135.7 million shares for the quarter on a fully diluted basis.

Speaker #2: Adjusted EBITDA was $30.5 million for the quarter, compared to $10.8 million in the third quarter of fiscal year 2025 and $22.2 million in the second quarter of 2026.

Speaker #2: Our adjusted EBITDA margin was 12.1% for the quarter, compared to 4.9% in the third quarter of fiscal year 2025 and 9.2% in the second quarter of fiscal year 2026.

Ben Adams: Our adjusted EBITDA margin was 12.1% for the quarter compared to 4.9% in Q3 of fiscal year 2025 and 9.2% in Q2 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. Accordingly, this quarter's de novo losses do not include our Tampa and Crenshaw centers, as both have progressed beyond the initial 24-month de novo period. For Q3, de novo losses were $1.8 million, primarily related to our Orlando, Florida center.

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

Speaker #2: Accordingly, this quarter's Genova losses do not include our Tampa and Crenshaw centers as both have progressed beyond the initial 24-month Genova period. For the third quarter, Genova losses were $1.8 million, primarily related to our Orlando, Florida center.

Speaker #2: This compares to $3.5 million of Genova losses in the third quarter of fiscal year 2025 and $4.7 million of Genova losses in the second quarter of fiscal year 2026.

Ben Adams: This compares to $3.5 million of de novo losses in Q3 of fiscal year 2025 and $4.7 million of de novo losses in Q2 of fiscal year 2026. Turning to our balance sheet, we ended the quarter with $95.5 million in cash and cash equivalents, plus $43.1 million in short-term investments. We had $69.4 million in total debt on the balance sheet, representing debt under our senior secured term loan, revolving credit facility, and finance leases. For Q3, we recorded positive cash flow from operations of $18.1 million and had $3.6 million of capital expenditures.

Speaker #2: Turning to our balance sheet, we ended the quarter with $95.5 million in cash and cash equivalents, plus $43.1 million in short-term investments. We had $69.4 million in total debt on the balance sheet, representing debt under our senior secured term loan revolving credit facility and finance leases.

Speaker #2: For the third quarter, we recorded positive cash flow from operations, of $18.1 million, and had $3.6 million of capital expenditures. Building on the strong performance, we delivered through the first nine months of fiscal 2026, and based on information available today, we are updating our full-year revenue and adjusted EBITDA outlook.

Ben Adams: Building on the strong performance we delivered through the first 9 months of fiscal 2026, based on information available today, we are updating our full year revenue and adjusted EBITDA outlook. All other guidance metrics remained unchanged. 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 now projecting total revenue for fiscal 2026 in the range of $950 to 975 million. Adjusted EBITDA is now projected to be in the range of $85 to 90 million, and we anticipate that de novo losses for fiscal year 2026 will be in the $11.5 to 13.5 million dollar range.

Speaker #2: All other guidance metrics remain unchanged. 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.

Speaker #2: We are now projecting total revenue for fiscal 2026 in the range of $950 million to $975 million. Adjusted EBITDA is now projected to be in the range of $85 million to $90 million, and we anticipate that Genova losses for fiscal year 2026 will be in the $11.5 million to $13.5 million range.

Speaker #2: As we enter the final quarter of fiscal 2026 and begin planning for fiscal 2027, I'd like to share a few observations on where we stand today and how we're thinking about the year ahead.

Ben Adams: As we enter the final quarter of fiscal 2026 and begin planning for fiscal 2027, I'd like to share a few observations on where we stand today and how we're thinking about the year ahead. First, the business is performing well overall. Our sustained focus on quality, compliance, and operational discipline has created a stronger and more resilient foundation. Over the past several years, we have meaningfully improved the consistency and predictability of the business, and we now have better data and insight to inform care delivery and operational decision-making. Second, as Patrick mentioned, we are beginning to see rate pressures emerge as we engage with our state Medicaid partners. While it remains early in the rate-setting process, initial indications suggest rate increases in fiscal 2027 may be lower than what we have experienced historically.

Speaker #2: First, the business is performing well overall. Our sustained focus on quality, compliance, and operational discipline has created a stronger and more resilient foundation. Over the past several years, we have meaningfully improved the consistency and predictability of the business, and we now have better data and insight to inform care delivery and operational decision-making.

Speaker #2: Second, as Patrick mentioned, we are beginning to see rate pressures emerge as we engage with our state Medicaid partners. While it remains early in the rate-setting process, initial indications suggest rate increases in fiscal 2027 may be lower than what we have experienced historically.

Speaker #2: If this persists, and when combined with a more modest Medicare rate environment, it could create top-line pressure in fiscal 2027. That said, we view this as a near-term dynamic rather than as a structural shift.

Ben Adams: If this persists, and when combined with a more modest Medicare rate environment, it could create top-line pressure in fiscal 2027. That said, we view this as a near-term dynamic rather than as a structural shift. Currently, we do not believe these conditions represent a new long-term run rate, and we expect the rate environment to normalize over time. Importantly, our improved cost discipline, operating visibility, and focus on execution position us to manage through this period. In closing, we are pleased with the strong performance we delivered this quarter and year to date. The business is operating from a position of strength, and our updated guidance reflects both our execution to date and our current assessment of the operating environment. As we continue to refine our operations, we are placing greater emphasis on the full participant experience and evaluating opportunities to enhance care, delivery, efficiency, and outcomes over time.

Speaker #2: Currently, we do not believe these conditions represent a new long-term run rate, and we expect the rate environment to normalize over time. Importantly, our improved cost discipline operating visibility and focus on execution position us to manage through this period.

Speaker #2: In closing, we are pleased with the strong performance we delivered this quarter and year-to-date. The business is operating from a position of strength, and our updated guidance reflects both our execution to date and our current assessment of the operating environment.

Speaker #2: As we continue to refine our operations, we are placing greater emphasis on the full participant experience and evaluating opportunities to enhance care delivery efficiency and outcomes over time.

Speaker #2: We remain committed to disciplined execution as we close out fiscal 2026, and we believe we are positioned to manage near-term headwinds and to build long-term value.

Ben Adams: We remain committed to disciplined execution as we close out fiscal 2026, and we believe we are positioned to manage near-term headwinds and to build long-term value. Operator, that concludes our prepared remarks. Please open the line for questions.

Speaker #2: Operator, that concludes our prepared remarks. Please open the line for questions.

Speaker #1: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star 11 again.

Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered or wish to remove yourself from the queue, please press star one one again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Matthew Gillmor with KeyBanc. Your line is open.

Speaker #1: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Matthew Gilmore with KeyBank. Your line is open.

Matthew Gillmor: Hey, thanks for the question. Good afternoon. I guess I wanted to first follow up on the comments around 2027. Could you maybe first help frame up, sort of the change in the Medicaid rate increases that you've seen on a go-forward basis versus maybe the rear view, just so we get a sense for the change in that dynamic? Then as a follow-up to that, you know, one of the things we've been particularly encouraged by has been your ability to keep cost growth sort of almost flat for the last 2 years.

Speaker #2: Hey, thanks for the question. Good afternoon. I guess I wanted to first follow up on the comments around 2027. Could you maybe first help frame up sort of the change in the Medicaid rate increases that you've seen on a go-forward basis versus maybe the rearview, just so we get a sense for the change in that dynamic?

Speaker #2: And then, as a follow-up to that, one of the things we've been particularly encouraged by has been your ability to keep cost growth sort of almost flat for the last two years.

Matthew Gillmor: As you're thinking about the go forward, I was just curious about your confidence in able to, you know, maintain your cost growth at those levels, which presumably would help the dynamic for 2027, and maybe what you're doing to, you know, prepare the organization for, what you think may be a more challenging rate environment next year.

Speaker #2: So as you're thinking about the go-forward, I was just curious about your confidence in able to maintain your cost growth at those levels, which presumably would help the dynamic for 2027.

Speaker #2: And maybe what you're doing to prepare the organization for what you think may be a more challenging rate environment next year.

Speaker #3: Hey, Matt, it's Patrick. Thanks for the question. Overall, I'd say we don't have rates for fiscal year 2027 yet. We're just, I think, navigating along with the states what is a pretty complex fiscal backdrop.

Patrick Blair: Hey, Matt, it's Patrick. Thanks for the question. You know, overall, I'd say we don't have rates for fiscal year 2027 yet. You know, we're just, I think, you know, navigating along with the states, you know, what is a pretty complex fiscal backdrop. I mean, states are seeing a combination of factors, you know, with sort of post pandemic funding and broader budget pressures, and they're having to rebalance across various healthcare priorities. I think what we're doing is just trying to, you know, be transparent that it's gonna be a different, you know, environment for rates than we have seen in the past. I mean, this is pretty typical of operating, you know, in a state partnered model. It's not, you know, new or unexpected.

Speaker #3: I mean, states are seeing a combination of factors with sort of post-pandemic funding and broader budget pressures and they're having to rebalance across various healthcare priorities.

Speaker #3: So I think what we're doing is just trying to be transparent, that it's going to be a different environment for rates than we have seen in the past.

Speaker #3: I mean, this is pretty typical of operating in a state-partnered model. It's not new or unexpected. I think our approach has been and is currently, as we sort of head into the 2027 rate setting, is just to stay very closely aligned with our state partners and continue to focus on delivering high-quality care and outcomes and operate as efficiently as we can one of the things we do here consistently with every state is just the belief in the pace value proposition and how well aligned it is to what the states are trying to achieve.

Patrick Blair: I think our approach has been, you know, and is currently as we sort of head into the 2027 rate setting, is just to stay very closely aligned, you know, with our state partners and continue to focus on delivering, you know, high-quality care and outcomes and operate as efficiently as we can. One of the things we do hear consistently with every state is just the belief in the PACE value proposition and how, you know, well-aligned it is to what the states are, you know, trying to achieve. Caring for this really high needs population is something they take very seriously. You know, I think just overall, we still know very little about 2027. I wanted to just make sure I shared that, but I think that's sort of how we view it.

Speaker #3: And caring for this really high-needs population is something they take very seriously. So I think just overall, we still know very little about 2027.

Speaker #3: So I wanted to just make sure I shared that. But I think that's sort of how we view it. So, in summary, we're kind of mindful of the broader environment, but we think we have the ability to navigate it just like we have in the past.

Patrick Blair: You know, in summary, we're kind of mindful of the broader environment, but we think we have the ability to navigate it just like we have in the past. That kind of probably takes me to your second point about, you know, our ability to manage sort of cost trends, you know, in an inflationary environment. We're still feeling, you know, very confident about that. As I shared in my, you know, remarks, we have a lot of work underway right now, that's AI supported. I mentioned in some of the opening remarks some of the clinical work we're doing. We believe there is a lot of opportunity across, you know, our care model to really empower our providers, through better information to help them, you know, avoid unnecessary specialist referrals, avoid ER visits, unnecessary, you know, services.

Speaker #3: Now, that kind of probably takes me to your second point about our ability to manage sort of cost trends. In an inflationary environment, we're still feeling very confident about that.

Speaker #3: And as I shared in my remarks, we have a lot of work underway right now that's AI-supported, so I mentioned in some of the opening marks, some of the clinical work we're doing but we believe there is a lot of opportunity across our care model to really empower our providers through better information to help them avoid unnecessary specialist referrals, avoid visits, unnecessary services.

Speaker #3: In some ways, providing as much care as possible in our centers. I mentioned, I think, scheduling. It's another area where we're using AI to really understand the throughput of our centers and understand something as straightforward as the impact of cancellations have.

Patrick Blair: In some ways, you know, providing as much care as possible, you know, in our centers. I think scheduling. You know, it's another area where we're using AI to really understand the throughput of our centers and understand, you know, something as straightforward as the impact that cancellations have on our transportation, on our staffing. We're learning a lot about, you know, our business and the drivers, and AI is really supporting that. We think there's a lot of perhaps capacity. We think there's manual workflows that we can work around. We think there's augmentations to our staffing models that we can pursue that will make us more efficient and deliver a better participant experience.

Speaker #3: On our transportation, on our staffing, and we're learning a lot about our business and the drivers and AI has really supporting that. And we think there's a lot of crap capacity.

Speaker #3: We think there's manual workflows that we can work around. We think there's augmentations to our staffing models that we can pursue that will make us more efficient and deliver a better participant experience.

Patrick Blair: That's a long way of sort of saying that, you know, the rate environment is one where we're used to navigating it. We'll do that successfully. We're working, you know, hard to define next year's OVIs, Operational Value Initiatives like the scheduling example, and clinical value initiatives that we're doing to take clinical variation out of the system. We think there's real opportunity to operate more efficiently, improve the patient experience, deliver better clinical outcomes, and, you know, do all of that in a very complex sort of fiscal backdrop for states. Ben, anything to-

Speaker #3: So that's a long way of sort of saying that the rate environment is one where we're used to navigating it. We'll do that successfully.

Speaker #3: And we're working hard to define next year's OVIs—operational value initiatives, like the scheduling example—and clinical value initiatives that we're doing to take clinical variation out of the system. We think there's real opportunity to operate more efficiently, improve the patient experience, deliver better clinical outcomes, and do all of that in a very complex sort of fiscal backdrop for states.

Speaker #3: Ben, anything to add?

Ben Adams: I actually don't have a thing to add. I think that was exactly the way we're thinking of it.

Speaker #2: I actually don't have anything to add. I think that was exactly what we were thinking about.

Ben Adams: I actually don't have a thing to add. I think that was exactly the way we're thinking of it.

Speaker #4: Okay. Great. That was really helpful. I appreciate it. And then as a follow-up, I did want to ask about revenue performance on the quarters.

Matthew Gillmor: Okay, great. That was really helpful. I appreciate it. As a follow-up, I did want to ask about revenue performance on the quarters. Obviously, you know, very strong quarter overall. On the top line, you had mentioned better Medicaid rates and also some favorability with RAF. I was hoping you could discuss the details of that a little bit better. One point I wanted to get at, or one thing I wanted to ask about was just the sustainability of the revenue upside you saw in the quarter. I guess I normally would think of, you know, RAF and Medicaid rates as sustainable in future quarters, I just wanted to get your perspective on that dynamic.

Speaker #4: Obviously, a very strong quarter overall. But on the top line, you had mentioned better Medicaid rates and then also some favorability with RAF. I was hoping you could discuss the details of that a little bit better, and one point I wanted to get at—or one thing I wanted to ask about—was just the sustainability of the revenue upside you saw in the quarter.

Speaker #4: I guess I normally would think of RAF and Medicaid rates as sustainable and future quarters, but I just wanted to get your perspective on that dynamic.

Speaker #3: Yeah. I guess, well, you're right. We did start seeing in the back half of the year a step up in rates on the Medicaid side and a step up in risk scores, right?

Ben Adams: Yeah, I guess, well, you're right. You know, we did start seeing in H2 a step up in rates on the Medicaid side and a step up in risk scores, right? Both of those things were positive starting in January, and they rolled through H2. You know, if you think about sort of, you know, which states sort of kick in with their rates on January 1, you know, California is an important one for us. We had a pretty good rate environment in California this year following on some difficult years in California. That benefited us in H2. If you think about the risk scores, you're right.

Speaker #3: So both of those things were positive starting in January, and they rolled through the second half of the year. If you think about sort of which states sort of kick in with their rates on January 1st, California is an important one for us.

Speaker #3: And we had a pretty good rate environment in California this year following on some difficult years. In California so that benefited us in the second half of the year.

Speaker #3: If you think about the risk scores, you're right. I think of those assuming we don't have a mix, a change in the mix of enrollment or some other mix in our population, that improvement in risk scores ought to be durable going forward in the future. But obviously, you kind of got to watch it as you go into the future, because they do change a little bit.

Ben Adams: I think of those, assuming we don't have a change in the mix of enrollment, or some other mix in our population, that improvement in risk scores ought to be durable going forward in the future. Obviously, you kinda gotta watch it every, you know, as you go into the future because they do change a little bit. You know, we're hoping for some durability there. I think Patrick commented on the rate outlook a moment ago as it relates to Medicaid. You can sort of factor some of those comments into how we're thinking about California for next year, which would be the next time it would renew in January.

Speaker #3: But we're hoping for some durability there. And I think Patrick commented on the rate outlook. A moment ago as it relates to Medicaid. So you can sort of factor some of those comments into how we're thinking about California for next year, which would be the next time it would renew in January.

Speaker #4: Okay. Thanks a lot.

Matthew Gillmor: Okay. Thanks a lot.

Speaker #5: One moment for our next question. Our next question comes from Jerry Ossey with William Blair. Your line is open.

Operator: One moment for our next question. Our next question comes from Jared Haase with William Blair. Your line is open.

Speaker #6: Yeah. Hey, guys. Good evening and thanks for taking the questions. Appreciate all the thus far. Patrick, I think you talked a little bit about sort of emphasizing the flexibility that you have now just based on the stable profile that you've reached here with the model.

Jared Haase: Yeah. Hey, guys. Good evening, and thanks for taking the questions. Appreciate all the color thus far. Patrick, I think you talked a little bit about, you know, sort of emphasizing the flexibility that you have now just based on the stable profile that you've reached here with the model. In terms of, you know, the go-forward growth strategy, I think you outlined a couple of different levers, whether that's M&A, joint ventures, partnerships, then I think you even alluded to potentially some new programs or demonstrations. I was wondering if we could just, you know, dig into your thinking there a little bit further, maybe force rank some of those different options that you have available to you as to what might be, you know, more realistic over the next handful of quarters.

Speaker #6: In terms of the go-forward growth strategy—and I think you outlined a couple of different levers, whether that's M&A, joint ventures, or partnerships—and then I think you even alluded to potentially some new programs or demonstrations.

Speaker #6: And so, I was wondering if we could just dig into your thinking there a little bit further—maybe force-rank some of those different options that you have available to you as to what might be more realistic over the next handful of quarters.

Jared Haase: I'd also love to press on the new programs or demonstration models, how you guys are thinking about that, and you know, what programs seem interesting to you?

Speaker #6: And I'd also love to press on the new programs or demonstration models, how you guys are thinking about that, and what programs seem interesting to you.

Jared Haase: I'd also love to press on the new programs or demonstration models, how you guys are thinking about that, and you know, what programs seem interesting to you?

Speaker #3: Well, thanks for the question. I would start by just reminding folks that in many ways, we think of ourselves as having kind of come out of the turnaround at the beginning of the calendar year.

Patrick Blair: Well, thanks for the question. You know, I would start by just, you know, reminding folks that, you know, in many ways, we think of ourselves as having kind of come out of the turnaround at the beginning of the calendar year. Now we're in a place where we're feeling and seeing a lot stronger operational, financial, and sort of a compliance positioning and performance. We're beginning to devote, you know, more time to evaluating, you know, a range of options that, you know, that we could pursue. You know, M&A is clearly, you know, one of them. There are, you know, a lot of PACE programs, you know, across the country. Many of them are very successful, some are not.

Speaker #3: And now we're in a place where we're feeling and seeing a lot stronger operational, financial, and sort of a compliance positioning and performance. And so we're beginning to devote more time to evaluating a range of options that we could pursue M&A is clearly one of them.

Speaker #3: There are a lot of pace programs across the country, many of them are very successful. Some are not. And we've learned from an acquisition we did in California about 18 months ago that we have the ability to bolt on and smaller pace programs that were maybe struggling to grow putting them in our platform on our staffing model in sort of our sales model.

Patrick Blair: We've, you know, we've learned from an acquisition we did in California about 18 months ago that we have the ability to bolt on and smaller PACE programs that we're maybe struggling to grow. You know, putting them on our platform, on our staffing model, in sort of our sales model, you know, it really in some ways allows us to pursue a de-risk de novo, you know, without the long, longer, you know, return on capital that a pure de novo can take. You know, understanding where those opportunities exist is something that, you know, we're spending a little time on. It's hard to handicap this early in the process, you know, where that exists.

Speaker #3: It really, in some ways, allows us to pursue a de-risk de novo. Without the longer return on capital that a pure de novo can take.

Speaker #3: So, understanding where those opportunities exist is something that we're spending a little time on. It's hard to handicap, this early in the process, where that exists.

Speaker #3: Obviously, some states are have others. And so that's also a layer that we put on that. Partnerships, you've seen some of the partnerships we've done in Florida.

Patrick Blair: Obviously, some states are have more attractive environments than others, that's also a layer that, you know, we put on that. Partnerships, you've seen some of the partnerships we've done in Florida and in California. We think there's Those are hospital partnerships. You know, we are seeing kind of the proof of concept play out in a positive way. There's still calibration that has to be done so that both entities are sort of, you know, and participants are all sort of benefiting in the appropriate ways. We do see more opportunities to do hospital joint ventures that really help us extend, you know, our place in the community. You know, when it comes to PACE in general, I wouldn't want to overlook, you know, the opportunity from just basic policy modernization.

Speaker #3: And in California, we think those are hospital partnerships. We are seeing kind of the proof of concept play out in a positive way.

Speaker #3: There's still calibration that has to be done, so that both entities and participants are all sort of benefiting in the appropriate ways.

Speaker #3: But we do see more opportunities to do hospital joint ventures. That really help us extend our place in the community. When it comes to pace in general, I wouldn't want to overlook the opportunity from just basic policy modernization.

Patrick Blair: You know, there are opportunities that are not radical changes to sort of the regulatory contours of the program, more like, you know, practical evolutions of the program that would allow us to expand faster. You know, something like simplifying enrollment, making it easier for seniors and families to choose PACE. You know, we're working closely with our industry peers and our industry association to articulate those policy modernization opportunities that we see that could help the PACE program serve more seniors over time. We're really pleased, I think, with the level of interest and curiosity that we see from CMS and CMMI and their openness to listen to what are the things that could change to really help PACE serve more seniors. That's sort of, you know, the policy horizon.

Speaker #3: There are opportunities that are not radical changes to, sort of, the regulatory contours of the program—more like practical evolutions of the program that would allow us to expand faster. Something like simplifying enrollment, making it easier for seniors and families to choose PACE.

Speaker #3: We're working closely with our industry peers and our industry association to articulate those policy modernization opportunities that we see that could help the pace program serve more seniors over time and we're really pleased I think with the level of interest and curiosity that we see from CMS and CMMI and their openness to listen to what are the things that could change to really help pace serve more seniors.

Speaker #3: So that's sort of the policy horizon. Then I think maybe the last element to your question was the notion of sort of these pace-inspired adjacencies.

Patrick Blair: I think maybe the last element to your question was, you know, the notion of sort of these PACE-inspired adjacencies. You know, we are a big believer that the PACE model can be adapted to serve seniors who are not eligible for PACE today but could be eligible in the future. You know, there are opportunities that we see there, some via demonstration, some just kind of de novo adjacent new product development that we could pursue. Our focus still is very much on growing our core PACE business. As we are able to experience better operating performance in a more consistent model, we really believe strongly that PACE can serve a broader segment of the population.

Speaker #3: We are a big believer that the pace model can be adapted to serve seniors who are not eligible for pace today. But could be eligible in the future.

Speaker #3: These are there are opportunities that we see there some via demonstration some just kind of de novo adjacent new product development that we could pursue.

Speaker #3: Our focus still is very much on growing our core PACE business. But as we are able to experience better operating performance in a more consistent model, we really believe strongly that PACE can serve a broader segment of the population, and we're kind of doing everything sort of in our power and working with our industry peers to make that case.

Patrick Blair: We're kind of doing everything, you know, sort of in our power and working with our industry peers to make that case. Over time, you know, we're hopeful that opportunities that are inspired by our core business and very close to our core business could present themselves, and we'd love to pursue it.

Speaker #3: And so over time we're hopeful that opportunities that are inspired by our core business at very close to our core business could present themselves and we'd love to pursue it.

Speaker #4: Okay, that's really helpful. And then, as a follow-up, I really appreciate all the details you guys provided. Just regarding rate development and your current view for 2027.

Jared Haase: Okay. That's really helpful. You know, as a follow-up, I really appreciate all the details you guys provided just regarding rate development and your current view for 2027. You know, if I take a step back from a strategic perspective, you know, if we do find ourselves in an environment where rates are lagging medical cost trend, do you have a bias as it relates to, you know, striking the balance between, you know, maintaining your current growth levels versus maintaining profitability? You know, I realize from your comments, you know, there are a number of initiatives in place that can sort of drive efficiencies. Maybe there isn't really a trade-off in that way.

Speaker #4: If I take a step back from a strategic perspective, if we do find ourselves in an environment where rates are lagging medical cost trend, do you have a bias as it relates to striking the balance between maintaining your current growth levels versus maintaining profitability?

Speaker #4: I realize from your comments there are a number of initiatives in place that can sort of drive efficiencies. Maybe there isn't really a trade-off in that way.

Speaker #4: But I guess I'd just be curious if you do approach a year like this, with a more muted rate environment, how you think about that in one direction or the other.

Jared Haase: I guess I'd just be curious, you know, if you do approach a year like this, with a more integrated environment, you know, how you think about that in one direction or the other.

Patrick Blair: Maybe I'll ask Ben to maybe share some initial thoughts, and then I'll follow up.

Speaker #3: We've asked Minda maybe share some initial thoughts and then I'll follow up.

Ben Adams: Yeah, I'm sorry. I missed some of the question coming through. I couldn't figure out what exactly is the question. Are we talking about mitigants in a challenging rate environment?

Speaker #5: Yeah. I'm sorry. I missed some of the question coming through. I couldn't figure out what exactly is the question? Are you talking about are we talking about mitigants in a challenging rate environment?

Jared Haase: Exactly, yeah. My thought was just, you know, as we think about potentially moving into this more challenging rate environment for 2027, you know, obviously, you outlined a number of initiatives in place, but just kind of philosophically, do you approach your strategy with the mindset of pursuing growth as a priority or maintaining profitability?

Speaker #3: Exactly. Yeah. My thought was just as we think about potentially moving into this more challenging rate environment for 2027, obviously you outlined a number of initiatives in place.

Speaker #3: But just kind of philosophically, do you approach your strategy with the mindset of pursuing growth as a priority or maintaining profitability?

Speaker #5: Yeah, yeah. Well, it's really interesting. Patrick talked a lot about quality in his prepared remarks. And I think where we are right now is we've gotten to a point where we've got some nice margins.

Ben Adams: Yeah. Well, you know, it's really interesting. You know, Patrick talked a lot about quality in his prepared remarks. I think where we are right now is we've gotten to a point where, you know, we've got some nice margins, we're generating cash flow. We think one of the best things that we can do in a market that begins to slow down aside from looking at strategic things that Patrick talked about, is invest very heavily in quality in our business, in our centers. I think we all feel really strongly that the better experience we give to our participants, the more likely it is gonna drive growth and good financial outcomes for us.

Speaker #5: We're generating cash flow. And we think one of the best things that we can do in a market that begins to slow down, aside from looking at strategic things that Patrick talked about, is invest very heavily in quality in our business, in our centers.

Speaker #5: And I think we all feel really strongly that the better experience we give to our participants the more likely it is going to drive growth and good financial outcomes for us.

Speaker #5: So I think what you'll see going into this year is we'll spend a lot of time on improving the patient experience, on efficiencies in our center, at ways that we can be more intentional in our strategies going forward.

Ben Adams: I think what you'll see going into this year is we'll spend a lot of time on improving the patient experience, on efficiencies in our center, in ways that we can be more intentional in our strategies going forward. Aside from the growth metrics that Patrick talked about before, this sort of reinvest into the business, the quality business, I think is gonna be very important for the coming year. I don't know if that really answered your question. You know, there are other specific areas we'll look at in terms of Operational Value Initiatives and clinical value initiatives like Patrick talked about, but it's sort of a mindset. It's very much driven towards, you know, quality as one of the drivers of growth.

Speaker #5: So aside from the growth metrics that Patrick talked about before, this sort of reinvest into the business, the quality of business I think is going to be very important for the coming year.

Speaker #5: I don't know if that really answered your question. There are other specific areas we'll look at in terms of operational value initiatives and clinical value initiatives like Patrick talked about.

Speaker #5: But it's sort of a mindset. It's very much driven towards quality as one of the drivers of growth.

Speaker #3: I mean, I might just add that I do feel that we still have opportunity to enhance our sort of sales and marketing model. We've made great strides in the last couple of years.

Patrick Blair: Ben, I might just add that I do feel that we still have opportunity to enhance our sort of sales and marketing model. We've made great strides in the last couple of years, under Matt Huray, our leader of the sales and marketing function, you know, we're really continuing to test and learn and try new things. We're adding new members to the team. We're exploring new channel partnerships. Setting aside sort of rate, you know, we really are focused on as much, you know, new census gross enrollment as we can, you know, we can attract. There's a lot of great work that's going on in that area. Vin mentioned the participant experience.

Speaker #3: But under Matteray, our leader of the sales and marketing function, we're really continuing to test and learn and try new things. We're adding new members to the team.

Speaker #3: We're exploring new channel partnerships. And so setting aside sort of rate we really are focused on as much new census, gross enrollment, as we can attract.

Speaker #3: And there's a lot of great work that's going on in that area. Ben mentioned the participant experience. We are now at a place where we're spending a lot of time to really understand, when people leave us, why do they leave us?

Patrick Blair: You know, we are now at a place where we're spending a lot of time to really understand, you know, when people leave us, why do they leave us? You know, did they have, a particular encounter that, you know, was frustrating? Was there some friction or abrasion in, you know, their time with us? Were we slow to recover on a service issue? We're really digging into, why people choose to leave. You know, that's another opportunity to drive growth, is to reduce the number of people that decide to leave us. Some of the people, it's voluntary, and they're making a conscious decision, but there's also involuntary, you know, dis-enrollment.

Speaker #3: Did they have a particular encounter that was frustrating? Was there some friction or abrasion in their time with us? Were we slow to recover on a service issue?

Speaker #3: We're really digging into why people choose to leave. And that's another opportunity to drive growth—to reduce the number of people that decide to leave us.

Speaker #3: Some of the people it's voluntary and they're making a conscious decision. But there's also involuntary disenrollment. So we are very focused on sort of the sales and enrollment side of the growth equation as well as the participant experience keeping people with us longer, basically increasing tenure.

Patrick Blair: We are very focused on, sort of the sales and enrollment side, of the growth equation as well as the participant experience, you know, keeping people with us longer, basically increasing tenure. I think that's a real, you know, bias of ours. You know, on the margin side, you know, in some ways we've pulled forward, into 2 years what we thought was going to take 3 years from a margin perspective. Now that we're at a place where we're achieving what we set out to and communicated in our investor day a few years ago, I think investing in growth while maintaining a consistent margin is probably more of a priority than expanding margins at this point, if that's helpful.

Speaker #3: I think that's a real bias of ours. And on the margin side, in some ways, we've pulled forward into two years what we thought was going to take three years.

Speaker #3: From a margin perspective. And now that we're at a place where we're achieving what we set out to and communicated in our investor day a few years ago, I think investing in growth while maintaining a consistent margin is probably more of a priority than expanding margins at this point, if that's helpful.

Speaker #4: Yeah. That's really helpful. I appreciate all the detail there. Thank you.

Jared Haase: Yeah. That's really helpful. I appreciate all the detail there. Thank you.

Speaker #6: One moment for our next question. Our next question comes from Benjamin Rossy with JPMorgan. Your line is open.

Operator: One moment for our next question. Our next question comes from Benjamin Rossi with JP Morgan. Your line is open.

Benjamin Rossi: Hey, good afternoon, everyone. Thanks for taking my questions. Following up on your 2027 commentary, appreciate that you're planning to provide more details next quarter. As you think about initial enrollment growth, what are your initial thoughts on your aggregate patient risk scores and new member acuity mix? It sounds as though based on your Medicare rate assumptions, you're assuming acuity declines somewhat year over year. Is that a fair read?

Speaker #7: Hey, good afternoon, everyone. Thanks for taking my questions. So, following up on your 2027 commentary, I appreciate that you're planning to provide more details next quarter.

Speaker #7: But as you think about initial enrollment growth, what are your initial thoughts on your aggregate patient risk scores and new member acuity mix? It sounds as though based on your Medicare rate assumptions, you're assuming acuity declines somewhat year over year.

Speaker #7: Is that a fair read?

Patrick Blair: No, I wouldn't read too much into it. I think, you know, we're going through the budgeting process right now. You know, our fiscal year ends 30 June, so we're really getting into the meat of the budgeting process. I don't think we expect a material change in mix shift, either in terms of our population, you know, independent, assisted living, or folks in nursing facilities, or a significant change in risk score mix. We're sort of getting into that process right now. We'll have more to talk about it when we get through the budget process, and we issue guidance in September.

Speaker #5: No. I wouldn't read too much into it. I think we're going through the budgeting process right now. And our fiscal year ends June 30th.

Speaker #5: So, we're really getting into the meat of the budgeting process. I don't think we expect a material change in mix shift either in terms of our population—independent, assisted living, or folks in nursing facilities—or a significant change in risk score mix.

Speaker #5: But we're sort of getting into that process right now. We'll have more to talk about it when we get through the budget process and we issue guidance in September.

Benjamin Rossi: Okay. Understood on that. This is just as a follow-up on your updated outlook implies Q4 top line growth will decelerate a bit sequentially, while EBITDA growth will remain elevated. What do you assume gets better quarter over quarter as we go into the next quarter, either across PMPM trend or cost of care? Is there anything discrete across revenue or cost that you'd call out with within your progression during fiscal Q4? Thanks.

Speaker #7: Okay. Understood on that. This is a follow-up on the for your updated Outlook implies four-queue top-line growth. We'll decelerate a bit sequentially while EBIT growth will remain elevated.

Speaker #7: What do you assume gets better quarter over quarter as we go into the next quarter, either across PM/PM trend or cost design? And is there anything discrete across revenue or cost that you'd call out within your progression during fiscal Q4?

Speaker #7: Thanks.

Patrick Blair: No, I don't, I don't think so. I think that, you know, we've generally benefited, as we said before, from, you know, better rates in the back half of the year and, also, you know, better risk scores. I would expect those trends would kind of continue going into Q4. You know, if you think about how, sort of the pattern of gross enrollment works, and you can go back and look over the last couple of years, you know, we usually have a pretty good, pretty steady Q4 in terms of gross enrollment growth. I would think that we probably experience something not too different from what we'd seen in prior years.

Speaker #5: No. I don't think so. I think that we've generally benefited, as we said before, from better rates in the back half of the year.

Speaker #5: And also, better risk scores. And I would expect those trends would kind of continue going into Q4. If you think about how sort of the pattern of gross enrollment works and you can go back and look over the last couple of years, we usually have a pretty good, pretty steady Q4 in terms of gross enrollment growth.

Speaker #5: And I would think that we probably experienced something not too different from what we'd seen in prior years.

Benjamin Rossi: Understood. Thanks for the color.

Speaker #7: Understood. Thanks for the calling.

Speaker #6: And I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.

Operator: I'm not showing any further questions at this time. As such, this does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.