InnovAge Holding Corp. (INNV) 2024 Q4 Earnings Call Summary

Optimistic Highlights

• Revenue Growth

Reported revenue of approximately $199 million for Q4, a 3.3% sequential improvement. Full-year revenue was approximately $764 million, an 11% increase compared to fiscal year 2023.

• Center-Level Contribution Margin

Center-level contribution margin for Q4 was $36.6 million (18.3% margin). Full-year margin was approximately $132 million (17.3% margin), a 260 basis point increase year-over-year.

• Adjusted EBITDA Improvement

Adjusted EBITDA for Q4 was approximately $5.2 million (2.6% margin). Full-year adjusted EBITDA was $16.5 million (2.2% margin), a $20 million improvement from fiscal 2023.

• Operational Milestones

Exceeded employee engagement, participant satisfaction, and quality targets. Acquired two California centers, executed a joint venture with Orlando Health, and opened two new centers in Florida.

• Fiscal 2025 Guidance

Projected census range of 7,300 to 7,750, total revenue of $815 million to $865 million, and adjusted EBITDA of $24 million to $31 million.

Pessimistic Highlights

• Enrollment Processing Delays

Challenges with state delays in completing level of care assessments required for enrollment in PACE, impacting enrollment processing times.

• De Novo Center Losses

Full-year impact of new centers will create additional year-over-year operating losses in fiscal 2025, with de novo losses projected to be $18 million to $20 million.

• Regulatory Uncertainties

Awaiting final feedback on corrective action plans for Sacramento audit and resolution of San Bernardino audit, which impacts expansion plans in Downey and Bakersfield.

• Cost Increases

External provider costs increased by 7.6% year-over-year, driven by higher assisted living utilization and unit costs, and higher utilization of professional services.

• Net Loss

Reported a net loss of $23.2 million for fiscal 2024, compared to a net loss of $43.6 million in fiscal 2023.

Company Outlook

• Positive Outlook

Confident in achieving full potential with a differentiated and powerful platform for responsible and profitable growth in fiscal 2025. Expecting adjusted EBITDA margins to reach 8% to 9% over the intermediate term.

• Enrollment and Revenue Growth

Anticipate healthy top-line growth despite enrollment processing challenges, with projected total revenue of $815 million to $865 million for fiscal 2025.

• Operational Focus

Focused on delivering compliant high-quality care, strong medical management, and operating discipline. Implementing new clinical and operational value initiatives to drive continuous improvement.

• Regulatory Resolution

Aiming to bring California audits to conclusion and resume discussions for expansion plans in Downey and Bakersfield.

• De Novo Center Progress

New centers in Florida gaining traction, with a joint venture with Orlando Health showing potential for growth.

Q & A Highlights

• Q: Can you walk us through the puts and takes for EBITDA progression in fiscal '25? Are there any one-time items in the $16.5 million EBITDA for fiscal '24? (Jason Cassorla, Citi)

A: The guidance for next year builds off the growth trends seen this year. Enrollment trends post-sanctions have been good, and state processing delays have been factored in. Revenue growth is driven by volume and mid-single-digit rate increases. De novo losses are based on run rate expenses. (Benjamin Adams)

• Q: How are you thinking about the margin target for fiscal '25 relative to the 8% to 9% intermediate-term target? (Jason Cassorla, Citi)

A: The margin progression is expected to be linear over the intermediate term. Fiscal '25 guidance is a stop along the journey to the 8% to 9% target. (Benjamin Adams)

• Q: Can you clarify the impact of the bad debt change on fiscal '24 revenue? (Jason Cassorla, Citi)

A: The bad debt expense is now recorded as contra revenue. For fiscal '24, think of a $6 million to $7 million adjustment. This change does not affect profitability. (Patrick Blair)

• Q: How are you thinking about the balance of membership ads and the cadence of de novo losses for fiscal '25? (John Stansel, J.P. Morgan Securities)

A: Enrollment is expected to track similarly to fiscal '24, with progress in new centers in Florida. De novo losses are expected to be spread evenly over the year. (Patrick Blair, Benjamin Adams)

• Q: Any impacts from the Inflation Reduction Act on Medicare Part D? (John Stansel, J.P. Morgan Securities)

A: No significant impacts expected. (Benjamin Adams)

• Q: Are state delays in enrollment processing still related to Medicaid redeterminations? (Jared Haase, William Blair)

A: The delays are more related to state throughput and level of care assessments. Progress has been made, but some challenges remain. (Patrick Blair)

• Q: How do you view the interest of health systems in launching PACE programs? (Jared Haase, William Blair)

A: Encouraged by the interest, which validates the PACE model. Competition is primarily relevant in California. More competition will build awareness for PACE. (Patrick Blair)