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InnovAge Holding Corp. (INNV)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 revenue grew 10.6% YoY to $209.0M; sequentially +1.9%. Adjusted EBITDA was $5.9M (2.8% margin) and diluted EPS was $(0.10). Center-level contribution reached $37.1M (17.7% margin) .
  • Management reaffirmed full-year FY2025 guidance: revenue $815–$865M, Adjusted EBITDA $24–$31M, ending census 7,300–7,750, total member months 86,000–89,000 (unchanged vs initial September guide) .
  • Net loss widened YoY due to an $8.5M impairment from exiting the Louisville, KY de novo site and prior-year one-time Medicare Part C true-up in Q2 FY2024; underlying trends included lower cost per participant in key categories and improved center-level margin vs Q1 .
  • Strategic/catalyst items: Medicaid rate increases in CA and PA effective Jan 1, pharmacy insourcing progressing, and continued regulatory engagement; all cited as supports to back-half margin trajectory and a potential narrative tailwind for shares .

What Went Well and What Went Wrong

  • What Went Well

    • Sequential top-line and center-level margin progress: revenue +1.9% QoQ to $209.0M; center-level contribution rose to $37.1M (17.7%) from $34.5M (16.8%) in Q1 .
    • Cost discipline in external provider costs: +0.7% QoQ driven by higher member months but lower cost per participant; reductions in inpatient, assisted living, SNF, and external hospice utilization supported trend .
    • Clear strategic transformation agenda and technology enablement (Epic, AI-enabled workflows) with COO-led operational rigor. “We’re reimagining how we operate… with a technology-first mindset… to drive operating efficiency… and margin expansion,” said CEO Patrick Blair .

  • What Went Wrong

    • GAAP profitability compressed: net loss widened to $(13.5)M (6.5% margin) vs $(3.8)M (2.0%) a year ago, driven by an $8.5M impairment related to Louisville de novo exit and other one-time puts/takes .
    • Rate/eligibility headwinds and operational friction: sequential revenue reserve impact associated with decreasing Medicare risk scores for new entrants and ongoing California enrollment/redetermination processing delays .
    • Adjusted EBITDA margin dipped YoY (2.8% vs 3.7%), despite revenue growth, reflecting mix of one-time items and increased cost of care to support growth and de novo investments .

Financial Results

MetricQ4 FY2024Q1 FY2025Q2 FY2025
Revenue ($M)$199.4 $205.1 $209.0
Net Loss ($M)$(2.3) $(5.7) $(13.5)
Diluted EPS ($)$(0.01) $(0.04) $(0.10)
Center-Level Contribution ($M)$36.6 $34.5 $37.1
Center-Level Contribution Margin (%)18.3% 16.8% 17.7%
Adjusted EBITDA ($M)$5.2 $6.5 $5.9
Adjusted EBITDA Margin (%)2.6% 3.2% 2.8%
External Provider Costs ($M)$102.7 $107.2 $107.9
Cost of Care ex D&A ($M)$60.1 $63.4 $64.1

Notes:

  • YoY detail: revenue +10.6%; center-level contribution +10.3%; Adjusted EBITDA down $1.0M; net loss margin +450 bps, per company’s Q2 release .

Segment breakdown (Q2 FY2025)

Segment Detail (in $000s)Q2 FY2025
PACE Capitation Revenue$208,674
Other Service Revenue$77 (PACE), $248 (All other)
Total Revenue$208,999
External Provider Costs$107,873
Cost of Care ex D&A$64,061
Center-Level Contribution$37,065
Center-Level Contribution Margin (%)17.7%

KPIs and balance sheet highlights

KPIQ4 FY2024Q1 FY2025Q2 FY2025
Participants (Census)~7,020 ~7,210 ~7,480
Member Months (Quarter)—21,380 22,200
Cash & Cash Equivalents ($M)$56.9 $39.0 $46.1
Short-term Investments ($M)$45.8 $46.7 $40.8
Total Debt ($M)$83.3 $81.3 $78.3

Estimate comparison

  • Consensus estimates from S&P Global were unavailable at time of analysis due to data access limits; as such, revenue/EPS/EBITDA comparisons to consensus are not included this quarter. We default to S&P Global for consensus where available.

Guidance Changes

MetricPeriodPrevious Guidance (9/10/2024)Current Guidance (2/4/2025)Change
Ending CensusFY20257,300–7,750 7,300–7,750 Maintained
Total Member MonthsFY202586,000–89,000 86,000–89,000 Maintained
Total RevenueFY2025$815M–$865M $815M–$865M Maintained
Adjusted EBITDAFY2025$24M–$31M $24M–$31M Maintained

Management reiterated seasonality (some Q3 softness typically) and back-half weighting tied to clinical/operational value initiatives (CVIs/OVIs) maturing later in the year .

Earnings Call Themes & Trends

TopicQ4 FY2024 (Q-2)Q1 FY2025 (Q-1)Q2 FY2025 (Current)Trend
Transformation/Tech-first (Epic, AI enablement)Epic rollout completed; ops excellence foundation set Emphasis on tools/workflows; improving documentation and chronic condition capture via Epic alerts COO reimagining operations with technology-first mindset (scheduling, transportation, call center); Epic with AI capabilities cited Building momentum
Pharmacy insourcingExploring options; noted $88M FY2024 pharmacy spend Assessing market/pricing vs in-house Acquired a pharmacy; transitioning packaging/distribution in-house; early benefits, expected cost and compliance gains Positive integration
Regulatory/legalCA audits ongoing; CMS closed portion for Sacramento; path to Downey/Bakersfield after resolution CA audits open; no timeline update CA audits remain open; engagement ongoing Steady, unresolved
Enrollment processing delaysState delays in LOC assessments; reflected in guidance Small signs of improvement; still variable CA delays led to higher A/R allowances/write-offs; monitoring Mixed; improving slowly
Rate environment (Medicaid/Medicare)FY2025 view: mid-single digit blended rate support; details by state Flat vs Q4; reserves methodology change; looking ahead to AEP CY2025 Medicaid rate increases (CA, PA) mid-to-high single digits; sequential Medicare risk score decrease on newer/lower-acuity entrants Supportive
Payer capabilities / provider networkBuilding payer capabilities, network optimization Continuing CVIs/OVIs; network optimization in flight Added leader for network development/optimization; focus on claims payment integrity Advancing

Management Commentary

  • Strategy and momentum: “We’re reaffirming our fiscal 2025 guidance… making meaningful progress… with some one-time adjustments” .
  • Care model durability: “Core medical cost trends remain in line with expectations… proactive individualized care model” .
  • Technology-first operating model: “Reimagining key operational areas through a technology-first mindset… to drive operating efficiency… margin expansion” .
  • Pharmacy insourcing rationale: “Direct control over pharmaceutical packaging/distribution… enhance compliance… reduce costs previously paid to third parties” .
  • Regulatory view/industry tailwinds: “PACE has long enjoyed bipartisan support… incoming administration will continue to champion its role” .

Selected quotes

  • “Adjusted EBITDA was $5.9 million, and census grew to 7,480, reflecting approximately 4% quarter-over-quarter census increase.”
  • “In California this quarter, [enrollment processing] delays led to higher allowances against accounts receivable and corresponding write-offs.”
  • “We recorded an impairment… ~$8.5 million related to halting development on our previously planned de novo Center in Louisville, Kentucky.”

Q&A Highlights

  • Transformation scope: Emphasis on technology-enabled operations, payer capabilities (network management, claims integrity) to drive margin expansion over next 18 months .
  • Funding/revenue mix: Roughly ~$9,000 PMPM mix illustrative (Part C ~$3,000; Part D ~$1,000; Medicaid ~$5,000), with state/federal match varying by state; detailed breakout in the 10-Q .
  • Louisville impairment: Decision to exit after territory awarded to another PACE program; wrote off lease asset and CIP .
  • Prior-year Medicare true-up: Q2 FY2024 included out-of-period 2022 Part C true-up; obscures YoY EBITDA; six-month comparisons show underlying trend better .
  • Back-half progression: EBITDA expected to progress more in 2H as CVIs/OVIs build, with typical Q3 seasonal softness (AEP competition; seasonal illness) .

Estimates Context

  • S&P Global consensus (revenue/EPS/EBITDA) was unavailable at time of analysis due to access limits; therefore, we cannot provide beat/miss versus Street for Q2 FY2025. We typically anchor estimate comparisons on S&P Global and will include them when accessible.

Key Takeaways for Investors

  • Reaffirmed FY2025 guide despite Q2 non-recurring headwinds (impairment, reserve methodology/true-ups), supporting the margin recapture narrative toward high-single-digit EBITDA margins over the intermediate term (per prior Investor Day) .
  • Sequential fundamentals improved: revenue +1.9% QoQ, center-level margin +~90 bps to 17.7% as medical trend control held despite seasonal pressures .
  • Rate environment supportive (CA/PA Medicaid increases effective Jan 1) and strategic insourcing (pharmacy) may further aid cost trend and compliance, with more visible benefits into 2H/FY2026 .
  • Enrollment remains a controlled variable: California processing delays persist but show engagement; management is investing in retention and referral channels to sustain net adds .
  • Non-GAAP adjustments matter: Litigation, M&A diligence, business optimization, EMR, and impairment items materially impact GAAP loss; investors should track Adjusted EBITDA and center-level contribution alongside GAAP metrics .
  • Near-term trading setup: Back-half-weighted execution, rate tailwinds, and pharmacy transition milestones are key narrative catalysts; any regulatory resolution in CA (audits) or visible network/payer capability wins could provide upside optionality .
  • Watch de novo drag trajectory: De novo losses ($18–$20M FY2025 guide) are trending modestly lower sequentially; continued ramp at Tampa/Orlando/Crenshaw and stabilization of costs (transportation, staffing) can tighten EBITDA range .

Citations

  • Q2 FY2025 press release and schedules
  • Q2 FY2025 8-K Item 2.02 and Exhibit 99.1 tables
  • Q2 FY2025 earnings call transcript
  • Q1 FY2025 earnings call (trend context)
  • Q4 FY2024 earnings call (trend and prior guidance)
  • Q2 FY2025 earnings date PR