InnovAge's Q4 2025: Contradictions Emerge on Medicaid Redetermination, V-28 Transition, Member Mix, and Cost Management Strategies

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 9, 2025

Financials Results

• Revenue: $853.7M, up 11.8% YOY; Q4 revenue $221.4M, up 11% YOY and up 1.5% sequentially
• EPS: Net loss of ($0.22) per share vs ($0.16) prior year; Q4 net loss per share ($0.01); Q4 net loss $5.0M vs $11.1M in Q3

Guidance:

• FY26 ending census 7,900–8,100; member months 91,600–94,400
• FY26 revenue $900M–$950M
• FY26 adjusted EBITDA $56M–$65M
• FY26 de novo losses $13.4M–$15.4M
• Expect profitability to build through FY26; exit at higher run-rate
• Low single-digit Medicare rate increase; mid-single-digit Medicaid increase
• CMS V-28 risk model phase-in begins Jan 1, 2026 (90/10 split); modeled as a headwind
• Medicaid redeterminations to pressure census in 1H FY26; gross enrollments intact
• Long-term adjusted EBITDA margin target 8%–9% remains

Business Commentary:

* Revenue Growth and EBITDA Improvement: - InnovAge reported revenue of $853.7 million for fiscal 2025, up nearly 12% year over year. - Adjusted EBITDA for the same period reached $34.5 million, nearly doubling from the previous year. - The growth was driven by disciplined cost management, strong medical utilization performance, and continued census growth.

• Census and Member Months Increase:
• The company ended the fiscal year with a census of approximately 7,740 participants, reflecting a 10% year-over-year increase.
• Member months increased to 23,000 in the fourth quarter, up 10.5% compared to the same period last year.

• This increase is attributed to strategic enrollment strategies and partnerships that extended reach and strengthened provider networks.

• Operating Leverage and Margin Expansion:

• Center-level contribution margin expanded to approximately 18%, up 70 basis points from the previous year.
• Adjusted EBITDA margin nearly doubled from 2.2% in FY2024 to approximately 4% in FY2025.

• Margin improvements were driven by clinical value initiatives, operational efficiencies, and strategic enrollment management.

• Public Investment and Future Growth:

• InnovAge is advocating for broadening the role of PACE to address America's senior care challenges, seeking new pathways like a Medicare-only option.
• This initiative aims to improve quality of life for seniors, generate savings, and create a natural growth channel for the company.
• The successful integration of PACE's interdisciplinary care model is seen as a key differentiator in managing costs and utilization.

Sentiment Analysis:

• “Fiscal 2025 was a year of delivery… We finished the year with strong momentum.” “Adjusted EBITDA was $34.5M, above the high end of guidance.” “We project FY26 revenue of $900–$950M and adjusted EBITDA of $56–$65M.” Management acknowledged headwinds (V-28, redeterminations) but said they are incorporated into guidance and expect profitability to build through the year.

Q&A:

• Question from Matthew Gilmore (KeyBanc Capital Markets): How is member mix/acuity normalization affecting margins and utilization; is there more normalization ahead?
  Response: Mix is largely normalized with balanced enrollments; healthier entrants lower risk scores (revenue), but clinical model supports margin expansion.

• Question from Matthew Gilmore (KeyBanc Capital Markets): Will the V-28 risk model transition be a headwind or tailwind to revenue in FY26 and beyond?
  Response: It will be a headwind over the next few years and is already incorporated into FY26 guidance.

• Question from Jared Haase (William Blair): Is ~250 bps annual EBITDA margin expansion a reasonable cadence toward the 8%–9% target; where will leverage come from?
  Response: Yes; gains driven by medical cost management, pharmacy insourcing, and center/overhead operating leverage; confident in achieving the target.

• Question from Jared Haase (William Blair): How are you using Epic/AI/automation to cut costs and improve operations?
  Response: Leveraging partners (Epic, Salesforce, Oracle) for out-of-the-box AI/automation to boost efficiency, accuracy, and clinical insight; early but progressing.

• Question from Jamie Perse (Goldman Sachs): Clarify timing/impact of Medicaid redetermination on census and member months.
  Response: New processes accelerate disenrollment in 1H FY26, modestly lowering net census; gross enrollments unchanged; improves EBITDA despite slower top-line.

• Question from Jamie Perse (Goldman Sachs): Which areas drive FY26 margin improvement—cost of care or G&A?
  Response: Biggest lift from center-delivered cost of care efficiencies and continued G&A operating leverage; both expected to improve over next few years.