Healthcare Provider's Q4 2025 Earnings Call: Contradictions on Medicaid Redetermination, B-28 Medicare Transition, Member Mix/Acuity, and Occupancy Trends

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

Date of Call: September 9, 2025

Financials Results

• Revenue: Q4: $221.4M, up 11.0% YOY and up 1.5% sequential; FY25: $853.7M, up 11.8% YOY
• EPS: $0.22 net loss per share for FY25, vs $0.16 net loss prior year; Q4 net loss per share $0.01

Guidance:

• FY26 ending census 7,900–8,100; member months 91,600–94,400.
• FY26 revenue $900–$950M.
• FY26 adjusted EBITDA $56–$65M; de novo losses $13.4–$15.4M.
• Profitability to build through FY26; exit at higher run rate; long-term adj. EBITDA margin target 8–9%.
• Expect low single-digit Medicare rate increase; mid-single-digit Medicaid.
• CMS B-28 payment model begins Jan 1, 2026 with 90/10 B-22/B-28 split; modeled; expected headwind over next few years.
• Redetermination-driven disenrollments to weigh on 1H FY26 census; gross enrollment trends unchanged.
• Internal pharmacy ramp to reduce costs and improve adherence.

Business Commentary:

* Revenue and Financial Performance: - InnovAge reported revenue of $221.4 million for Q4 2025, up 11% from Q4 2024, with total revenue for the year reaching $853.7 million, a nearly 12% year-over-year increase. - The growth was driven by an increase in member months coupled with an increase in capitation rates, reflecting disciplined cost management and strong medical utilization performance.

• Center Level Contribution Margin and EBITDA:
• Center level contribution margin was $41.3 million for Q4 2025, representing an 18.6% margin, with total contribution margin for the fiscal year being $153.6 million, up approximately 70 basis points from the preceding year.

• Adjusted EBITDA more than doubled year-over-year to $11.3 million, reflecting the impact of clinical value initiatives and operational improvements.

• Census and Member Months Growth:

• InnovAge ended the fiscal year with a census of approximately 7,740 participants, reflecting a 10.3% annual growth and a sequential quarter growth of 2.8%.

• The growth was supported by a focus on enrollment strategies and partnerships with healthcare providers, despite enrollment processing delays in some states.

• Guidance and Future Outlook:

• For fiscal year 2026, InnovAge projects a census of 7,900 to 8,100 participants and total revenue of $900 million to $950 million, with adjusted EBITDA projected to be $56 million to $65 million.
• The guidance reflects the expected impact of Medicaid redeterminations and the transition to the B-28 Medicare Advantage payment model, with a focus on continued operational efficiency improvements and expansion.

Sentiment Analysis:

• “Revenue was $221.4M, up 11% YOY… Adjusted EBITDA more than doubled YOY to $11.3M.” “Total revenue was $853.7M, up nearly 12% YOY… Adjusted EBITDA was $34.5M… margin nearly doubled to ~4%.” FY26 outlook: revenue $900–$950M; adjusted EBITDA $56–$65M; “profitability to build through the year, exiting FY26 with a higher run rate.” Note: B-28 model is a headwind and redeterminations weigh on 1H FY26, but management remains confident.

Q&A:

• Question from Matthew Gillmor (KeyBanc Capital Markets): How is member mix/acuity normalization impacting margins and utilization, and is there more normalization to go?
  Response: Mix has largely normalized with balanced community/ALF enrollments; risk scores are lower (a revenue headwind), but margins are supported by the clinical model and operational execution.

• Question from Matthew Gillmor (KeyBanc Capital Markets): Is the B-28 payment model a headwind or tailwind to revenue in FY26 and beyond?
  Response: B-28 is expected to be a headwind over the next couple of years; it’s included in FY26 guidance.

• Question from Jared Haase (William Blair): Is the implied ~250 bps EBITDA margin expansion a reasonable cadence toward the 8–9% target, and where are the biggest levers?
  Response: Yes; continued gains from medical cost management, center operating leverage, and pharmacy insourcing support progression toward 8–9% over the next few years.

• Question from Jared Haase (William Blair): How are you leveraging Epic/AI/automation to drive efficiency and cost reduction?
  Response: Using partner-led AI tools (Epic, Oracle, Salesforce) to streamline workflows, augment clinical decision support, and improve process accuracy; early but promising.

• Question from Jamie Perse (Goldman Sachs): When will Medicaid redeterminations pressure census—January or earlier?
  Response: Headwind primarily in 1H FY26 as new processes accelerate disenrollments; should wash through by January; gross enrollment trends unchanged, just a level shift down.

• Question from Jamie Perse (Goldman Sachs): Which areas drive FY26 margin improvement—cost of care or G&A?
  Response: Main levers are center cost-of-care efficiencies and G&A operating leverage; external provider costs also improving; focus remains on raising EBITDA percentage.