Earnings Call: Q4 2021

Sep 21, 2021

Thank you for standing by, and welcome to Innovage's Fiscal 2021 4th Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference may be recorded. I would now like to hand the conference over to your host, Director of Investor Relations, Ryan Kubota. Thank you, operator. Good afternoon, and thank you all for joining Innovage's fiscal 2021 Q4 earnings call. With me today are key members of our leadership team Maureen Hewitt, President and CEO and Barb Gutierrez, CFO. Today, after the market close, we issued a press release containing detailed information of our quarterly and annual results. You may access the release on our company website, innovage.com. For those listening to the rebroadcast of this presentation, We remind you that the remarks made herein are as of today, Tuesday, September 21, 2021, and have not been updated subsequent to the initial earnings call. During this call, we will refer to certain non GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found on our fiscal Q4 2021 press release, which is posted on the Investor Relations section of our website. During our call, we will be making forward looking statements, including statements related to our growth prospects, regulatory and other expectations and our outlook on fiscal year 2021, 2022. Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that can cause our actual results to differ materially from We advise listeners to review the risk factors discussed in our IPO prospectus filed on March 5, 2021, as well as our upcoming Form 10 ks annual report for fiscal year 2021 that will be filed with the SEC on September 22, 2021. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our President and CEO, Maureen Hewitt. Thank you, Ryan, and thank you all for joining us this afternoon. I'm pleased to report that we had a strong finish to our Full year ended June 30, 2021. Let me first provide a brief summary of our performance. Barb will provide additional details on our 4th quarter and fiscal year end results as well as an update on our fiscal 2022 outlook As of June 30, 2021, Innovate served more than 6,850 participants. This represents a nearly 7.5% increase year over year and is just over the midpoint of the guidance we provided last On our last call, all of our Innovage centers in the Western and Central regions were open, and we We are now expected to open our centers in Pennsylvania and Virginia shortly. I'm pleased to say that we are able to open all of our centers to our participants as of July 6, consistent with the national decline in COVID trends. We reported strong revenue $638,000,000 for fiscal year 2021, exceeding the high end of our guidance estimate. This represents an increase of approximately 12.5% compared to the previous fiscal year. We also reported a center level contribution margin of 27.3 percent or approximately 174,000,000 For fiscal year 2021, this is an increase of nearly $33,000,000 compared to fiscal 2020. I will now provide an update on our growth strategy. We have sites selected with signed leases for 3 de novo centers, 1 in Louisville, Kentucky and 2 centers in Florida, 1 in Orlando and 1 in Tampa. In all three sites, We are renovating or plan to renovate existing buildings and we are diligently working through the development process. We currently expect these 3 centers to open in fiscal year 2023. However, As with every development, there are factors beyond our control that may impact our expected timing. We also continue to evaluate locations for 2 additional centers and our current plan is to have those operational within the next 24 months. Regarding acquisitions, we continue to pursue acquisition opportunities in new markets with experienced community partners We have established footprints and where the economics make sense. We are also continuing to look for joint venture opportunities that provides strong strategic value. Last month, on August 4, we announced an equity investment in JetDoc, Following the significant increase in telehealth services that we utilized during the pandemic, we determined that we needed a more pace specific telehealth solution. We are partnering with JetDoc to develop a virtual care and remote patient monitoring platform specifically For a PACE program model, Innovage and JetDoc have begun the design and development of a PACE specific patient experience, Focusing on early biometric features that will be included in the final product. We expect the technology will continue to allow Innovage Clinical and administrative staff to connect with participants and their caregivers for improved continuity of care. Regarding COVID, Earlier this month, the White House mandated COVID-nineteen vaccines for all federal workers and employers With more than 100 employees, Innovage continues to require, we're legally permitted, that all Innovage employees And participants receive the COVID-nineteen vaccine unless they are entitled to an accommodation based on religious belief, disability or other legally protected reasons. We also continue to apply COVID-nineteen Health and safety protocols in accordance with federal, state and local public health authority guidance. This includes the requirement that appropriate PPE and symptom screening are in place for our participants and employees. I am also pleased to announce that we achieved our goal of having 90% of our employees vaccinated and 96% of our employees have at least one dose completed. As of last week, 86% of our participants have been vaccinated and we continue to target a 90% goal for our participants as well. For our centers, we continue to carefully monitor COVID trends in each of our markets and centers Should we experience COVID pressures at our centers that would cause us to shut them down partially or fully, we have the ability to do that. We also have the ability to reopen them in a phased approach as pressures are relieved. We remain deeply committed to participants' safety and have the appropriate protocols necessary should any of our staff or participants test positive for COVID. Enrollment growth has continued to improve throughout the quarter and has returned to pre COVID levels. Our participants continue to serve as ambassadors for the Innovage brand. Referrals we receive from our own Innovage participants have historically made up approximately 25% of census growth. In addition to participants, We continue to make significant strides regarding digital marketing efforts as we realign our marketing strategy To increase our focus on digital channels during the COVID-nineteen pandemic, from March 31 to the end of June, Leads on our web qualifier grew more than 80% and referrals grew nearly 60%. I now want to discuss New additions to our team, employee turnover and staffing as we have received a number of questions about this topic. As we announced in today's earnings release, we are continuing to build out our leadership team with the addition of 3 key positions. Nicole D'Amato joined the company as Chief Legal Officer and Corporate Secretary. She oversees legal, government affairs, Information Security and Compliance. Nicole brings public company experience to Innovage, most recently as Senior Vice President and Chief Intellectual Property Counsel at McAndrews and Forbes, an operating company acquiring, divesting and executing strategic long term management of diverse public and private companies ranging from cosmetics to pharmaceuticals. Emily Tansey joined the company as our new Chief People Officer. Emily spent more than 13 years with CVS Health. While there, she led multiple organizational design and change management initiatives, including transitioning employees to work from home during COVID-nineteen. Olivia Patton joins Innovage as our new Chief Compliance Officer. She will lead regulatory internal audit, the monitoring of policies and procedures and company related staff training programs. Olivia brings a depth of leadership experience in healthcare compliance, including developing training for CMS and Medicare policies and was most recently the Corporate Compliance Officer for UnitedHealthcare in Phoenix, Arizona. As of the end of our fiscal year ended June 30, 2021, we had approximately 18 100 employees excluding contractors. Approximately 1200 of those employees are clinical professionals and interact with our participants on a regular basis. It is no surprise that managing turnover and retention is challenging for all healthcare organizations due to the limited supply of workers and the competitive environment in which we operate. That being said, we continue to address staffing needs of the business by proactively utilizing strategies to minimize the impact on our business and to sourcing talent that varies by location and position. We utilize recruitment process outsourcing alongside our internal recruiting team and utilize locum tenems and temporary help to fill positions on an interim basis. When included in our total employee count, Contracted and temporary labor accounts for less than 10% of the overall total workforce company wide. Regarding retention, our operating leaders work with their HR counterparts to foster a work environment that is rewarding both personally and professionally. We believe we have a unique culture at Innovage and for the 4th year in a row, Innovage has been recertified as a great place to work. We have a company culture that honors our participants and staff as individuals and is important contributors to Innovage as a whole. Our team delivers care and supports each other in a positive work environment. I'm extremely proud to work alongside such a capable and committed team in elevating senior care in all of our markets. I will now provide a brief update on the reimbursement and regulatory environment. We received an aggregate rate increase of approximately 5% across Colorado, Pennsylvania in Virginia that became effective on July 1 this year. We are still working with the state of New Mexico on finalizing our rates And negotiations with California will not start until the fall for January 1, 2022 effective date. Barb will provide some additional detail on our rate increases, but I will highlight We have received a mid single digit rate increase from the state of Colorado specifically, which is significant Given the recent rate decrease we received last year due to the COVID pandemic. Regarding the regulatory environment, We continue to see positive federal and state legislative activity at levels we have not seen in recent memory. This is a very encouraging sign for PACE as interest in the program is at an all time high. Due to the increased legislative activity and the state interest in PACE, Innovage became a member of the National PACE Association or NPA as well as the Leading Age Association. These two organizations are focused on furthering the interest of participants, Advancing pace and aging related services nationally at the state and local levels. We view our memberships with these two organizations as key additions to our overall legislative efforts when combined with our existing American Health Insurance Plans or AHIP and the National Committee for Quality Assurance, the NCQA memberships. In addition, we are members of several state associations as PACE is a community focused program and we will continue to join local organizations as we grow. With new states looking to expand pace, We are actively monitoring states and local interest in this program. To summarize current federal legislative activity, The pending $3,500,000,000,000 budget reconciliation package could provide additional funding for PACE providers Through home and community based services and beneficial policy changes that would increase access to pace, Innovage has been actively advocating for HCBS funding levels to stay at the $400,000,000,000 level set forth in the resolution and for policy provisions such as those set forth in the PACE Plus Act CMS continues to put its leadership in place under the Biden administration. They have publicly announced that they expect to unwind many of the current demonstration projects operating out of the Center For Medicare and Medicaid Innovation or CMMI and we'll be looking to launch 3 to 4 pilots that fit within the administration's mission of health, access and equality. Should CMMI select a PACE program for one of their pilots, We believe we will be well positioned to participate in the program as we continue to discuss potential opportunities with potential collaborators. The American Rescue Plan Act provides additional funding to states that are considering adding PACE, including a 10% increase to the state federal match to Medicaid for home and community based services as well as the PACE program. We do not expect any new programs to be presented until the fall at the earliest, but we are closely watching A plan New York has proposed with interest as they are planning a pilot program that would expand PACE to Medicare only beneficiaries in the state for a fee. Regarding state legislation, Pending California Assembly Bill 540 requires PACE participants to be exempt from mandatory enrollment into Medi Cal Managed Care Plans. It also requires that PACE is presented as an option during Medi Cal enrollment periods. This bill has passed the Health Committee and has been referred to appropriations. California Assembly Bill 523 Makes the flexibilities that were allowed during COVID to become permanent. These include telehealth, verbal enrollment agreements and for adult day healthcare services to be provided in the home. In Michigan, Pending Senate Bill 203 provides for the establishment of a new PACE program in a geographic area that is already being served by an existing PACE organization pending the demonstration that an unmet need exists in that area among other requirements. This bill was heard before the Health Committee in April and is pending committee vote. Florida House Bill 905 provides the agency for healthcare administration with additional authority to manage the This bill was signed into law by Governor Ron DeSantis on June 21, 2021. I will now provide a brief update on the status of our audits in Sacramento and Colorado. As a reminder, given the nature of our business And the participants we serve audits our regular occurrence in our industry, including financial and Medicare Part D audits. We have and continue to work collaboratively with regulators as we seek to constantly improve our processes and outcomes to better serve our participants and their families. In early May, the Centers for Medicare and Medicaid Services began a routine scheduled audit of our Sacramento Center. CMS completed their audit field work on May 21st and requested additional information, which we supplied promptly. This past Friday, September 17, We were notified that CMS has determined to freeze new enrollments at our Sacramento Center based on deficiencies detected in the audit. The deficiencies relate to failures to provide covered services, provide accessible and adequate services, Manage participants' medical situations and oversee use of specialists among others. The freeze will remain in effect Until we correct these deficiencies and we are working on developing a corrective action plan to submit to CMS. In addition, We have a right to provide a rebuttal and request a hearing. At this time, given how recent the notice is, We are assessing options and are unable to estimate the duration of the freeze or the final outcome of this process. This freeze is limited to our Sacramento Center and does not extend to our San Bernardino Center in California. For context, There were less than 200 participants at Sacramento as of the beginning of this month. We are committed to quality improvement and comprehensive care coordination at each of our centers. The PACE program in Colorado has been the subject of 3 audits over the last several months conducted by the state and CMS. The state completed the on-site audit work on July 22, and we received preliminary findings at that time. CMS completed their audit work in Colorado on July 8. We anticipate receiving their report in early 2022. We also expect that the state will issue their report around the same time for consistency purposes. In Colorado, we have not received any direction from CMS or the state of Colorado to freeze or otherwise curtail our program, and we have continued to operate our business in a consistent manner throughout the entire audit process. In addition, there have been no immediate corrective actions identified in the preliminary findings or to date. We believe the audit process is important to the integrity of the program and each audit we undergo is an Opportunity for us to improve the PACE program, improve our services and ultimately the outcome of our participants. These audits will continue to make our program better over the long term. Before I turn the call over to Barb, I would like to highlight the certification from the National Committee for Quality Assurance of 14 of our centers as patient centered medical homes. We have chosen to pursue this certification to demonstrate our ongoing commitment to quality improvement and comprehensive care coordination. I want to thank our entire team at Innovage for their hard work, Now I will turn the call over to Barb to review our financial performance in more detail and provide our outlook for 2022. Barb? Thank you, Maureen. Before we open the call to questions, I want to provide some highlights from our Q4 fiscal year end financial performance for 2021, an update on Medicaid rates for fiscal year 2022 and then provide our fiscal year 2022 outlook. With respect to our 4th quarter results and the developments due to a decrease in COVID transmission rates during the period, I will refer to sequential comparisons to the Q3 in order to provide a more meaningful picture of our performance. We produced strong financial results in the 4th quarter and ended our fiscal year with 18 centers and a census of just over 6,850 participants as of June 30, 2021. Compared to the prior year, this represents an ending census increase of nearly 7.5%. Member months for the fiscal year ended June 30, 2021, of over 79,400 were 6% higher than the prior year. During the Q4, census growth and referrals continued to improve and return to levels experienced prior to the 2nd wave of COVID, which impacted our business primarily in Q3. We also continue to see indications that gross enrollments were trending above pre COVID levels, Bolstered by the realignment in our marketing strategy to focus more on digital channels to reach those searching for senior care alternatives. Revenue grew approximately 12.5 percent to $637,800,000 for fiscal year 2021, primarily driven by an increase in Part C and Part D Medicare rates, the temporary suspension of sequestration and census growth. 4th quarter revenue grew by 9.8% to $171,600,000 Compared to the previous quarter, due to adjustments that included $4,500,000 of risk adjustment factor, RASP true up payments received from CMS, dollars 1,800,000 of Part D bid reconciliation true up and an adjusted estimate of $4,500,000 of revenue recorded in the 4th quarter, but related to full year performance. External provider costs for the full year were $309,300,000 13.4% higher than the prior year and $85,100,000 for the 4th quarter, an increase of 12.9% compared to the fiscal Q3 of 2021. The year over year increase was due to an increase in cost per participant related to pharmacy expenses, inpatient expenses associated with COVID and outpatient expenses as well as an increase in census. During the quarter, Costs continue to normalize as COVID transmission rates improved and elevated quarterly external provider costs were primarily due to an increase in cost per participant associated with increased specialist, Outpatient and housing utilization coupled with census growth. Our cost of care, excluding depreciation and amortization of $154,400,000 was relatively flat year over year, increasing by just 1% due to an increase in census, offset by a decrease in transportation costs and employee compensation costs, which were impacted by COVID. Center level contribution margin, which we define as revenue less external provider costs and cost of care, excluding depreciation and amortization, was $174,100,000 For the fiscal year ended June 30, 2021, this is a 238 basis point improvement over the prior year. For the fiscal Q4, we reported a center level contribution margin of $48,000,000 an increase of nearly 16% compared to the fiscal Q3 of 2021. Sales and marketing expense was $22,200,000 for the fiscal year ended June 30, 2021, increasing 17% year over year due to an increase in costs associated with new advertising campaigns and headcount to support enrollment growth. For the Q4, sales and marketing expense of $7,900,000 increased $2,300,000 or 41.3 percent quarter over quarter, primarily due to a shift in the timing of our marketing spend to the back half of fiscal year twenty twenty one. Corporate, general and administrative expense was $132,300,000 for the fiscal year ended June 30, 2021, an increase of 126% year over year. The full year increase is primarily related to fees Heard as a result of the Apex transaction in July 2020 and the IPO. In connection with the Apex transaction, the company recorded $45,400,000 related to the cancellation of stock options outstanding under the company's 2016 Equity incentive plan and an additional $13,100,000 of transaction related costs. In connection with the IPO, the company recorded $1,500,000 of transaction costs. For the Q4, corporate, general and administrative expense increased 42.1 percent to 26,400,000 The increase over the prior quarter was primarily due to additional stock based compensation expense, timing of bad debt expense and an increase in the cost associated with being a public company for a full quarter. Net loss for the fiscal year ended June 30, 2021 was $44,700,000 compared to prior fiscal year net income of $25,800,000 For the 4th quarter, We reported net income of $6,300,000 The loss for the fiscal year was expected and is primarily the result of the following: Costs associated with the Apex transaction and IPO expenses related to the Distinguishment of debt associated with our amended and restated credit agreement, other expenses due primarily to the warrants issued as Part of our JV agreement for our Sacramento Center and an offsetting gain Due to Innovage Sacramento becoming a consolidated entity as of January 1, 2021. For fiscal year ended June 30, 2021, we reported an earnings per share loss of $0.36 both basic and diluted. Our fully diluted share count for the full year was 135,000,000 516,513 shares at the end of fiscal year 2021. Adjusted EBITDA, which we calculate by adding interest, taxes, depreciation and amortization and one time adjustments for our transaction and offering related costs and other non recurring or exceptional costs net income was $85,300,000 for the fiscal year ended June 30, 2021, a 29.5% increase over the prior year. Adjusted EBITDA for the fiscal 4th quarter was $19,300,000 a decrease of 4.7% over the fiscal Q3 of 2021. The quarter over quarter decrease is attributed to an increase in external provider cost per participant, This incurred in connection with our de novo centers in the calculation of adjusted EBITDA. De novo center losses, Which we define as net losses related to the pre opening and start up ramp for our de novos through the 1st 24 months of operations For our Sacramento Center in California, our Penny Pack Center in Philadelphia and our Louisville Center in Kentucky were $2,300,000 for fiscal year 2021. Adjusted EBITDA margin For the fiscal year ended June 30, 2021 increased to 13.4% as compared to 11.7% in the prior year. For the fiscal Q4, we reported an adjusted EBITDA margin of 11.3%, a decrease from the fiscal Q3 of 172 basis points. Turning to our balance sheet. We ended the quarter with $201,500,000 in cash and cash equivalents and had $84,600,000 in total debt on the balance sheet, representing debt Under our senior secured term loan plus capital leases and other commitments and a secured net leverage ratio of 0.80x as calculated pursuant to our credit agreement. For the fiscal year ended June 30, 2021, we had $18,600,000 of capital expenditures. Now I want to provide a brief update on fiscal year 2022 Medicaid rates. We received a combined rate increase of just over 5.3 percent in Colorado, Pennsylvania and Virginia for fiscal year 2022. For Colorado specifically, our mid single digit rate increase was significant given the recent rate decrease we received last year due to the COVID pandemic. Turning to guidance for fiscal year 2022. We expect our ending census to be between 7,507,750. We are expecting member months to be in the range of 86,508,700. We are forecasting fiscal year 2022 total revenues in the range of 712 to $725,000,000 and adjusted EBITDA in the range of $60,000,000 to $72,000,000 In estimating adjusted EBITDA for fiscal 2022, we did not add back any expected losses associated with our de novo centers nor have we included any results from potential acquisitions. De novo losses for fiscal 2022 are expected to be approximately $10,000,000 Finally, to provide some additional visibility into our projected census growth, we expect 1st quarter census to grow by approximately 2% from our 2021 fiscal year end as a result of our ongoing multi pronged growth strategy and our efforts to continue to ramp up our digital marketing program. In summary, we would like to highlight that in addition to growing our top line revenue over 12% year over year, We generated double digit adjusted EBITDA margins and have historically generated positive cash flow from operations on a consistent basis. That concludes our prepared comments. Operator, we'll now open the call to questions. Please standby while we compile the Q and A roster. Our first question comes from the line of Vikram Kasavapatla of Baird. Your line is open. Yes. Hey, thanks for taking the question. I wanted to start on the 4Q results And in particular, it looks like you landed in your guidance range for census and for member months, but it looks like you beat the high end of the revenue range. We'd just love to understand some of the drivers of the outperformance there. I know you mentioned some of the rate increases, but it sounds like a lot of that took effect on July 1. So, it would be helpful to get some color on factors that influence 4Q specifically. Sure. Thanks for the question. It's Barb. I'll take that. Yes. So in the Q4, as we as was outlined in my remarks just a few minutes ago, we had some additional Adjustments to revenue, positive adjustments to revenue, which included the risk adjustment factor true up payment from CMS, which is typical in the 4th quarter, And that was about $4,500,000 We had $1,800,000 of our Part D bid reconciliation true up in the quarter. And then we had some additional $4,500,000 of revenue that was recorded in the 4th quarter that really was Related to the entire fiscal year as a result of an internal reconciliation of rates with 1 of our states. Sometimes these states pay us incorrectly or it takes some additional time to get the technical information to apply the payments and the rates. So that also occurred in the Q4. So those three things contributed to, the revenue being outside, above the top end of the guidance range. Okay, great. And then just a follow-up on some of your comments about Colorado. I appreciate it. It sounds like you're getting the results of those findings in early 2022. But I guess could you just help us understand the range outcomes that could come from those audits? And I guess ultimately could Colorado result in a freeze like what you And maybe if you can give some color there just based on your historical experiences with those audits. And just taking that a step further, I mean given the freeze that you called out Sacramento and the ongoing audits in Colorado, what is your guidance for fiscal 2022 Census and member months assume with respect to those regions? Thanks. Hi, this is Maureen. I'll start it off and then Barb, you can talk a little bit as well and add some color around it. As far as Colorado, we do not have the outcome of the Colorado. As you know, we are a healthcare provider. We take care of frail seniors and we are highly regulated. So there is always going to be a risk Around surveys and survey outcomes. Our job and our job of our leadership, our management, clinicians and operations is to make sure that we adhere to compliance and have solid plans of correction and work With our state and federal regulators. So, we can't give you any guidance around Colorado at this time. And as soon as we know, and there may be a question too that maybe there's some relationship between Sacramento and Colorado, And we don't have any knowledge that those two things are related. Thank you. Barb? Yes, this is Barb. As it relates to guidance, generally speaking, our guidance just it reflects what we believe are achievable results. We have taken into consideration the enrollment freeze for Sacramento in our guidance. We have taken that into consideration. And then we'll also just remind you, as was in the previous remarks, our guidance does not include any potential acquisitions as well. Okay, great. Thank you. Thank you. Our next question comes from Jeff Carol of Piper Sandler. Your line is open. Yes, thanks for taking the question. So I'll maybe follow-up on the last comment on M and A. So it does seem like M and A processes have been elongated. So I was hoping for any further update on the near term pipeline And what might serve as a catalyst to get any deals over the finish line? Barb? Yes, sure. So I'll just talk a little bit about the pipeline in general. So we've outlined our Pipeline here. And some of the catalysts is that we've explained in the past that It's a long process, not necessarily all within our control that includes state approvals and CMS approvals and fighting real estate and all that goes with that. So Well, it might be on the back end. There's a couple in the elongated process. I'll also note, compared to some of our earlier Thoughts we've actually accelerated a couple of the de novos as well. So we are moving as fast and furiously as we can as it relates to de novos. As Maureen said in her remarks, we've entered into leases in our in the construction phases in 3 of those de novas as we speak. So we feel very Positive about our de novo pipeline and our progress there. That's great to hear. Maybe a couple of questions for me on the FY 2022 guidance and particularly around enrollment growth and RAP impact the risk adjustment factor. Just thinking about potential variability of impact from COVID, any comments you give on seasonality of enrollment growth beyond the Q1 would be helpful and expectations for ability to capture accurate RAP scores as care might have been deferred with an impact from COVID over the last year or so. Sure. I'll start maybe with a high level comment that might answer some of that. And that is, as it relates To our guidance and the growth in that enrollment over the course of FY 2022, about Just under 80% of that growth comes from volume and about 20%, 22% actually comes from rate. And so Couple of points there. We've indicated that we have good visibility into the Q1. In our Q1, we know we've grown 2% quarter over quarter. We see some acceleration over the course of the year to achieve the full year growth. So hopefully that gives you a little bit of sense of the timing. In terms of the rate and that 22% that I speak about in terms of the rate increases, We are being what we consider to be neutral, kind of appropriately conservative, if you will, Related to the Medicare increases, particularly for the things that you mentioned, there's a lot of unknowns coming out of COVID. We feel very comfortable with our ability to capture, the RAFT scores in our coding, but there's just still a lot of unknowns About the trickle effect and the timing of some of those scores. So we were neutral to appropriately conservative on the Medicare rates themselves and that's why there's a little bit lower rate to volume proportion. Great. Thanks for taking the questions. Thank you. Our next question comes from Sarah James of Barclays. Please go ahead. Thank you. I was hoping you could give us a little bit more color on 2022. What does Guidance imply for center level contribution margin? Sure. Hi, Sarah, Barb, we don't typically or I should say specifically outline our central level contribution margin. But I think it's fair to say we expect that central level contribution margin to return to normal levels in the mid-20s that we have seen historically. Okay. Maybe if you could, could you help us bucket out some of the bridge between 2021 margins in 2022, so how much is that conservatism in there for RAV scores Versus some of the other moving pieces that you spoke to. Sure. We So in terms of the rates, so while I spoke of that conservatism perhaps in the Medicare rates, the flip side to that is we did receive, as we indicated, some Very significant Medicaid increases. So we feel very confident about that. The biggest Bridge between 2021 2022 would be that center level contribution margin that you just asked about. As we've indicated In our Q3 results, the 1st three quarters of the year, our centers were essentially closed, And that resulted in higher than normal center level contribution margins because we had lower operating costs in the centers, Things like outsourced transportation and maintenance and some of those type of things. So the biggest factor there is really That central level contribution margin. Thank you. Our next question comes from Ralph Giacobbe of Citi. Your line is open. Thanks. Good afternoon. I just want to go back to the Census guidance. It's a little bit lower than we had expected. I think it's at the midpoint about 11% growth. I think You talked about sort of longer term, maybe mid teens or even 20% type growth. So I guess I understand sort of the freeze and maybe that impact, but it seems like There may be something more in terms of holding back some of the census, any details on that would be helpful. Yes, yes, yes. So Ralph, really it relates to a couple of things. Again, we factored in that freeze For Sacramento, but other than that and then the other thing, again, we did not include any acquisitions in this guidance. And so really we're positioning our guidance on our current run rates and our visibility To what we can see for organic growth for the business as well as factoring the de novos. Okay. And have you shifted any timing of The opening of the de novos, I thought there were a couple that were supposed to come on at the end of fiscal 'twenty two, but I guess, is that just not the case or is my timing off? Your recollection is correct And we are still working toward that, have good visibility on 1 and still working toward the second one opening in that timeframe. Okay. But I think in the press release, it talks about fiscal 2023. Yes. We've got well, And it's really very close to the end of fiscal 2022. Got it. Okay. All right. Fair enough. And then I guess just One more, I guess I got to go back to sort of the freeze in enrollment. I guess, Is there a risk that current membership rolls off as well? And doesn't that impact the ability to enroll even when the freeze is lifted? And then From a broader perspective, how much impact does it have even just reputationally, if you will, in other areas that I've seen this freeze. This is Maureen. So it does not impact the current census Of the facility, that's number 1. And as I mentioned, with adhering to Regulatory and surveys, that's a risk that sometimes things can happen like this. So what's most important is that we work collaboratively with our regulators, both at state and federal level, get those plant corrections in. And I want to stress that we are all, including all the staff, are working diligently on that to ensure that the freeze will get lifted in a timely manner. We just don't have an ability to see how long that will go or For how long it will go. As far as the risk to other centers, it's important to note that Sacramento has its Own, license. It's separate, for example, from San Bernardino. It's separate from other states as well. So there's Crossover, from that regard, as well. So hopefully, and as from reputation, it comes If you do healthcare, you're going to now in long term care, there's a risk of that. And the operations and clinical teams At Innovage are buckled down, get their plans and corrections in place, work with our compliance side of our organization to ensure that's going to happen, Make sure that all the proper staffing and documentation is in place. And I say that twice Because that's so important, when you think about your survey, not to mention the importance of caring for frail seniors, which is what we do. So It's going to get addressed. They're working on it. And when we know more information, we will disclose as we are required to do. Okay, fair enough. Thank you. Thank you. Thank you. Our next question comes from Matt Larew of William Blair. Your line is open. Yes. Hi. Good evening. So Sacramento was a de novo Launched in July 2020, less than a year in when the audit started. I guess, is that Part of the reason that maybe some of the other de novos might be more extended, are you taking a look at the processes you put in place To open these quality control more broadly, I guess, the fact that it had issues within the year, what are we to make of Thank you for the question. This is Maureen. So as I mentioned, This de novo, which you may recall, opened up during the pandemic July 1. And As with all new PACE programs, CMS will survey new programs every year for the 1st 3 years to make sure things are in place. So that's not something that we will continue to have that type of Oversight by our regulators to ensure that we're given good care and good quality. But What is in with Sacramento, certainly we're going to have lessons learned and we will learn very quickly and be able to respond quickly And we're going to ensure that working with our new de novos that any lessons learned here get applied with them as well. We're not anticipating any stall on the new ones. Okay. And just on the acceleration in Enrollment throughout the year, I mean, enrollment in the census has been a bit below expectations for a few quarters in a row here now and then you're guiding to 2 And the 1st fiscal quarter, so I guess what are you assuming changes over the balance of the fiscal year given that I think the Sacramento freeze you said is built What are sort of the landmarks you've set out throughout the year that are going to help get things going? So this is Barbara. Just to talk about that, just the timing of it. There's not a significant seasonality to our business, but we do see some increases typically in the 2nd quarter and in the 4th quarter, and it just really has to do with timing of things Like open enrollment for MA and we just we see a higher just a pickup in the spring. So we do see a little bit of seasonality. So I just didn't want to give the impression that it's flat across Each quarter, we typically see a little bit of an increase over the course of the year. Okay. And just lastly on the labor side, I think relative to last quarter, I think the rate update is incrementally positive here, especially with respect to Colorado, Yes, the margin outlook, at least what I think relative to what the Street was at, based on your comments on 3Q, it is worse. And so Can you give us a sense in terms of the 10% in terms of contract and temporary labor? What is that like relative to historicals? What's contemplated about Building that in for FY 'twenty two, have you seen any meaningful changes in turnover or Expected wage inflation since this summer. I can touch Barb at least on the turnover. The voluntary turnover rate of the company is currently or approximately 26%, We're just fairly consistent with our historical voluntary turnover rate. And as mentioned In earlier discussions or prior ones, this is an industry where you will see turnover. And certainly, The pandemic has contributed probably to some of that. But that being said, we're very committed and we've been staffing and Certainly, it plans around staffing and recruitment and retention across the company. Barb? Yes. And in terms of the cost profile, we're not seeing Over the top increases as it relates to market pressure or those temporary costs, We forecast according to staffing ratios. So based on our census, we Putting the cost correspondingly. So we're building in some cost increases, but we're not seeing anything alarming. Okay. Thanks for taking the questions. Thank you. Our next question comes from Jamie Pierce of Goldman Sachs. Your question please. Hey, thank you. Good afternoon. I wanted to go back to the Sacramento audit in Colorado for a moment. I think investors will naturally question what's different about your Services being provided in Sacramento versus Colorado and basically the risk that You can have a similar outcome in Colorado. So maybe talk us through why Sacramento was more challenging than expected and why Colorado is different in terms of the level of covered services you're providing, use of specialists, some of those things that you cited that were issues in the audit? Yes. So I think there are really 2 different kinds of surveys that occurred, although they're both CMS surveys, They're a little different. And, Sacramento, as you know, is a startup. So lots of learning going on as well. And you can also tell that the census is much lower as well because it's a brand new program. So with that, it is really about understanding continuously trying to improve and learn and help those new teams learn to run a PACE program. So they're kind of 2 different things. In Colorado, that was 3 surveys going on, as you recall, A CMS focused survey and as well as a HICPAF Healthcare Policy and Finance survey And CDPH. So they're very two different things. Also Colorado was related, as you may recall, to a complaint. So They're different and what we can't do for you today or what I can't do for you today is to describe the differences or even The similarities because they are really 2 different points in time and types of surveys that were going on. They're similar, but there's obviously differences In the programs. Okay, understood. Maybe just on the external provider costs, you talked about those Coming down across your 4th quarter, what are you seeing so far in the Q1 of your fiscal year? And What's contemplated just generally speaking as you think about COVID trends and non COVID utilization? What are you Kind of contemplating in your guidance for external provider costs as a percent of revenue in fiscal 2022. Yes. So this is Barb. So actually in quarter 4, when you compare and this was in the prepared remarks, in Q4 compared to Q3, we actually saw a bit of an increase as the centers opened And operations returned to normal. There was a bit of a pent up demand with specialists and outpatient, and that's in the prepared remarks. We see that normalizing going forward. So that was to be expected in Q4, once we opened our centers. Those external provider costs were actually higher than they were quarter over quarter, but we do see that starting to normalize in this fiscal year. We believe it will be getting back to normal. And just to clarify on that, is that something we should start to expect early in the year? Is the Q1 going to be challenged because of what's going on with COVID right now? Or do you expect that external provider costs to start Tracking back to normal in the near term? We think it will start tracking back to normal in the near term. Okay. All right. Thank you. Thank you. Our next question comes from Gary Taylor of Cowen. Your line is open. Hi, good afternoon. Three questions for me. The first, my recollection was your Colorado Revenue exposure was in the ballpark of almost 30% for the company. Is the Sorry, I'm drawing a blank, not survey. The audit, is that related to the entire Colorado Operations, so if there were some corrective action or whatever, it would apply to that entire revenue base potentially? That is correct, of Colorado. Okay. And then this one for Barb, I Of the roughly $10,000,000 of revenue adjustments you called out for the fiscal 4Q, How do we think about the margin contribution from that? Is that just it was extra revenue that trued up and the bulk of that flowed down through to EBITDA or is there offsets between the two numbers? So the bulk of it flows down with the exception in part of some of the Part D. So the bulk of it flows down. And then the next part of I think the question will be, because we did see some increased participant expenses in the 4th quarter, slightly above what we expected. We did some more investments in marketing and sales in the 4th quarter, And we had some additional some slight additional G and A in the 4th quarter. So it all doesn't translate down To the bottom line, and that's really the bridge, the reconciliation of those 2. Okay. And then last question is, I believe on the de novo losses that you're contemplating for fiscal 22, you called out $10,000,000 expectation. It looks like that's up a couple $1,000,000 versus sort of Previous expectations and it looked like from your last press release, this one, the de novos got Pushed out just a little bit in terms of timing. So I don't know if there's maybe too deep in the weeds here, but I don't know if there's anything, you You could help us with just sort of thinking about, has why there might be additional de novo costs for the next year or If maybe you don't agree if I'm looking at the numbers the right way. No, I think you are looking at them the right way. A couple of things is Really the timing of, I think, the capital expenditures and trying to get those de novos up and running, the capital and the preopening losses. And as I also indicated, although if you look, we also indicate that there's some additional de novos in the pipeline, 2 additional ones over the next 1 to 2 years. And so There'll be some start up costs related to those as well. So we are trying to accelerate that de novo pipeline. And so some of those costs get pushed up just a bit. Okay. Thank you. Thank you. Our last question comes from the line of Sarah James of Barclays. Your question please. Sarah James, please make sure your line is unmuted. And if you're not on speakerphone, leave your handset. As there's no response, I'd like to turn the call back over to Maureen Hewitt for closing remarks. Thank you so much and thank you to everyone who joined the call today. We appreciate your questions and your commitment to Innovage and look forward to answering any additional This concludes today's conference call. Thank you for participating. You may now disconnect.