All right. Thank you so much. First and foremost, thank you for all of us joining us in here in person in the room, and for those who are joining us via webcast, my name is Ben Rossi, and I'm the Healthcare Facilities Analyst here at J.P. Morgan. We're excited to be welcoming InnovAge back to the stage this morning. With us here today are CEO Patrick Blair and CFO Ben Adams. Thank you both for being here.
Thank you, Ben, and I'll just reinforce Ben's remarks. Thank you for the folks who have joined us in person and for everyone who's listening. Patrick Blair, as Ben said, I'm the CEO of the company, and we really appreciate the chance today to walk you through InnovAge, how the business has evolved over the last several years, why we believe we have a strong investment thesis, how we're different from other value-based care models, why now is a unique inflection point in our company's history given the internal transformation over the last few years, and where we see it going from here. As you know, the healthcare environment has been challenging, particularly for Medicare and Medicaid value-based care models. Our goal today is to show you a platform that has done the hard work to stabilize, rebuild, and now perform.
So I'll take about 20 minutes to walk us through the slides, and then I'm going to look forward to some Q&A. At a high level, InnovAge is a scaled, vertically integrated payer-provider platform delivering personalized value-based care to medically and socially complex dual eligibles primarily. Our mission is very simple, and it's very focused. We help frail seniors live independently while delivering better care and support and meaningful savings and cost predictability to our state and federal partners. And importantly, we do this by taking full financial accountability for outcomes and costs across the full scope of Medicare and Medicaid services that these populations desperately need. This is what differentiates InnovAge and what underpins the rest of the story.
Before going further, I do want to briefly level set on what we do since we don't spend a lot of time in the presentation explaining PACE, but we deliver comprehensive, personalized, interdisciplinary care for high-cost, primarily dual eligibles through a center-based model. And we're supported by a network of contracted hospitals, specialists, and ancillary providers. These individuals have significant medical and social needs, and they're often at risk of entering an institution. And many of these individuals require a much different level of care than other Medicare and Medicaid programs can actually provide. It's our belief that there are no other Value-based care models that control more than the healthcare premium dollar than PACE. We're at full risk for all of Medicare services, plus all of Medicaid long-term care services, and our premium averages about $9,500 per participant per month.
So this puts us in a very unique position to truly impact cost and quality along the full continuum of healthcare for these seniors. Today, we operate 20 centers in six states with two additional centers under development, and our 2,400 employees serve nearly 8,000 participants. The bottom row of metrics on this slide underscores this is not a theoretical model. It's a scaled platform delivering consistent revenue growth, expanding margins, and positive cash flow. This slide captures the multi-year journey the company has been on. The last few years were about strengthening the foundation. We invested heavily in scalable technology and operating infrastructure. We built payer-grade utilization management capabilities, and we deepened regulatory and stakeholder relationships. We also developed a repeatable enrollment and growth playbook and insourced critical clinical services to improve quality and cost. Now, as we look forward, the focus is on optimizing the platform.
That means driving responsible growth, expanding margins, leveraging fixed cost, and using data and technology to proactively manage risk and outcomes, all in the most compliant way possible. Lastly, we're really excited about the level of activity at CMS and the Center for Medicare and Medicaid Innovation related to new innovative models aimed at these mostly clinically complex and costly populations. We're starting to see a real curiosity and a genuine desire to learn more about PACE and its core capabilities and how they can be used to serve new populations. The key point is that today's results and tomorrow's opportunities are the product of deliberate long-term execution. You can see this operational discipline is translating into tangible financial results. Census and revenue growth have become more consistent, and Adjusted EBITDA has improved meaningfully over time. This is not driven by one market or one lever.
It reflects broad-based improvement across the entire portfolio as our centers have matured and operations have standardized. The progression gives us confidence in the durability of this performance. One of the most important differentiators for InnovAge is that the payer and the provider are the same entity. There's a single operating model with unified economics and no delegated risk or coordination layer. In contrast, many other models rely on delegated risk or arm's-length coordination, which fragments accountability. Our model is fully integrated, not delegated. That distinction matters enormously when managing complex populations. Our care model is designed for depth and outcomes. It's not about maximizing throughput. We intentionally maintain very small panel sizes, allowing our physicians and care teams to spend meaningful time with participants, often more than seven hours per month with each participant.
Primary care is deeply integrated with nursing, behavioral health, therapy, rehab, social services, and home care and the structure incentivizes our clinicians to take the time required to optimize care quality rather than maximize volume. The population we serve is meaningfully more complex than the average Medicare beneficiary or Medicare Advantage member. Our participants typically have multiple chronic conditions. They require assistance with activities of daily living, and they interact with our care teams on a very frequent basis, but despite this complexity, over 90% of our participants can remain living independently, not in institutional settings. That outcome is central to the value that we create. Even while serving a more complex population, we deliver superior outcomes. We see lower inpatient admissions, lower readmission rates, lower voluntary disenrollment compared to Medicare Advantage. These outcomes are not accidental.
They're the result of proactive care, daily engagement, and tight coordination across the continuum of care. Bottom line is that participants can age safely in their homes and in the community and not in a nursing facility. Government payers can rebalance long-term care to a community-based approach rather than toward nursing facilities, and they benefit from the fiscal predictability of the capitated program. Now, this slide's in some ways kind of the load-bearing slide of the presentation. It gets at the core of why InnovAge model works economically. We're at full risk for the entire spectrum of Medicare and Medicaid services. This includes primary care, acute care, long-term services and supports, and supportive housing when needed. And there are no carve-outs. There's no delegated risk. That matters because control beats influence. A meaningful share of our model is the healthcare costs are controlled.
Many other models, providers and plans spend time trying to change referral patterns, prior authorization rules, very distant case management. The payer remains separate, and risk is fragmented across the multiple entities. A meaningful share, more than 40% of the total cost of care, is delivered by InnovAge employees inside our centers through an interdisciplinary team that sees patients frequently and longitudinally. This gives us real-time visibility and hands-on control over utilization and gives us control over those utilization decisions as they're being made. When care does occur outside the center, it's tightly directed. Orders are very narrow. They're intentional, and they're informed by deep knowledge of the participant. That is very different than retrospective utilization management after costs have been incurred. The result is fewer unnecessary hospitalizations, fewer skilled nursing days, and better alignment between clinical decisions and financial outcomes.
This is why we believe PACE is the one and only model that truly controls a meaningful share of care for this population and why it has structural advantages when it comes to cost control, utilization appropriateness, and margin durability, and the market opportunity for PACE remains significant and underpenetrated. There's growing bipartisan recognition of the value that PACE delivers, particularly around dual eligibles. Policymakers increasingly view PACE as the most fully integrated care model available for the population, which helps reduce the long-term programmatic regulatory risk. These tailwinds have supported sustained growth of PACE programs, as you can see in the upper right-hand corner, for the last few years, and it's expected to continue into the future. InnovAge is highly differentiated even within PACE programs. The market is largely made up of subscale single-state operators. More than half of all PACE programs have fewer than 250 patients.
InnovAge is the only PACE organization with meaningful scale, geographic diversification, and access to both the public and private markets. The scale enables growth pathways and makes us a partner of choice for not only PACE programs but health systems and communities. Speaking of health systems, joint ventures are also a very important part of our growth strategy. These partnerships align missions with trusted local health systems, combining their community presence with our PACE operating expertise. They strengthen referral pathways, improve care coordination, and expand access for seniors who benefit most from the model. The quotes on the bottom of the slide reflect how our partners view the value of these collaborations. Now, turning to financial performance, operational improvements have expanded margins and driven accelerating profitability.
In the Q1 of fiscal year 2026, we delivered a 7.5% adjusted EBITDA margin and generated positive operating cash flow on a trailing 12-month basis. Importantly, there remains meaningful embedded earnings opportunities as we continue to leverage excess capacity in our centers, fixed overhead, and our technology investments. I'll hit this slide quickly since we've covered it in our investor day, but the slide illustrates how value is created in our model. We receive a risk-adjusted capitation payment from Medicare and Medicaid each month. We reimburse for care that's delivered by our contracted providers. We refer to them as external provider costs. And then we back out what we refer to as cost of care, which reflects the total cost of care delivered in our centers. Contribution margin is what's left over after you've subtracted external provider costs and internal center costs from the premium revenue.
Corporate costs are largely fixed, which creates operating leverage as census grows. So over time, this supports intermediate-term Adjusted EBITDA margins in the high single digits with long-term potential around 10%. This slide pulls together the momentum you're seeing across revenue, census, margins, contribution margins. The consistency across these metrics reinforces our confidence in the trajectory of the business. This is execution-driven performance supported by a platform that is now operating in the way it was designed to. For fiscal year 2026, we provided guidance that reflects continued growth and margin expansion. The guidance assumes disciplined execution, responsible growth, and a continued focus on quality and regulatory excellence. We believe this outlook is achievable based on what we're seeing today, and we're excited about the future. So I'll just close, oh, missing a slide, but I'll just close with a few key comments.
InnovAge is a structurally differentiated, full-risk payer-provider platform with deep care delivery capabilities. The PACE model is built for purpose for the most complex seniors, where other value-based care models struggle to operate economically. Multi-year investments are translating into consistent growth, margin expansion, and positive cash flow, and we operate in a large, underpenetrated market with strong policy support and multiple paths to durable value creation, and with that, I think I'll turn back to Ben, and we'll start our Q&A.
Perfect. Well, really appreciate that commentary and the thorough background. I think I had a couple of questions here on the industry to start it out here. You talked about that underpenetration. PACE has been around for about 30 years, still relatively low penetration among your dual eligibles at this point, like low single digits.
Can you just talk about why you think the market still remains so underpenetrated and just how the competitive landscape in PACE has evolved over the past few years?
Yeah, it's a great question, Ben. I think people forget because PACE is getting so much attention now. I think people forget that for-profit organizations have only been allowed to participate in PACE for a decade. So it's still a very new population. It takes capital to expand. A lot of the not-for-profits, smaller organizations, have not had the access to capital to pursue a scaled strategy. I think that's a factor. There's probably a period of the last 15 years where states have focused a lot on managed Medicaid long-term care, mandatory programs at various states, and I think that's taken up a lot of the state's time. I think they're now developing some experience with those managed long-term care programs. They're understanding who they work for, who they don't, and I think the time is right for states and CMS to begin focusing on PACE.
And if you looked at one of the charts on the slide, you can see over the last few years the number of PACE programs that have grown. And you add to that the interest that CMS and CMMI are showing in PACE and how the program can be used to serve broader populations. I think it suggests that while it's only been a decade of for-profit participation, I think all PACE programs, not-for-profit or for-profit, are standing in a very good position to see the program grow over the next decade.
Got it. I think you mentioned some of the tailwinds you were seeing on the regulatory side from CMS and CMMI. How do you evaluate the potential for a Medicare-only PACE option? And how do you think about the potential opportunity for InnovAge within that?
I think we may have mentioned that in earnings call before. Today, someone with just Medicare, a non-dual eligible that has Medicare, can join PACE, but they have to pay for the long-term care services. And that's a huge barrier for that population. So it's not a large population. When we think about a Medicare-only product and the kinds of conversations we've been trying to have with regulators and with CMS, is the notion that we think about a third of the Medicare population, actually the Medicare Advantage population, has the need for support with at least one activity of daily living. If you think about the Medicaid long-term care programs, it's usually two activities of daily living or four activities of daily living that you become eligible. But there's a lot of seniors today, a lot of Medicare beneficiaries that need more than the current models actually offer.
And there's a lot of capacity in PACE programs in our centers. And so when we think about a Medicare-only option, in some ways, we're thinking about sort of a light version of PACE where we would participate alongside Medicare Advantage special needs plans, Medicare Advantage chronic plans, and we would use the unique attributes of our center-based model to serve that population. We think that could save the federal government money, and we think it could delay institutionalization, which would save states money. So we think it's a really interesting expansion opportunity. So when we talk about Medicare-only, that's kind of the lens we're looking at that opportunity.
Great. As part of your multi-year journey now on the operational side, can you just go through some of the major operational changes implemented during 2025, such as the Epic EMR and Oracle financial platform rollouts, and maybe how you're thinking about their impact on areas like quality, compliance, and efficiency? And then any way we can kind of think of how this is going to flow through the P&L as well within that.
You hit on a few of them. We've made a lot of investments in best-in-class technology solutions, the Oracle platform supporting a lot of our financial operations and eligibility and payment operations. We use Salesforce not only in our sales organization, but also to support our compliance organization and workflow automation. You mentioned Epic, which is our EMR platform, which allows us to have one single operating platform that all of our business is on. We see that as a real opportunity to help continue to drive productivity in the organization. We've insourced a number of key clinical functions. We insourced hospice care. We've insourced our pharmacy program with a partner. All of those investments really have put us in a position, I think, to deliver better quality of care, more efficiency.
And now you've got the undercurrent of AI, which is we're being very thoughtful about where can we make use of AI. But one of the areas that we're focused a lot on, as you can imagine, we've got 100-plus providers across the U.S. They all order care. They order specialist referrals. They order DME. They order nursing home care. They order assisted living. They order skilled nursing days. The list goes on and on. We see a lot of variation in ordering. We're now seeing the opportunity to leverage AI to help us better understand that variation, help us with our referring strategies, and help educate us. So we've made a lot of investments, Ben, over the last couple of years. And I think we're now at the point where it's starting to feel like we've got a platform, and we're starting to see the margin expansion.
And as we start to fill our centers, there's a lot of marginal profitability on that. And we still see a lot of opportunity, whether it's using AI to reduce labor costs or to help us with staffing ratios or to improve our clinical decision-making. All those areas that we have invested and continue to invest in.
Great. Nice segue into existing center capacity there too. So with available capacity in states like Florida, California, and Pennsylvania, can you just bring us up to speed on the current occupancy trends for those markets and maybe your pathway towards bringing this existing capacity online?
I think one of the benefits we have is a lot of capacity. We've built centers or acquired centers that have capacity for a lot of growth. We have a lot of opportunity for growth within our existing centers. I'd say all the centers that you mentioned are still in the early stages of growth. We're very pleased that we're sort of, I'll say, tracking according to our internal plans. The partnerships that we've developed with various health systems have really helped accelerate our growth in those markets. We see a lot of opportunity to further grow those markets as we move forward. I'd say they're all tracking according to plan. We see a lot of potential without having to build new centers.
And then, I guess, as you think about your member mix within that, how are you balancing your enrollment growth with your acuity mix? And then how do you think about the implications on things like risk scores and revenue?
In our business, if you think about mix, you can think about it simply as some portion of our participants live at home in the community. Some of them live in assisted living facilities, and some of them live in nursing facilities. And it's that mix that becomes critical to making sure that our risk reflects the risk of the market and that there isn't some imbalance in the risk that we hold. And so I think one of the things we've done a really nice job of over the last couple of years is really with the clinical decision-making that's required to maintain that risk. I think the company had more individuals in nursing homes than was appropriate, more individuals in assisted living than was appropriate.
And as we started to grow again over the last couple of years, we've been able to really bring that mix and rebalance that mix in a really, I think, effective way. And that creates a lot of leverage for the model. And so we always do what's right for the participant, but the longer we can keep someone in their home, it is good economics for InnovAge, for our states, and for our federal partners.
Great. Just thinking again on the organic side, contemplating how you balance your de novo growth between de novos and M&A, I guess, how do you evaluate the relative attractiveness of your de novo center development versus some of the bolt-on acquisitions? And what's your current pipeline for each?
In terms of how we balance it, I would say each strategy, de novo and bolt-on, kind of has its own distinct strategy and advantages for us. When we think about a new de novo market, our primary focus is on the market size. There needs to be a large and growing senior population for our model to make economic sense and have potential. We look closely at how states handle and ensure rate adequacy with its managed care partners, and if there's PACE programs there today, the rate history, does the state have robust PACE growth plans? We want to know the state's committed to sort of multi-regional PACE growth. We look a lot at traffic patterns and service areas, which can all affect how efficient our centers are, so de novo, if it's a market that meets those criteria, it's a market that we're interested in.
We've spent the last couple of years really focused on filling the centers that we have, really leveraging the occupancy that we have today. But we always have a list of markets that we find attractive and that meet those characteristics. So I would say, yes, we have a pipeline. It's just trying to balance the investments that we make in de novos. And I think if you look back two years, we probably weren't in a financial position to allow de novos to play a vital role in our growth strategy as opposed to the marginal filling of our centers. I think we're now at a position from a financial perspective where de novos is becoming an increasingly interesting part of where we see the opportunity. On the bolt-ons, as we kind of showed the slide, there's a lot of subscale pace programs out there. The market's very fragmented.
There were a lot of new entrants into PACE, as you saw from the chart. The last five years, there's just almost been a doubling of the number of PACE programs. We're starting to see examples of where PACE programs haven't achieved the appropriate scale and maybe aren't meeting the expectation, sorry, meeting the expectation of the investors. And so we see more opportunities to do things like we did with ConcertoCare's business, which was really a de-risked acquisition. It was a de-risked de novo because they had just started the business, had about 16 employees, had a couple of participants. And we've taken that business in the last 18 months. We've been able to, I think, grow revenue by 5x. We've been able to become contribution margin positive. In the last sort of 18 months, we've grown census by 4x. So we feel like we've got a platform now.
The business is generating cash flow and strong earnings, and so we really do feel that now's the time to be giving de novos and boltons more thought, and there's clearly a market out there for it.
Got it. Can you share any lessons from some of your recent de novo center launches in Florida and California specifically, and maybe how these inform your approach towards your future growth? And then I think within the slideshow, you discussed some of the JVs. How are you thinking about your JV partners within that kind of construct?
Yeah, let me start with de novo lessons learned. The first would be health systems really do have the potential to be great partners. They know these communities better than anyone. Many of these health systems have been there for decades upon decades, and they have a deep community influence and connections. And when I think about lessons learned for de novos, I think about the importance of building strong relationships. It doesn't need to be a joint venture. It could be any type of joint endeavor, but I think that the lesson learned as health systems can be very powerful for a partner in a de novo market. I think service area, there's a natural inclination to sort of take every service area that a state will allow you to operate in.
We've learned that if someone has to be picked up at home and ride the bus a little longer than they'd like to get to the center, that could lead to dissatisfaction. And so really being thoughtful about the service area you serve is a critical lesson learned from us. It drives our scheduling. It drives our transportation. It drives our center operating model. And so I think a lesson learned is we'll spend a lot of time on that during future expansions to make sure we've got the patient experience kind of at the top of our list in terms of how we operate. I think deep community relationships and referral partnerships is something that's really important. You've got to spend time on the ground understanding the natural community advocacy ecosystem, know how you fit into it, make sure that you've built trusting relationships with those organizations.
Building pace awareness. You hear a lot about pace and kind of the world that this conference operates in, but there are still a lot of individuals in our communities that don't know what pace is or why it could be a great solution for them or their families. And so taking that time on a de novo opportunity to really promote and build awareness of pace, that can be, I think, a really incredible, important lesson learned. I think Concerto, the integration of a business in California, I think I touched on there. It was a business that had just received its license. I think it had robust expectations for how it would grow and the economics of the business. And the reality was that it was sort of struggling to achieve, I think, the expectations for its stakeholders.
And so it became an opportunity for us to, instead of doing a de novo, to in some ways find a very appropriately sized organization that we could plug into our platform day one. So what I think we've learned is that if we can find an early-stage pace organization, there's a real ability to sort of connect it to our people model, our process model, our quality model, our compliance model, our sales strategy, our financial systems. And everything we've invested in over the last few years has created the ability to offer that service in some ways, to offer that to an organization that's interested in pursuing something other than pace.
So that opportunity to plug in some of these smaller pace organizations for the benefit of those stakeholders and for the benefit of InnovAge and for the benefit of the community and the patients to offer a larger scaled program is something we've learned. I think we'd like to do more of it. We'll continue to look for those opportunities.
Thanks for that color. Just flipping over to the rate side, I can appreciate with Jan. 1 coming, you've had maybe some updates on where states land. Can you just give us a general update on rate development for both Medicare and Medicaid and maybe how recent rate actions compare to your expectations?
As I said in the presentation, PACE does enjoy a great deal of bipartisan support, which is very relevant to Medicare rates. Medicare Advantage is a very strong advocate for actuarially sound rates. And I think Medicare has a long track record of ensuring actuarially sound county rates. There's certainly been changes to risk adjustment and the use of brokers and other things that can impact the economics for Medicare Advantage plan. But when you look at the county rates, they've been very adequate for what we do. And we've made our business model work within that rate envelope from a Medicare perspective. On the Medicaid side, there's clearly a lot of concern about maybe kind of the knock-on effects of Medicaid rates as a result of some of the new federal changes to programs that impact the budgets of states.
What we've seen is states really value their PACE programs. They know by definition that they're serving the most vulnerable Americans. And we're seeing some durability to the Medicaid rate environment. Now, there is a reality that it's still early to sort of predict exactly what sort of pressure states are going to feel from the changes they have to make related to their budgets. But we feel like that PACE is a program with a lot of support. We think that helps with regulatory rate risk. And we feel like we're providing a lot of value to states by keeping individuals out of higher-cost nursing homes. So we feel pretty good about the rate environment, but it's always a risk. It's always something we're trying to mitigate risk. And there's no sure things. But we think our model is well respected, and states really want to hold onto it.
With V28 coming through, I guess, on the Medicare side, how are you preparing for the phased implementation here within PACE? And then what do you think are some of the operational or clinical changes that might be required in order to optimize your risk adjustment under this new model?
We've been working hard to prepare for it. I can probably only say that I think the magnitude of the impact of PACE programs will be different than the magnitude of Medicare Advantage programs because we serve a much more acute complex population that by its nature has a profile and a mix of diagnosis codes that are very different than MA. We've done analysis internally. We're currently working with some third parties to kind of triangulate perspectives on PACE risk for V28. In all of our guidance and our internal forecasts, we're being very judicious and prudent and conservative about the risks of that. We think the phase-in will help us and allow us to kind of recalibrate as we learn more.
But we have a lot of work going on in the company right now to help us ensure that we understand the new regulations, that we're making any business process changes that are needed to our clinical workflows to make sure we're capturing accurate diagnosis codes. And then we're making sure we've got a really strong program to sort of submit and reconcile those diagnosis codes with CMS. But I think overall, we're taking a very conservative approach. And it's just one thing that we'll have to manage over the next couple of years.
Great. Last couple here as we kind of get to the end of time. Just on your new market entry, as you're evaluating RFPs in new states that are either adopting or expanding PACE, can you just give us a sense for what states you're looking at and maybe any potential timelines for submitting a bid?
I'll stop short of identifying any specific states and timelines, but I would say there are a number of states that are thinking very seriously about PACE expansion. We're engaged appropriately in understanding those opportunities and what it could mean for us and how we would want to deploy capital or not on those opportunities. As I mentioned, there's a very thoughtful process we go through to determine whether a state's attractive as it were related to market size and growth rate of senior population and rate history of the state and managed care penetration of other programs. So I think it's something we're always looking at. There are a number of states that are interested that we see a pipeline, if you will, over the next few years, and we'll be looking at all those opportunities very closely.
Okay, and just as one final one, as a one year forward outlook, what will investors appreciate about InnovAge one year from now that they currently don't today?
I think they will appreciate that the investments we've made and the strong execution that's taken place within our company with our 2,400 associates has built a very strong operating model and platform that gives us a lot of flexibility to pursue a lot of opportunities for growth and will allow us to continue to deliver great quality care, perform well from a compliance perspective. So in many ways, I see it as we're now ready to allow the platform to do what it was designed to do. And that is to keep people out of nursing homes, create real value for patients, their families, the federal government, and our state partners. And we're well positioned to do that.
Excellent. Well, thank you all for your commentary here. And thanks for those who listened in. This is all the time we have. Thank you to Patrick and Ben for joining us on stage today.
Thank you all.