InnovAge Holding Corp (INNV) 2026 Q2 法說會逐字稿

Good day and thank you for standing by. Welcome to the InnovAge's second-quarter 2026 earnings conference call.

(Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations.

Thank you, operator. Good afternoon and thank you, all, for joining the InnovAge's 2026 fiscal second-quarter earnings call.

With me today is Patrick Blair, CEO; and Ben Adams, CFO.

Today, after the market closed, we issued an earnings press release containing detailed information on our fiscal second-quarter results. You may access the release on the Investor Relations section of our company website, innovage.com.

For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, February 3, 2026; and have not been updated, subsequent to this call.

During our call, we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release posted on our website.

We will also make statements that are considered forward-looking, including those related to our 2026 fiscal year projections and guidance, future growth prospects and growth strategy, our clinical and operational values, Medicare and Medicaid rate increases, the effects of recent legislation and federal budget cuts, enrollment and redetermination processing delays, seasonality of cost trends, the status of current and future regulatory actions, and other expectations.

Listeners are cautioned that all of our forward-looking statements involve certain assumptions that are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations.

We advise listeners to review the risk factors and other discussions included in our annual report on Form 10-K for fiscal year 2025; and any subsequent reports filed with the SEC, including our most recent quarterly report on Form 10-Q.

After the completion of our prepared remarks, we will open the call for questions.

I will now turn the call over to our CEO, Patrick Blair. Patrick?

Thank you, Ryan. Good afternoon, everyone.

I'd like to start by thanking our colleagues, our participants and their families, our government partners, and our investors for joining us today and for their continued support. We appreciate the opportunity to share an update on our fiscal 2026 second -quarter results and the progress we're making against our strategic priorities.

Our second-quarter results reflect continued momentum across the business and disciplined execution across our clinical, operational, and financial initiatives.

For the quarter, we reported total revenues of $239.7 million, Center-level contribution margin of $52.8 million, adjusted EBITDA of $22.2 million, and net income of $11.8 million. To put those results in context, we generated $39.8 million of adjusted EBITDA in the first half of the fiscal year, exceeding our full-year fiscal 2025 adjusted EBITDA of $34.5 million.

Two years ago, at our Investor Day, we outlined an intermediate-term adjusted EBITDA margin target of 8% to 9% over a two- to four-year horizon. This quarter, for the first time, we achieved that target, delivering an adjusted EBITDA margin of 9.2%.

It's important to emphasize that this level of margin is consistent with what's required to sustainably operate a full risk, investment-intensive, highly regulated healthcare delivery model; and to continue reinvesting in our people, infrastructure, and the quality of care we provide to our participants.

As we talk about the strength of our first-half results, I want to be clear about how we think about this performance and what's driving it:

Over the past several years, InnovAge operated from a very different financial position, as we work through operational, compliance, and organizational challenges. The progress we're seeing today reflects a deliberate effort to rebuild and strengthen the foundation of the business across every dimension: our talent, clinical model, service delivery, operational discipline, compliance capabilities, and growth engine.

Importantly, our financial performance is not the result of any single action or short-term lever. It's the natural outcome of delivering higher quality, more consistent care to a highly complex population, improving day-to-day utilization management, and operating with greater rigor and accountability.

When the model works as intended, quality improves, outcomes improve, costs are better managed, and financial results follow.

This progress also reflects our commitment to being a strong, reliable partner to our federal and state regulators. As we strengthen our financial position, we're better able to invest in our people, our centers, and our participants; and to serve more seniors in a model of care that improves quality, while lowering total cost to the system.

When InnovAge performs well, our government partners benefit, as well, because more vulnerable seniors are cared for in a setting that delivers better outcomes and better value for taxpayers. We see this quarter as further evidence that we're delivering on the commitments we've made to participants, government partners, and investors; and that the model is increasingly operating as designed.

Let me spend a few minutes on what drove our second-quarter performance and why we exceeded expectations:

First, we made meaningful progress strengthening revenue integrity, particularly around Medicaid eligibility and redeterminations. As discussed on prior calls, we encountered challenges last year that led to elevated revenue reserves and write-offs.

Over the past few quarters, we've taken a comprehensive approach, investing in people, improving workflows, strengthening data and reporting, and upgrading technology. As a result, we've improved timeliness and accuracy, reduced reserves, and reinstated coverage for a number of participants, where outcomes have been previously less certain.

While there's more work to do, we're encouraged by the progress and the visibility we now have.

Second, we continue to demonstrate strong medical cost management in an environment where many healthcare organizations are under pressure. This reflects the strength of the PACE model and the daily decisions made by our interdisciplinary teams.

We saw particular strength in managing in-patient and skilled nursing utilization through proactive care coordination, earlier interventions, better length of stay management, and appropriate site-of-care decisions.

It's about delivering the right care at the right time in the right setting.

Third, we're operating our centers more efficiently as the platform matures. We've improved consistency in staffing models, scheduling, and throughput; while maintaining a strong focus on quality, service, and participant experience.

These gains come from standardizing best practices, better leveraging Epic, and strengthening local execution, not from one-time actions.

Fourth, our SG&A performance reflects the structural work we've done to simplify the organization and improve accountability. The spans and layers work over the past year clarified roles, streamlined decision-making, and reduced unnecessary complexity.

We're now seeing the benefit in a cost structure that better supports frontline care delivery.

Stepping back, I want to touch briefly on the rate environment across both Medicaid and Medicare:

On the Medicaid side, we're experiencing a slightly more favorable blended rate environment this fiscal year, relative to our initial assumptions. This reflects state-specific dynamics and timing; and is consistent with our conservative approach to forecasting, which assumes variability, rather than relying on rate upside.

On the Medicare side, I want to address the CMS Advance Notice for calendar year 2027 Medicare Advantage rates released last week. PACE is subject to the same core Medicare payment mechanics as Medicare Advantage, including counting rates, risk adjustment changes, coding intensity adjustments, fee-for-service normalization, and underlying cost trends.

As a result, changes to Medicare Advantage policy do affect PACE. At the same time, PACE includes unique elements; most notably, the frailty adjuster, based on activities of daily living, which recognizes that diagnosis-based risk adjustment alone does not fully predict costs for a highly frail population.

CMS has also proposed a blended risk score for calendar year 2027, using 50% of the 2017 CMS-HCC model and 50% of the proposed 2027 model, accelerating the transition, relative to the prior time line.

As we look ahead, we continue to have a robust portfolio of clinical and operational value initiatives that we believe can unlock additional value across participant experience, quality, compliance, efficiency, and revenue.

One key area is participant experience. We're working to more clearly define the InnovAge participant experience, end-to-end, from enrollment and onboarding through ongoing care, with a focus on early engagement, systematic feedback, consistent service recovery, and continuous improvement. We believe a more intentional experience will drive higher satisfaction, stronger engagement, and better retention, over time.

Another significant opportunity is reducing unwarranted variation in provider practice patterns. Physician decision-making sits at the center of the PACE model, influencing nearly every aspect of care delivery. While this has always been actively managed, we see an opportunity to further improve consistency and appropriateness across the platform.

This work will take time and thoughtful change management. But we believe advances in AI can increasingly support physicians with peer benchmarks and evidence-based guidance, augmenting -- not replacing -- clinical judgment.

We've also stabilized our pharmacy in-sourcing and are now positioned to pursue additional opportunities across pharmacy distribution, utilization management, and care coordination. With greater visibility and control, we believe pharmacy can continue to improve outcomes, efficiency, and total cost of care.

Finally, we see continued opportunity to optimize center productivity, capacity, and care delivery; while strengthening participant retention. We're exploring the application of advanced analytics and AI to scheduling and transportation, areas central to the PACE operating model.

This work is early. But our confidence is increasing that there is meaningful value to pursue.

Taken together, these initiatives reinforce our belief that there is still substantial opportunity ahead. The progress we've made gives us confidence, not complacency.

With that context, I want to briefly touch on how our governance is evolving to support the next phase of execution and oversight:

As we've strengthened the operating, clinical, and compliance foundations of the company, we've continued to evolve our governance to support the next phase of execution.

As part of that evolution, Tom Scully returned to the role of Chairman of the Board; and Pavithra Mahesh and Sean Traynor rejoined the Board, effective January 28.

I also want to recognize Jim Carlson for his leadership as Chairman since June 2022. Jim provided steady, thoughtful guidance during a very critical period, helping InnovAge navigate operational, compliance, and strategic change. We're grateful for Jim's leadership and pleased that he'll continue to serve as an Independent Director.

Together, this governance structure strengthens oversight, reinforces alignment, and positions the company well to continue delivering for participants, regulators, and shareholders.

Before turning to guidance, I want to briefly share how we think about pacing and expectations. As a full-risk, value-based care organization, quarter-to-quarter results can be influenced by timing, rate dynamics, and the maturation of initiatives. We, therefore, focus less on any single period and more on sustained trends across multiple quarters.

With that context, the results we've delivered through the first half of the fiscal year give us increased confidence in our outlook for the remainder of fiscal 2026. We believe the platform is increasingly operating as designed, while still recognizing inherent variability in the model.

As a result, we are raising our full-year fiscal 2026 guidance. We now expect [member] months between 92,900 and 95,700.; total revenue between $925 million and $950 million; and adjusted EBITDA between $70 million and $75 million.

To close, we're encouraged by the progress we're making and proud of how the organization is performing. These results reflect the company executing with greater consistency, accountability, and purpose in service of a highly complex senior population.

We've strengthened the foundation of the business and are seeing the benefits across quality, compliance, participant experience, and financial performance. We remain grounded in the realities of a full-risk, highly regulated model and committed to managing the business with a long-term mindset.

InnovAge is better positioned today than at any point in recent years, not because the work is finished but because the platform is working as designed. We're committed to executing responsibly, investing thoughtfully, and aligning the interest of participants, government partners, and shareholders.

With that, I'll turn it over to Ben for more detail on the financials.

Thank you, Patrick.

Today, I will provide some highlights from our second-quarter fiscal year 2026 financial performance and insight into some of the trends we are seeing in the current quarter.

Starting with [census], we served approximately 8,010 participants across 20 centers, as of December 31, 2025, which represents growth of 7.1% compared to the second quarter of fiscal year 2025 and sequential quarter growth of 1.5%.

We reported 23,960 member months in the second quarter, an increase of approximately 7.9% compared to the second quarter of fiscal year 2025 and an increase of approximately 2% over the first quarter of fiscal year 2026.

Our second-quarter census growth exceeded expectations, driven primarily by our continued success in reinstating participants who had previously lost Medicaid coverage.

Total revenues of $239.7 million increased 14.7% compared to $209 million in the second quarter of fiscal year 2025, driven by an increase in member months and capitation rates. The increase in member months was primarily due to growth in our existing California, Florida, and Colorado centers. The increase in capitation rates was primarily due to an annual increase in Medicaid and Medicare capitation rates, partially offset by revenue reserve.

Compared to the first quarter of fiscal year 2026, total revenues increased 1.5% due to an increase in member months.

We incurred $112 million of external provider costs during the second quarter of fiscal year 2026, an increase of 3.8% compared to the second quarter of fiscal year 2025. The increase was driven by an increase in member months, partially offset by a decrease in cost per participant. The decrease in cost per participant was primarily driven by a decrease in permanent nursing facility utilization and a decrease in pharmacy expense associated with the transition to in-house pharmacy services.

This decrease in cost per participant was partially offset by an annual increase in assisted living and permanent nursing facility unit cost, an increase in assisted living utilization, and an increase in inpatient unit costs.

Compared to the first quarter of fiscal year 2026, external provider costs increased 2.9%. The increase was primarily driven by the increase in member months and a modest increase in cost per participant due to seasonal growth in in-patient admissions.

Cost of care, excluding depreciation and amortization, was $74.9 million, an increase of 16.9% compared to the second quarter of fiscal year 2025. The increase was due to an increase in cost per participant, coupled with an increase in member months.

The total increase in cost was primarily driven by a net increase in salaries, wages, and benefits due to higher wage rates and costs associated with organizational restructure, partially offset by a reduction in headcount, higher third-party fees, shipping costs associated with in-house pharmacy services, and higher fleet costs, inclusive of contract transportation.

Cost of care, excluding depreciation and amortization, decreased 1.3% compared to the first quarter of fiscal year 2026. The decrease was primarily driven by reduced headcount associated with organizational restructuring and the timing of benefits and supply expense, partially offset by higher contract transportation costs.

Center-level contribution margin, which we define as total revenues less external provider costs and cost of care, excluding depreciation and amortization, which includes all medical and pharmacy costs, was $52.8 million in the quarter compared to $37.1 million for the second quarter of fiscal year 2025.

As a percentage of revenue, Center-level contribution margin of 22% increased approximately 430 basis points in the quarter compared to 17.7% in the second quarter of fiscal year 2025. Compared to the first quarter of fiscal year 2026, Center-level contribution margin increased 2.7% from $51.4 million; and as a percentage of revenue, increased 20 basis points compared to 21.8% in the same period.

Sales and marketing expenses of approximately $8.1 million increased 4.9% compared to the second quarter of fiscal year 2025 due to higher wage rates. Sales and marketing expenses increased by approximately 6.2% compared to the first quarter of fiscal year 2026, driven by marketing spend timing.

Corporate, general, and administrative expenses of $26.6 million decreased 5.3% compared to the second quarter of fiscal year 2025. The decrease was primarily due to a decrease in legal and consulting fees. Corporate, general and administrative expenses decreased 12.1% compared to the first quarter of fiscal year 2026, primarily due to reduced headcount associated with organizational restructuring, lower contracts and consulting costs, decreased legal expenses, and the timing of software license fees.

Net income was $11.8 million for the quarter compared to net loss of $13.5 million in the second quarter of fiscal year 2025. We reported net income per share of $0.08. Our weighted average share count was approximately 136.4 million shares for the quarter on a fully diluted basis.

Adjusted EBITDA was $22.2 million for the quarter compared to $5.9 million in the second quarter of fiscal year 2025 and $17.6 million in the first quarter of 2026. Our adjusted EBITDA margin was 9.2% for the quarter compared to 2.8% in the second quarter of fiscal year 2025 and 7.5% in the first quarter of fiscal year 2026.

We do not add back losses incurred by our de novo centers in the calculation of adjusted EBITDA. De novo center losses are defined as net losses related to pre-opening and start-up ramp through the first 24 months of de novo operations.

For the second quarter, de novo losses were $4.7 million, primarily related to our Tampa and Orlando centers in Florida. This compares to $4 million of de novo losses in the second quarter of fiscal year 2025 and $3.9 million of de novo losses in the first quarter of fiscal year 2026.

Turning to our balance sheet, we ended the quarter with $83.2 million in cash and cash equivalents, plus $42.8 million in short-term investments.

We had $69.9 million in total debt on the balance sheet, representing debt under our senior secured term loan, revolving credit facility, and finance leases.

For the second quarter, we recorded positive cash flow from operations of $21.4 million and had $2.4 million of capital expenditure.

Building on the strength we saw in the first half of fiscal 2026, I would now like to walk through our updated fiscal year 2026 guidance. Based on information as of today, we are revising our fiscal year outlook from the guidance we shared in September, except for our ending census, which remains unchanged.

We expect our ending census for fiscal year 2026 to be between 7,900 and 8,100 participants and member months to be in the range of 92,900 to 95,700.

We are projecting total revenue for fiscal year 2026 in the range of $925 million to $950 million and adjusted EBITDA in the range of $70 million to $75 million.

Finally, we anticipate that de novo losses for fiscal year 2026 will be in the $11.5 million to $13.5 million range.

As we look toward the second half of fiscal 2026, we have increased our guidance, based on the following factors:

First and foremost, we are seeing continued improvement in the operations of the business each quarter, as our operational and clinical value initiatives produce results.

Second, we have had success in reinstating participants who previously lost Medicaid coverage, which reduced the impact on member months and top-line revenue, relative to our original expectations.

Third, Medicaid rates for the fiscal year are higher than our original estimates.

Fourth, Medicare risk scores were less affected than we originally anticipated due to the phased-in implementation of risk adjustment model version 28, effective January 1.

Overall, these factors contribute to improved visibility and give us more confidence in our performance for the remainder of fiscal year 2026.

In closing, we remain focused on disciplined execution for the remainder of the fiscal year. We believe our updated guidance more closely reflects our stronger-than-expected performance, to date, and our current view of the operating environment.

Operator, that concludes our prepared remarks. Please open the call for questions.

(Operator Instructions)

Benjamin Rossi, JP Morgan.

Just on the back-half EBITDA progression, following the raise, in context of your year-to-date adjusted EBITDA margin coming in north of about 8%, my math here suggests back-half margins are coming maybe closer to a mid-7% EBITDA margin, as you move forward with these restructured operating costs.

Can you just walk through some of the variables going into those margin expectations and maybe how you're thinking about margin progression for the remainder of the year?

Yeah. Hi, Ben. It's Ben Adams.

Yeah. What I would say is, remember that the third quarter, for us, is always the soft quarter. There are probably a couple of things going on there:

One is when we go through open enrollment period at the end of the year, we often have slower enrollment gains in the first couple of months of the third quarter. You've seen that happen over the last several years. I think our expectation is you'll probably see something similar like that evolve this year.

The other thing I think to be mindful of is the flu season, which has been particularly bad this year. We were talking earlier about the fact that the vaccine was only partially effective against the flu. We saw a relatively high incidence of the flu going into year end and through January. And so our expectation is we may see a little additional pressure on that side in Q3.

It's all preliminary at this point because the data is just coming in. But, because of that, I think what you'll see is the softer third quarter that we typically exhibit; and then, you'll see a return to a more normalized Q4 growth rate that you've seen.

So that will just play through to margins just naturally.

Ben, I might add to that, just the continued work we're doing on the Medicaid redeterminations.

As I shared in my prepared comments, we made a tremendous amount of progress. Some aspects of that work has worked out better than expected. But it's still a work in progress; still a continued effort to ensure that our enrollment in our enrollment applications are being processed in a timely fashion.

And so I think we were also cognizant of that, as we put the guidance forward.

Great. I appreciate that. Just flipping over to the shift in V28 beginning earlier this year. I know you're only a month in. But just hoping to better understand your thinking on the impact to, maybe, your raw risk scores and how that might flow through to subsequent [RASS] scoring for some of your members.

I appreciate there's a lot of variables in here, with some of the changes to the HCCs for conditions like dementia and CKD. You might have the frailty score come in there.

Just following the guidance raise, could you just maybe help us understand how any of the back-half guidance factors -- [are] those changes flowing through? I know it's only 10% at this point.

But just trying to get an idea of how that maybe impacts your rates or how that could be impacted, maybe, overall by rates and whatnot on the other side of the variables.

Yeah. I'll start with more of a macro view; and then, let Ben talk about the flow-through to actual risk scores.

I think the first point is, we share more in common with the Medicare rate adjustment model than we share differences. You pointed out a couple differences.

But I also just remind folks that only about 45% of our total per member month premium is actually Medicare. And so for that reason and the fact that V28 is a phase-in for PACE -- it has moved from a five-year phase-in to a three-year phase-in but it still is a phase-in. So we're structurally less exposed to V28, when comparing to other MA plans.

When you think about the frailty adjustment, that is not inconsequential, as it were. It is one of the -- some of the beauty of the system for PACE is that it captures the disability and functional status that wouldn't otherwise be reflected in a diagnosis alone.

Someone can have a severe set of functional disabilities that relates to bathing, dressing, eating, using the toilet, walking, without necessarily having a dramatically different diagnosis than someone that say, has fewer diagnoses.

There is a real opportunity for us, as it relates to the differences that exist. There actually is a floor on that frailty adjuster of -- I think it's 0.129.

I just want to point out that we do share a lot of the same challenges that the rate notice -- preliminary rate notice -- revealed last week. But, at the same time, there are some notable differences.

I'll let Ben, maybe, share through how he thinks about the flow-through.

Yeah. I think that Patrick pretty much hit it.

I think the one thing I would say is that, when we went through and did a reforecast of the business, we factored in our latest thinking about what the impact is going to be over the next two quarters until we get to the end of our fiscal year. We think we've captured it appropriately in the guidance.

Matthew Gillmor, KeyBanc.

I wanted to start off on the census growth. It was, I think, a bit stronger than, at least, we expected. There was some commentary around being better, in terms of the work you've done on Medicaid redeterminations and improving your processes.

I thought I might just ask where you're seeing more success? Is that on your side and your processes? Or has there been some success, in terms of just the processes at the state level and getting approvals through?

Thank you. I'll let Ben clean me up here.

But I think there's a couple of ways to break this apart. You can think about the processes for which we have complete control of. That involves a very rigorous, let's call it, a patient accounting system, where we can really match someone's eligibility to the premium that we receive. We can reconcile that. We can track that throughout the company.

In some ways, think of it as a workflow management process, as well, where we're constantly sharing data between our finance organization, our enrollment organization, and our local centers on where follow-up is needed, et cetera.

I think our progress in the first couple of quarters of the year has been on what we control.

The other part of this is, at some point, we're essentially handing files -- enrollment files -- off to the state. Depending on the state, there can be different levels of work that's required on their end.

I think, going forward, our caution is not to be overly confident about what we've accomplished internally. But we have to be mindful of where the states are and the resource challenges they're grappling with and how do we ensure that we're being as collaborative as we can, timely as we can, and producing very high-quality data that allows them to do their job very effectively.

That's how we break it up. I'll let Ben (multiple speakers) --

Sure. Yeah. No, I think Patrick hit it pretty well.

What I'd say, you may remember from our prior earnings calls that we had a number of cases at the end of the fiscal year, where people had lost their Medicaid coverage. We had assumed that there'd be some attrition in our census over the first six months of this year, as that happened.

As we said, I think, before, we ended up getting a lot more of those folks re-established on Medicaid than we originally anticipated, right? That provided us a little bit of an enrollment cushion in the first six months of the year.

The other thing that's nice about it is because a lot of them got re-established relatively early, you got that compounding effect of the member months. That gave us a little bit of a member month cushion, going in.

We're through most of that now, as of the end of the fiscal year. Now, we're on what I think of as our regular glide path of enrollments. And so we're seeing gross enrollments that are doing pretty well, coming in generally in line with what we'd expect.

We're probably seeing a little bit more in disenrollments that we'd like. And so we're spending a lot of time on that.

But, as we said in the beginning of the year, there are a lot of factors that are coming into play into the enrollment numbers this year because of the washing through of some of the changes I talked about before. But I think we seem to be tracking okay.

Got it. That's very helpful. And then, just as a quick follow-up: How does that influence the reduction in -- you mentioned there's a reduction in revenue write-offs. Any sense for the magnitude of that? Was there any one-time pick-up? Or is that just a better go-forward, as you think about some of the improvement in these processes?

Yeah. I can tell you, conceptually, how it all works, which is, we go through a process that's pretty rigorous on the revenue write-offs, where we look at individual participants, where they are in the redetermination process or, even, the enrollment process, in some cases. We come up. We look at historical write-off patterns. And then, we also go through and risk-score them, depending on where they are in the process. We compare those two results to figure out how we actually set our revenue reserves.

The good news is we built a new system we didn't have last year so we can actually do this in a much more methodical fashion than we could in the past. That was the patient accounting system, which Patrick referenced before, which is built in Salesforce for us. It's been a great tool for us.

So we can track those people going through a lot more easily than we could before. It's a much tighter process. When we go through and set our monthly revenue reserves, we can be much more precise in the way they play out. We can put in what I would think of as an appropriate level of conservatism in them without being overly conservative.

So I think the process has worked really well for us in the last six or seven months. I think we're pleased with the way it's going. I'm not sure we'd be ready to draw any conclusions yet about how far ahead we are in revenue reserves because those patterns tend to adjust month by month. But, right now, I would say we're tracking to expectations.

(Operator Instructions)

Jared Haase, William Blair & Company.

Congrats on the results. Maybe just to unpack a little bit more, this is a little bit related to the question that Matt just asked.

But the comment, Patrick, that you made on participant experience, I'm curious if you could unpack just a little bit more some of the specific areas within that patient journey that you believe could be the most impactful.

And then, a related question, you alluded to the potential improvement in patient retention. I'm wondering if there's any way to contextualize just where you sit today, from a retention standpoint; and where that might go, as you implement some of these initiatives?

Yeah. Let me just maybe start with just giving you the order of magnitude when we talk about voluntary disenrollment. It's about 6%, annualized, on an annualized basis. So it just gives you a sense of the magnitude of what we're faced with, as the denominator, our census, grows.

And so where we see some of the opportunities, you might expect, not unlike other service providers, we're very interested to understand what people expect when they enroll; how does that line up to what they experience once they come to the center and experience the day in a life of a PACE member.

As we dig into data, like, that process, it covers everything from the sales process through onboarding communications to onboarding them physically in the center. We've identified -- there are examples where people will disenroll within a short period of time. So there could be a misalignment between what they expected and what they experienced.

And so tackling that end-to-end onboarding experience; really isolating the moments of that experience that matter most; and then, understanding where there may be misalignment or opportunity; and then, defining that and determining if we can't build the InnovAge way -- one single way that if you walked into any center in the country, you get the exact same sales experience, you get the exact same onboarding experience, et cetera.

And so you could take onboarding as a part of that.

You could go further to think about grievances. In the world of PACE, grievance means something very different than a typical, say, managed care or health plan model. Grievances are our eyes and ears on where participants are satisfied or dissatisfied.

As we dig in, have better data, we're able to profile and trend grievances and identify specific opportunities for improvement that exist. And so using grievance data to define how do we create a better experience to avoid that in the future could be another great example.

Service recovery. If something goes bump in the night, how do we respond to it? How quickly do we respond to it? Do delays in response -- can they impact disenrollment?

So think about it as we're analytically breaking down that entire experience, all the way through to the point that one of our participants is approached with another offering, say, a Medicare Advantage offering, a special needs plan offering. How do we -- if we lose people there, what kind of an experience can we create so that we don't lose as many people?

It's a big opportunity for us to get our arms around it. I think everything we're doing today to improve the core operations of the business -- better execution, better accountability -- allows us to now tackle that.

And so, as we look forward to where is the potential value unlocks for the company, we think participant experience is one. This notion of, I'll call it, ordering variation, practice pattern variation, that's another where the data clearly shows us meaningful variation in ordering patterns, intensity, duration of services across clinicians, across markets.

Some of that variation is clinically appropriate. Some of it's not adding value to the participant. So in terms of magnitude, that and participant experience, these are not one-time levers and it's not a small one.

We think of it as an opportunity to create more durable multi-year opportunity within our model. We're now ready, as a business, to take on those bigger challenges.

And so, as we look forward, those are some of the opportunities we see for the company.

Got it. I really appreciate all the detail. That's super helpful.

As I think about the implications of, let's say, retention and patient experience, one follow-up that comes to mind: I assume you typically see MLR improve, as patient cohorts mature, over time so are you explicitly thinking about this as -- if we can drive that retention better by whatever number -- 50 basis points, 100 basis points, whatever number -- that directly flows to MLR by just further increasing the mix towards those more tenured patients? Is that fair to say?

It is fair to say. It's an astute question. Ben and team are spending a lot of time, right now, really trying to understand those cohorts.

In our model, we roughly say tenure in PACE is like high school. We have freshman, sophomores, juniors, and seniors. We're starting to look at each of those cohorts and the resources they consume, the needs they have; and really trying to understand back to this notion of elevating our consumer centricity model, understanding each of those cohorts.

Their needs and their contribution, financially, is something that we're really digging into. And so to your point, for many members, there is a period of time -- as they progress from a freshman to a senior, there iare points in time where contribution is greater.

There's also points in time where, let's say, an assisted living facility may become the most appropriate solution for that person. You might see an impact to contribution. And so we're really starting to dig into that data and see some really interesting opportunities to create a much more informed participant experience that's dialed into the needs of specific cohorts; at the same time, trying to understand how the mix of those cohorts can impact the company, going forward.

That's where there's a lot of work. Ben, anything to add?

No. I think that encapsulated it really well.

The nice thing about PACE rates, obviously, is they're set to basically take care of a portfolio of participants, who are at all different places along their journey, right?

So as long as you maintain the right proportions in your mix, the rates work very effectively. And so as we see steady enrollment growth over periods of time, the mix is much more predictable and it more closely aligns with what goes on on the rate side.

Probably, the only thing I'd add to disenrollments is, the interesting thing about voluntary disenrollments is they really happen in the first six months of a participant's experience with us. So when we're going through and developing programs to make sure that we minimize those voluntary disenrollments, there's really a discrete period of time because we know once people have been with us for six or nine months, they're stable in the program and they like the program and they stay.

It's during that first six months or so when they're getting comfortable with the PACE program, getting used to how to use it in a slightly different set of expectations versus they had before, that's the period that we really need to focus on.

Today, we've got roughly probably 10% to 12% of voluntary disenrollments over the course of the year. If we can bring that down a couple of points through a bunch of these initiatives, it's very beneficial to the health of the organization.

Perfect. (inaudible). I appreciate all the details. Ill go ahead and hop back in the queue.

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