Overview of Financial Performance

InnovAge Holding Corp. (InnovAge) is a leading provider of all-inclusive care for frail, high-cost, dual-eligible seniors. The company reported its financial results for the three and nine months ended March 31, 2025.

For the three months ended March 31, 2025, InnovAge reported total revenues of $218.1 million, an increase of 13.0% compared to the prior year period. Capitation revenue, which makes up the majority of total revenue, grew 13.0% year-over-year to $217.8 million. This was driven by a 2.1% increase in capitation rates and a 10.7% increase in member months.

Net loss for the three months was $11.1 million, compared to a net loss of $6.2 million in the prior year period. The increase in net loss was primarily due to higher operating expenses, including a $10.7 million accrual for a potential legal settlement.

For the nine months ended March 31, 2025, total revenues were $632.3 million, up 12.0% from the same period in the prior year. Capitation revenue grew 12.0% to $631.3 million, driven by a 1.7% increase in capitation rates and a 10.2% increase in member months.

Net loss for the nine-month period was $30.3 million, compared to a net loss of $21.0 million in the prior year period. The higher net loss was again primarily due to increased operating expenses, including the legal settlement accrual.

Revenue and Profit Trends

InnovAge’s revenue growth has been driven by increases in both capitation rates and member months. Capitation rates, which are set by government payers like Medicare and Medicaid, rose 2.1% in the three-month period and 1.7% in the nine-month period. This was due to annual rate increases, partially offset by some revenue reserves.

Member months, which track the total number of participants multiplied by the number of months they were enrolled, grew 10.7% in the three-month period and 10.2% in the nine-month period. This was primarily due to growth in InnovAge’s existing centers in California and Colorado, as well as the addition of new de novo centers in Florida and the acquisition of Concerto.

Despite the strong revenue growth, InnovAge reported higher net losses in both the three-month and nine-month periods compared to the prior year. This was driven by increases in operating expenses, particularly:

• External provider costs, which grew 7.9% and 7.5% respectively, due to higher member months partially offset by lower per-participant costs
• Cost of care (excluding depreciation and amortization), which increased 17.6% and 16.8% respectively, due to higher headcount, wages, and other center-level expenses
• Corporate, general and administrative expenses, which rose 40.1% and 15.3% respectively, primarily due to a $10.7 million accrual for a legal settlement and higher employee compensation costs

The company also recorded $8.5 million in impairment charges related to halting development of a previously planned de novo center.

Strengths and Weaknesses

A key strength of InnovAge’s business model is its focus on providing comprehensive, all-inclusive care to a high-acuity population of frail, dual-eligible seniors. This allows the company to receive higher capitated payments from government payers compared to standard Medicare Advantage programs. InnovAge’s participants have an average risk adjustment factor (RAF) score of 2.46, indicating a more complex and medically fragile population.

InnovAge also benefits from high participant satisfaction and retention, with an average participant tenure of 3.1 years and low voluntary disenrollment rates. This helps drive consistent, recurring revenue streams.

However, the company faces some operational challenges that have impacted profitability. Regulatory issues at two of its California centers led to the suspension of state attestations required to open new de novo centers in that state. This has limited InnovAge’s ability to expand its footprint.

The company has also faced rising costs, including higher salaries and wages, increased rates from third-party providers, and general medical inflation. While InnovAge has been able to manage these cost pressures to some degree, they have put pressure on margins.

InnovAge’s reliance on government payers also exposes it to potential reductions in budgetary appropriations or policy changes that could impact its capitated fee payments. Maintaining strong relationships with these payers is critical to the company’s long-term success.

Outlook and Future Prospects

Looking ahead, InnovAge plans to continue investing in its centers, value-based care model, and sales and marketing to support long-term growth. The company expects expenses to increase in the short-term to support these initiatives, as well as to address regulatory issues and legal proceedings.

However, InnovAge believes these investments will have a positive impact on its business and results of operations in the longer term. Key focus areas include:

• Expanding enrollment and capacity at existing centers
• Opening new de novo centers in existing and new markets, once regulatory issues are resolved
• Executing tuck-in acquisitions and partnerships to expand its geographic footprint
• Improving its sophistication as a payor to drive better clinical outcomes and cost management

The company also faces some seasonal variability in its financial and operational results, with medical costs and per-participant revenue true-ups fluctuating based on factors like weather patterns and the number of business days in a period.

Overall, InnovAge remains focused on its mission of providing high-quality, comprehensive care to a vulnerable population of seniors. While it faces near-term profitability challenges, the company believes its model positions it well for long-term growth as the demand for PACE services continues to increase.