Executive Summary / Key Takeaways

• Integrated Care Model Driving Financial Resilience: InnovAge (NASDAQ:INNV) is solidifying its position as the largest Program of All-Inclusive Care for the Elderly (PACE) provider, leveraging its integrated, capitated care model to deliver comprehensive services to frail, dual-eligible seniors. This model, supported by advanced technology, is proving resilient against broader healthcare cost inflation and competitive pressures.
• Strong Financial Turnaround and Margin Expansion: Fiscal Year 2025 marked a significant turnaround, with total revenue increasing by 11.8% to $853.7 million and Adjusted EBITDA more than doubling to $34.5 million, exceeding guidance. Center-level contribution margin expanded to 18%, reflecting effective cost management and clinical value initiatives.
• Strategic Growth Through Organic Expansion and Partnerships: The company is pursuing disciplined growth by increasing participant enrollment in existing centers, building de novo centers in new markets like Florida, and executing strategic acquisitions and joint ventures, such as the recent pharmacy asset acquisition and partnerships with Orlando Health and Tampa General Hospital.
• Technology and Operational Transformation Underway: InnovAge is investing in its "InnovAge Platform," including Epic EMR, AI-driven tools, and e-consults, to enhance clinical efficiency, improve chronic condition capture, and streamline operations. New leadership is driving a comprehensive transformation agenda aimed at sustainable, profitable growth.
• Positive Outlook with Regulatory Headwinds Managed: Fiscal Year 2026 guidance projects continued revenue and Adjusted EBITDA growth, with a census of 7,900-8,100 participants and Adjusted EBITDA of $56-$65 million. While Medicaid redeterminations and the V28 Medicare Advantage payment model transition present headwinds, management has incorporated these into its outlook, strategically prioritizing EBITDA uplift over short-term census growth.

The PACE Model: A Foundation for Value-Based Senior Care

InnovAge Holding Corp. (NASDAQ:INNV) stands as the nation's leading provider of the Program of All-Inclusive Care for the Elderly (PACE), a critical healthcare delivery platform designed to serve high-cost, frail, and predominantly dual-eligible seniors. The company's mission addresses two pressing challenges in the U.S. healthcare system: escalating costs and suboptimal outcomes. By offering a fully-capitated, participant-centered approach, InnovAge aims to improve the quality of care, enable seniors to age independently in their homes, and significantly reduce the reliance on expensive institutional settings like hospitals and nursing homes.

InnovAge's journey began in May 2007, evolving from a not-for-profit entity to a for-profit corporation in 2016, culminating in its initial public offering in March 2021. This transformation positioned the company to scale its unique model, which directly contracts with government payors such as Medicare and Medicaid, bypassing third-party administrative organizations. This direct contracting model aligns with the broader shift towards value-based care, emphasizing coordinated, outcomes-driven quality care while minimizing unnecessary administrative overhead.

The market opportunity for InnovAge is substantial. The U.S. healthcare system grapples with unsustainable spending, reaching $4.90 trillion in 2023, or 17.60% of U.S. GDP, with projections for accelerated growth due to an aging population. Dual-eligible seniors, InnovAge's core demographic, represent a particularly high-cost segment, with average total spending more than double that of other Medicare beneficiaries. Despite this high spending, the fragmented nature of traditional healthcare often leads to uncoordinated care and sub-optimal outcomes for this medically complex population, who typically manage an average of ten chronic conditions and require assistance with multiple daily living activities. PACE programs are estimated to be 12% less costly on average than traditional Medicaid services for a comparable population, underscoring their economic value. With an estimated 2.30 million PACE-eligible participants in the U.S. in 2024, and only approximately 85,000 currently enrolled, the National PACE Association targets a 27% compound annual growth rate (CAGR) for enrollment over the next four years, indicating a vast untapped market for InnovAge.

Technological Edge and Operational Excellence

At the heart of InnovAge's differentiated approach is the "InnovAge Platform," a comprehensive system built around Interdisciplinary Care Teams (IDTs) and a community-based care delivery model. These IDTs, comprising at least 11 disciplines including primary care providers, nurses, social workers, and therapists, meet multiple times weekly to manage each participant's unique care plan, ensuring coordinated care and addressing both medical conditions and social determinants of health.

InnovAge leverages a sophisticated technology suite, including its Epic Electronic Medical Records (EMR) system, to collect and analyze data, streamline IDT workflows, and provide timely participant insights. This technology is crucial for optimizing care decisions and improving outcomes. For instance, the company has seen improved chronic condition recapture rates, a key factor in accurate risk scoring, largely due to alerts triggered within the EMR at the point of care. Beyond Epic, InnovAge is exploring AI-driven tools with partners like Salesforce (CRM) to enhance efficiency and accuracy in business processes, compliance, and enrollment. A new e-consults initiative, piloted last fiscal year and now scaling nationally, enables primary care physicians to obtain specialist reviews within 24 hours, often circumventing the need for time-consuming in-person specialist visits. This empowers InnovAge's geriatric-trained physicians to manage a significant portion of specialty care internally, contributing to both efficiency and participant satisfaction.

The company's operational excellence is further bolstered by strategic in-sourcing initiatives. InnovAge has successfully brought hospice care, fleet management, and behavioral health services in-house, gaining greater control over quality and costs. In January 2025, the acquisition of certain pharmacy assets from Tabula Rasa HealthCare Group (TRHC) marked another significant step, allowing InnovAge to directly manage pharmaceutical packaging and distribution. This integration is expected to enhance compliance, improve medication adherence, optimize participant outcomes, and reduce costs previously incurred with third-party providers. These technological and operational advancements are not merely incremental improvements; they are foundational to InnovAge's competitive moat, driving superior cost management, enhancing care quality, and supporting its long-term growth strategy.

Competitive Landscape: InnovAge's Position and Prowess

The U.S. healthcare industry is intensely competitive, with InnovAge contending with a diverse array of national, regional, and local providers for both participants and clinical talent. Key direct competitors include large managed care organizations like Humana Inc. (HUM) and UnitedHealth Group Inc. (UNH), which offer broad Medicare Advantage plans and integrated health services, as well as senior living providers such as Brookdale Senior Living Inc. (BKD).

InnovAge's core competitive advantage lies in its specialized PACE licensing and its deeply integrated, community-based care model. Unlike the broader, more diversified offerings of Humana and UnitedHealth Group, InnovAge's focus on the frail, dual-eligible population through PACE allows for a highly personalized, high-touch approach to care coordination. This specialization fosters strong participant loyalty and can lead to more efficient management of complex health needs, potentially resulting in lower overall costs compared to fragmented fee-for-service models. While Humana and UnitedHealth Group benefit from immense scale, diversified revenue streams, and advanced technological capabilities, InnovAge's model offers a unique value proposition in its niche, often achieving better health outcomes and higher participant satisfaction. For instance, InnovAge's Net Promoter Score (NPS) reached 56 in Q1 FY25, comparing favorably to a national PACE program average of 55.

Financially, InnovAge's gross profit margin of 68.50% (TTM) indicates strong control over its direct cost of revenue, though its operating profit margin of -3.49% and net profit margin of -3.55% reflect ongoing investments and operational challenges. In contrast, larger, more diversified players like Humana and UnitedHealth Group typically exhibit higher profitability margins and robust cash flow generation due to their scale and ability to leverage technology across a wider service base. Brookdale Senior Living, focused on residential communities, has shown mixed financial results, with its performance tied to occupancy rates. InnovAge's smaller scale and dependence on government payors (Medicare and Medicaid accounted for 100% of its capitation revenue in FY2025) present vulnerabilities, making it susceptible to policy changes and reimbursement rate adjustments. However, its deep regulatory expertise and established community partnerships act as significant barriers to entry for new PACE providers, protecting its market share in existing geographies. The company's strategic partnerships, such as joint ventures with Orlando Health and Tampa General Hospital, further extend its reach and strengthen its provider networks, enhancing its ability to compete effectively in new markets.

Financial Performance: A Turnaround Story

Fiscal year 2025 marked a pivotal period for InnovAge, demonstrating a clear trajectory of operational improvement and financial recovery. The company reported total revenues of $853.7 million, an impressive 11.8% increase from $763.9 million in fiscal year 2024. This growth was primarily fueled by a 10.3% increase in member months, reaching approximately 7,740 participants across 20 centers by June 30, 2025, solidifying its position as the largest PACE provider in the U.S. Capitation rates also contributed, with a 7.2% increase in Medicaid rates and a 2.1% increase in Medicare rates.

Profitability metrics showed significant improvement. Center-level contribution margin expanded to 18.0% in FY2025 from 17.3% in FY2024, driven by effective cost management. Adjusted EBITDA more than doubled year-over-year, reaching $34.5 million in FY2025 compared to $16.5 million in FY2024, with the Adjusted EBITDA margin expanding from 2.2% to 4.0%. This performance exceeded the high end of the company's FY2025 guidance of $31 million. The improvement was largely attributed to a 3% decrease in external provider cost per participant, resulting from lower utilization of high-cost settings and the successful transition of external hospice care and pharmacy services to internal resources. While cost of care, excluding depreciation and amortization, increased by 17.5% to $268.9 million, this was primarily due to increased headcount, higher wage rates, and de novo center expenses, reflecting strategic investments in growth and operational capabilities.

InnovAge's liquidity remains sound, with $64.1 million in cash and cash equivalents as of June 30, 2025. The company also refinanced its Term Loan Facility in August 2025, securing a $50.7 million Term Loan A Facility and renewing its $100 million Revolving Credit Facility, extending maturities to August 2028. This financial flexibility supports ongoing operations and strategic initiatives. The company also completed a share repurchase program in FY2025, acquiring 1.43 million shares for $7.3 million, demonstrating a commitment to shareholder returns.

Strategic Growth and Future Outlook

InnovAge's growth strategy is multi-faceted, focusing on organic expansion, de novo center development, and strategic partnerships. The company aims to increase participant enrollment and capacity within its existing 20 centers across six states. New de novo centers in Florida (Tampa and Orlando) are ramping up, and the acquisition of the Crenshaw center in California has seen its participant count grow significantly. These efforts are supported by enhanced sales and marketing strategies that leverage advanced market data and analytics to identify and engage prospective participants more effectively.

For fiscal year 2026, InnovAge projects continued momentum, with an ending census of 7,900 to 8,100 participants and member months in the range of 91,600 to 94,400. Total revenue is expected to be between $900 million and $950 million, with Adjusted EBITDA projected to be $56 million to $65 million. De novo losses are anticipated to be in the range of $13.4 million to $15.4 million, reflecting ongoing investments in new center development. Management expects profitability to build throughout FY2026, exiting the year with a higher run rate, and remains confident in achieving Adjusted EBITDA margins of 8% to 9% over the next few years. This outlook is based on a low single-digit Medicare rate increase and a mid-single-digit Medicaid rate increase.

A significant development impacting the outlook is the phased transition of PACE organizations to the V28 Medicare Advantage payment model, beginning January 1, 2026. This transition, factored into the FY2026 guidance, is expected to be a "headwind over the next couple of years." Additionally, the redesign of the Medicaid eligibility enrollment system is projected to lead to more rapid disenrollments for unqualified participants in the first half of FY2026. While this may temper top-line census growth, it is viewed as a strategic move to "strategically reposition the business" for a "big pickup in EBITDA" by improving efficiency and reducing the burden of carrying ineligible members.

Risks and Challenges

Despite a positive outlook, InnovAge faces several pertinent risks. The extensive regulatory environment governing PACE, Medicare, and Medicaid programs exposes the company to potential non-compliance issues, which could result in fines, sanctions, or exclusion from government programs. The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, mandates significant reductions in federal Medicaid spending and introduces new work requirements and bi-annual eligibility verifications, potentially decreasing Medicaid enrollment and impacting funding. Labor shortages and wage pressure in the healthcare sector, particularly for geriatric and direct care roles, could increase operating costs and affect the company's ability to execute its growth plan.

InnovAge is also subject to ongoing civil investigative demands from the Colorado Attorney General and the Department of Justice concerning Medicaid billing and patient services. While a stockholder class action lawsuit was settled for $27 million in June 2025 (InnovAge's share being $10.1 million), the unpredictability of legal proceedings remains a risk. Furthermore, the company's recent entry into managing its own pharmacy services, an area where it has no prior experience, introduces new regulatory and operational complexities. The transition to the V28 Medicare Advantage payment model is also anticipated to be a headwind, requiring careful management to mitigate its impact on financial performance.

Conclusion

InnovAge is demonstrating a compelling turnaround, transforming from a period of operational stabilization to one of strategic growth and margin expansion. Its specialized PACE model, deeply integrated care delivery, and commitment to technological innovation provide a strong foundation for addressing the complex needs of frail, dual-eligible seniors. The company's recent financial performance, marked by double-digit revenue growth and significant Adjusted EBITDA improvement in fiscal year 2025, underscores the effectiveness of its clinical and operational value initiatives.

While the competitive landscape includes formidable players like Humana and UnitedHealth Group, InnovAge's niche focus, regulatory expertise, and high participant satisfaction differentiate its offering. The strategic decision to streamline Medicaid redeterminations, though impacting short-term census growth, is a prudent move to enhance long-term profitability. With a clear vision for enterprise transformation, continued investment in its technology platform, and disciplined execution, InnovAge is well-positioned to capitalize on the growing demand for integrated senior care, driving sustainable value for its participants and shareholders in the years ahead.