Exchange: NASDAQ | Sector: Healthcare | Industry: Medical Care Facilities
Q3 2024
Published: May 7, 2024
Earnings Highlights
Revenue of $193.07M up 11.9% year-over-year
EPS of $-0.04 increased by 25.8% from previous year
Gross margin of 17.6%
Net income of -5.89M
"Revenue of $193 million for the quarter, an increase of approximately 2% compared to the second quarter and center-level contribution margin of $34 million which represents a 17.6% margin and is generally consistent with the second quarter." - Patrick Blair, President and CEO
InnovAge Holding Corp (INNV) Q3 2024 Earnings Review: Enrollment Dynamics, De Novo Costs, and Margin Trajectory in a PACE Growth Phase
Executive Summary
InnovAge Holding Corp delivered a mixed Q3 2024 performance characterized by solid top-line momentum and ongoing margin discipline, tempered by near-term headwinds from de novo center costs and temporary enrollment delays in Colorado and California. Revenue rose to $193.1 million, up 2.2% quarter-over-quarter and roughly 12% year-over-year, while center-level contribution margin remained strong at $34.0 million (17.6% of revenue), broadly in line with the prior quarter. However, the company posted a net loss of $5.89 million and a modest Adjusted EBITDA of $3.6 million (margin of 1.9%), reflecting elevated de novo start-up costs from recently opened centers (notably Tampa, Orlando) and the integration costs associated with Crenshaw and Bakersfield post-acquisition. The de novo line item was $4.1 million for the quarter, underscoring the near-term profitability pressure from portfolio expansion.
Net income: -$5.887 million; EPS -$0.04 (basic/diluted)
Financial Highlights
Key quarterly metrics and trends:
- Revenue: $193.071 million, QoQ +2.21%, YoY +11.90%
- Gross profit: $33.997 million, gross margin 17.6%
- Center-level contribution margin: $34.0 million, 17.6% of revenue (vs 17.8% prior quarter)
- Adjusted EBITDA: $3.6 million, margin 1.9% (Q2: 4.1%)
- Net income: -$5.887 million; EPS -$0.04 (basic/diluted)
- Census: 6,820 participants (QoQ +~1%)
- De novo losses: -$4.1 million (Q3); expected $10–12 million in de novo losses for FY2024 including Bakersfield/Crenshaw
- Cash/ liquidity: cash $54.1 million; short-term investments $45.2 million; total debt $81.3 million; net debt $57.8 million
- Operating cash flow: $3.5 million; capex: $0.45 million; free cash flow: $3.06 million
- Guidance (FY2024): ending census 6,800–7,400; member months 79,000–83,000; revenue $725–$775 million; Adj EBITDA $12–$18 million; de novo losses $10–$12 million
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
193.07M
11.90%
2.21%
Gross Profit
34.00M
18.11%
1.14%
Operating Income
-5.79M
29.09%
-224.54%
Net Income
-5.89M
11.21%
-70.79%
EPS
-0.04
25.79%
-33.33%
Key Financial Ratios
currentRatio
1.26
grossProfitMargin
17.6%
operatingProfitMargin
-3%
netProfitMargin
-3.05%
returnOnAssets
-1.12%
returnOnEquity
-2.09%
debtEquityRatio
0.4
operatingCashFlowPerShare
$0.03
freeCashFlowPerShare
$0.02
priceToBookRatio
2.19
priceEarningsRatio
-26.2
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management insights from the Q3 2024 earnings call (themes and quotes):
- Performance momentum and strategic execution: "The company continues to see ongoing performance improvement in every facet of our operations... delivering high-quality care and a great participant experience while also growing our top and bottom lines." (Patrick Blair)
- Margin discipline and value creation: "The portfolio of initiatives that we've launched over the past 2 years are creating tangible impact that we're seeing translate into earnings" (Patrick Blair). Management emphasized a drive toward a 20% center-level contribution margin over time.
- Enrolment dynamics and regional headwinds: "Enrollment processing delays in Colorado, in part due to the competing priorities of Medicaid redetermination... in-person level of care assessments versus telephonic"; ongoing staffing vacancies in CA centers leading to temporary enrollment slowdowns (Patrick Blair).
- De novo costs and investment pace: "De novo losses which we define as net losses related to preopening and start-up ramp... were $4.1 million" (Ben Adams). The company remains focused on integrating new centers (Orlando, Crenshaw, Bakersfield) and scaling CVIs.
- Outlook and guidance: "We are reaffirming our fiscal 2024 guidance... census between 6,800 and 7,400 participants; total revenue $725–$775 million; adjusted EBITDA $12–$18 million"; management underscored variability and risk-adjusted optimism as enrollment improves and CVIs mature.
- Industry context and competitive dynamics: management highlighted MA margin pressure potentially reducing value-added benefits in 2025, which could enhance InnovAge’s relative competitiveness in the PACE model.
Revenue of $193 million for the quarter, an increase of approximately 2% compared to the second quarter and center-level contribution margin of $34 million which represents a 17.6% margin and is generally consistent with the second quarter.
— Patrick Blair, President and CEO
Adjusted EBITDA margin was 1.9% for the third quarter compared to 4.1% in the second quarter.
— Benjamin Adams, Chief Financial Officer
Forward Guidance
Forward-looking view and assessment of risk factors:
- Guidance reaffirmation for FY2024 remains contingent on enrollment cadence and regulatory progress: ending census 6,800–7,400; revenue $725–$775 million; Adj EBITDA $12–$18 million; FY de novo losses expected at $10–$12 million, inclusive of Bakersfield and Crenshaw.
- Margin trajectory: management targets imply meaningful margin expansion exists beyond FY2024, driven by enrollment growth, center-level cost discipline, and CVI benefits that are expected to accrue meaningfully in FY2025 and beyond. The investor-day margin framework points to a path toward center-level contribution margins near 20% over time.
- Key risk factors to monitor: (1) Colorado enrollment bottlenecks and redetermination workflow impacting Q4 census and ramp; (2) CA staffing gaps delaying enrollment and necessitating temporary ramp-downs; (3) continued external medical cost containment; (4) regulatory reviews in CA and ongoing audits; (5) competitive MA landscape and potential reductions in MA value-added benefits in 2025; (6) ramp timing of newly opened de novo centers.
- Catalysts: Orlando center ramp and enrollment momentum; Crenshaw and Bakersfield integration; scaling of palliative end-of-life programs (Denver pilot expansion); improvement in center staffing ratios and CVIs.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
INNV Focus
17.61%
-3.00%
-2.09%
-26.20%
ENSG
15.40%
8.26%
4.49%
26.02%
SEM
13.40%
0.03%
3.16%
16.18%
EHC
95.50%
9.50%
5.47%
19.59%
EHAB
48.10%
3.02%
-0.36%
-58.48%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Investment thesis positions InnovAge as a growth-oriented provider of integrated PACE services with a clear margin-improvement trajectory, anchored by center-level efficiency initiatives and CVIs. Near-term earnings momentum remains sensitive to de novo ramp costs and enrollment timing in CO/CA; however, a diversified center portfolio (Orlando, Crenshaw, Bakersfield) and ongoing CVIs provide optionality for margin expansion and participant growth. The reaffirmed FY2024 guidance provides a framework for investors to model a path toward higher margins in 2025 as enrollment and CVI benefits mature. The key drivers to monitor are Colorado enrollment restoration timelines, CA staffing stabilization, center-level contribution margin progression toward 20%, and the evolution of MA benefits in 2025 which could materially influence competitive positioning for PACE.
Key Investment Factors
Growth Potential
Growth hinges on accelerating de novo ramp efficiency, ongoing center-level margin expansion (target ~20%), and sustained enrollment growth driven by PACE value proposition and payer capabilities. The Orlando center adds capacity for ~1,300 participants at maturity, offering potential incremental contribution as enrollment accelerates.
Profitability Risk
Key risks include regulatory delays in CA, Colorado enrollment processing bottlenecks, competition for licensed clinicians, and potential MA plan reductions in 2025 that could pressure participant churn and capitation economics. The mix shift toward community-dwelling participants needs to be sustained to offset external medical cost trends.
Financial Position
Balance sheet remains liquid with ~ $99.3 million in cash and short-term investments combined, but total debt near $81.3 million and net debt ~ $57.8 million. The company generated $3.5 million in operating cash flow and $0.45 million in capex in Q3, yielding approx. $3.06 million in free cash flow. Near-term de novo investments weigh on profitability but are essential for growth runway.
SWOT Analysis
Strengths
Proven PACE value proposition with integrated care model for seniors
Strategic center network expansion (Orlando opened; Crenshaw and Bakersfield acquired)
Center-level contribution margin around 17.6% supports ongoing margin focus
5-pillar performance management framework aligning operations, quality, and incentives