INNV - NASDAQ

Thank you for standing by, and welcome to the InnovAge Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Star 11 again. And now, as a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Ryan Kubota, Director of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you all for joining the InnovAge 2025 Fourth Quarter and Fiscal Year End Earnings Call. With me today is Patrick Blair, CEO, and Ben Adams, CFO. Michael Scarbrough, President and COO, will also be joining the Q&A portion of the call. Today, after the market closed, we issued an earnings press release containing detailed information on our 2025 fiscal fourth quarter and year-end 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, September 9, 2025, 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 may 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 value initiatives, Medicare and Medicaid rate increases, the effects of recent legislation and federal budget cuts, enrollment processing delays, 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 discussed in our annual report on Form 10-K for fiscal year 2025 and any subsequent reports filed with the SEC. 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.

Thank you, Ryan, and good afternoon, everyone. I'll begin with gratitude to our colleagues across InnovAge, to our participants and families, to our state and federal partners, and to our investors. Thank you for your continued support and trust. Fiscal 2025 was a year of delivery. We made clear commitments, and we followed through. In many cases, we exceeded both our internal goals and external expectations. And importantly, we finished the year with strong momentum heading into fiscal 2026. Today, I'll cover fourth quarter and full-year results, fiscal 2025 guidance for fiscal 2026, and progress we're making to position InnovAge for long-term success. Our fourth quarter capped a strong year of consistent execution. Revenue was $221.4 million, up 11% from Q4 last year. Center-level contribution margin was $41.3 million, representing an 18.6% contribution margin. Adjusted EBITDA more than doubled year over year to $11.3 million, representing a 5.1% margin. We ended the year with a census of approximately 7,740 participants. These results reflect disciplined cost management, strong medical utilization performance, and continued sense of growth. Now turning to the full year. Total revenue was $853.7 million, up nearly 12% year over year. Center-level contribution was $153.6 million, with contribution margin expanding to approximately 18%, up 70 basis points from FY '24. Adjusted EBITDA was $34.5 million, above the high end of our FY '25 guidance of $31 million. Adjusted EBITDA margin nearly doubled from 2.2% in FY '24 to approximately 4% in FY '25. These numbers matter not just in isolation but in the context of what we committed at our Investor Day in February 2024. We committed to expanding margins, and we delivered. Center-level contribution margin improved from 17.3% in FY '24 to 18% in FY '25, with further progress expected in FY '26. We committed to improving clinical outcomes, and we delivered. Key internal utilization measures such as inpatient admissions, ER visits, and short-stay nursing facility visits all improved through execution of our clinical value initiatives. We committed to driving revenue growth, and delivered. Revenue grew at greater than a 10% compound annual growth rate from FY '23 to FY '25. We committed to improving operating leverage, delivered. G&A as a percentage of revenue declined steadily from FY '23 to FY '25. We committed to return sustained positive adjusted EBITDA and delivered with year-over-year improvements and results above expectations. And, critically, we closed the year with no material compliance deficiencies. This combination of responsible growth, financial discipline, clinical performance, and compliance execution is what gives us confidence in the durability of our progress. We're operating in a complex environment. Recent legislation has created uncertainty for many value-based care models, particularly Medicare Advantage and Medicaid long-term care programs. State partners are facing fiscal pressures, which can translate into budgetary and operational strain. PACE is different. The strength of our model lies in the integration and coordination of care. Our interdisciplinary teams personalize care for every participant. Today, approximately 40% of our total cost of care is delivered directly in our centers by our employees under one roof. Through regular center attendance, we seek to maintain an active line of sight into each participant's health status, allowing us to intervene earlier and prevent avoidable hospitalizations and ER visits. For the remaining 60%, our providers individually order or prescribe virtually all other non-emergent care. This integrated, high-touch model gives us a real advantage in managing costs and utilization, and we believe this sets InnovAge apart in an inflationary medical cost trend environment. Looking ahead, we're advocating with the new administration and legislators to broaden the role PACE can play in addressing America's senior care challenges. While today PACE primarily serves a subset of dual-eligible seniors, we see meaningful opportunity to expand access to those who could benefit earlier in their care journey. We're advocating for new pathways, such as a Medicare-only option, that would give more seniors access to the coordination and support services that make PACE unique. With more than five decades of public investment in PACE centers across the country, we believe this is the right time to leverage that infrastructure more fully. Done right, this could both improve quality of life for seniors and generate savings by delaying Medicaid enrollment and prolonging nursing home placement. Importantly, it can also create a natural growth channel for the company as participants' needs increase and they transition into full PACE eligibility. Looking ahead, our guidance for FY '26 reflects both continued momentum and the realities of our environment. We project a census of 7,900 to 8,100, member months of 91,600 to 94,400, total revenue of $900 to $950 million, adjusted EBITDA of $56 to $65 million, and de novo losses of $13.4 to $15.4 million. We expect profitability to build through the year, exiting FY '26 with a higher run rate, and we remain on track to achieve adjusted EBITDA margins of 8% to 9% over the next few years. Ben will take you through the details of this shortly. On growth, census increased 10% year over year in FY '25. We strengthened the foundations of our enrollment strategies and processes while also testing and scaling new channels that are beginning to pay off. We're also building strong partnerships. Last year, we formed a joint venture with Orlando Health, and this past quarter, we announced a similar partnership with Tampa General Hospital. These partnerships extend our reach, strengthen our provider networks, and create new pathways to connect eligible seniors with PACE. We continue to work closely with our state partners on enrollment processing. While we have experienced delays in some states and are monitoring the impact of budget constraints and Medicaid eligibility determinations, these dynamics are incorporated into our FY '26 guidance. Demand for PACE remains robust, and we expect healthy top-line growth as we move through the year. Beyond the numbers, we're advancing our transformation agenda. We're investing in talent, technology, and tools to make InnovAge a more disciplined, efficient, and scalable organization. Approximately 40% of our total cost of care occurs within our four walls of our centers, where we are uniquely positioned as both a payer and a provider to capture efficiencies and improve outcomes. This transformation is not just about tightening operations; it's about reimagining the model for the future, positioning InnovAge as the partner of choice for states, payers, providers, and communities looking to create a more sustainable, continuous senior care. In closing, fiscal 2025 was a strong year. We delivered on our commitments, exceeded expectations, and ended the year with momentum. Fiscal 2026 will be another important step forward, one that we expect to further advance our financial performance, strengthen our model, and bring us closer to achieving our long-term ambitions. I want to thank all our colleagues who make this possible. Every day, they bring both a caregiver's heart and an owner's mindset to serving our participants. They are the reason we've been able to execute consistently, and they will be critical to our success in the years ahead. 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 fourth quarter and fiscal year-end 2025 financial performance, followed by our fiscal year 2026 guidance. I am pleased with our overall performance and strong finish to the year. As Patrick mentioned, we really started to feel the impact of our clinical value initiatives throughout this year, and we expect those to carry through into fiscal 2026. We are also pleased with the progress of our new operational improvement initiatives this year and expect them to continue building throughout the next fiscal year. Starting off our fiscal 2025 highlights with Census, we served approximately 7,740 participants across 20 centers as of June 30, 2025, which represents annual growth of 10.3% and sequential quarter growth of 2.8%. We reported 23,000 member months in the fourth quarter, an increase of approximately 10.5% compared to 2024 and an increase of approximately 2% over 2025. Total revenues increased by 11.8% to $853.7 million for fiscal year 2025. The increase was primarily driven by an increase in member months coupled with an increase in capitation rates. The increase in capitation rates includes rate increases for both Medicare and Medicaid, partially offset by revenue reserves and an out-of-cycle risk or true-up payment received in fiscal 2024. Compared to the third quarter, total revenues increased by 1.5% to $221.4 million in the fourth quarter, primarily due to a sequential increase in member months partially offset by a decrease in Medicare rates associated with decreasing risk scores as new participants are entering PACE with lower risk scores and disenrolling participants are leaving PACE with higher risk scores. We incurred $431.2 million of external provider costs during the fiscal year, a 7% increase compared to fiscal year 2024. The increase was primarily 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 inpatient, assisted living, permanent nursing facility, and short-stay nursing facility utilization, a decrease in external hospice care associated with the transition of this function to internal clinical resources, and a decrease in pharmacy expenses due to the transition to in-house pharmacy services. The decrease in external provider cost per participant was partially offset by an increase in inpatient unit cost and an annual increase in assisted living and permanent nursing facility unit cost. During the fourth quarter, we incurred $108.2 million of external provider costs. And when compared to 2025, external provider costs were essentially flat. The stable costs were the result of higher costs associated with an increase in member months offset by a decrease in cost per participant. The decrease in external cost per participant was primarily driven by a decrease in inpatient and permanent nursing facility utilization and a decrease in pharmacy expense associated with the transition to in-house pharmacy services, partially offset by an increase in short-stay nursing facility and assisted living facility utilization. Cost of care, excluding depreciation and amortization, was $268.9 million, an increase of 17.5% compared to fiscal year 2024. The increase was due to an increase in member months coupled with an increase in cost per participant. The overall increase was driven by higher salaries, wages, and benefits associated with increased headcount and higher wage rates, an increase in software license fees, an increase in de novo occupancy and administrative expenses associated with opening centers in Florida and the acquisition of the Crenshaw Center, an increase in contract provider expenses in California associated with growth, consulting fees and shipping costs associated with in-house pharmacy services, and fleet costs inclusive of contract transportation. For the fourth quarter, cost of care, excluding depreciation and amortization, increased 3.5% compared to the third quarter. The increase was primarily due to an increase in consultant fees and shipping costs associated with increased volume of in-house pharmacy services. 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 $153.6 million for fiscal year 2025 compared to $132.1 million, a 16.3% increase for fiscal year 2024. As a percentage of revenue, center-level contribution margin of 18% increased approximately 70 basis points compared to 17.3% in fiscal year 2024. For the fourth quarter, center-level contribution margin was $41.3 million compared to $40.7 million for 2025, an increase of 1.3%. As a percentage of revenue, center-level contribution margin of 18.6% decreased by approximately 10 basis points compared to 18.7% in 2025. Sales and marketing expenses of $28.2 million increased 13.1% compared to fiscal year 2024, primarily due to increased headcount and wage rates to support growth. For the fourth quarter, sales and marketing expenses increased by 2.6% compared to 2025, as a result of additional marketing support and project timing in the fourth quarter. Corporate, general, and administrative expenses increased 9.6% to $122.1 million compared to fiscal year 2024. The increase was primarily due to the $10.1 million accrual of the potential settlement of the securities class action lawsuit and an increase in employee compensation and benefits as a result of greater headcount and increased wage rates to support compliance and bolster organizational capabilities. These increases were partially offset by a reduction in consulting and insurance expenses. For the fourth quarter, corporate general and administrative expenses decreased 27.9% to $27.8 million compared to 2025. The decrease was primarily due to the potential settlement of the securities class action lawsuit referenced earlier that was recorded in the third quarter. Net loss was $35.3 million compared to a net loss of $23.2 million in fiscal year 2024. We reported a net loss per share of 22¢ compared to a net loss per share of 16¢, each on both a basic and diluted basis. Our weighted average share count was approximately 135.4 million shares for the fiscal year, on both a basic and fully diluted basis. For the fourth quarter, we reported a net loss of $5 million compared to a net loss of $11.1 million in the third quarter and a net loss per share of 1¢ each on both a basic and diluted basis. Adjusted EBITDA was $34.5 million for fiscal year 2025, compared to $16.5 million in fiscal year 2024 and $11.3 million for the quarter compared to $10.8 million in 2025. Our adjusted EBITDA margin was 4.0% for fiscal year 2025, and 5.1% for the fourth quarter. We do not add back losses incurred by our de novo centers in the calculation of adjusted EBITDA. We define de novo center losses as net losses related to preopening and startup ramp through the first 24 months of de novo operation. We incurred $15.4 million of de novo losses in fiscal year 2025. This compares to $12 million in fiscal year 2024. For the fourth quarter, de novo losses were $3.9 million, primarily related to our Tampa and Orlando centers in Florida. This compares to $3.5 million of de novo losses in 2025. Turning to our balance sheet. We ended the quarter with $64.1 million in cash and equivalents, plus $41.8 million in short-term investments. We had $72.8 million in total debt on the balance sheet, representing debt under our senior secured term loan and finance lease obligations. We also refinanced our term loan facility in the fourth quarter with a $50.7 million term loan, renewed our revolving credit facility commitments, and extended the maturity of both to August 8, 2028, from March 8, 2026. For the fourth quarter, we reported positive cash flow from operations of $9 million and had minimal cash capital expenditures of $200,000, primarily due to timing. We completed the share repurchase program that we launched back in June 2024, acquiring approximately 1,426,000 shares of common stock for an aggregate of $7.3 million during the entirety of the program. During the fourth quarter, we acquired approximately 101,800 shares of our common stock for an aggregate of approximately $300,000. Turning to fiscal 2026 guidance, which we included in today's press release, and based on information as of today, we expect our ending census for fiscal year 2026 to be between 7,900 and 8,100 participants. In member months, to be in the range of 91,600 to 94,400. We are projecting total revenue in the range of $900 million to $950 million and adjusted EBITDA in the range of $56 million to $65 million. And we anticipate that de novo losses for fiscal 2026 will be in the $13.4 to $15.4 million range. I will also provide some additional color on a few of the components that comprise our guidance assumptions. Our census and member months reflect the redesign of our eligibility enrollment system due to state Medicaid redetermination. We expect that this will result in more rapid disenrollments in the first half of the fiscal year for those participants who have lost Medicaid coverage and have not been able to regain eligibility. Regarding revenue, we are expecting a low single-digit Medicare rate increase and a mid-single-digit increase for Medicaid. As a reminder, our Medicare rates are based on county-specific rates that are adjusted by CMS in January, coupled with prospective risk score adjustments in January and July. Effective January 1, CMS will begin to transition PACE organizations onto the V28 Medicare Advantage payment model from our current V22 payment model. The process is scheduled to begin on January 1, 2026, and be phased in annually through 2029, starting with a 90/10 split of V22 and V28, respectively, and has been factored into our guidance. Regarding cost of care, external provider costs, and overall center-level contribution margins, we have continued to make measurable progress since we returned to issuing guidance in September 2023. In 2024, we introduced clinical value initiatives, followed by operational value initiatives in 2025. This upcoming fiscal year, while we continue our focus on quality, we are also pushing ourselves to stretch operationally by continuing to reimagine and further refine what we do and how we do it in order to continue growing our adjusted EBITDA margin. As an example, the ramp-up of our new internal pharmacy initiative is going well and is expected to give us more control over pharmaceutical fulfillment, allow us to improve medication adherence, enhance participant outcomes, and streamline logistics. We are also excited to see that the business is reducing costs and is expected to continue generating overall cost savings into the future. In closing, we are pleased with our 2025 results. We continue to push ourselves toward improving and optimizing the business as we strive to be the provider of choice for participants as well as our federal and state partners. We remain focused on quality, and we believe in the value that the PACE program can bring to eligible seniors with complex needs. We look forward to the trajectory of the business and toward the year ahead. Operator, that concludes our prepared remarks. Please open the call for questions.

Certainly. And our first question for today comes from the line of Matthew Gillmor from KeyBanc. Your question, please.

Hey, guys. Thanks for the question. I wanted to ask about member mix and how that's impacting margins and cost trends. If I recall, I think the acuity of the membership is in the process of normalizing with your census growth that had been resuming starting last fiscal year. How far along are you on that process? Is there still more room to go in terms of acuity normalizing? And is there any way to think about the impact that that's been having on margins or some of the utilization metrics you've been sharing?

Hey, Matt. It's Patrick. Great question. I'd say largely, we've sort of seen the mix rebalancing that we would expect since the sanctions were lifted. We've grown well. We've kept a very balanced pool of enrollments as it relates to people living in the community, people living in assisted living facilities, and I think we've done a really nice job of ensuring that we're a solution to keep people in the community rather than to go into nursing homes. As a result, the mix of our population, the age, the acuity has, I think, progressed much as we anticipated. I'd say we're largely at a point where we feel like achieving our targets. All of our work going forward is about continuing to grow and maintaining an appropriate mix. It does negatively impact our risk score, so we have to be mindful of that shift, which can come with some revenue impacts. But generally, we've got the right mix of healthier folks, and with the right clinical model wrapped around them, they can be a contributing factor to the company's growth and margin expansion. Ben, anything to add?

No. I think you really covered it. If you think about the average tenure of a PACE participant, it's three and a half years or so. We've been going through a normal enrollment process for about two years now, so the mix is pretty much normalized if things have washed through the system.

Okay. Great. That's helpful. And then as a follow-up, I wanted to ask about V28. I heard Ben's comments about the phase-in starting next year. Should we think about that as being a slight headwind to your revenue growth, or is that a slight tailwind? Just wanted to sort of understand how that might play out both in 2026 and then, of course, beyond that as well.

Well, as I think Ben said in his remarks, we're just sort of entering into this phase where we're starting to see a phase-in of the V28 relative to the V22. It's going to take multiple years for that to play out. As you probably know, there are a lot of variables with the PACE population and how all this will work out. It is included in our guidance, and I just want to make sure that's clear.

No. I think you pretty much hit it. We expect it to be a headwind over the next couple of years. We only provide one year of guidance, so it's all factored in for this year. But obviously, it's something we're spending a lot of time thinking about for future years.

Got it. I appreciate it. Thank you.

Thank you. And our next question comes from the line of Jared Haase from William Blair. Your question, please.

Yeah. Hey, guys. Thanks for taking the questions. Maybe I'll ask on the outlook for EBITDA margins. Congrats on all the progress that you've made there. I know you kind of reinforced the expectation that you're on track for the 8% to 9% target over the next few years. I think the guidance implies about 250 basis points of margin expansion. I guess, number one, should we think of that as a reasonable cadence in terms of margin expansion continuing for the next few years on that pathway to the high single-digit target? And then I'd also be curious if you could just unpack, given all the initiatives and progress you've made, where you think the balance is in terms of the bigger opportunities for leverage between center-level margin and then operating leverage.

I'll let Ben pick up, but I would just start with I do think a lot of our margin improvement over the last couple of years has been a combination of factors. Being able to reinstitute growth for the company and growing that in double digits. We've had a variety of transformation efforts that focus on a lot of clinical value initiatives. We've done our best to predict when that value will flow through. We've talked about the latency between execution of an initiative and when we start to see the impact flow through the P&L. We're doing our best to predict that, but it's kind of hard to hit on a quarter-by-quarter basis. But I'll say we're very pleased with the work by our clinical teams to address medical costs. I think that is a nice driver of this. As I said in my opening remarks, one of the things that I think we're really developing a strong appreciation for, especially since we've brought pharmacy in-house, is that over 40% of the total cost of care we're delivering with our team, our employees, in our centers. And then this notion that for the remaining 60%, we're ordering that care. We're ordering the specialist visits and specialist services, and that gives us a lot of control. So I do think medical costs are an area we've been very successful in. We've got a great team, and we continue to move there. And then the operating leverage, as we grow our centers, we're getting operating leverage at the center level. Pharmacy insourcing is an area where the real value to that is the medical-pharmacy integration. That's given us more control over the total cost of care when we have pharmacy integrated more closely with our medical. So overall, I think we're pretty pleased with margin growth. And I think it is fair to say that over the next couple of years, the growth we've seen in the last two probably translates over the next couple. Ben, what would you say?

Yeah. I mean, I think Patrick pretty much covered it. I would say that the guidance we put out about the long-term margin opportunity when we met with everybody back in two years ago in February, I think that sort of outlook we put out there probably holds true today. And I think probably today more than ever, we've always been convinced that we'd get to the right margin structure. It was always just a question of when we would get there. So it wasn't an if, it was a when. And I think we feel very confident with the vision we put out a couple of years ago. And I think this year shows us that we're kind of halfway there.

Got it. That's helpful. I appreciate that. And then maybe as a follow-up, I'll switch gears a little bit. But I'm curious, you obviously have the partnership with Epic, your electronic health record, and they've been in the news recently rolling out a number of new AI or automation-related features. I'm not sure if you're able to benefit from any of that at all. I know you probably had some specific modules and implementations related to PACE. But just curious, anything specific to Epic or, I guess, even more broadly, areas where you might see opportunities for automation and continue to take cost out of the cost structure.

I'm going to flip that to Michael, but I'll say it's a great question. It's something we're spending a lot of time on, really trying to figure out how do we leverage the latest AI-driven tools just to make us a better company and help us with cost efficiencies and quality of care and outcomes, etc. I think, given the size of our company, we certainly don't have the capability or the ambitions of a much larger managed care organization as an example. So to that point, you're correct in that we're working very closely with a broad range of technology partners that we have within the company today. That, of course, includes Epic, and I'll let Michael say a little bit about some of the work there. But then whether it's a medical partner, or it's a claim system partner, or some of our clinical programs, each of those companies has a really robust AI agenda. And ours is really trying to figure out how do we leverage what our partners are developing and then connect that to how we operate as a PACE program. And I think we're off to a good start, but it's certainly early days. Michael, please say more.

Yeah. Thanks, Patrick. And so I would just add, I think as we have continued to invest in our technology capabilities, we've really gone with a kind of a best-in-class strategy and doing so. Tools like Epic and others provide us a number of out-of-the-box capabilities and out-of-the-box solutions that we're finding a lot of applicability with within our business. Everything from how we provide clinical care, inform our clinicians, highlight for them information about our participants, which might not be otherwise easily discernible from all of the information in Epic, through our Oracle implementation and the ability to use tools like that. Just continue to look for opportunities with our business where we have processes that could be optimized and generate not just efficiency, but also greater accuracy of the work that we do. And so I think we're very much working as the whole industry is around just looking for opportunities where AI could be a lever to improve the output of our business.

I'd probably highlight Salesforce as another partner who we're doing some really interesting work with. More focused on sort of efficiency and accuracy of business processes both in compliance as well as in sort of the enrollment processing space. So Salesforce has been a great partner as we sort of dip our toe in the AI space.

Got it. That's really great to hear. I appreciate all the color.

Thank you. And as a reminder, our next question comes from the line of Jamie Perse from Goldman Sachs. Your question, please.

Hey, thank you. Good afternoon. I wanted to start with one quick clarification which relates to my first question. I know you talked about the Medicaid redeterminations and that being a headwind to census and member progression through the year. You mentioned that being a headwind in the first part of the year. Is that a January type of headwind? Or are you referring more to the start of the fiscal year, so impacting the first quarter?

Well, I think if you think about redeterminations, they go on obviously throughout the course of the year. And I think what you've seen with us is we've changed a lot of our internal processes. Because as we've tried to partner with the states and make that whole eligibility enrollment redetermination process more efficient, we basically put in new processes that made it easier for us to identify people who are going to lose Medicaid coverage potentially. And if we think they're going to lose it and it's not recoverable, we can get them disenrolled more quickly, right? So as those new processes roll in and we begin to disenroll people who will never regain Medicaid eligibility more quickly, it'll put a little bit of a headwind on growth both in terms of census and in terms of member months. And you'll see that really happening in 2026. And then we think it will wash through the system by the time we hit January. And the other thing I would say is it's not really changing the rate of growth for us. Our trends around gross enrollment growth per month are really going to be the same. So it's not changing the slope of the line. It's really just shifting the line down slightly as we work through the implementation of this new eligibility process.

Okay. That's helpful. And I think you partially answered my first question here, but just want to make sure I'm clear. Obviously, you had really strong census growth in fiscal '25. The guidance is kind of call it, low, maybe mid-single-digit growth this year on a net basis. I hear your comments on the redetermination piece. Are you assuming that the gross enrollment trajectory that you had in fiscal '25 continues? And maybe just any updates from a capacity standpoint, anything that might change that enrollment trajectory?

Yeah. You're right. The gross enrollment trends are going to remain the same, we think, this year. What you're seeing in terms of slightly lower census and member months growth is basically the work through the new eligibility process. And we kind of went through an intentional strategic decision this year where we said, look, there were people that we were probably carrying too long to try to reestablish Medicaid eligibility. As opposed to moving them off of our system into a more appropriate place for them once we knew that they weren't going to get their Medicaid eligibility renewed. By moving people out of the system more efficiently when we know they no longer qualify for PACE, it slows us down on the top line. But it actually gives us a big boost on the EBITDA line. Right? So you think of this as kind of a year where we're using the enrollment mechanism to strategically reposition the business. We're going to give up a little census growth, but not the growth in gross enrollment trends. But we're going to get a big pickup in EBITDA from it.

Okay. Alright. That's really helpful. My second question, I know there were some earlier ones on just kind of connecting your guidance to the long-term targets you've laid out. Looking back at those targets, you're kind of a little bit ahead on external provider costs. There's maybe some room to continue seeing some progression on cost of care and then certainly on G&A. There's more room relative to the prior financial targets you laid out. Are those two buckets, just the cost of care and G&A operating leverage, the primary areas we should expect continued margin performance or improvement in fiscal 2026 specifically?

Yes, it's a good question. When you think about when I think about when you go back and you look at the presentation we gave back in February '23 about '24. Sorry. Had the year wrong. Anyhow, we gave that presentation about what the long-term margin potential is. You probably remember we went through sort of breaking out the different components. There was sort of the third-party provider care where we get some efficiencies. But then there was the cost of care, which was provided in our centers. And we get a lot of efficiency out of that number. Not only because we can, as Patrick spoke about before, we can control and coordinate that care more closely. But there's also an administrative component in there as well. Where we get some margin lift as the business scales. So we get some out of that line item. Then when you think about the G&A, obviously, we had some activities in the past related to compliance and other things. That we've been able to scale down going forward. So where we're investing in G&A really today is around improving operations. And if we start to look at that G&A line item as a percentage of revenue or even on a PMPM basis, we think you'll continue to see improvements in the next couple of years in that line item. So again, really focus more on the EBITDA percentage target than anything else. But those are probably the two line items where we'll get the biggest lift.

Got it. Thank you.