InnovAge Holding Corp.
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Item 1. BUSINESS
Who We Are
InnovAge is the leading healthcare delivery platform by number of participants focused on providing all-inclusive, capitated care to high-cost, seniors, many of whom are dual-eligible. Our programs are designed to address two of the most pressing challenges facing the U.S. healthcare industry: rising costs and poor outcomes. The purpose of our participant-centered care delivery approach is to improve the quality of care our participants receive, while keeping them in their homes for as long as safely possible and reducing over-utilization of high-cost care settings such as hospitals and nursing homes. Through our Program of All-Inclusive Care for the Elderly (“PACE”), we fulfill a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care), in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to and from the PACE center and third-party medical appointments; and care management. We directly contract with government payors, such as Medicare and Medicaid, and do not rely on third-party administrative organizations or health plans. We believe our model aligns with how healthcare is evolving, namely (i) the shift toward value-based care, in which coordinated, outcomes-driven, quality care is delivered while seeking to reduce unnecessary spend, (ii) reducing excessive administrative costs by contracting directly with the government, (iii) focusing on the patient experience, and (iv) addressing social determinants of health.
InnovAge Holding Corp. and certain wholly owned subsidiaries were formed as for-profit corporations effective May 13, 2016, for the purpose of purchasing all the outstanding common stock of Total Community Options, Inc. d/b/a InnovAge, which was formed in May 2007. In connection with this purchase, Total Community Options, Inc. and certain of its subsidiaries converted from not-for-profit organizations to for-profit corporations. In connection with our initial public offering (“IPO”), which occurred in March 2021, we changed the name of our company from TCO Group Holdings, Inc. to InnovAge Holding Corp. (“InnovAge”). In this Annual Report, the terms “we”, “our”, “our company” and “us” may refer, as the context requires, to InnovAge or collectively to InnovAge and its subsidiaries.
InnovAge is headquartered in Denver, Colorado and manages its business as one reportable segment, PACE.
PACE
As of June 30, 2026, the Company served approximately 8,230 PACE participants, making it the largest PACE provider in the United States (the “U.S.”) based on participants served, and operated 20 PACE centers across California, Colorado, Florida, New Mexico, Pennsylvania and Virginia.
PACE is a fully-capitated managed care program, which serves the frail elderly, and predominantly dual-eligible, population in a community-based service model. We define dual-eligible seniors as individuals who are 55+ and qualify for benefits under both Medicare and Medicaid. InnovAge provides all needed healthcare services through an all-inclusive, coordinated model of care, and the Company is at risk for 100% of healthcare costs incurred with respect to the care of its participants. PACE programs receive capitation payments directly from Medicare Parts C and D, Medicaid, Veterans Administration (“VA”), and private pay sources. Additionally, under the Medicare Prescription Drug Plan, the Centers for Medicare and Medicaid Services (“CMS”) share part of the risk for providing prescription medication to the Company’s participants. We deliver our participant-centered care through the InnovAge Platform, which is designed to bring high-touch, comprehensive, value-based care.
We believe the traditional fee-for-service reimbursement model in healthcare does not adequately incentivize providers to efficiently manage this complex population. Dual-eligible seniors must navigate a disjointed, separately administered set of Medicare and Medicaid benefits, which often results in uncoordinated care delivered in silos. Our vertically integrated care model and full-risk contracts require us to coordinate and manage all aspects of a participant’s health, and deliver the necessary care. Costs under the PACE program are estimated to be 12% lower on average than those for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of the most recently available data by the National PACE Association in May 2026. Importantly, we believe our vertically integrated model can deliver better health outcomes and reduce unnecessary or avoidable medical spend. In addition, as of June 30, 2026, we believe our participants had a lower hospital readmission rate compared to a frail, dual-eligible or disabled waiver population. We also focus on ensuring our participants are satisfied with the services delivered and frequently evaluate benchmarks and survey methodologies to measure their satisfaction. Our participant satisfaction is currently measured through a Net Promoter Score (“NPS”). NPS is a metric used to measure customer satisfaction, loyalty and enthusiasm by asking how likely they are to recommend a company to a friend or colleague, and is reported as a number between negative 100 and positive 100.
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Based on quarterly surveys to measure emerging sentiment within a subset of our participants nationally, our average NPS was 45. According to Qualtrics, the creator of the NPS, Bain and Company suggests a score above 20 is favorable and above 50 is excellent. As part of our quarterly surveys, each year, we conduct an I-SAT survey (“Integrated Satisfaction Measurement for PACE”) to measure NPS across a national sample of our participants. In fiscal year 2026, our I-SAT NPS score was 52, compared to a national PACE program average of 59.
We believe our value proposition to each constituency translates into a predictable economic model. We directly contract with Medicare and Medicaid on a per member, per month (“PMPM”) basis, which creates recurring revenue streams and provides significant visibility into our revenue trajectory. We receive 100% of the pooled capitated payment to directly provide or manage the healthcare needs of our participants.
Industry Challenges
Unsustainable and rising healthcare costs. According to data from the Office of the Actuary of CMS, healthcare spending in the United States grew at approximately 7% per year from 2019 to 2024, and in 2024 represented $5.3 trillion of annual spend, or 18.0% of U.S. GDP. The overall growth rate of healthcare spending is expected to accelerate due to the aging population. By 2030, members of the baby boomer generation will be age 65 or older, which is expected to further increase demand for healthcare and long-term care services. At the same time, nursing home operating capacity has declined in recent years, increasing pressure on the broader long-term care system and the need for alternatives that allow seniors to remain in their homes and communities.
We believe government healthcare spend has been higher for the dual-eligible population, who typically suffer from multiple chronic conditions and require long-term services and support. Average total spend, including Medicare, Medicaid, supplemental insurance and out-of-pocket spending across all payers, for dual-eligible seniors was more than twice the amount than other Medicare beneficiaries, based on data from the Medicare Payment Advisory Commission (MedPAC) as of 2023. Improved care management of dual-eligible seniors continues to be important to reducing the rapid growth in government healthcare spending in the United States.
Highly fragmented, uncoordinated healthcare system. The U.S. healthcare system is complex and highly fragmented, resulting in piecemeal care delivery across different providers who each lack a complete picture of the patient. Furthermore, this dynamic often makes the healthcare system difficult for patients to navigate. Primary, acute, behavioral and long-term care providers need to work together to effectively manage a patient’s care, yet, today, they often work in silos. This lack of care coordination can result in missed or inaccurate diagnoses, gaps in care, unnecessary spend and ultimately sub-optimal patient outcomes. The importance of clinical integration and coordinated care continues to be reflected in federal healthcare policy initiatives, including recent CMS Innovation Center strategic priorities focused on prevention, patient empowerment and improved health outcomes.
High-cost, dual-eligible seniors are at high risk of falling through the cracks of the U.S. healthcare system. While access to integrated models like PACE that bring together the Medicare and Medicaid benefit for these individuals has expanded, most dual-eligible individuals remain in unaligned plans, creating further barriers to delivering coordinated care. Dual-eligible beneficiaries are among the most medically complex, high-frequency users of healthcare services. Based on InnovAge data as of June 30, 2026, the typical InnovAge participant had, on average, eleven chronic conditions and, based on the data most recently available to us from a 2024 modified health outcomes survey, required, on average, assistance with two or more activities of daily living (“ADLs”). A lack of coordination across providers can have severe consequences given the high occurrence of chronic illnesses and other underlying health issues in this population.
Prevalence of wasteful spending and sub-optimal outcomes. Proper management of chronic conditions and targeted interventions to mitigate challenges presented by social determinants of health can significantly reduce the incidence of acute episodes, which are the main driver of emergency room visits and hospitalization among the dual-eligible senior population. Healthcare spending on nursing care facilities and continuing care retirement communities is expected to reach approximately $247.5 billion in 2026, based on the latest projections made by the Office of the Actuary of CMS, which is a 5.6% increase compared to the current 2025 projection. Similar to spend on hospitals and other high-acuity care settings, we believe many of these dollars can ultimately be saved by providing proactive treatment and investing in proper medical and social supports to enable frail seniors to live in their homes and communities.
Despite leading the world in healthcare spending, the U.S. continues to lag peer nations on many health outcomes while facing persistent clinician burnout and workforce dissatisfaction.
Payment structures are evolving to address healthcare issues. Policymakers and healthcare experts generally acknowledge that the fee-for-service model is not designed to deliver on the “triple aim” of providing low-cost, high-
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quality care while improving the patient experience. Historically, healthcare delivery was oriented around reactive care for acute events, which resulted in the development of a fee-for-service payment model. By linking payments to the volume of encounters and pricing for higher complexity interventions, the fee-for-service model does not incentivize providers to practice preventative medicine or manage patients in lower cost settings. Rather, many policymakers and healthcare experts believe it unintentionally creates the opposite result—acute, episodic care delivered in high-cost settings that unnecessarily drive up the total cost of healthcare.
High-cost, dual-eligible seniors often require proactive, coordinated care plans to address their medical acuity, need for long term support and risks related to social determinants of health. Without personalized, patient-centered care that removes barriers to preventive or other early treatment, high-cost, dual-eligible seniors would likely continue to disproportionately rely on healthcare in higher-cost settings, such as emergency rooms and nursing homes.
PACE is a value-based government-sponsored, provider-led managed care program focused on enabling frail, dual-eligible seniors who have skilled nursing needs to age independently in their homes that can mitigate concerns over utilization of high-cost healthcare. PACE providers receive a monthly risk-adjusted payment for each participant (PMPM) directly from Medicare and Medicaid to oversee the totality of medical care an enrolled participant needs. Fully capitated models, such as PACE, incentivize organizations to better manage chronic conditions to avoid high-cost acute episodes and to invest in services that fall outside the scope of a fee-for-service model. These services, such as care coordination and ancillary support to remove barriers created by social determinants of health, can have a significant impact on a participant’s overall health. A study published in 2026 and led by the U.S. Department of Health and Human Services (“HHS”) on integrated care and health outcomes of dual-eligible individuals found that PACE participants experienced fewer hospitalizations and emergency department visits and lower mortality than comparable Medicare Advantage (“MA”) beneficiaries, providing additional evidence supporting fully integrated care models for complex dual-eligible populations.
InnovAge participants are, on average, more complex and medically fragile than other Medicare-eligible patients, including those in average MA programs. As a result, we receive higher capitated payments per participant compared to MA participants. This is driven by two factors: (i) we believe we provide care for a higher acuity population, with an average Medicare Risk Adjustment Factor (“RAF”) score of 2.48 based on InnovAge data as of June 30, 2026, with a higher RAF score indicating poorer health and higher predicted healthcare costs, and (ii) we have Medicaid spend in addition to Medicare. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care.
Legacy healthcare delivery infrastructure has been slow to transition from fee-for-service to value-based care models. In order for the shift to value-based payment models to drive meaningful results, we believe there must be a corresponding shift in care delivery models. While providers, payors, and technology companies have made significant investments in solutions designed to improve quality and reduce costs, the healthcare industry remains in a multi-year transition toward value-based reimbursement, with traditional fee-for-service payment arrangements continuing to represent a meaningful portion of healthcare spending.
Our Market Opportunity
We are one of the largest healthcare platforms focused on frail, dual-eligible seniors, serving participants exclusively through our PACE program. We have built the largest PACE-focused operation in the country based on number of participants, with 20 PACE centers across six states; we are 19% larger than the size of our closest PACE-focused competitor and more than 20 times larger than the typical PACE operator. Given our scale across geographies, we believe we are positioned to capitalize on a significant market opportunity to provide care to frail, high-cost, dual-eligible seniors.
Our care model targets the most complex, frail subset of the dual-eligible senior population. We estimate our target population at approximately 2.3 million in 2025 based on data from the U.S. Census Bureau from 2018, representing seniors who we believe are dually eligible for Medicare and Medicaid and meet the nursing home eligibility criteria for PACE. We currently prioritize growth in high-density urban and suburban areas, where there are sizable numbers of frail dual-eligible seniors who would benefit most from our program. We leverage the InnovAge Platform which is designed to provide comprehensive, coordinated healthcare to enable our seniors who are eligible to reside in nursing homes to live independently in their homes and communities. We believe people want to stay in their home for as long as possible, and the InnovAge Platform is designed to empower seniors to age independently in their own homes, with dignity and on their own terms, for as long as possible.
Based on results for the year ended June 30, 2026 and our experience and industry knowledge, we estimate an average annual revenue opportunity of $124,000 per participant (or $10,300 PMPM) and a total addressable market opportunity of $285 billion, based on our estimated market of approximately 2.3 million PACE eligible participants in the United States in
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2025, as described above. Of these estimated PACE eligible participants, only approximately 95,000 are enrolled in a PACE program, based on a June 2026 report from the National PACE Association. As a result, we believe that we have a substantial opportunity to bring our comprehensive value-based model of care to more frail, dual-eligible seniors across the country. This opportunity is subject to our ability to effectively execute our growth strategy and assumes no adverse regulatory or macroeconomic changes. For example, reductions to the Medicaid portion of PACE capitation rates from the federal budget reconciliation bill, the One Big Beautiful Bill Act (the “Reconciliation Act”), could have a negative impact on our capitated revenue per enrollee and operational margins, and the financial viability of expanding into new service areas.
The InnovAge Platform
Our participant-centered approach is tailored to address the complex medical and social needs of our frail dual-eligible senior population. We leverage the InnovAge Platform to deliver comprehensive, coordinated healthcare to our participants. The InnovAge Platform consists of (1) our Interdisciplinary Care Teams (“IDTs”) and (2) our community-based care delivery model. The key attributes of the InnovAge Platform include:
Our participant focus.
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Our historical results are not necessarily indicative of the results that may occur in the future and actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Cautionary Note About Forward-Looking Statements” included in this Annual Report.
Overview
General
InnovAge Holding Corp. (“InnovAge”) became a public company in March 2021. The Company served approximately 8,230 PACE participants as of June 30, 2026, making it the largest PACE provider in the U.S. based upon participants served, and operates 20 PACE centers across California, Colorado, Florida, New Mexico, Pennsylvania and Virginia.
At the beginning of fiscal year 2027, to increase operational efficiency, we began the process of converting two legacy PACE centers to alternate care setting (“ACS”) centers in Pennsylvania. Once the process is complete, which we expect to be during the second fiscal quarter, these ACS centers will provide our participants with flexibility to participate in activities and receive certain services.
Operations
InnovAge’s programs are designed to allow frail seniors to live life on their terms by aging in place, in their own homes and communities, for as long as safely possible. Through our Program of All-Inclusive Care for the Elderly (“PACE”), we fulfill a broad range of medical and ancillary services for seniors, including in-home care services (skilled, unskilled and personal care), in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to and from the PACE center and third-party medical appointments; and care management. The Company manages its business as one reportable segment, PACE.
We are the leading healthcare delivery platform by number of participants focused on providing all-inclusive, capitated care to high-cost, dual-eligible seniors. Our programs are designed to directly address two of the most pressing challenges facing the U.S. healthcare industry: rising costs and poor outcomes. The purpose of our participant-centered care delivery approach is to improve the quality of care our participants receive, while keeping them in their homes for as long as safely possible and reducing over-utilization of high-cost care settings such as hospitals and nursing homes. Our participant-centered approach is led by our Interdisciplinary Care Teams (“IDTs”), who oversee all aspects of each participant’s unique care plan and function as the core group of care providers to our participants. We directly manage and are responsible for all healthcare needs and associated costs for our participants, including housing costs, where applicable. We directly contract with government payors, such as Medicare and Medicaid, and do not rely on third-party administrative organizations or health plans. We believe our model aligns with how healthcare is evolving, namely (i) the shift toward value-based care, in which coordinated, outcomes-driven, quality care is delivered while seeking to reduce unnecessary spend, (ii) reducing excessive administrative costs by contracting directly with the government, (iii) focusing on the patient experience and (iv) addressing social determinants of health.
Trends and Uncertainties Affecting the Company
Increased cost of care and external provider costs. We anticipate increased cost of care from our third-party service providers in an effort to offset their heightened expenses resulting, in part, from budget pressures due to the Reconciliation Act, budget cuts to providers from state Medicaid programs, as well as possible increases in other costs in order to provide healthcare services. While we did not experience a material increase to our cost of care through fiscal year 2026, we continue to monitor the situation. We believe that our clinical value initiatives and operational value initiatives, which continue to be executed, may assist us in reducing unnecessary utilization and offsetting the increased cost of care anticipated for fiscal year 2027.
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Labor market. Throughout fiscal year 2026, the healthcare sector continued to experience workforce shortages, particularly in geriatrics, primary care and direct care roles, as well as a complex set of challenges in hiring additional professionals. Competition from health systems and home health providers, drivers and caregivers, has remained challenging for the Company’s ability to recruit and retain staff. Labor market pressures and competition continues to impact wage and benefit costs for our direct care providers and have also affected our staffing ability, which could impact our enrollment capacity. To mitigate these challenges, we continue to review our compensation and benefits to align with the markets in which we operate and focus our retention programs on critical roles and our operational measures to help improve productivity and continue reducing reliance on agency staffing. Partially as a result of increased competition and other market trends, there was an increase in the cost of care for fiscal year 2026 compared to fiscal year 2025, as discussed in "Results of Operations" below.
Census and capitation revenue. We continue to monitor the delays and increased gaps in eligibility, both for new enrollments and Medicaid redetermination applications during fiscal year 2026. Such delays and eligibility gaps stem from issues with state enrollment and redetermination processes, which vary by state and county. While processing delays abated modestly during fiscal year 2026, it is possible these delays could persist or increase due to potential impacts of the Reconciliation Act. The foregoing has not yet had a material effect on the Company’s financial statements or operations; however, we continue to monitor the situation.
Medicaid Spending. Among other things, the Reconciliation Act has constrained states’ use of provider taxes to finance Medicaid programs and some states have mandated changes in order to reduce Medicaid spending. Consequent state budgetary pressures may lead to (i) reductions in state workforce, which may include those responsible for overseeing PACE, possibly causing delays in eligibility determinations and discharge of other state responsibilities; (ii) reduction or removal of optional Medicaid services from the PACE benefit package; and (iii) pressure on Medicaid capitation rates. In Colorado, where we serve the largest cohort of our PACE census, we anticipate a decrease in Medicaid premium rates which will be retroactive for the fiscal year beginning July 1, 2026. We also expect to face Medicaid reimbursement wage pressures from other states that release rates effective January 1, 2027, such as California, which could impact the latter half of our fiscal year. We expect the rate pressures to impact the Company’s margins in fiscal year 2027 and continue to monitor the full effects of the Reconciliation Act on the Company.
California Moratorium. Effective November 20, 2025, the California Department of Health Care Services (DHCS) paused PACE applications for all new PACE centers for a minimum of two years, or until otherwise notified. The pause does not apply to the ongoing Bakersfield center application, the review of which may resume following remediation of the deficiencies raised in our Sacramento and San Bernardino centers and the completion of the San Bernardino medical review. The pause, however, would impact the opening of other de novo centers in the state of California.
For additional information on the various risks posed by macroeconomic events, regulation, and employee matters, please see the section entitled “Risk Factors” included in Part I, Item 1A of this Annual Report.
Key Factors Affecting Our Performance
Our historical financial performance has been, and we expect our financial performance in the future to be, driven by the following factors:
•Our participants. We focus on providing all-inclusive care to frail, high-cost, dual-eligible seniors. We directly contract with government payors, such as Medicare and Medicaid, through PACE and receive a capitated risk-adjusted payment to manage the totality of a participant’s medical care across all settings. InnovAge manages participants that are, on average, more complex and medically fragile than other Medicare-eligible patients, including those in Medicare Advantage (“MA”) programs. As a result, we receive larger payments for our participants compared to MA participants. This is driven by two factors: (i) we believe we manage a higher acuity population, with an average RAF score of 2.48 based on InnovAge data as of June 30, 2026; and (ii) we have Medicaid spend in addition to Medicare. Our participants are managed on a capitated, or at-risk basis, where InnovAge is financially responsible for all participant medical costs. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care. For dual-eligible participants, we receive PMPM payments directly from Medicare and Medicaid, which provides recurring revenue streams and significant visibility into our revenue. The Medicare portion of our capitated payment is risk-based on the underlying medical conditions and frailty of each participant. We continue to strengthen our encounter data submission process so that our revenue more accurately reflects the acuity of the populations we serve.
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•Our ability to grow enrollment and capacity within existing centers. We believe all seniors should have access to the type of all-inclusive care offered by the PACE model. Several factors can affect our ability to grow enrollment and capacity within existing centers, including competition, costs and regulatory compliance.
•Our ability to maintain high participant satisfaction and retention. Our comprehensive individualized care model and frequency of interaction with participants generates high levels of participant satisfaction. We achieved an I-SAT NPS score of 52 for fiscal year 2026 and average participant tenure of 3.1 years as of June 30, 2026, measured as tenure from enrollment to disenrollment, among our centers that have been operated by us for at least five years. Furthermore, we experience low levels of voluntary disenrollment, averaging 6.5% annually over the last three fiscal years.
•Effectively managing. We receive capitated payments to manage the totality of a participant’s medical care across all settings. The risk pool of our population is highly acute. Various factors, including increased salaries, wages and benefits, increased staffing, annual increases in assisted living and nursing facility unit cost and general medical inflation, have affected our external provider costs and cost of care, excluding depreciation and amortization, which represented approximately 77% of our revenue in the year ended June 30, 2026.
•Center-level Contribution Margin. The Company’s management uses Center-level Contribution Margin as the measure for assessing performance of its operating segments. As we serve more participants in existing centers, we expect to leverage our fixed cost base at those centers and increase the value of a center to our business over time.
•Our ability to expand via de novo centers within existing and new markets. Several factors can affect our ability to open de novo centers, including competition, costs and actions by local and state regulators, such as the moratorium issued in California by the California Department of Health Care Services (“DHCS”) and any sanctions issued by regulators, legal, community or other obstacles in the construction or opening of such centers.
In response to an audit to our Sacramento center and a medical review of our San Bernardino center, which have been previously disclosed, DHCS suspended its attestations in support of the planned de novo centers in Downey and Bakersfield, California. CMS has closed its process. DHCS closed its audit with respect to the Sacramento audit, but its medical review with respect to the San Bernardino center is ongoing. On December 23, 2025, we received a formal Corrective Action Plan (CAP) from DHCS to remediate findings resulting from the San Bernardino medical review. We continue working closely with the State to fulfill the obligations under the CAP. In July 2026, we withdrew our PACE application for the previously planned Downey center, however, we continue to pursue the PACE application for the de novo center in Bakersfield. DHCS provided notice that they would consider restoring the State Attestation that would allow us to open our Bakersfield center based upon the successful remediation of the deficiencies raised in our Sacramento and San Bernardino centers and its completion of the medical review.
•Execute tuck-in acquisitions, strategic transactions and partnerships. Since fiscal year 2019, we have acquired and integrated four PACE organizations for a total of eight operational centers (excluding the PACE center in Bakersfield, California, which is not yet operational). These acquisitions represent expansion of our InnovAge Platform into one new state and five new markets. Acquisitions could help support revenue growth and improve operational efficiency and care delivery post-integration. We also have pursued and intend to continue pursuing additional relationships with key stakeholders, existing organizations and other care providers in order to form partnerships in target geographies, such as the joint venture with Orlando Health relating to our Orlando PACE center and the joint venture with Tampa General Hospital relating to our Tampa center. In fiscal year 2025, we acquired certain pharmacy assets from Tabula Rasa HealthCare Group, Inc. (“TRHC”), with the goal of supporting our growth and improving pharmacy cost-management.
•Our ability to maintain high quality of regulatory compliance. The Company’s priority is to continue to maintain high quality of regulatory compliance in all its centers.
•Contracting with government payors. Our economic model relies on our capitated arrangements with government payors, namely Medicare and Medicaid. We view the government not only as a payor but also as a key partner in our efforts to expand into new geographies and access more participants in our existing
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markets. Maintaining, supporting and growing these relationships, in existing markets as well as new geographies, is critical to our long-term success.
•Investing to support growth. We intend to continue investing in our centers, value-based care model, and sales and marketing initiatives to support long-term growth. We expect our expenses to increase in absolute dollars for the foreseeable future to support our growth and as the result of current and potential legal and regulatory proceedings. We plan to continue investing in our growth while also maintaining focus on managing our results of operations. During fiscal years 2025 and 2026 we made investments to increase our sophistication as a payor to drive clinical value, improve outcomes, and manage cost trends, and plan to continue investing in such activities in fiscal year 2027. Accordingly, in the short term, these activities increase our expenses as a percentage of revenue, but in the longer term, we anticipate that these investments will positively impact our business and results of operations.
•Seasonality of our business. Our operational and financial results, including medical costs and per-participant revenue risk adjustment reconciliation payments, will experience some variability depending upon the time of year in which they are measured. Medical costs vary most significantly as a result of (i) the weather, with certain illnesses, such as the influenza virus, COVID-19 and respiratory syncytial viruses, being more prevalent during colder months of the year, which generally increases per-participant costs and (ii) the number of business days in a period, with shorter periods generally having lower medical costs all else equal. Per-participant risk adjustment reconciliation revenue represent the difference between our estimate of per-participant capitation revenue to be received and actual revenue received from CMS, which is based on CMS’s determination of a participant’s RAF score as measured twice per year and is based on the evolving acuity of a participant. Where there is a difference between our estimate and the final determination from CMS, we may record either an increase or decrease in risk score reconciliation revenue. Historically, these risk adjustment reconciliation payments typically occur between June and July, but the timing of these payments is determined by CMS, and we have neither visibility into nor control over the timing of such payments. The variability of participant enrollments and voluntary disenrollments has also been impacted by additional offerings by MA, special needs programs and other competitors including PACE organizations in select markets.
Components of Results of Operations
Revenue
Capitation Revenue. In order to provide comprehensive services to manage the totality of a participant’s medical care across all settings, we receive fixed or capitated fees per participant that are paid monthly by Medicare, Medicaid, Veterans Affairs (“VA”) and private pay sources. The concentration of capitation revenue from our various payors for the fiscal years ended June 30, 2026 and 2025 was:
| 2026 | 2025 | |||||||||
| Medicaid | 56 | % | 55 | % | ||||||
| Medicare | 44 | % | 45 | % | ||||||
| VA, private pay and other | *% | *% | ||||||||
| Total | 100 | % | 100 | % | ||||||
*denotes less than 1%
Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program. The PACE state contracts between us and the respective state Medicaid administering agency are renewed annually each June 30 in all states other than California and Pennsylvania, which contract on a calendar-year basis. We are currently operating in good standing under each of our PACE state contracts. For a discussion of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report.
Other Service Revenue. Other service revenue primarily consists of revenues derived from state grants. For a discussion of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report.
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Operating Expenses
External Provider Costs. External provider costs consist primarily of the costs for medical care provided by non-InnovAge providers. We separate external provider costs into four categories: inpatient (e.g., hospital), housing (e.g., assisted living and skilled nursing facility), outpatient and pharmacy. In aggregate, external provider costs represent the largest portion of our expenses.
Cost of Care, Excluding Depreciation and Amortization. Cost of care, excluding depreciation and amortization, includes the costs we incur to operate our care delivery model. This includes costs related to salaries, wages and benefits for IDT and other center-level staff, participant transportation, medical supplies, pharmacy, occupancy, insurance and other operating costs. IDT employees include medical doctors, registered nurses, social workers, physical, occupational, and speech therapists, nursing assistants, and transportation workers. Other center-level employees include clinic managers, dieticians, activity assistants and certified nursing assistants. Cost of care excludes any expenses associated with sales and marketing activities incurred at a local level as well as any allocation of our corporate, general and administrative expenses. A portion of our cost of care, including our employee-related costs, is directly related to the number of participants cared for in a center. The remainder of our cost of care is fixed relative to the number of participants we serve, such as occupancy and insurance expenses. When we open new centers, we expect cost of care, excluding depreciation and amortization, to increase in absolute dollars due to higher census and facility related costs.
Sales and Marketing. Sales and marketing expenses consist of employee-related expenses, including salaries, commissions, and employee benefits costs, for all employees engaged in marketing, sales, community outreach and sales support as well as financial eligibility support for both prospective and existing participants. These employee-related expenses capture all costs for both our field-based and corporate sales and marketing teams. Sales and marketing expenses also include local and centralized advertising costs, as well as the infrastructure required to support our marketing efforts. We expect these costs to increase in absolute dollars over time as we continue to grow our participant census. We evaluate our sales and marketing expenses relative to our participant growth and will invest more heavily in sales and marketing from time-to-time to the extent we believe such investment can accelerate our growth without negatively affecting profitability.
Corporate, General and Administrative Expenses. Corporate, general and administrative expenses include employee-related expenses, including salaries and related costs. In addition, general and administrative expenses include all corporate technology and occupancy costs associated with our corporate office. We expect our general and administrative expenses to increase in absolute dollars due to legal, accounting, insurance, investor relations and other costs that we incur to operate as a public company, as well as other costs associated with compliance and growth of our business. However, we anticipate general and administrative expenses to decrease as a percentage of revenue over the long term, although such expenses may fluctuate as a percentage of revenue from period to period due to the timing and amount of these expenses.
Depreciation and Amortization. Depreciation and amortization expenses are primarily attributable to our buildings and leasehold improvements and our equipment and vehicles. Depreciation and amortization are recorded using the straight-line method over the shorter of estimated useful life or lease terms, to the extent the assets are being leased.
For more information relating to the components of our results of operations, see Results of Operations below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report for more detailed information regarding our significant accounting policies.
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Results of Operations
The following table sets forth our consolidated results of operations for the periods presented.
| Year Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| in thousands | |||||||||||
| Revenues | |||||||||||
| Capitation revenue | $ | 988,384 | $ | 852,353 | |||||||
| Other service revenue | 1,323 | 1,346 | |||||||||
| Total revenues | 989,707 | 853,699 | |||||||||
| Expenses | |||||||||||
| External provider costs | 449,843 | 431,152 | |||||||||
| Cost of care, excluding depreciation and amortization | 312,100 | 268,908 | |||||||||
| Sales and marketing | 34,361 | 28,217 | |||||||||
| Corporate, general and administrative | 166,489 | 122,058 | |||||||||
| Depreciation and amortization | 21,142 | 19,510 | |||||||||
| Impairments and loss on assets held for sale | 3,154 | 13,615 | |||||||||
| Total expenses | 987,089 | 883,460 | |||||||||
| Operating Income (Loss) | 2,618 | (29,761) | |||||||||
| Other Income (Expense) | |||||||||||
| Interest expense, net | (4,258) | (4,612) | |||||||||
| Loss on cost and equity method investments | — | (1,393) | |||||||||
| Other income, net | 1,906 | 1,739 | |||||||||
| Total other expense | (2,352) | (4,266) | |||||||||
| Income (Loss) Before Income Taxes | 266 | (34,027) | |||||||||
| Provision for Income Taxes | 949 | 1,316 | |||||||||
| Net Loss | (683) | (35,343) | |||||||||
| Less: net income (loss) attributable to noncontrolling interests | 1,854 | (5,030) | |||||||||
| Net Loss Attributable to InnovAge Holding Corp. | $ | (2,537) | $ | (30,313) | |||||||
| Income (Loss) Before Income Taxes as a % of revenue | — | % | (4.0) | % | |||||||
| Net Loss as a % of revenue | (0.1) | % | (4.1) | % | |||||||
Revenues
| Year Ended June 30, | $ Change | % Change | |||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| in thousands | |||||||||||||||||||||||
| Capitation revenue | $ | 988,384 | $ | 852,353 | $ | 136,031 | 16.0 | % | |||||||||||||||
| Other service revenue | 1,323 | 1,346 | (23) | (1.7) | % | ||||||||||||||||||
| Total revenues | $ | 989,707 | $ | 853,699 | $ | 136,008 | 15.9 | % | |||||||||||||||
Capitation revenue. Capitation revenue was $988.4 million for the year ended June 30, 2026, an increase of $136.0 million, or 16.0%, compared to $852.4 million for the year ended June 30, 2025. This increase was driven by a $66.2 million, or 7.8% increase in member months (as defined below under “Key Business Metrics and non-GAAP Measures – Total member months”) coupled with a $69.9 million, or 7.6%, increase in capitation rates. The increase in member months was primarily due to growth in our California, Colorado, and Florida centers. The increase in capitation rates includes an 8.4% increase in Medicaid rates coupled with a decrease in revenue reserve and a 4.1% increase in Medicare rates.
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Expenses
| Year Ended June 30, | $ Change | % Change | |||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
in thousands | |||||||||||||||||||||||
| External provider costs | $ | 449,843 | $ | 431,152 | $ | 18,691 | 4.3 | % | |||||||||||||||
| Cost of care, excluding depreciation and amortization | 312,100 | 268,908 | 43,192 | 16.1 | % | ||||||||||||||||||
| Sales and marketing | 34,361 | 28,217 | 6,144 | 21.8 | % | ||||||||||||||||||
| Corporate, general and administrative | 166,489 | 122,058 | 44,431 | 36.4 | % | ||||||||||||||||||
| Depreciation and amortization | 21,142 | 19,510 | 1,632 | 8.4 | % | ||||||||||||||||||
| Impairments and loss on assets held for sale | 3,154 | 13,615 | (10,461) | 100.0 | % | ||||||||||||||||||
| Total operating expenses | $ | 987,089 | $ | 883,460 | $ | 103,629 | 11.7 | % | |||||||||||||||
External provider costs. External provider costs were $449.8 million for the year ended June 30, 2026, an increase of $18.7 million, or 4.3%, compared to $431.2 million for the year ended June 30, 2025. The increase was driven by an increase of $33.5 million, or 7.8%, in member months partially offset by a decrease of $14.8 million, or 3.2%, in cost per participant. The decrease in external provider cost per participant was primarily driven by a decrease in permanent nursing facility and short stay nursing facility utilization, and a decrease in pharmacy expense associated with the transition to in-house pharmacy services. The decrease in external provider cost per participant was partially offset by an annual increase in assisted living and permanent nursing facility unit cost, and an increase in assisted living utilization.
Cost of care, excluding depreciation and amortization. Cost of care, excluding depreciation and amortization expense was $312.1 million for the year ended June 30, 2026, an increase of $43.2 million, or 16.1%, compared to $268.9 million for the year ended June 30, 2025, primarily due to an increase of $20.9 million, or 7.8%, in member months coupled with an increase of $22.3 million, or 7.7%, in cost per participant. The overall increase of cost of care (excluding depreciation and amortization) expense was driven by (i) an $11.7 million increase in salaries, wages and benefits associated with higher wage rates, (ii) $14.2 million in third party fees and shipping costs associated with in-house pharmacy services, (iii) $4.3 million increase in contract services, (iv) $4.8 million in supplies and administrative costs, and (v) an $8.6 million increase in fleet expense including contract transportation.
Sales and marketing. Sales and marketing expenses were $34.4 million for the year ended June 30, 2026, an increase of $6.1 million, or 21.8%, compared to $28.2 million for the year ended June 30, 2025, primarily due to increased headcount and wage rates, and increased marketing spend to support growth.
Corporate, general and administrative expenses. Corporate, general and administrative expenses were $166.5 million for the year ended June 30, 2026, an increase of $44.4 million, or 36.4% compared to $122.1 million for the year ended June 30, 2025. The increase was primarily due to (i) $2.7 million net increase in employee compensation and benefits as the result of organizational restructure, executive severance, and an increase in headcount and wage rates, partially offset by lower variable compensation associated with the restructure, (ii) $2.4 million increase in consulting services, (iii) $0.9 million increase in software license fees, and (iv) a $36.8 million net increase in our litigation expenses related to the accrual for the various legal matters disclosed in Note 9, “Commitments and Contingencies” to the consolidated financial statements included in this Annual Report.
Depreciation and amortization. Depreciation and amortization expense was $21.1 million for the year ended June 30, 2026, an increase of $1.6 million, or 8.4%, compared to $19.5 million for the year ended June 30, 2025. The increase in depreciation expense was a result of capital additions in the normal course of business.
Impairments and loss on assets held for sale. Impairments and loss on assets held for sale were $3.2 million for the year ended June 30, 2026 due to (i) impairment charges related to ROU asset and construction in progress related to halting developments to a previously planned de novo center in Downey, California that the Company is no longer pursuing, and (ii) loss on assets held for sale. Impairments and loss on assets held for sale were $13.6 million for the year ended June 30, 2025 due to (i) impairment charges related to ROU asset and construction in progress related to halting developments to a previously planned de novo center in Louisville, Kentucky that the Company is no longer pursuing, (ii) loss on sale of center equipment that was originally purchased for the center in Louisville, Kentucky, (iii) loss on assets held for sale, and (iv) loss on settlement of lease liability in Louisville, Kentucky.
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Other Income (Expense)
| Year Ended June 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
in thousands | |||||||||||||||||||||||
| Interest expense, net | $ | (4,258) | $ | (4,612) | $ | 354 | (7.7)% | ||||||||||||||||
| Loss on cost and equity method investments | — | (1,393) | 1,393 | (100.0)% | |||||||||||||||||||
| Other income, net | 1,906 | 1,739 | 167 | 9.6% | |||||||||||||||||||
| Total other expense | $ | (2,352) | $ | (4,266) | $ | 1,914 | (44.9)% | ||||||||||||||||
Interest expense, net. Interest expense, net, consists primarily of interest payments on our outstanding borrowings, net of interest income earned on our cash and cash equivalents and restricted cash. Interest expense, net was $4.3 million for the year ended June 30, 2026, a decrease of $0.4 million, or 7.7%, compared to $4.6 million for the year ended June 30, 2025. The decrease was primarily due to interest expense of $6.2 million partially offset by interest income of $1.9 million from money market funds during the year ended June 30, 2026, compared to interest expense of $6.0 million partially offset by interest income of $1.4 million from money market funds during the year ended June 30, 2025.
Loss on cost and equity method investments. Loss on cost and equity method investments was $1.4 million for the year ended June 30, 2025. The Company recognized a loss of $2.6 million associated with the impairment of a minority interest investment in DispatchHealth Holdings, Inc, partially offset by a $1.3 million net benefit associated with the dissolution of the Pinewood Lodge, LLLP (“PWD”) partnership during the year ended June 30, 2025.
Other income, net. Other income, net consists primarily of the net proceeds received from the sale of or disposal of property and equipment, unrealized gains and losses and investment income related to short-term investments. Other income, net was $1.9 million for the year ended June 30, 2026, an increase of $0.2 million, compared to $1.7 million for the year ended June 30, 2025. Investment income during the year ended June 30, 2026 was $1.3 million combined with $0.4 million gain on disposal of capital assets. Investment income during the year ended June 30, 2025 was $2.1 million offset by $0.5 million loss on disposal of capital assets.
Provision for Income Taxes.
The Company and its subsidiaries calculate federal and state income taxes currently payable and for deferred income taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to enacted tax laws and rates applicable to periods in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. The members of InnovAge Senior Housing Thornton, LLC (“SH1”), InnovAge California PACE - Sacramento (“SCR”), InnovAge Florida PACE, LLC (“TMP”), and InnovAge Florida PACE II, LLC (“ORL”) have elected to be taxed as partnerships, and no provision (benefit) for income taxes for SCR, TMP, or ORL is included in these consolidated financial statements included in this Annual Report. In addition, no provision (benefit) for income taxes for SH1 is included in the consolidated financial statements through the date of the Company’s sale of its partnership interest in SH1 on September 11, 2025.
A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalty expense associated with uncertain tax positions as a component of provision for income taxes.
During the years ended June 30, 2026 and 2025, we reported provision for income taxes of $0.9 million and $1.3 million, respectively. The decrease of $0.4 million is primarily due to (i) pretax book income recognized during the year ended June 30, 2026, as compared to the pretax book loss recognized during the year ended June 30, 2025 and (ii) the change in our valuation allowance.
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Net Loss
During the years ended June 30, 2026 and 2025, we reported a net loss of $0.7 million and $35.3 million, respectively, consisting of (i) operating income (loss) of $2.6 million and $(29.8) million, respectively, (ii) other expense of $2.4 million and $4.3 million, respectively, and (iii) provision for income taxes of $0.9 million and $1.3 million, respectively, each as described above.
Key Business Metrics and Non-GAAP Measures
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. We believe these metrics provide additional perspective and insights when analyzing our core operating performance from period to period and evaluating trends in historical operating results. These key business metrics and non-GAAP measures should not be considered superior to, or a substitute for, and should be read in conjunction with, the GAAP financial information presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies.
| Year Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| dollars in thousands | |||||||||||
| Key Business Metrics: | |||||||||||
Centers(a) | 20 | 20 | |||||||||
Census(a)(b) | 8,230 | 7,740 | |||||||||
Total Member Months(b) | 96,050 | 89,130 | |||||||||
| Non-GAAP Measures: | |||||||||||
Center-level Contribution Margin(c) | $ | 227,764 | $ | 153,639 | |||||||
Center-level Contribution Margin as a % of revenue(c) | 23.0 | % | 18.0 | % | |||||||
Adjusted EBITDA(c) | $ | 94,571 | $ | 34,462 | |||||||
Adjusted EBITDA Margin(c) | 9.6 | % | 4.0 | % | |||||||
___________________________________
(a)Includes InnovAge Sacramento, InnovAge Orlando, and as of August 15, 2025, InnovAge Tampa, which the Company owns and controls through joint ventures and are consolidated in our financial statements.
(b)Amounts are approximate.
(c)Center-level Contribution Margin, Center-level Contribution Margin as a percentage of revenue, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. For a definition and reconciliation of these non-GAAP measures to the most closely comparable GAAP measures for the period indicated, see below.
Centers
We define our centers as those centers open for business and attending to participants at the end of a particular period.
Census
Our census is comprised of our capitated participants for whom we are financially responsible for their total healthcare costs.
Total Member Months
We define Total Member Months as the total number of participants multiplied by the number of months within the respective reporting period in which each participant was enrolled in our program. We believe this is a useful metric as it more precisely tracks the number of participants we serve throughout the year.
55
Center-level Contribution Margin
The Company’s management uses Center-level Contribution Margin as the measure for assessing performance of its operating segments. We define Center-level Contribution Margin as total revenues less external provider costs and cost of care, excluding depreciation and amortization, which includes all medical and pharmacy costs. For purposes of evaluating Center-level Contribution Margin on a center-by-center basis, we do not allocate our sales and marketing expense or corporate, general and administrative expenses across our centers. Center-level Contribution Margin was $227.8 million and $153.6 million for the years ended June 30, 2026 and 2025, respectively. The increase in Center-level Contribution Margin for fiscal year 2026 was primarily due to a year-over-year increase of 15.9% in total revenue and 8.8% in center level expense during the same period. For more information relating to Center-level Contribution Margin, see Note 13 “Segment Reporting” to our consolidated financial statements included in this Annual Report. A reconciliation of Center-level Contribution Margin to loss before income taxes, the most directly comparable GAAP measure, for each of the periods is as follows:
| June 30, 2026 | June 30, 2025 | |||||||||||||||||||||||||||||||||
| in thousands | PACE | All other(1) | Totals | PACE | All other(1) | Totals | ||||||||||||||||||||||||||||
| Capitation revenue | $ | 988,384 | $ | — | $ | 988,384 | $ | 852,353 | $ | — | $ | 852,353 | ||||||||||||||||||||||
| Other service revenue | 1,066 | 257 | 1,323 | 356 | 990 | 1,346 | ||||||||||||||||||||||||||||
| Total revenues | 989,450 | 257 | 989,707 | 852,709 | 990 | 853,699 | ||||||||||||||||||||||||||||
| External provider costs | 449,843 | — | 449,843 | 431,152 | — | 431,152 | ||||||||||||||||||||||||||||
| Cost of care, excluding depreciation and amortization | 311,967 | 133 | 312,100 | 268,338 | 570 | 268,908 | ||||||||||||||||||||||||||||
| Center-Level Contribution Margin | 227,640 | 124 | 227,764 | 153,219 | 420 | 153,639 | ||||||||||||||||||||||||||||
| Sales and marketing | 34,361 | 28,217 | ||||||||||||||||||||||||||||||||
| Corporate, general and administrative | 166,489 | 122,058 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 21,142 | 19,510 | ||||||||||||||||||||||||||||||||
| Impairments and loss on assets held for sale | 3,154 | 13,615 | ||||||||||||||||||||||||||||||||
| Operating income (loss) | 2,618 | (29,761) | ||||||||||||||||||||||||||||||||
| Other expense | (2,352) | (4,266) | ||||||||||||||||||||||||||||||||
| Income (Loss) Before Income Taxes | $ | 266 | $ | (34,027) | ||||||||||||||||||||||||||||||
___________________________________
(1)
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