Operator: Thank you for standing by. Welcome to InnovAge First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations. Please go ahead.
Ryan Kubota: Thank you, operator. Good afternoon, and thank you all for joining the InnovAge fiscal 2024 First Quarter Earnings Call. With me today is Patrick Blair, President and CEO; Benjamin Adams, CFO; Dr. Rich Feifer, our Chief Medical Officer, will also be joining the Q&A portion of the call. Today, after the market closed, we issued a press release containing detailed information on our quarterly results. You may access the release on our company website, innovate.com. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, November 7, 2023, 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 fiscal first quarter 2024 earnings release, which is posted on the Investor Relations section of our website.
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We will also be making forward-looking statements, including statements related to our future growth prospects, Florida de novo centers, potential acquisitions, our payer capabilities and clinical value initiatives, the status of current and future regulatory actions and other expectations. Listeners are cautioned that all of our forward-looking statements involve certain assumptions and 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 Form 10-K annual report for fiscal year 2023 and our subsequent reports filed with the SEC, including our quarterly report on Form 10-Q for our fiscal first quarter 2024.
After the completion of our prepared remarks, we will open the call for questions. I will now turn the call over to our President and CEO, Patrick Blair.
Patrick Blair: Thank you, Ryan, and good afternoon, everyone. I want to begin by expressing my ongoing gratitude to our InnovAge colleagues, participants, government partners and the investor communities for the organization. As it's only been 2 months since we reported fiscal year '23 results on September 12. My remarks will be brief and hit on our results for the first quarter of fiscal year 2024 and progress in our key focus areas. The company's first quarter results were in line with our expectations and reflect continued momentum in our people, service, quality, growth and financial performance measures. Our progress in these areas gives us confidence that we're growing our business in a financially responsible way, delivering high-quality service to our participants, all while ensuring their employees are engaged and committed to our mission.
I'll spend more time on these areas in a moment. We reported revenue of $182.5 million, an increase of approximately 3.2% compared to the fourth quarter of fiscal year '23 and center level contribution margin of $27.9 million, which represents a 15.3% margin. Adjusted EBITDA was $2.2 million for the quarter, which represents a significant improvement compared to the fourth quarter of fiscal year 2023, which was approximately $700,000. Census increased to 6,580 which represents a quarter-over-quarter improvement of 2.8%. The results represent continued sequential improvement, and we remain convinced that we have the capacity to deliver even more value to our federal, state and shareholder partners over time. We have the right team in place, and we continue to build and enhance our processes and technology.
It now boils down to driving consistent execution. That said, we're still in the early innings, post-sanctions, and on the path back to unlocking the full potential of the organization. We remain focused on growing into the stock capacity at our existing centers, which is creating operating leverage in enabling contribution margin improvement through incremental enrollments until we reach targeted staffing ratios, particularly in the Colorado market, enrollment growth is driving better center labor utilization, and this is also helping rebalance our mix of new and tenured participants, which should improve participant PMPM expense over time. While we remain steadfast and are sissy, it will take us time to achieve the full impact forwarders.
For example, while overall external provider costs were modestly higher than fourth quarter of fiscal year 2023, we observed positive trends within the quarter, which indicates the clinical value initiatives we launched in early late last year are starting to impact our medical costs. As we noted in our last call, we expect improvement in our medical costs throughout the fiscal year as our initiatives mature and growth positively impacts our participant mix. Turning back to our performance across people, service, quality, growth and financial measures. We've just concluded our quarterly reporting for employee engagement, our people measure, participant in Net Promoter Score or NPS or service measure and clinical quality. Our employee engagement score increased by 5% to 77%, reflecting increases in 12 of our centers.
Our participant NPS increased by 13 points to 47%, reflecting improvement in 15 of our centers. And based on the NPS methodology, we believe our score positions us comparatively among the top tier of health care organizations. From a quality perspective, we're seeing solid results in inpatient utilization, fall rates and cognitive screens, among others, and we believe our results reflect top-tier performance and on PACE organizations. It's our strong belief that we have highly engaged employees, delivering great service and quality, growth and financial performance will follow. I'll now spend a few minutes walking through our key focus areas. Starting with existing center growth, new participant monthly gross enrollment is back to pre-sanction levels.
We enrolled over 200 participants across all of our centers in both August and September, which is consistent with the company's best presanction periods. Specifically, the enrollment ramp in our previously sanctioned markets continues to gain momentum as Sacramento was now at presanction levels, and Colorado has seen monthly sequential improvement over the last 6 months. Further, our East region gross enrollments were up 33% for the first quarter of fiscal year '24 compared to the first quarter of fiscal year '23. Contributing to our post-sanction enrollment ramp is the success of our new digital marketing initiatives. We've seen first quarter sales qualified leads increased by approximately 75% year-over-year, which gives us increasing confidence that our marketing messages are reaching our target audiences, and there is strong interest in our value proposition from underserved seniors, looking for services and support to help them stay simply in their homes as they age.
Given the increased digital lead volume, we've made a modest investment in an inside sales team that has worked in the digital leads, which allows our field enrollment teams to remain focused on self-generated needs from our community referral partners. While it's still early days for the inside sales capability, we're optimistic about the impact on growth, field enrollment productivity and reducing participant acquisition costs. You'll recall last quarter, we touched on enrollment as a joint effort between innovation and our state partners and the state subcontractors who may perform assessments, validate our assessments and ultimately process the applications and activate new enrollments. We continue to observe situational delays in some markets in the processing of enrollment applications, and we primarily attribute this to state resource insurance.
While this doesn't impact the eligibility of our prospective participants, it can delay enrollments and cause eligible participants to seek other solutions. We are working collaboratively with all the stakeholders for which we have some dependency to address delays proactively as they surface to ensure we can enroll deserving seniors as quickly as possible. I'd like to take a moment to thank our partners for their ongoing support and collaboration as we work together to help more seniors benefit from PACE. In Florida, we continue to make progress on the administrative requirements to open centers in Tampa and Orlando. We recently moved to the next stage of the process at Tampa, which is the final review by CMS. In Orlando, we conducted the state readiness review in October and anticipate feedback imminently.
You'll recall from last quarter's update, that we're targeting opening around the end of the calendar year. While we are doing everything in our control to open these centers as quickly as we can. Now all the steps are in our locus of control, and it is becoming increasingly likely that opening dates for Tampon Orlando could shift to early in the new year. Overall, we remain enthusiastic that these 2 centers will expand our total center and census capacity by over 20% and believe each center with sites capacity of 1,300 will meaningfully increase our overall organic growth curve over the next couple of years. Regarding our de novo Syntron in California, a large market, Southeast of Los Angeles, we continue to work with the Department of Health care services in California toward a midyear calendar 2024 opening.
We're excited to get these new centers up and running and serving the communities. In addition to same-center organic growth, we believe these new locations create visibility into multiyear double-digit top line growth and embedded future earnings. Operationally, we continue to make meaningful progress improving how we're managing our centers according to what we call the One Innovate way. We're reducing variation in business processes, policies and procedures among our centers, which is leading to improvements in operational clients, productivity, clinical quality and unit economics across our platform. Clinically, we continue to strengthen our payer capabilities through our clinical value initiatives. This quarter, we achieved meaningful improvements in inpatient utilization, which was 5.3% relative to 5.8% in the fourth quarter of fiscal year '23.
We've kept our short-stay skilled nursing utilization rate below 2% this quarter, which you'll recall was down approximately 23% in fiscal year '23 relative to fiscal year 2022. And we've begun transitioning our assisted living facility in nursing home providers into high-performing networks, which include providers who consistently deliver more compliant and higher quality care, lower cost and are more collaborative with our care teams. We're excited about the impact this will have on the quality of care we can offer our participants. Further, we continue to work with our vendors to identify improvements in risk for capture accuracy. Counterbalancing the improvements in utilization that we're seeing, we have observed some modest increase in inpatient unit cost and higher outpatient services utilization in the first quarter, which isn't unexpected as we continue to work through the wondering risk pool impacts of the Colorado station on participant acuity.
We continue to work through the multiple levers to get to targeted levels and ensure a financially attractive margin overall. Regarding technology, we have 14 of our 17 centers live on Epic, with the remainder scheduled for the second fiscal quarter. Though it takes time to realize the full extent of anticipated benefits of our new system, we're encouraged by the operational efficiencies that are emerging in the positive feedback our administrative and clinical teams are sharing. For example, since going live in Pennsylvania, Virginia and Colorado, we have exchanged over 200,000 participant health records with specialists and hospital partners using Epic's interoperability capability within their provider ecosystem. Previously, this level of health information exchange consumes significant labor and time and was prone to inefficiency and rework.
Now we have a single record source, which is shared and available real time with many of our external partners. We expect that in time, the network effect will grow, and it will enable better service, access, quality, cost and labor efficiency. Further, Epic ranks its users against the overall Epic community as our clinicians go live and features are implemented. As a testament to our early progress, Epic has shared with us that we're in the top quartile of feature adoption in the areas of physician productivity, nurse productivity and population health intent. As I've mentioned, these are all dials and not switches, but we're pleased to see these activities starting to have an impact and ultimately value in our business. In summary, we're just beginning to unlock the full potential of the organization.
I greatly appreciate the continued commitment from our more than 2,100 colleagues nationally and the ongoing support of our valued government partners. We remain focused on demonstrating incremental improvement quarter-over-quarter in each of our focus areas. I believe there is momentum building from our team's work. And in time, this will translate to improved financial performance and enable us to return to normalized margins. We are humbled by the responsibility to serve the many underserved pay cells in our communities and are thrilled to be returning to responsible growth. With that, I'll turn it over to Ben to review the financials in detail.
Benjamin Adams: Thank you, Patrick. Today, I will provide some highlights from our first quarter fiscal year 2024 financial performance compared to the fourth quarter as well as provide insight into some of the trends we are seeing evident to the winter months of the year. While it's still early in the fiscal year, we continue to track and make progress on the guidance targets we provided on our fourth quarter earnings call. Starting with Census, we ended the first quarter of fiscal year 2024 with 17 centers and approximately 6,580 participants as of September 30, 2023. This represents an ending census increase of 2.8% compared to last quarter. We reported approximately 19,540 member months in the first quarter of fiscal year 2024, a 2.3% increase compared to the fourth quarter.
Total revenue increased by 3.2% to $182.5 million in the first quarter compared to the fourth quarter, primarily due to an increase in member months coupled with an increase in capitation rates associated with annual Medicaid rate increases effective July 1, and partially offset by favorable Medicare risk or true-ups recorded in the fourth quarter. We incurred $99.4 million of external provider costs during the first quarter of fiscal 2024, a 4.6% increase compared to the fourth quarter. The sequential increase was driven by an increase in member months as we continue to grow Census coupled with an increase in cost per participant. The cost per participant increase was driven by higher assisted living and nursing facility unit costs as a result of annual provider increases, higher cost per admission due to acuity and an increase in pharmacy expense.
These costs were partially offset by reductions in permanent and short-stay nursing facility utilization and a reduction in inpatient utilization. Cost of care, excluding depreciation and amortization of $55.3 million was 3.5% higher compared to the fourth quarter. Primary cost drivers include salaries, wages and benefits primarily associated with annual merit increases and an increase in fleet and contract transportation utilization as a result of census growth, higher fuel costs, vehicle repairs and maintenance. These costs were partially offset by a reduction in third-party audit remediation and consulting costs. Central level contribution margin, which we define as total revenue less external provider costs and cost of care, excluding depreciation and amortization, was $27.9 million for the quarter compared to $28.5 million in the fourth quarter.
As a percentage of revenue, center level contribution margin was 15.3% compared to 16.1% in the fourth quarter. Sales and marketing expense was $5.4 million, a $750,000 decrease compared to the prior quarter. The decrease was mainly due to lower marketing spend as we focused on our digital channels in the first quarter ahead of a new marketing campaign that we launched this month. Corporate, general and administrative expense declined slightly to $28.9 million, a $50,000 decrease compared to the fourth quarter. Net loss was $11 million compared to a net loss of $12 million in the fourth quarter. We reported a net loss per share of $0.08 on both a basic and diluted basis. And our weighted average share count was approximately 135.8 million shares for the quarter on both a basic and fully diluted basis.
Adjusted EBITDA, which we calculate by adding interest, taxes, depreciation and amortization, de novo losses and other nonrecurring or exceptional cost to net loss, was $2.2 million for the quarter compared to $700,000 in the fourth quarter. Our adjusted EBITDA margin was 1.2% for the fiscal year compared to 0.4% in the fourth quarter. Adjusted EBITDA of $2.2 million is inclusive of de novo losses, which was $1.6 million for the first quarter and primarily related to our centers in Florida. This compares to $1.5 million of de novo losses in the fourth quarter. Turning to our balance sheet, we ended the quarter with $88.4 million in cash and cash equivalents, plus $46.8 million in short-term investments. We had $85.5 million in total debt on the balance sheet, representing debt under our senior secured term loan plus finance lease obligations and other commitments.
For the first quarter, we recorded negative cash flow from operations of $33.6 million, inclusive of approximately $15 million in delayed payments from California that we received in October and we had $2.6 million of capital expenditures. Finally, I will briefly touch on some of the trends that are developing as we head into the winter months. Regarding Census, our census growth is tracking in line with our guidance expectations. As Patrick mentioned, we continue to expect that states will have short-term constraints around their ability to process new enrollments as they prioritize their needs to process Medicaid redeterminations along with their other obligations. However, we are not seeing that impact our Census in a meaningful way. Regarding revenue and rates, we have yet to finalize Medicaid rates in New Mexico and remain in active discussions with the state for fiscal year 2024.
In California, we have started the annual rate process with the state, and we expect to know more about the state's timing in the coming weeks. Regarding cost trends, as we head into the winter months, it is important to remember that we typically see an increase in external provider costs as a result of seasonality. Specifically, we expect to see higher inpatient and short-stay nursing home utilization as well as increased acuity of our participant mix. In closing, we continue to focus on improving the margin profile of the business by concentrating on the key drivers we highlighted last quarter. Accelerating census growth, which also serves to rebalance the participant risk pool as well as unlock staffing capacity, ensuring our participant risk scores are commensurate with our risk pool through improved participant data management as we fully implement Epic, optimizing revenue per participant through proactive actuarial discussions with our state Medicaid agencies and executing on clinical value initiatives to improve participant care and reduce unnecessary costs.
We hope to share more information on these key initiatives on our next call. Operator, that concludes our prepared remarks. Please open the call for questions.
