0001834376-26-000022
SEC filingRevenue grew 15.1% driven by rate increases and member month growth, but litigation costs led to an operating loss.
For the nine months ended March 31, 2026, total revenue increased 15.1% to $727.8 million, driven by a 6.4% increase in capitation rates and 8.2% growth in member months. Capitation revenue accounted for nearly all revenue, reflecting strong census growth (8,050 participants, up 6.9% year-over-year) and favorable rate adjustments—Medicaid rates rose 7.9% and Medicare rates 4.3%. Cost of care excluding D&A increased 16.0% to $228.4 million, outpacing revenue growth due to higher wage rates, in-house pharmacy costs, and fleet expenses. External provider costs grew only 3.4% to $334.1 million, as a 4.4% decline in cost per participant (from lower nursing facility utilization and pharmacy transition) partially offset member month growth. The resulting Center-level Contribution Margin improved to $165.2 million (22.7% of revenue) from $112.4 million (17.8%) a year ago. However, corporate, general and administrative expenses surged 41.6% to $133.4 million, primarily due to a $35.5 million increase in litigation accruals. Operating loss narrowed to $7.5 million from $27.6 million, and net loss improved to $10.5 million from $30.3 million. Adjusted EBITDA rose to $70.3 million (9.7% margin) from $23.1 million (3.7% margin).
The PACE segment remains the core business, generating $727.5 million in revenue (essentially all company revenue). The segment benefited from higher capitation rates and census growth across California, Florida, and Colorado centers. The non-PACE segment (Senior Housing) contributed minimal revenue ($0.3 million) and was discontinued after the sale of remaining assets in September 2025. No separate segment-level operating income is disclosed, but the Center-level Contribution Margin trends indicate improved profitability in PACE operations.
Management expects continued census growth, albeit with headwinds from state Medicaid budget pressures (e.g., Colorado rate reductions effective July 2026) and the California moratorium on new PACE applications. The company plans to offset cost pressures through clinical value initiatives and operational efficiency programs. Litigation expenses remain a significant near-term drag, but the underlying business is showing improved operating leverage. No specific numeric guidance was provided.
The Notes disclose short-term investments of $43.1 million (mutual funds at fair value) and total debt of $58.8 million, comprising a $49.4 million term loan (net of $0.8 million unamortized issuance costs) and $9.4 million drawn on the revolving credit facility. The company had $84.4 million remaining capacity on the revolver after accounting for $6.2 million in letters of credit. Cash and cash equivalents are not disclosed in the Notes but are available in the financial statements. The valuation allowance against deferred tax assets stood at $22.8 million.
The Notes detail a $34.4 million litigation accrual in accounts payable and accrued expenses, primarily related to DOJ civil investigative demands and a settlement with Grane Rx ($16.3 million). No other material purchase commitments or contractual obligations are disclosed. Operating lease liabilities total $25.3 million and finance lease liabilities $10.6 million, with maturities through 2039.
Debt activity includes the August 2025 amendment refinancing the term loan with a $50.7 million facility and renewing the revolver. No share repurchases or dividends are discussed in the Notes. Stock-based compensation expense was $1.8 million in Q3 FY2026, with $19.9 million in unrecognized compensation cost expected to be recognized over 0.8 to 2.5 years.
The Company operates as a single reportable segment (PACE) under ASC 280. For the three months ended March 31, 2026, PACE generated $251.9 million in revenue and a center-level contribution margin of $61.0 million (24.2% of revenue). All revenue is from U.S. operations, with no geographic breakdown provided beyond the East and West operating segments aggregated into PACE. The previously reported Senior Housing segment was sold in September 2025 and no longer contributes.
Net loss improved to $10.5M (from $30.3M), with operating cash flow surging to $43.4M (from $23.9M), indicating strong cash generation relative to earnings. Key non-cash items: depreciation ($14.8M), stock-based comp ($5.3M), and impairments ($0.1M). Working capital was a major driver: accounts receivable decreased $7.8M, accounts payable increased $28.5M, and reported claims increased $2.4M. These inflows more than offset prepaid expense growth and lease payments.
Capex rose to $10.0M (from $6.4M), reflecting continued investment in centers and equipment. Financing activities show debt issuance of $60.1M offset by $61.3M in principal payments, net debt reduction of $1.2M. No share repurchases or dividends. The company ended with $95.5M in cash, up from $64.1M at period start. Overall, operating cash flow comfortably covers capex and debt service, with ample liquidity.