InnovAge Holding Corp. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (a) Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 83 Consolidated Balance Sheets as of June 30, 2021 and 2020 84 Consolidated Statements of Operations for the years ended June 30, 2021 and 2020 85 Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2021 and 2020 86 Consolidated Statements of Cash Flows for the years ended June 30, 2021 and 2020 87 Notes to Consolidated Financial Statements 88 ​ (b) Supplementary Data The information required by Item 302 of Regulation S-K has been omitted as we have elected to early adopt the changes to Item 302 contained in SEC Release No. 33-10890. ​ ​ 82 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of InnovAge Holding Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of InnovAge Holding Corp. and subsidiaries (the "Company") as of June 30, 2021 and 2020, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the two years in the period ended June 30, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP ​ Denver, CO September 22, 2021 ​ We have served as the Company's auditor since 2018. ​ ​ ​ 83 Table of Contents InnovAge Holding Corp. and Subsidiaries Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ June 30, June 30, ​ ​ 2021 ​ 2020 ​ ​ in thousands Assets ​ ​ ​ ​ ​ ​ Current Assets ​ ​ Cash and cash equivalents ​ $ 201,466 ​ $ 112,904 Restricted cash ​ 2,234 ​ 1,661 Accounts receivable, net of allowance ($ 4,350 – June 30, 2021 and $ 6,384 – June 30, 2020) ​ 32,582 ​ 46,312 Prepaid expenses ​ 9,249 ​ 4,311 Income tax receivable ​ 5,401 ​ 1,743 Total current assets ​ 250,932 ​ 166,931 Noncurrent Assets ​ ​ Property and equipment, net ​ 142,715 ​ 102,494 Investments ​ 2,645 ​ 2,645 Deposits and other ​ 3,877 ​ 3,003 Equity method investments ​ 848 ​ 13,245 Goodwill ​ 124,217 ​ 116,139 Other intangible assets, net ​ 6,518 ​ 5,177 Total noncurrent assets ​ 280,820 ​ 242,703 Total assets ​ $ 531,752 ​ $ 409,634 Liabilities and Stockholders' Equity ​ ​ Current Liabilities ​ ​ Accounts payable and accrued expenses ​ $ 32,361 ​ $ 28,875 Reported and estimated claims ​ 33,234 ​ 30,291 Due to Medicaid and Medicare ​ ​ 7,101 ​ ​ 12,244 Current portion of long-term debt ​ 3,790 ​ 1,938 Current portion of capital lease obligations ​ 2,079 ​ 1,496 Contingent consideration ​ — ​ 1,789 Total current liabilities ​ 78,565 ​ 76,633 Noncurrent Liabilities ​ ​ Deferred tax liability, net ​ 15,700 ​ 9,282 Capital lease obligations ​ 5,190 ​ 4,091 Other noncurrent liabilities ​ 2,758 ​ 1,446 Long-term debt, net of debt issuance costs ​ 71,574 ​ 210,432 Total liabilities ​ 173,787 ​ 301,884 Commitments and Contingencies (See Note 12) ​ ​ Stockholders’ Equity ​ ​ Common stock, $ 0.001 par value; 500,000,000 authorized as of June 30, 2021 and 2020; 135,516,513 and 132,718,461 issued shares as of June 30, 2021 and June 30, 2020, respectively ​ 136 ​ 133 Additional paid-in capital ​ 323,760 ​ 36,338 Retained earnings ​ 11,250 ​ 64,737 Less: Treasury stock; 0 and 102,030 shares of common stock at $ 0.0 and $ 1.89 per share as of June 30, 2021 and June 30, 2020, respectively ​ — ​ ( 193 ) Total InnovAge Holding Corp. ​ 335,146 ​ 101,015 Noncontrolling interests ​ 22,819 ​ 6,735 Total stockholders’ equity ​ 357,965 ​ 107,750 Total liabilities and stockholders’ equity ​ $ 531,752 ​ $ 409,634 ​ See Notes to Consolidated Financial Statements ​ ​ 84 Table of Contents InnovAge Holding Corp. and Subsidiaries Consolidated Statements of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended June 30, ​ 2021 ​ 2020 ​ ​ in thousands, except per share amounts Revenues ​ ​ ​ ​ ​ Capitation revenue ​ $ 635,322 ​ $ 564,834 Other service revenue ​ 2,478 ​ 2,358 Total revenues ​ 637,800 ​ 567,192 Expenses ​ ​ External provider costs ​ 309,317 ​ 272,832 Cost of care, excluding depreciation and amortization ​ 154,403 ​ 153,056 Sales and marketing ​ 22,236 ​ 19,001 Corporate, general and administrative ​ 132,333 ​ 58,481 Depreciation and amortization ​ 12,294 ​ 11,291 Equity loss ​ 1,343 ​ 678 Other operating expense ​ 18,211 ​ 920 Total expenses ​ 650,137 ​ 516,259 Operating Income (Loss) ​ ( 12,337 ) ​ 50,933 ​ ​ ​ ​ ​ ​ ​ Other Income (Expense) ​ ​ Interest expense, net ​ ( 16,787 ) ​ ( 14,619 ) Loss on extinguishment of debt ​ ( 14,479 ) ​ ​ — Gain on equity method investment ​ ​ 10,871 ​ ​ — Other expense ​ ( 2,237 ) ​ ( 681 ) Total other expense ​ ( 22,632 ) ​ ( 15,300 ) Income (Loss) Before Income Taxes ​ ( 34,969 ) ​ 35,633 Provision for Income Taxes ​ 9,771 ​ 9,868 Net Income (Loss) ​ ( 44,740 ) ​ 25,765 Less: net loss attributable to noncontrolling interests ​ ( 754 ) ​ ( 513 ) Net Income (Loss) Attributable to InnovAge Holding Corp. ​ $ ( 43,986 ) ​ $ 26,278 ​ ​ ​ ​ ​ ​ ​ Weighted-average number of common shares outstanding - basic ​ 123,618,702 ​ 132,616,431 Weighted-average number of common shares outstanding - diluted ​ 123,618,702 ​ 135,233,630 ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share - basic ​ $ ( 0.36 ) ​ $ 0.20 Net income (loss) per share - diluted ​ $ ( 0.36 ) ​ $ 0.19 ​ See Notes to Consolidated Financial Statements ​ 85 Table of Contents InnovAge Holding Corp. and Subsidiaries Consolidated Statements of Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional Retained ​ ​ ​ ​ ​ Capital Stock ​ Paid-in ​ Earnings ​ Treasury Stock ​ Noncontrolling ​ ​ ​ ​ ​ Shares ​ Amount ​ Capital ​ (Deficit) ​ Shares ​ Amount ​ Interests ​ Total ​ ​ in thousands, except share amounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2019 132,718,461 ​ 133 ​ 35,795 ​ 38,459 102,030 ​ ( 193 ) ​ 7,248 ​ 81,442 Grants of stock options and stock option expense — ​ — ​ 543 ​ — — ​ — ​ — ​ 543 Net income (loss) — ​ — ​ — ​ 26,278 — ​ — ​ ( 513 ) ​ 25,765 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2020 132,718,461 ​ $ 133 ​ $ 36,338 ​ $ 64,737 102,030 ​ $ ( 193 ) ​ $ 6,735 ​ $ 107,750 Treasury stock transaction — ​ — ​ — ​ — 16,095,819 ​ ( 77,603 ) ​ — ​ ( 77,603 ) Treasury stock retirement ​ ( 16,197,849 ) ​ ​ ( 16 ) ​ ​ ( 77,780 ) ​ ​ ​ ​ ( 16,197,849 ) ​ ​ 77,796 ​ ​ — ​ ​ — Stock option cancellation — ​ — ​ — ​ ( 9,501 ) — ​ — ​ — ​ ( 9,501 ) Time based awards- option cancellation — ​ — ​ ( 29,175 ) ​ — — ​ — ​ — ​ ( 29,175 ) Stock-based compensation — ​ — ​ 1,664 ​ — — ​ — ​ — ​ 1,664 Reclassification of warrant liability ​ — ​ ​ — ​ ​ 2,264 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 2,264 Capital contribution — ​ — ​ 20,000 ​ — — ​ — ​ — ​ 20,000 Initial public offering of common stock, net of offering costs of $ 28,445 ​ 18,995,901 ​ ​ 19 ​ ​ 370,449 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 370,468 Consolidation of equity method investment ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 16,838 ​ ​ 16,838 Net loss — ​ — ​ — ​ ( 43,986 ) — ​ — ​ ( 754 ) ​ ( 44,740 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2021 135,516,513 ​ $ 136 ​ $ 323,760 ​ $ 11,250 — ​ $ — ​ $ 22,819 ​ $ 357,965 ​ See Notes to Consolidated Financial Statements ​ ​ 86 Table of Contents InnovAge Holding Corp. and Subsidiaries Consolidated Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended June 30, ​ ​ 2021 ​ 2020 ​ in thousands Operating Activities ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 44,740 ) ​ $ 25,765 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities ​ ​ Loss on disposal of assets ​ 18 ​ 1,039 Provision for uncollectible accounts ​ 8,637 ​ 6,204 Depreciation and amortization ​ 12,294 ​ 11,291 Gain on equity method investment ​ ​ ( 10,871 ) ​ ​ — Loss on extinguishment of long-term debt ​ 14,479 ​ — Amortization of deferred financing costs ​ 1,056 ​ 550 Stock-based compensation ​ 1,664 ​ 543 Deferred income taxes ​ 6,418 ​ 3,173 Loss in equity of nonconsolidated entities ​ 1,343 ​ 678 Change in fair value of warrants ​ 2,264 ​ — Change in fair value of contingent consideration ​ ​ — ​ ​ 920 Changes in operating assets and liabilities, net of acquisitions ​ ​ Accounts receivable, net ​ 5,879 ​ ( 1,202 ) Prepaid expenses ​ ( 4,987 ) ​ ( 1,062 ) Income tax receivable ​ ( 3,658 ) ​ 1,952 Deposits and other ​ ( 874 ) ​ 1,063 Accounts payable and accrued expenses ​ 6,137 ​ ( 1,013 ) Reported and estimated claims ​ 2,613 ​ 2,045 Due to Medicaid and Medicare ​ ( 5,220 ) ​ ( 8,120 ) Deferred revenue ​ — ​ 2 Net cash provided by (used in) operating activities ​ ( 7,548 ) ​ 43,828 Investing Activities ​ ​ Purchases of property and equipment ​ ( 17,541 ) ​ ( 11,844 ) Proceeds from sales of property and equipment ​ — ​ 169 Proceeds from net working capital settlements ​ — ​ 1,129 Purchase of long term investment ​ — ​ ( 1,145 ) Purchase of intangible assets ​ ( 2,000 ) ​ — Net cash used in investing activities ​ $ ( 19,541 ) ​ $ ( 11,691 ) Financing Activities ​ ​ ​ ​ ​ Distributions to owners ​ $ ( 9,500 ) ​ $ — Capital contributions ​ 20,000 ​ — Payments on capital lease obligations ​ ( 1,788 ) ​ ( 1,834 ) Proceeds from long-term debt ​ ​ 375,000 ​ ​ 25,000 Principal payments on long-term debt ​ ( 512,660 ) ​ ( 1,934 ) Payment of financing costs and debt premiums ​ ( 14,896 ) ​ — Proceeds from initial public offering of common stock ​ 370,468 ​ — Treasury stock purchases ​ ( 77,603 ) ​ — Payments under acquisition agreements ​ ( 3,622 ) ​ — Payments related to option cancellation ​ ​ ( 29,175 ) ​ ​ — Net cash provided by financing activities ​ 116,224 ​ 21,232 ​ ​ ​ ​ ​ ​ ​ INCREASE IN CASH, CASH EQUIVALENTS & RESTRICTED CASH ​ 89,135 ​ 53,369 CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD ​ 114,565 ​ 61,196 CASH, CASH EQUIVALENTS & RESTRICTED CASH, END OF PERIOD ​ $ 203,700 ​ $ 114,565 ​ ​ ​ ​ ​ ​ ​ Supplemental Cash Flows Information ​ ​ Interest paid ​ $ 18,030 ​ $ 11,551 Income taxes paid ​ $ 7,048 ​ $ 4,745 Property and equipment included in accounts payable ​ $ 1,327 ​ $ 1,348 Property and equipment purchased under capital leases ​ $ 3,493 ​ $ 1,399 ​ See Notes to Consolidated Financial Statements ​ ​ 87 Table of Contents Note 1: Business InnovAge Holding Corp. (formerly, TCO Group Holdings, Inc.) (the “Company”) 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, and Total Community Options Foundation, Inc. (“Foundation”) and Johnson Adult Day Program, Inc. (“Johnson”), both not-for-profit organizations, separated from Total Community Options, Inc. 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 Holding Corp. and its subsidiaries, which are headquartered in Denver, Colorado, have a strong record of innovation, quality, and sensitivity to the needs of participants and staff. The Company oversees, and in many cases directly provides, a broad range of medical and ancillary services for seniors in need of care and support to safely live independently in their homes and communities, 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 the Program of All-Inclusive Care for the Elderly (“PACE”) center and third-party medical appointments; and care management. The Company manages its business as one reportable segment, PACE. ​ As of June 30, 2021, the Company served approximately 6,850 PACE participants, making it the largest PACE provider in the United States of America (the U.S.) based upon participants served, and operates 18 PACE centers across Colorado, California, 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. InnovAge is obligated to provide and participants receive 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. ​ On March 3, 2021, the Company’s Registration Statement on Form S-1 with respect to the Company’s IPO of shares of common stock, par value $ 0.001 per share, was declared effective by the Securities and Exchange Commission (“SEC”). The Company’s common stock began trading on March 4, 2021 on the Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbol “INNV”. ​ On March 8, 2021, we completed our IPO in which we issued and sold 16,666,667 shares of our common stock at an offering price of $ 21.00 per share. In addition, the underwriters had the option to purchase 2,500,000 additional shares of common stock, and on March 9, 2021, the underwriters exercised the option to purchase 2,329,234 shares of common stock. We received net proceeds of $ 370.5 million, after deducting underwriting discounts and commissions of $ 23.9 million and deferred offering costs of $ 4.5 million. Deferred, direct offering costs were capitalized and consisted of fees and expenses incurred in connection with the sale of our common stock in the IPO, including the legal, accounting, printing and other offering related costs. Upon completion of the IPO, these deferred offering costs were reclassified from current assets to stockholders’ equity and recorded against the net proceeds from the offering. ​ ​ 88 Table of Contents Note 2: Summary of Significant Accounting Policies Basis of Preparation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and variable interest entities (VIEs) for which it is the primary beneficiary and entities for which it is the controlling general partner. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in accounting for, among other things, the allowance for uncollectible accounts; useful lives of property and equipment and the valuation of goodwill and intangible assets; risk-score adjustments to participant revenues; reported and estimated claims; accruals; the determination of assumptions for stock-based compensation costs; deferred taxes, including the determination of a need for a valuation allowance; valuation of the contingent consideration; legal contingencies, including medical malpractice claims; the determination of fair value of net assets acquired in a business combination; and other fair value measurements. Actual results may differ from previously estimated amounts. Cash and Cash Equivalents Cash and cash equivalents consist of cash and financial instruments issued by major financial institutions that have an original maturity of less than three months. Amounts are reported in the consolidated balance sheets at cost, which approximates fair value. The Company’s cash and cash equivalents are deposited with high credit quality financial institutions and are primarily in demand deposit accounts. The FDIC insurance coverage is $250,000 on the aggregate of interest bearing and non-interest bearing accounts. Investments Investments do not have a readily determinable fair value and are carried at cost, less impairment plus or minus any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Investments are evaluated for impairment each reporting period using a qualitative assessment of impairment indicators. If impairment indicators are present, the investment will be written down to its fair value and the difference between its fair value and carrying value will be recorded in net income. No impairment indicators were present for the fiscal year ended June 30, 2021. The Company had investments of $ 2.6 million as of both June 30, 2021 and 2020. See Note 7 for more information. Restricted Cash Restricted cash includes (1) cash held in certificates of deposit of $ 2.2 million and collateral for letters of credit of $ 1.6 million as of June 30, 2021 and 2020, respectively, and (2) cash held for participants who have established a personal-needs account to pay for nonmedical personal expenses, payment of which only occurs upon participant authorization, in the amount of approximately $ 0.02 million as of both June 30, 2021 and 2020. The Company records a related deposit liability for any participant contributions to these personal-needs accounts in accounts payable and accrued expenses in the consolidated balance sheets. 89 Table of Contents Accounts Receivable The Company provides comprehensive health care services to participants on the basis of capitated or fixed fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources. The concentration of net receivables from participants and third-party payers as of June 30, 2021 and 2020 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Medicaid 60 % 72 % Medicare 20 % 12 % Private pay and other 20 % 16 % Total 100 % 100 % ​ The Company records accounts receivable at net realizable value, which includes an allowance for estimated uncollectible accounts. The allowance for uncollectible accounts reflects the Company’s best estimate of probable losses considering eligibility, historical experience, and existing economic conditions. Accounts are written off as bad debts when they are deemed uncollectible based upon individual credit evaluations and specific circumstances underlying the accounts. The balance of the allowance for uncollectible accounts was $ 4.4 million as of June 30, 2021, compared to $ 6.4 million as of June 30, 2020. In fiscal year 2021, the Company and the Colorado Department of Health Care Policy & Financing (“HCPF”) completed the reconciliation for fiscal years 2018 and 2019. The reconciliation resulted in a reduction of accounts receivable of $ 17.0 million and due to Medicaid of $ 13.6 million, which was recorded in fiscal year 2021. The Company does not expect adjustments related to the reconciliation to be significant in future periods. ​ Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded using the straight-line method over the shorter of estimated useful lives or lease terms, if the assets are being leased. Property and equipment were comprised of the following as of June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ dollars in thousands ​ Useful Lives ​ 2021 ​ 2020 Land N/A ​ $ 11,980 ​ $ 8,580 Buildings and leasehold improvements 10 - 40 years ​ 104,724 ​ 79,514 Software 3 - 5 years ​ 13,316 ​ 11,387 Equipment and vehicles 3 - 7 years ​ 35,341 ​ 28,814 Construction in progress N/A ​ 22,130 ​ 7,069 ​ ​ ​ 187,491 ​ ​ 135,364 Less accumulated depreciation and amortization ​ ​ ( 44,776 ) ​ ( 32,870 ) Total property and equipment, net ​ ​ ​ $ 142,715 ​ $ 102,494 ​ Depreciation of $ 11.6 million and $ 10.6 million was recorded during the fiscal years ended June 30, 2021 and 2020, respectively. Land is not depreciated, and construction in progress is not depreciated until ready for service. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. During fiscal year 2020, the Company terminated the lease agreement at our Roosevelt Pennsylvania location, which resulted in a write off of leasehold improvements of $ 1.1 million which is disclosed within other income (expense) on the consolidated statement of operations . The costs of acquiring or developing internal-use software, including directly related payroll costs for internal resources, are capitalized. Software maintenance and training costs are expensed in the period incurred. 90 Table of Contents Interest is capitalized on construction projects, including internal-use software development projects, while in progress. During the fiscal years ended June 30, 2021 and 2020, the Company capitalized interest of approximately $ 1.0 million and $ 0.1 million, respectively. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheets, and the resulting gain or loss, if any, is reflected in the consolidated statements of operations. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. No impairment charges were recorded in the fiscal years ended June 30, 2021 or 2020. Equity Method Investments The Company uses the equity method to account for investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies. The Company’s investments in these nonconsolidated entities is reflected in the Company’s consolidated balance sheets under the equity method, and the Company’s proportionate net income (loss), if any, is included in the Company’s consolidated statements of operations as equity income (loss). The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that a decline in value has occurred that is other than temporary. Evidence considered in this evaluation includes, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and the Company’s strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value. If the investment is determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value. There were no write-downs in the fiscal years ended June 30, 2021 or 2020. Goodwill and Intangible Assets Intangible assets consist of customer relationships acquired through business acquisitions. Goodwill represents the excess of consideration paid over the fair value of net assets acquired through business acquisitions. Goodwill is not amortized but is tested for impairment at least annually. ​ The Company tests goodwill for impairment annually on April 1st or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability. These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale, disposition of a significant portion of the business, or other factors. Impairment of goodwill is evaluated at the reporting unit level. A reporting unit is defined as an operating segment (i.e. before aggregation or combination), or one level below an operating segment (i.e. a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. The Company has three reporting units for evaluating goodwill impairment. ​ ASC 350, Intangibles — Goodwill and Other (“ASC 350”), allows entities to first use a qualitative approach to test goodwill for impairment. When the reporting units where the Company performs the quantitative goodwill impairment are tested, the Company compares the fair value of the reporting unit, which the Company primarily determines using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss. There were no goodwill impairments recorded during the years ended June 30, 2021 and 2020. ​ Customer relationships represent the estimated values of customer relationships of acquired businesses and have definite lives. The Company amortizes these intangible assets on a straight-line basis over their ten-year estimated useful life. Intangible assets are reviewed for impairment in conjunction with long-lived assets. There were no intangible asset impairments recorded during the years ended June 30, 2021 and 2020. 91 Table of Contents ​ Reported and Estimated Claims Reported and estimated claims consist of unpaid claims reported as of the balance sheet date and estimates of claims incurred on or before June 30 that have not been reported by that date (IBNR). Such estimates are developed using actuarial methods and are based on many variables, including the utilization of health care services, historical payment patterns, cost trends, and other factors. These complex estimation methods and the resulting reserves are continually reviewed and updated, and any adjustments deemed necessary to contemplate new or updated information are reflected in current operations. Contingent Consideration The Company records contingent consideration at the time of agreement and records changes in the fair value of contingent consideration each reporting period in the consolidated statements of operations as a component of other operating expense (income). During the year ended June 30, 2021, we paid contingent consideration relating to our acquisition of NewCourtland, as defined and described in Note 4. During the year ended June 30, 2020, we paid contingent consideration related to (i) the acquisition of Riverside and (ii) acquisition of Charlottesville, each as defined and described in Note 4. There are no amounts outstanding related to contingent consideration as of June 30, 2021. Debt Issuance Costs Debt issuance costs are those costs that have been incurred in connection with the issuance of long-term debt and are offset against long-term debt in the consolidated balance sheets. Such costs are being amortized over the term of the underlying debt using the straight-line method, as the difference between that and the effective interest method are immaterial. Treasury Stock Treasury stock purchases are accounted for under the cost method where the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to paid-in-capital in excess of par value using the average-cost method. Revenue Recognition The Company’s PACE operating segment provides comprehensive health care services to participants on the basis of fixed or capitated fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources. 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 amended annually each June 30 in all states other than California and Pennsylvania, which contract on a calendar-year basis. New agreements have been executed for the periods (i) January 1, 2021 through December 31, 2021 for California and (ii) July 1, 2021 through June 30, 2022 for all other states except Pennsylvania, for which we are currently operating in good standing under the 2020 amended agreement while the agency finalizes its 2021 amendment . Capitation payments are recognized as revenue in the period in which the services are provided. Capitation payments received for PACE participants under Medicare Advantage plans are subject to retroactive premium risk adjustments based upon various factors. The Company estimates the amount of current-year adjustments in revenues. As final settlements are determined by CMS, we record any corresponding retroactive adjustments. Capitation revenues may be subject to adjustment as a result of examination by government agencies or contractors. The audit process and the resolution of significant related matters as a result of these examinations often are not finalized until several years after the services are rendered. Any adjustments resulting from these examinations are recorded in the period the Company is notified of them. 92 Table of Contents At times, the Company accepts participants into the program pending final authorization from Medicaid. If Medicaid coverage is later denied and there are no alternative resources available to pay for services, the participant is disenrolled. Any costs incurred on behalf of these participants were nominal in the fiscal years ended June 30, 2021 and 2020. Adoption of ASC 606, Revenue from Contracts with Customers ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) requires companies to exercise more judgment and recognize revenue using a five-step process. The Company adopted ASC 606 using the modified retrospective method for all contracts effective July 1, 2020. Under the modified retrospective method, the Company applied ASC 606 to contracts that were not complete as of July 1, 2020 and recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of accumulated deficit. Prior periods were not adjusted. No cumulative-effect adjustment in retained earnings was recorded as the adoption of ASC 606 did not materially impact the Company’s consolidated financial statements or results of operations. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performed the following five steps: (i) Identify the contract(s) with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; and (v) Recognize revenue as the entity satisfies a performance obligation. Revenues for the year ended June 30, 2020 were presented under ASC 605, Revenue Recognition (“ASC 605”). Under ASC 605, the Company recognized revenue when all of the following criteria were met: Persuasive evidence of an arrangement exists; the sales price is fixed or determinable; collection is reasonably assured; and services have been rendered. Capitation Revenue and Accounts Receivable Our capitation revenue relates to contracts with participants in which our performance obligation is to provide healthcare services to the participants. Revenues are recorded during the period our obligations to provide healthcare services are satisfied as noted below within each service type. The Company contracts directly with Medicare and Medicaid on a PMPM basis. We receive 100 % of the pooled capitated payment to directly provide or manage the healthcare needs of our participants. Fees are recorded gross in revenues because the Company is acting as a principal in providing for or overseeing comprehensive care provided to the participants. Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers. In general, a participant enrolls in the PACE program and is considered a customer of InnovAge. The Company considers all contracts with participants as a single performance obligation to provide comprehensive medical, health, and social services that integrate acute and long-term care. The Company identified that contracts with customers in the PACE program have similar performance obligations and therefore groups them into one portfolio. This performance obligation is satisfied as the Company provides comprehensive care to its participants. Our revenues are based on the estimated per member, per month (“PMPM”) amounts we expect to be entitled to receive from the capitated fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources. Medicaid and Medicare capitation revenues are based on per-member, per-month capitation rates under the PACE program. VA is included in “Private Pay and other” and is also capitated. Private pay includes direct payments from participants who do not qualify for the full capitated rate and have to pay all or a portion of the capitated rate. 93 Table of Contents The Company disaggregates capitation revenue from the following sources for the year ended June 30: ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Medicaid 53 % 55 % Medicare 47 % 44 % Private pay and other * % 1 % Total 100 % 100 % ​ * Less than 1 % The Company determined the transaction price for these contracts is the amount we expect to be entitled to, which is the most likely amount. For certain capitation payments, the Company is subject to retroactive premium risk adjustments based on various factors. The Company estimates the amount of the adjustment and records it monthly on a straight-line basis. These adjustments are not expected to be material. Our accounts receivable as of June 30, 2021 and 2020 is primarily from capitation revenue arrangements. The capitation revenues are recognized based on the estimated PMPM transaction price to transfer the service for a distinct increment of the series (i.e. month). We recognize revenue in the month in which participants are entitled to receive comprehensive care benefits during the contract term. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component. The Company also provides prescription drug benefits in accordance with Medicare Part D. Monthly payments received from CMS and the participants represent the bid amount for providing prescription drug coverage. The portion received from CMS is subject to risk sharing through Medicare Part D risk-sharing corridor provisions. These risk-sharing corridor provisions compare costs targeted in the Company’s bid to actual prescription drug costs. The Company estimates and records a monthly adjustment to Medicare Part D revenues associated with these risk-sharing corridor provisions. Medicare Part D comprised (i) 12 % and 11 % of capitation revenues for the years ended June 30, 2021 and 2020, respectively, and (ii) 21 % and 19 % of external provider costs for the years ended June 30, 2021 and 2020, respectively. Other Service Revenue and Accounts Receivable Other service revenue is comprised of rents earned related to Senior Housing and other fee for service revenue. Other service revenue was 0.4 % of total revenue for each of the years ended June 30, 2021 and 2020. Accounts receivable related to other service revenue were not significant as of both June 30, 2021 and 2020, respectively. Remaining Performance Obligations As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize revenue. The Company had minimal unsatisfied performance obligations at the end of the reporting periods as our participants have received services through the end of the reporting period. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to change, as well as government review. Failure to comply with these laws can expose the entity to significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs. 94 Table of Contents Professional Liability Claims ​ The Company records a liability for medical malpractice claims based on estimated probable losses and costs associated with settling these claims and a receivable to reflect the estimated insurance recoveries, if any. See Note 12. Advertising Costs The Company’s purchased services and contracts expenses include media advertising, tactical advertising, and promotion costs. The creative portion of these activities is expensed as incurred. Production costs of advertising and promotional materials are expensed when the advertising is first run, unless such costs support direct-response advertising campaigns. In that case, these costs are capitalized and amortized over the period estimated to benefit from the campaign. Total advertising expenses were $ 6.5 million and $ 8.0 million for the fiscal years ended June 30, 2021 and 2020, respectively. Stock-based Compensation The Company has long-term equity incentive plans that provide for stock-based compensation, including the granting of stock options, profits interest units and restricted stock units to employees, directors, consultants, or advisers, as determined by each of the respective plans. The Company utilizes the Black-Scholes option-pricing model to determine the fair value of the stock options on the date of grant. This model derives the fair value of the options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate, and dividend yield. The Company uses the Monte Carlo option model to determine the fair value of the granted profits interests units. For service-vesting awards, we recognize stock-based compensation expense over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis. If the award was, in substance, multiple awards, we recognize stock-based compensation expense over the requisite service period for each separately vesting portion of the awards. For performance-vesting awards, we recognize stock-based compensation expense when it is probable that the performance condition will be achieved. We analyze if a performance condition is probable for each reporting period through the settlement date for awards subject to performance vesting. Stock-based compensation is included in corporate, general and administrative expenses on our consolidated statements of operations. Shares issued pursuant to our equity incentive plans, as described in Note 13, are issued from authorized but unissued shares or from shares, if any, held by the Company as treasury stock. See Note 13. 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 SH1 and InnovAge Sacramento have elected to be taxed as partnerships, and no provision for income taxes for SH1 or InnovAge Sacramento is included in these consolidated financial statements. 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. Variable Interest Entities (VIE) A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk or whose equity owners lack certain decision-making and economic rights. The primary beneficiary is identified as the variable interest holder that 95 Table of Contents has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity. The primary beneficiary is required to consolidate the VIE. SH1 and PWD, each as defined and described in Note 5, are considered to be VIEs. The Company is not considered the primary beneficiary of PWD but is considered the primary beneficiary of SH1. Coronavirus Disease ("COVID-19") Pandemic In March 2020, the World Health Organization declared COVID-19 a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption. Governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary. Many organizations and individuals, including the Company and its employees, continue to take additional steps to avoid or reduce infection, including limiting travel and working from home. These measures are continuing to disrupt normal business operations both in and outside of affected areas and have had significant negative impacts on businesses worldwide. As a PACE company, we have been and will continue to be impacted by the effects of COVID-19; however, we remain committed to carrying out our mission of caring for our participants. We continue to closely monitor the impact of COVID-19 on all aspects of our business, including the impacts to our employees, participants and suppliers; however, at this time, we are unable to estimate the ultimate impact the pandemic will have on our consolidated financial condition, results of operations or cash flows. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into legislation. The CARES Act provided for $100.0 billion of funding to healthcare providers, including hospitals on the front lines of the COVID-19 pandemic. Under the CARES Act, the state of Pennsylvania signed into law the Act 24 of 2020, which allocates $10.0 million of funding from the federal CARES Act to managed long-term care organizations. Funding from the Act 24 of 2020 was required to be used to cover necessary COVID-19 related costs incurred between March 1, 2020 and November 30, 2020 for entities in operation as of March 31, 2020. Our Pennsylvania centers were granted $ 1.0 million of funding from Act 24. During the year ended June 30, 2020, we recognized $ 0.7 million of such funds as a reduction of expense within our consolidated statement of operations, with the remaining $ 0.3 million recognized during the year ended June 30, 2021. The CARES Act also provided for the temporary suspension of the automatic 2% reduction of Medicare claim reimbursements (sequestration) for the period of May 1, 2020 through December 31, 2021. ​ Recently Adopted Accounting Pronouncements Revenue Recognition In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 (“ASU 2014-09”), and has since issued various amendments which provide additional clarification and implementation guidance to Topic 606, Revenue from Contracts with Customers , which superseded revenue recognition guidance in ASC 605. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ​ This guidance is effective for the annual reporting period beginning July 1, 2020, and interim reporting periods within the annual reporting period beginning July 1, 2021. Effective July 1, 2020, the Company adopted ASU 2014-09 using the modified retrospective method applied to those contracts which were not completed as of June 30, 2020. As a result of electing the modified retrospective adoption approach, results for reporting periods beginning after July 1, 2020 are presented under ASC 606. There was no material impact upon the adoption of ASC 606, therefore the Company did not record any adjustments to retained earnings at July 1, 2020 or for any periods previously presented. ​ Non-employee Awards In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07), which simplifies the accounting for share-based payments granted to nonemployees for goods and services. The effective date for this amendment is for fiscal years beginning after December 15, 2019. Early adoption is permitted, but no earlier than a reporting entity’s adoption date of ASC 606. The 96 Table of Contents Company adopted ASC 606 and ASU 2018-07 on July 1, 2020. The adoption did not have a material impact on the Company’s consolidated financial statements. Codification Improvements In July 2018, the FASB issued ASU 2018-09, Codification Improvements (“ASU 2018-09”), which made minor amendments to the codification in order to correct errors, eliminate inconsistencies and provide clarifications in current guidance. ASU 2018-09 amends Subtopics 470-50, Debt Modifications and Extinguishments, and 718-40, Compensation-Stock Compensation-Income Taxes, among other Topics amended within the update. Several of the Topics within the ASU were effective immediately upon issuance of ASU 2018-09, however, some amendments require transition guidance which is effective for nonpublic business entities for fiscal years after beginning after December 15, 2019. The Company adopted the new guidance on July 1, 2020, noting no impact on its consolidated financial statements and related disclosures. Fair Value Measurements In August 2018, the FASB issued ASC 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with partial early adoption permitted for eliminated disclosures. The method of adoption varies by the disclosure. The Company adopted the new guidance on June 1, 2020, noting no impact on its consolidated financial statements and related disclosures. ​ Recent Accounting Pronouncements Not Yet Adopted Leases In February 2016, the FASB issued ASU 2016-02 Leases (ASU 2016-02), which was intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than 12 months. Additionally, this guidance will require disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The guidance should be applied under a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements. Any leases that expire before the initial application date will not require any accounting adjustment. In June 2020, FASB issued ASU 2020-05 Revenue from contracts with customers (Topic 606) and leases (Topic 842)—Effective dates for certain entities which deferred the new lease standard effective date for the Company to December 15, 2022, with early adoption permitted. The Company has not yet determined the effect of the standard on its ongoing financial reporting. Financial Instruments In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , which requires entities to use a current expected credit loss (“CECL”) model to measure impairment for most financial assets that are not recorded at fair value through net income. Under the CECL model, an entity will estimate lifetime expected credit losses considering available relevant information about historical events, current conditions and supportable forecasts. The CECL model does not apply to available-for-sale debt securities. This guidance also expands the required credit loss disclosures and will be applied using a modified retrospective approach by recording a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The ASU is effective for private companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt this guidance for the annual and interim reporting periods beginning July 1, 2023. The Company has not determined the effect of the standard on its consolidated financial statements. ​ 97 Table of Contents Income Taxes In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted. Adoption of ASU 2019-12 is not expected to have a material effect on the Company’s consolidated financial statements. We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements. Note 3: Equity Equity Owner Transaction On July 27, 2020, the Company, Ignite Aggregator LP (“Purchaser”), and the former equity holders of the Company (“Sellers”) entered into a Securities Purchase Agreement (the “Agreement”), effective July 27, 2020. Under the terms of the Agreement, the Sellers sold a portion of their equity interest to the Purchaser. The Purchaser and the Sellers then contributed their equity interests in the Company to a newly formed limited partnership, TCO Group Holdings, L.P. (the “LP”) resulting in the Company being wholly owned by the LP. Concurrently with the entry into the Agreement, the Company amended and restated its 2016 Credit Agreement (as defined below), see Note 10 for further discussion. A portion of the proceeds from the 2016 Credit Agreement were used by the Company to repurchase 16,095,819 shares of its common stock for $ 77.6 million from certain members of management, including certain members of the Board of Directors, and certain members of our equity partner. The common stock was then recognized as Treasury stock. The Treasury stock was retired in March 2021, see Note 14. Additionally, as part of the Agreement, the Company executed an Option Cancellation Agreement (the “Cancellation Agreement”), which canceled the Company’s common stock option awards of 16,994,975 granted under the 2016 Equity Incentive Plan for $ 74.6 million. Such cancellation resulted in a settlement of the awards. Vesting of the contingent performance-based awards was not deemed probable at the time of the settlement resulting in the settlement of the contingent performance-based awards being recorded as Corporate, general and administrative. Vesting of the time vesting awards was deemed probable at the time of the settlement resulting in a portion of the settlement of the time vesting awards being recorded as Corporate, general and administrative expense and the remainder being recorded as a reduction to Additional paid-in capital. Of the total settlement, $ 45.4 million was recorded as Corporate, general and administrative expense and $ 32.4 million was recorded as a reduction to Additional paid-in capital. The Cancellation Agreement resulted in the option holders receiving the same amount of cash that they would have received had they exercised their options, participated in the repurchase described above and sold their remaining shares. As part of the transaction, the Company incurred $ 22.6 million in transaction costs, of which $ 13.1 million was recognized as Corporate, general and administrative expense and $ 9.5 million was recognized as a distribution to owner as the costs were paid on behalf of the owners. Capital Contribution On October 15, 2020, Finback Pace, LP contributed $ 20.0 million for an investment in the LP, which in turn contributed the funds to the Company. Note 4: Acquisitions Other than the consolidation of InnovAge Sacramento, which we accounted for as a step-acquisition and is described in Note 6, there were no acquisitions executed during the fiscal years 2020 or 2021. 98 Table of Contents Payments Pursuant to Acquisition Agreements During the fiscal year ended June 30, 2019, the Company finalized the acquisition of NewCourtland LIFE Program (“NewCourtland”) in Pennsylvania. The Company paid a base purchase price of $ 30 million, subject to certain net working capital and closing adjustments plus deferred cash consideration of up to $ 20 million. On March 8, 2021, we completed our IPO, which satisfied the condition that the Company sell equity securities pursuant to an effective registration statement. Accordingly, $ 20.0 million of contingent consideration was paid under the terms of the acquisition agreement. ​ During the fiscal year ended June 30, 2019, the Company finalized the acquisition of two Virginia PACE centers formerly part of Riverside Healthcare Association, Inc.’s PACE Program (“Riverside”). The Company paid a base purchase price of $ 6.8 million, subject to certain net working capital and closing adjustments. The Company finalized the net working capital and closing adjustment calculations during the fiscal year ended June 30, 2020, which resulted in the Company paying an additional $ 0.3 million to Riverside. During the fiscal year ended June 30, 2019, the Company finalized the acquisition of Charlottesville Area Retirement Services, Inc. (“Charlottesville”). The Company paid a base purchase price of $ 5.26 million, subject to certain net working capital and closing adjustments. The Company finalized the net working capital and closing adjustment calculations during the fiscal year ended June 30, 2020, which resulted in the Company paying an additional $ 0.3 million to Charlottesville. Note 5: Variable Interest Entity Pinewood Lodge, LLP (“PWD”) is a VIE, but the Company is not the primary beneficiary. The Company does not have the power to direct the activities that most significantly impact the economic performance of PWD. Accordingly, the Company does not consolidate PWD. PWD is accounted for using the equity method of accounting and is included in equity method investments in the accompanying consolidated balance sheets. The equity earnings of PWD are insignificant. The balance of the Company’s investment in PWD is $ 0.8 million, which represents the maximum exposure to loss. InnovAge Senior Housing Thornton, LLC (“SH1”) is a VIE. The Company is the primary beneficiary of SH1 and consolidates SH1. The Company is the primary beneficiary of SH1 because it has the power to direct the activities that are most significant to SH1 and has an obligation to absorb losses or the right to receive benefits from SH1. The most significant activity of SH1 is the operation of the housing facility. The Company has provided a subordinated loan to SH1 and has provided a guarantee for the convertible term loan held by SH1. The following table shows the assets and liabilities of SH1 as of June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 ​ ​ in thousands Assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 431 ​ $ 435 Accounts receivable ​ — ​ 1 Prepaid expenses and other ​ 5 ​ 7 Property, plant and equipment, net ​ 10,164 ​ 10,501 Deposits and other, net ​ 390 ​ 376 Liabilities ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ 219 ​ 199 Current portion long-term debt ​ 40 ​ 38 Noncurrent liabilities ​ 454 ​ 454 Long-term debt, net of debt issuance costs ​ 3,827 ​ 3,901 ​ ​ Note 6: Nonconsolidated Entities Prior to January 1, 2021, the Company had two nonconsolidated equity method investments; PWD and InnovAge Sacramento. 99 Table of Contents On March 18, 2019, in connection with the formation of InnovAge Sacramento, the joint venture with Adventist Health System/West (“Adventist”) and Eskaton Properties, Incorporated (“Eskaton”), the Company contributed $ 9.0 million in cash and land valued at $ 4.2 million for a 59.9 % membership interest in the joint venture, InnovAge Sacramento. Further, Adventist contributed $ 5.8 million in cash and Eskaton contributed $ 3.0 million in cash for membership interests of 26.41 % and 13.69 %, respectively. The Company made an additional contribution of $ 52,000 to obtain an additional 0.1 % membership interest in the joint venture. With the acquisition of the additional 0.1 % membership interest, the Company obtained control of InnovAge Sacramento effective January 1, 2021. Accordingly, beginning January 1, 2021, the results of InnovAge Sacramento are included in our consolidated results of operations. The InnovAge California PACE-Sacramento LLC Limited Liability Company Agreement (the “JV Agreement”) includes numerous provisions whereby, if certain conditions are met, the joint venture may be required to purchase, at fair market value, certain members’ interests or certain members’ may be required to purchase, at fair market value, the interests of certain other members. As of June 30, 2021, none of the conditions specified in the JV Agreement had been met. At the consummation of the JV Agreement, the Company issued to Adventist, warrants (the “Sacramento Warrants”) to purchase 5 % of the Company’s issued and outstanding common stock, par value $ 0.001 at an exercise price equal to the fair market value per share at the time of exercise of this warrant. The Sacramento Warrants fully vest on the exercise date, which is defined as the date on which Adventist has made aggregate capital contributions in an amount greater than $ 25.0 million to one or more joint venture entities in which Adventist and the Company hold equity (the “Investment Threshold”). On February 9, 2021, the Company entered into an amendment agreement with our joint venture partner Adventist to amend the Sacramento Warrants. The amendment removes the Investment Threshold requirement and grants Adventist the right to purchase up to $ 15.0 million of the Company’s common stock at an exercise price equal to the IPO price. The warrant is exercisable for one year beginning on the date of the consummation of the IPO. As of June 30, 2021, Adventist had not exercised any warrants. At inception, the Sacramento Warrants were initially determined to be equity-based payments to nonemployees and as such the measurement date for these warrants was considered to be the date when the Investment Threshold is reached. At the time of the amendment, due to the removal of the Investment Threshold, the warrants were evaluated under ASC 815-40, Contracts in an Entity’s Own Equity , which resulted in a liability classification from the date of the amendment through completion of our IPO, due to the variable amount of shares which could be issued. Upon completion of the IPO, the number of shares to be issued were no longer variable, which resulted in the warrants being recorded in equity. In 2021, we recorded a charge of $ 2.3 million, representing the fair value of the warrants from inception through the date of completion of the IPO, in other income (expense) in the condensed consolidated statement of operations. Effective January 1, 2021, we obtained control of InnovAge Sacramento through acquisition of an additional 0.1 % membership interest, which we consider to be a step acquisition, whereby the Company re-measured the previously held equity method investment to fair value. This resulted in a gain on consolidation of $ 10.9 million, which is recorded in gain on equity method investment in the condensed consolidated statement of operations. The fair value of the previously held equity investments was determined using a discounted cash flow model. We accounted for the transaction as a business combination, which requires that we record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired is recorded as goodwill. 100 Table of Contents The fair value of the assets acquired and net liabilities assumed in the step acquisition are as follows as of January 1, 2021: ​ ​ ​ ​ ​ ​ January 1, ​ 2021 Assets: ​ in thousands Cash ​ $ 646 Accounts receivable ​ ​ 786 Property and equipment, net ​ ​ 30,667 Goodwill ​ ​ 8,078 Total assets ​ 40,177 ​ ​ ​ ​ Liabilities: ​ Accounts payable ​ 530 Reported and estimated claims ​ ​ 330 Due to Medicaid and Medicare ​ ​ 77 Capital leases ​ ​ 428 Other liabilities ​ 48 Total liabilities ​ $ 1,413 ​ The following table sets forth the results of InnovAge Sacramento for the six months ended December 31, 2020. The results of InnovAge Sacramento are consolidated beginning January 1, 2021. ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ December 31, 2020 ​ in thousands Revenue: ​ ​ ​ Total revenue ​ $ 2,297 Less: members’ interest ​ 921 The Company’s interest ​ 1,376 Cost of operations: ​ Total cost of operations ​ 4,538 Less: members’ interest ​ 1,820 The Company’s interest ​ 2,718 The Company’s interest in net loss ​ $ ( 1,342 ) ​ ​ Note 7: Investments On June 14, 2019, the Company invested $ 1.5 million in DispatchHealth Holdings, Inc., ("DispatchHealth") through the purchase of a portion of its outstanding Series B Preferred Stock. On April 2, 2020, the Company invested an additional $ 1.1 million through the purchase of a portion of its outstanding Series C Preferred Stock. The investment does not have a readily determinable fair value and the Company has elected to record the investment at cost, less impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. During the period ended June 30, 2021 and 2020, there were no observable price changes. Note 8: Goodwill and Intangible Assets Goodwill represents the excess of cost over the fair value of net assets acquired. Pursuant to ASC 350, “Intangibles — Goodwill and Other,” we review the recoverability of goodwill annually as of April 1 or whenever significant events or changes occur which might impair the recovery of recorded amounts. For purposes of the annual goodwill impairment assessment, the Company has identified three reporting units. There were no indicators of impairment identified and no goodwill impairments recorded during the years ended June 30, 2021 and 2020. ​ 101 Table of Contents The following summarizes the changes in goodwill for the fiscal years ended June 30: ​ ​ ​ ​ ​ ​ ​ ​ in thousands 2021 2020 Balance as of beginning of period ​ $ 116,139 ​ $ 117,268 Adjustments (a) ​ — ​ ( 1,129 ) Goodwill acquired during the period ​ 8,078 ​ - Balance as of end of period ​ $ 124,217 ​ $ 116,139 (a) The adjustment in fiscal year 2020 related to the final net working capital settlement for acquisitions that occurred during the fiscal year ended June 30, 2019. ​ Intangible assets consisted of the following as of June 30: ​ ​ ​ ​ ​ ​ ​ ​ in thousands 2021 2020 Definite-lived intangible assets ​ $ 6,600 ​ $ 6,600 Indefinite-lived intangible assets ​ ​ 2,000 ​ ​ — Total intangible assets ​ ​ 8,600 ​ ​ 6,600 Accumulated amortization ​ ​ ( 2,082 ) ​ ​ ( 1,423 ) Balance as of end of period ​ $ 6,518 ​ $ 5,177 ​ Intangible assets with a finite useful life continue to be amortized over their useful lives. The Company recorded amortization expense of $ 0.7 million and $ 0.6 million for the years ended June 30, 2021 and 2020, respectively. ​ The total expected future annual amortization expense for the next 5 years ended June 30, is as follows: ​ ​ ​ ​ ​ in thousands Amortization Expense 2022 ​ $ 660 2023 ​ 660 2024 ​ 660 2025 ​ 660 2026 ​ 660 ​ We review the recoverability of other intangible assets in conjunction with long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. There were no intangible asset impairments recorded during the years ended June 30, 2021 and 2020. ​ Note 9: Leases Property and equipment includes property under various capital leases. These leases have expiration dates ranging from July 2021 to September 2025, varying interest rates, and generally include an option to purchase the equipment at fair value at the end of the underlying lease period. The Company’s capital leases included the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, June 30, ​ 2021 ​ 2020 ​ ​ in thousands ​ ​ ​ ​ ​ ​ ​ Equipment ​ $ 13,302 ​ $ 9,845 Less accumulated depreciation ​ ( 7,081 ) ​ ( 4,829 ) Total capital leases ​ $ 6,221 ​ $ 5,016 ​ Certain of the Company’s property and equipment is leased under operating leases. Total rental expense under operating leases was $ 4.5 million and $ 4.8 million for the year ended June 30, 2021 and 2020, respectively. ​ 102 Table of Contents Future minimum lease payments related to (i) capital leases having initial terms of more than one year and (ii) non-cancelable operating leases as of June 30, 2021 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Leases ​ ​ Capital Leases ​ Minimum Lease in thousands ​ Obligations ​ Payments 2022 ​ $ 2,524 ​ $ 3,550 2023 ​ 2,468 ​ 4,289 2024 ​ 1,941 ​ 3,926 2025 ​ 1,169 ​ 3,450 2026 ​ 134 ​ 3,371 Thereafter ​ — ​ 13,909 Total ​ 8,236 ​ $ 32,495 Less amount representing interest ​ ( 967 ) ​ Total minimum lease payments ​ 7,269 ​ Less current maturities ​ 2,079 ​ Noncurrent maturities ​ $ 5,190 ​ ​ ​ ​ Note 10: Long-term Debt The components of our long-term debt are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, June 30, ​ ​ 2021 ​ 2020 ​ ​ in thousands Senior secured borrowings: ​ ​ ​ ​ ​ ​ Term Loan Facility ​ $ 75,000 ​ $ 187,625 Revolving Credit Facility ​ ​ — ​ ​ 25,000 Convertible term loan ​ 2,367 ​ 2,401 Total debt ​ 77,367 ​ 215,026 Less unamortized debt issuance costs ​ 2,003 ​ 2,656 Less current maturities ​ 3,790 ​ 1,938 Noncurrent maturities ​ $ 71,574 ​ $ 210,432 ​ 2016 Credit Agreement The Company originally entered into a senior secured borrowing agreement (the “2016 Credit Agreement”) on May 13, 2016, that consisted of a senior secured term loan for $ 75.0 million and a revolving credit facility for $ 20.0 million. The 2016 Credit Agreement was subsequently amended on May 2, 2019 to increase the senior secured term loan to $ 190.0 million and a revolving credit facility for $ 30.0 million and a delayed draw term loan facility (“DDTL”) for $ 45.0 million. The senior secured term loan and the DDTL had a maturity date of May 2, 2025, and the revolving credit facility had a maturity date of May 2, 2024. On July 27, 2020, the Company amended and restated the 2016 Credit Agreement once again to increase the senior secured term loan to $ 300.0 million, the revolving credit facility to $ 40.0 million and to terminate the DDTL. The maturity date of the revolving credit facility was extended to July 27, 2025, the senior secured term loan was extended to July 27, 2026, and there were updates to certain covenants contained in the existing credit agreement. Principal was paid each calendar quarter in an amount equal to 0.25 % of the aggregate outstanding principal amount. The structure of the amendment to the 2016 Credit Agreement as amended on July 27, 2020 led to an extinguishment of debt for certain lenders and a modification of debt for other lenders. The total debt structure extinguishment for certain lenders was $ 57.1 million which led to the write off of $ 1.0 million in debt issuance costs which was recorded in loss on extinguishment of debt for the year ended June 30, 2021. The total debt structure that was modified was $ 250.0 million, while the new debt issued was $ 50.0 million, which resulted in $ 9.1 million of debt issuance costs being capitalized. 103 Table of Contents 2021 Credit Agreement On March 8, 2021, concurrently with the closing of the IPO, the Company entered into a new credit agreement (the “2021 Credit Agreement”) that replaced the 2016 Credit Agreement. The 2021 Credit Agreement consists of a senior secured term loan (the “Term Loan Facility”) of $ 75.0 million principal amount and a revolving credit facility (the “Revolving Credit Facility”) of $ 100.0 million maximum borrowing capacity. The maturity date of each of the Term Loan Facility and the Revolving Credit Facility is March 8, 2026. Loans under the 2021 Credit Agreement are secured by substantially all of the Company’s assets. Principal on the Term Loan Facility is paid each calendar quarter beginning September 2021 in an amount equal to 1.25 % of the initial term loan on closing date. Proceeds of the Term Loan Facility, together with proceeds from the IPO, were used to repay amounts outstanding under the 2016 Credit Agreement. The structure of the 2021 Credit Agreement led to a 2.0 % prepayment fee as the cancellation of the 2016 Credit Agreement occurred prior to the first anniversary of the July 27, 2020 amendment of the 2016 Credit Agreement, an extinguishment of debt for certain lenders, and a modification of debt for other lenders. The total prepayment fee was $ 6.0 million and is recorded in loss on extinguishment of debt in the consolidated statements of operations. The total debt structure extinguishment for certain lenders was $ 250.0 million which led to the write off of $ 7.5 million in debt issuance costs which was recorded in loss on extinguishment of debt for the year ended June 30, 2021. The total debt structure that was modified was $ 25.0 million related to each of the term loan and the revolver, while the new debt issued was $ 50.0 million related to the term loan and $ 75.0 million related to the revolver. This resulted in $ 2.1 million of debt issuance costs being capitalized. Outstanding principal amounts under the 2021 Credit Agreement accrue interest at a variable interest rate. As of June 30, 2021, the interest rate on the Term Loan Facility was 1.84 %. As of June 30, 2020, the interest rate on the senior secured term loan under the 2016 Credit Agreement was 6.0 %. Prior to the entry into the 2021 Credit Agreement, the revolving credit facility fee accrued at 0.5 %. Under the terms of the 2021 Credit Agreement, the Revolving Credit Facility fee accrues at 0.25 % of the average daily unused amount and is paid quarterly. During the year ended June 30, 2020, the Company borrowed $ 25.0 million under the revolving credit facility at an interest rate of 3.94 %, to ensure sufficient funds available during the unknown time of the COVID-19 pandemic and for general corporate purposes. The Company repaid all outstanding amounts on the revolving credit facility and as of June 30, 2021 had no outstanding borrowings. The remaining capacity under the Revolving Credit Facility as of June 30, 2021 was $ 100.0 million, subject to (i) any issued amounts under our letters of credit, which as of June 30, 2021 was $ 2.1 million, and (ii) applicable covenant compliance restrictions and any other conditions precedent to borrowing. The 2021 Credit Agreement requires the Company to meet certain operational and reporting requirements, including, but not limited to, a secured net leverage ratio. Additionally, annual capital expenditures and permitted investments, including acquisitions, are limited to amounts specified in the 2021 Credit Agreement. The 2021 Credit Agreement also provides certain restrictions on dividend payments and other equity transactions and requires the Company to make prepayments under specified circumstances. The Company was in compliance with the covenants of the 2021 Credit Agreement and the 2016 Credit Agreement as of June 30, 2021 and 2020, respectively. The deferred financing costs of $ 2.0 million are amortized over the term of the underlying debt and unamortized amounts have been offset against long-term debt in the consolidated balance sheets. Total amortization of deferred financing costs was $ 1.1 million and $ 0.6 million for the year ended June 30, 2021 and 2020, respectively. Convertible Term Loan On June 29, 2015, SH1 entered into a convertible term loan. Monthly principal and interest payments of $ 0.02 million commenced on September 1, 2015, and the loan bears interest at an annual rate of 6.68 %. The remaining principal balance is due upon maturity, which is August 20, 2030. The loan is secured by a deed of trust to Public Trustee, assignment of leases and rents, security agreements, and SH1’s fixture filing. 104 Table of Contents Aggregate maturities of our debt as of June 30, 2021 were as follows: ​ ​ ​ ​ ​ ​ Long-term ​ ​ debt ​ ​ in thousands ​ ​ ​ ​ Year ending June 30: ​ ​ ​ 2022 ​ $ 3,790 2023 ​ 3,793 2024 ​ 3,796 2025 ​ 3,799 2026 ​ 60,052 Thereafter ​ 2,137 Total debt ​ $ 77,367 ​ ​ Note 11: Fair Value Measurements Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources outside the reporting entity. Unobservable inputs are inputs that reflect the Company’s own assumptions based on market data and assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The sensitivity to changes in inputs and their impact on fair value measurements can be significant. The three levels of inputs that may be used to measure fair value are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date Level 2 Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the assets or liabilities Level 3 Unobservable inputs to the valuation techniques that are significant to the fair value measurements of the assets or liabilities Recurring Measurements Effective August 7, 2018, the Company finalized the acquisition of NewCourtland in Pennsylvania. The Company paid a base purchase price of $ 30.0 million, subject to certain net working capital and closing adjustments plus contingent consideration of up to $ 20.0 million. Such contingent consideration will be paid over a specified period if certain conditions outlined in the Securities Purchase Agreement are met. These conditions are based upon the performance of the PACE centers acquired in the NewCourtland acquisition for the two fiscal years following the acquisition, as well as potential payments to be made in the event of the Company being acquired, selling substantially all of its assets, or selling equity securities pursuant to an effective registration statement under the Securities Act of 1933. If all of the contingent consideration of $ 20.0 million is paid, the lease payments in certain real estate leases between the Company and NewCourtland are reduced from their current amounts and allow the Company to exercise its option to purchase the leased buildings at fair market value, after the initial term of the lease. On March 8, 2021, we completed our IPO, which satisfied the condition that the Company sell equity securities pursuant to an effective registration statement. Accordingly, $ 20.0 million of contingent consideration was paid under the terms of the Securities Purchase Agreement. ​ There are no amounts of contingent consideration outstanding after the $ 20.0 million payment. 105 Table of Contents ​ Changes in fair value resulted in immaterial amounts recorded in other operating (income) expense within the consolidated statement for the fiscal years ended June 30, 2021 and 2020. There were no transfers in and out of Level 3 during the fiscal year ended June 30, 2021 and 2020. The Company’s policy is to recognize transfers as of the actual date of the event or change in circumstances. Nonrecurring Measurements In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. No such amounts were recorded during the years ended June 30, 2021 or 2020. Note 12: Commitments and Contingencies ​ Professional Liability The Company pays fixed premiums for annual professional liability insurance coverage under a claims-made policy. Under such policy, only claims made and reported to the insurer are covered during the policy term, regardless of when the incident giving rise to the claim occurred. The Company records claim liabilities and expected recoveries, if any, at gross amounts. The Company is not currently aware of any unasserted claims or unreported incidents that are expected to exceed medical malpractice insurance coverage limits. ​ Litigation From time to time in the normal course of business, the Company is involved in or subject to legal proceedings related to its business. The Company regularly evaluates the status of claims and legal proceedings in which it is involved in order to assess whether a loss is probable or there is a reasonable possibility that a loss may have been incurred, and to determine if accruals are appropriate. The Company expenses legal costs as such costs are incurred ​ Note 13: Stock-based Compensation A summary of our aggregate share-based compensation expense is set forth below. Stock-based compensation expense is included in corporate, general and administrative expenses on our consolidated statements of operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, ​ 2021 2020 ​ ​ in thousands ​ ​ ​ ​ ​ ​ ​ Stock options (a) ​ $ 45,387 ​ $ 543 Profits interests units ​ 1,629 ​ — Restricted stock units ​ ​ 35 ​ ​ — Total stock-based compensation expense ​ $ 47,051 ​ $ 543 ​ (a) The amount for 2021 relates to stock-based compensation expense recognized as a result of the Cancellation Agreement transaction, as defined and described below. ​ 2016 Equity Incentive Plan The Company maintained the 2016 Equity Incentive Plan pursuant to which various stock-based awards may be granted to employees, directors, consultants, and advisers. The total number of shares of the Company’s common stock 106 Table of Contents that was authorized under the 2016 Equity Incentive Plan was 17,836,636 , of which a total of 16,994,976 awards were granted. The 2016 Equity Incentive Plan provided for the following general vesting terms: a) Half vested over time (“Time Vesting Awards”). Time Vesting Awards vested on the first anniversary of the grant date in the range of 25 % to 62.5 % , and the remaining Time Vesting Awards vest ratably on a semiannual basis thereafter through the fourth anniversary of the grant date. b) Half vested upon the attainment of certain performance-based criteria measured at the time the Company experiences a liquidity event, as defined by the 2016 Equity Incentive Plan (“Contingent Performance-Based Awards”). Stock options were exercisable over a period of time not to exceed 10 years from the date of grant. Cancellation of Stock Option Awards Under 2016 Equity Incentive Plan On July 27, 2020, the Company, Ignite Aggregator LP, and the equity holders of the Company entered into a Securities Purchase Agreement, and in conjunction therewith, the Company amended and restated the 2016 Credit Agreement. A portion of the proceeds from the 2016 Credit Agreement were used by the Company to repurchase 16,095,819 shares of its common stock from the certain members of management, the Board of Directors, and members of our equity partner. Additionally, as part of the 2016 Credit Agreement, the Company executed the Cancellation Agreement, as defined in Note 3, with each of the 2016 Equity Incentive Plan option holders, pursuant to which the Company’s 16,994,976 common stock options which were granted under the 2016 Equity Incentive Plan, were cancelled. The Cancellation Agreement resulted in the option holders receiving the same amount of cash that they would have received had they exercised their options, participated in the repurchase described above and sold their remaining shares. The 2016 Equity Plan was cancelled and replaced with the 2020 Equity Incentive Plan, as described below. The Company utilized the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate, and dividend yield. The Company’s expected volatility was based on the historical volatility of similar publicly traded companies deemed by the Company to be its peers. The risk-free interest rate assumption was based upon the Federal Reserve Board’s Treasury Constant Maturities for the expected term of the Company’s stock option awards, and the selected dividend yield assumption was determined in view of the Company’s historical and estimated dividend payout. The Company has no reason to believe that the expected volatility of its stock price would differ significantly from the historical volatility of its peers. The Company used the simplified method to calculate the expected term for the time vesting awards. The expected term for the contingent performance-based awards was the contractual term. The Company estimated the fair value of stock options granted using the following weighted-average assumptions: ​ ​ ​ ​ ​ ​ ​ 2020 Expected volatility ​ ​ 34.9 % - 39.3 % Expected life (years) ​ ​ 5.8 - 6.2 ​ Interest rate ​ 0.51 % - 1.8 % Dividend yield ​ — % Weighted-average fair value ​ $ 0.48 ​ Fair value of underlying stock ​ $ 4.82 ​ ​ 107 Table of Contents A summary of the stock option activity for the year ended June 30, 2021 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ Option ​ average ​ remaining Time-based option awards ​ options ​ price range ​ exercise price ​ term (in years) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2020 8,497,488 ​ $ 1.00 - $ 2.35 ​ $ 1.26 6.76 Canceled ( 8,497,488 ) ​ $ 1.00 - $ 2.35 ​ $ 1.26 6.76 Outstanding balance, June 30, 2021 — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ average ​ remaining Performance-based option awards ​ options ​ exercise price ​ term (in years) ​ ​ ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2020 8,497,488 ​ $ 0.78 6.76 Canceled ( 8,497,488 ) ​ $ 0.78 6.76 Outstanding balance, June 30, 2021 — ​ ​ ​ ​ 2020 Equity Incentive Plan Profits Interests The LP maintains the 2020 Equity Incentive Plan pursuant to which interests in the LP in the form of Class B Units (profits interests) may be granted to employees, directors, consultants, and advisers. A maximum number of 16,162,177 Class B Units are authorized for grant under the 2020 Equity Incentive Plan. As of June 30, 2021, a total of 13,009,137 profits interests units have been granted under the 2020 Equity Incentive Plan. These profits interests represented profits interest ownership in the LP tied solely to the accretion, if any, in the value of the LP following the date of issuance of such profits interests. Profits interests participated in any increase of LP value related to their profits interests after the hurdle value had been achieved and the LP profits interests received the agreed-upon return on their invested capital. The hurdle value per unit is $ 5.49 for both the performance-based and time-based units. Each profits interests unit contains the following material terms: (i) The profits interests receive distributions (other than tax distributions) only upon a liquidity event, as defined, that exceed a threshold equivalent to the fair value of the LP, as determined by the Company’s Board of Directors, at the grant date. (ii) A portion of the units vest over a period of continuous employment or service (service-vesting units) while the other portion of the units only vest based on the level of aggregate multiple of invested capital and internal rate of return achieved by Ignite Aggregator LP, one of the limited partners of the LP, upon a change of control of the Company (performance-vesting units). The performance-vesting units are subject to a market condition, which the Company incorporated as part of its determination of the grant date fair value of the units. The Company used the Monte Carlo option model to determine the fair value of the granted profits interests units. As these awards were granted prior to our IPO, the stock price was based on the price realized in the equity owner transaction. Expected stock price volatility was based on consideration of indications observed from several publicly traded peer companies. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the unit. The dividend yield percentage is zero because the Company neither currently pays dividends nor intends to do so during the expected term. The expected term of the units represents the time the units are expected to be outstanding. The 108 Table of Contents assumptions under the Monte Carlo model related to the profits interests units, presented on a weighted-average basis, are provided below: ​ ​ ​ ​ ​ ​ ​ 2021 Expected volatility ​ ​ 44 % Expected life (years) - time vesting units ​ ​ 1.8 ​ Interest rate ​ 0.16 % Dividend yield ​ — % Weighted-average fair value ​ $ 1.28 ​ Fair value of underlying stock ​ $ 5.49 ​ ​ A summary of profits interests activity for the year ended June 30, 2021 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted average Time-based unit awards ​ units ​ grant date fair value ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2020 — ​ $ — Granted ​ 6,686,568 ​ $ 1.28 Forfeited ( 99,307 ) ​ $ 1.17 Outstanding balance, June 30, 2021 6,587,261 ​ $ 1.28 ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted average Performance-based unit awards ​ units ​ grant date fair value ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2020 — ​ $ — Granted ​ 6,322,569 ​ $ 0.57 Forfeited ( 99,307 ) ​ $ 0.44 Outstanding balance, June 30, 2021 6,223,262 ​ $ 0.57 ​ The total unrecognized compensation cost related to profits interests units outstanding as of June 30, 2021 was $ 10.3 million, comprised (i) $ 6.8 million related to time-based unit awards expected to be recognized over a weighted-average period of 1.2 years and (ii) $ 3.5 million related to performance-based unit awards, which will be recorded when it is probable that the performance-based criteria will be met. 2021 Omnibus Incentive Plan In March 2021, the compensation committee of our Board of Directors approved the InnovAge Holding Corp. 2021 Omnibus Incentive Plan (“2021 Omnibus Incentive Plan”), pursuant to which various stock-based awards may be granted to employees, directors, consultants, and advisers. The total number of shares of the Company’s common stock authorized under the 2021 Omnibus Incentive Plan is 14,700,000 . The Company has issued time-based restricted stock units under this plan to its employees which generally vest (i) on March 4, 2023, the second anniversary of the grant date, or (ii) over a three-year period with one -third vesting on each anniversary of the date of grant. Certain other vesting periods have also 109 Table of Contents been used. The grant date fair value of restricted stock units are based on the closing market price of our common stock on the date of grant. A summary of restricted stock units activity for the year ended June 30, 2021 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ average ​ ​ Number of ​ ​ grant-date fair Restricted stock units ​ awards ​ ​ value per share ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2020 — ​ $ — Granted 48,470 ​ $ 22.87 Outstanding balance, June 30, 2021 48,470 ​ $ 22.87 ​ The total unrecognized compensation cost related to restricted stock units outstanding as of June 30, 2021 was $ 1.1 million and is expected to be recognized over a weighted-average period of 2.2 years. Note 14: Treasury Stock On July 27, 2020, as a part of the amendment and restatement of the 2016 Credit Agreement, a portion of the proceeds were used by the Company to repurchase 16,095,819 shares of its common stock from certain members of management, our Board of Directors and our equity partner, at $ 4.82 per share. As a result of the repurchase, $ 77.6 million was recorded as Treasury stock, see Note 3 for further discussion. In March 2021, the Company retired all outstanding shares of Treasury stock and at June 30, 2021 there were no shares of treasury stock outstanding. No repurchases were made in fiscal year ended June 30, 2021. Note 15: Income Taxes The Company’s effective income tax rate for the years ended June 30, 2021 and 2020 was ( 27.9 %) and 28 %, respectively, which differed from the amount computed by applying the applicable U.S. federal statutory corporate income tax rate of 21 % in each period as a result of the following factors: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, ​ ​ 2021 2020 ​ in thousands ​ ​ ​ ​ ​ ​ ​ Statutory rate ​ $ ( 7,343 ) ​ $ 7,483 IRC Section 162(m) limitation (a) ​ ​ 12,526 ​ ​ — Transaction costs (b) ​ ​ 2,770 ​ ​ — Change in valuation allowance ​ ​ 1,500 ​ ​ ( 128 ) Permanent adjustments ​ ​ 306 ​ ​ 268 Prior year true-up and other ​ ​ ( 227 ) ​ ​ 347 Income from entities not subject to taxation ​ ​ 66 ​ ​ 108 State tax ​ ​ 173 ​ ​ 1,790 Provision for income taxes ​ $ 9,771 ​ $ 9,868 (a) Reflects the permanent addback for the Section 162(m) limitation, which limits the deduction of compensation for the five highest paid officers to $ 1,000,000 . (b) Amount relates to transaction costs incurred as a result of the July 27, 2020 transaction between us, an affiliate of Apax Partners and our then existing equity holders entering into a Securities Purchase Agreement (the “Apax Transaction”). ​ 110 Table of Contents Provision for income taxes consisted of the following for the years ended June 30, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, ​ 2021 2020 ​ ​ in thousands Current: ​ ​ ​ ​ ​ ​ Federal ​ $ 2,710 ​ $ 5,382 State ​ ​ 642 ​ ​ 1,313 Total current tax expense ​ ​ 3,352 ​ ​ 6,695 ​ ​ ​ ​ ​ ​ ​ Deferred: ​ ​ ​ ​ ​ ​ Federal ​ ​ 5,342 ​ ​ 2,349 State ​ ​ 1,077 ​ ​ 824 Total deferred tax expense ​ ​ 6,419 ​ ​ 3,173 Total provision for income taxes ​ $ 9,771 ​ $ 9,868 ​ The significant components of deferred tax assets and liabilities were as follows for the years ended June 30, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, ​ 2021 2020 ​ ​ in thousands ​ ​ ​ ​ ​ ​ ​ Deferred tax assets: ​ ​ ​ ​ ​ ​ Amortization ​ $ 2,241 ​ $ 2,033 State net operating losses ​ ​ 1,887 ​ ​ 387 Transaction costs ​ ​ 1,092 ​ ​ 1,204 Provision for uncollectible accounts ​ 1,112 ​ 1,644 Accrued vacation ​ 979 ​ 984 Reported and estimated claims ​ 941 ​ 889 Stock-based compensation ​ 428 ​ 856 Accrued bonuses ​ 65 ​ 38 Total deferred tax assets ​ ​ 8,745 ​ ​ 8,035 Valuation allowance ​ ​ ( 1,887 ) ​ ​ ( 387 ) Deferred tax assets, net of valuation allowance ​ ​ 6,858 ​ ​ 7,648 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Goodwill ​ ​ ( 9,934 ) ​ ​ ( 8,057 ) Depreciation ​ ​ ( 7,394 ) ​ ​ ( 8,053 ) Equity investment ​ ​ ( 3,222 ) ​ ​ ( 6 ) Prepaid expenses ​ ​ ( 2,008 ) ​ ​ ( 814 ) Total deferred tax liabilities ​ ​ ( 22,558 ) ​ ​ ( 16,930 ) Net deferred tax liability ​ $ ( 15,700 ) ​ $ ( 9,282 ) ​ Carryforwards The Company had state net operating loss carryforwards of $ 30.9 million and $ 15.0 million at June 30, 2021 and 2020, respectively, which will begin to expire in 2037 if not utilized. Additionally, the Company has no federal net operating loss carryforwards as of June 30, 2021 and 2020. Valuation Allowance The Company has provided $ 1.9 million and $ 0.4 million at June 30, 2021 and June 30, 2020, respectively, as a valuation allowance against its deferred tax assets for state net operating losses where there is not sufficient positive evidence to substantiate that these deferred tax assets will be realized at a more-likely-than-not level of assurance. 111 Table of Contents Other The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitation and technical corrections to tax depreciation methods for qualified improvement property. The Company continues to examine the impacts that the CARES Act may have on its business. As a result of the CARES Act, it is anticipated that the Company will fully utilize all interest expense with no additional disallowed interest expense through June 30, 2021. While several other CARES Act provisions may impact the Company, there have not been any significant impacts noted through June 30, 2021. The Company had no uncertain tax positions at June 30, 2021 and 2020. The Company files income tax returns as a consolidated group, excluding SH1 and InnovAge Sacramento, in the U.S. federal jurisdiction and various states and is subject to examination by taxing authorities in all of those jurisdictions. From time to time, the Company’s tax returns are reviewed or audited by U.S. federal and various U.S. state-taxing authorities. The Company believes that adjustments, if any, resulting from these reviews or audits would not be material, individually or in the aggregate, to the Company’s consolidated financial position, results of operations, or liquidity. The Company is subject to income tax examinations by U.S. federal and state jurisdictions for the period ended June 30, 2018 and forward. The Company is subject to income tax examinations by California, Colorado and New Mexico state jurisdictions for the period ended June 30, 2017 and forward. ​ Note 16: Related Parties PWD VIE . Pursuant to the PWD Amended and Restated Agreement of Limited Partnership, Continental Community Housing, the general partner of PWD and our wholly-owned subsidiary (the “General Partner”), helped fund operating deficits and shortfalls of PWD in the form of a loan (the “PWD Loan”). At June 30, 2021 and 2020, $ 0.7 million and $ 0.6 million, respectively, was recorded in Deposits and other. The PWD Loan does not accrue interest. Additionally, the General Partner is paid an administration fee of $ 35,000 per year. ​ ​ Note 17: Segment Reporting The Company applies ASC Topic 280, “Segment Reporting,” which establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about operations, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the Company’s chief executive officer, who is the chief operating decision maker (“CODM”), and for which discrete financial information is available. The Company has determined that it has five operating segments, three of which are related to the Company’s PACE offering. The PACE-related operating segments are based on three geographic divisions, which are West, Central, and East. Due to the similar economic characteristics, nature of services, and customers, we have aggregated our West, Central, and East operating segments into one reportable segment for PACE. The Company’s remaining two operating segments relate to Homecare and Senior Housing, which are immaterial operating segments, and are shown below as “Other” along with certain corporate unallocated expenses. As of June 30, 2021, the Company served approximately 6,850 PACE participants, making it the largest PACE provider in the U.S. based upon participants served, and operated 18 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia. PACE, an alternative to nursing homes, is a managed care, capitated program, which serves the frail elderly in a community-based service model. Participants receive all medical services through a comprehensive, consolidated model of care. Capitation payments are received from Medicare parts C and D; Medicaid; VA, and private pay sources. The Company is at risk for all health and allied care costs incurred with respect to the care of its participants, although it does negotiate discounted rates with its provider network consisting of hospitals, nursing homes, assisted living facilities, and medical specialists. Additionally, under the Medicare Prescription Drug Plan, the CMS share part of the risk for providing prescription medication to the Company’s participants. 112 Table of Contents The Company evaluates performance and allocates capital resources to each segment based on an operating model that is designed to maximize the quality of care provided and profitability. The Company does not review assets by segment and therefore assets by segment are not disclosed below. For the periods presented, all of the Company’s long-lived assets were located in the U.S. and all revenue was earned in the U.S. The Company’s management uses Center-level Contribution Margin as the measure for assessing performance of its segments. Center-level Contribution Margin is defined as total segment revenues less external provider costs and cost of care (excluding depreciation and amortization). The Company allocates corporate level expenses to its segments with a majority of the allocation going to the PACE segment. The following table summarizes the operating results regularly provided to the CODM by reportable segment for the twelve months ended: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2021 ​ June 30, 2020 in thousands PACE All other (1) Totals PACE All other (1) Totals Capitation revenue ​ $ 635,322 ​ $ — ​ $ 635,322 ​ $ 564,834 ​ $ — ​ $ 564,834 Other service revenue ​ 294 ​ 2,184 ​ 2,478 ​ 343 ​ 2,015 ​ 2,358 Total revenues ​ 635,616 ​ 2,184 ​ 637,800 ​ 565,177 ​ 2,015 ​ 567,192 External provider costs ​ 309,317 ​ — ​ 309,317 ​ 272,832 ​ — ​ 272,832 Cost of care, excluding depreciation and amortization ​ 151,412 ​ 2,991 ​ 154,403 ​ 149,637 ​ 3,419 ​ 153,056 Center-Level Contribution Margin ​ 174,887 ​ ( 807 ) ​ 174,080 ​ 142,708 ​ ( 1,404 ) ​ 141,304 Overhead costs (2) ​ 154,607 ​ ( 38 ) ​ 154,569 ​ 77,482 ​ — ​ 77,482 Depreciation and amortization ​ 11,951 ​ 343 ​ 12,294 ​ 10,506 ​ 785 ​ 11,291 Equity loss ​ 1,343 ​ — ​ 1,343 ​ 677 ​ 1 ​ 678 Other operating (income) expense ​ 18,211 ​ — ​ 18,211 ​ 918 ​ 2 ​ 920 Interest expense, net ​ 16,595 ​ 192 ​ 16,787 ​ 14,357 ​ 262 ​ 14,619 Loss on extinguishment of debt ​ 14,479 ​ — ​ 14,479 ​ — ​ — ​ — Gain on equity method investment ​ ( 10,871 ) ​ — ​ ( 10,871 ) ​ — ​ — ​ — Other expense (income) ​ 2,237 ​ — ​ 2,237 ​ 567 ​ 114 ​ 681 Income (Loss) Before Income Taxes ​ $ ( 33,665 ) ​ $ ( 1,304 ) ​ $ ( 34,969 ) ​ $ 38,201 ​ $ ( 2,568 ) ​ $ 35,633 (1) Center-level Contribution Margin from segments below the quantitative thresholds are attributable to two operating segments of the Company. Those segments consist of Homecare and Senior Housing. Neither of those segments has ever met any of the quantitative thresholds for determining reportable segments. (2) Overhead consists of the Sales and marketing and Corporate, general and administrative financial statement line items. ​ Note 18: Earnings per Share Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding options, using the treasury stock method and the average market price of the Company’s common stock during the applicable period. When a loss from continuing operations exists, all dilutive securities and potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share. When net income from continuing operations exists, performance-based units, are omitted from the calculation of diluted EPS until it is determined that the performance criteria has been met at the end of the reporting period. As of June 30, 2020, there were 8,084,243 performance-based awards excluded from the calculation of diluted EPS. 113 Table of Contents The following table sets forth the computation of basic and diluted net loss per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, in thousands, except share values 2021 2020 Net income (loss) attributable to InnovAge Holding Corp. ​ $ ( 43,986 ) ​ $ 26,278 Weighted average common shares outstanding (basic) ​ 123,618,702 ​ 132,616,431 EPS (basic) ​ $ ( 0.36 ) ​ $ 0.20 ​ ​ ​ ​ ​ ​ ​ Dilutive shares ​ — ​ 2,617,199 Weighted average common shares outstanding (diluted) ​ 123,618,702 ​ 135,233,630 EPS (diluted) ​ $ ( 0.36 ) ​ $ 0.19 ​ ​ Note 19: Subsequent Event In August 2021, the Company acquired a minority interest equal to 806,481 shares of the outstanding common stock of Jetdoc, Inc. (“Jetdoc”), a telehealth and virtual urgent care app dedicated to effectively connecting users with medical professionals, for cash consideration of $ 2.0 million. ​ ​ ​ 114 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ​