What changed in this filing

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Item 1. Financial Statements

2022-02-09 compared with 2021-11-09 · 223 added, 143 removed, 515 unchanged (42% of the section changed)

4 unchanged sentences

(In thousands, except per share data)

September 30,

Current Assets

1 unchanged sentence

Restricted cash

Accounts receivable, net of allowance ($ 5,193 – September 30, 2021 and $ 4,350 – June 30, 2021)

Accounts receivable, net of allowance ($ 2,861 – December 31, 2021 and $ 4,350 – June 30, 2021)

Prepaid expenses and other

24 unchanged sentences

Common stock, $ 0.001 par value;

500,000,000 authorized as of September 30, 2021 and June 30, 2021;

135,516,513 shares issued and outstanding as of both September 30, 2021 and June 30, 2021

500,000,000 authorized as of December 31, 2021 and June 30, 2021;

135,516,513 shares issued and outstanding as of both December 31, 2021 and June 30, 2021

Additional paid-in capital

9 unchanged sentences

(In thousands, except number of shares and per share data)

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Capitation revenue

12 unchanged sentences

Loss on extinguishment of debt

Other expense

Other income (expense)

Total other expense

13 unchanged sentences

(In thousands, except per share data)

For the Three Months Ended December 31, 2021

Noncontrolling

4 unchanged sentences

(Temporary Equity)

Net Income (Loss)

Balances, September 30, 2021

Stock-based compensation

Net income (loss)

Adjustment to redemption value

Balances, December 31, 2021

For the Six Months Ended December 31, 2021

Noncontrolling

Capital Stock

Treasury Stock

Noncontrolling

Stockholders'

(Temporary Equity)

Net Income (Loss)

Balances, June 30, 2021

Treasury stock transaction

Time based awards-option cancellation

Stock option cancellation and owners distribution

Stock-based compensation

Net income (loss)

Adjustment to redemption value

Balances, December 31, 2021

For the Three Months Ended December 31, 2020

Capital Stock

Treasury Stock

Noncontrolling

Balances, September 30, 2020

Stock-based compensation

Owner contribution

Net income (loss)

Balances, December 31, 2020

For the Six Months Ended December 31, 2020

Capital Stock

Treasury Stock

Noncontrolling

Balances, June 30, 2020

Treasury stock transaction

Owner distribution

Time based awards- option cancelation

Stock-based compensation

Adjustment to redemption value

Owner contribution

Net income (loss)

Balances, September 30, 2021

Balances, December 31, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

For the Three Months Ended September 30,

For the Six Months Ended December 31,

Operating Activities

21 unchanged sentences

Purchases of property and equipment

Purchase of intangible assets

Purchase of cost method investment

2 unchanged sentences

Distributions to owners

Owner contributions

Payments on capital lease obligations

20 unchanged sentences

d/b/a InnovAge, which was formed in May 2007.

In connection with the Company’s initial public offering, which occurred in March 2021, we changed the name of our Company from TCO Group Holdings, Inc.

In connection with the Company’s 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.

and its subsidiaries, which are headquartered in Denver, Colorado have a record of innovation, quality, and sensitivity to the needs of participants and staff.

The Company manages, 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);

3 unchanged sentences

The Company manages its business as one reportable segment, PACE.

The Company serves approximately 6,990 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.

As of December 31, 2021, the Company served approximately 7,050 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.

2 unchanged sentences

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 8, 2021, we completed our initial public offering (“IPO”).

On March 8, 2021, we completed our IPO.

The Company’s common stock began trading on the Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbol “INNV”.

1 unchanged sentence

The Company described its significant accounting policies in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 30, 2021 (“2021 10-K”).

During the three months ended September 30, 2021, there were no significant changes to those accounting policies.

During the six months ended December 31, 2021, there were no significant changes to those accounting policies.

Basis of Preparation and Principles of Consolidation

5 unchanged sentences

In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included.

The consolidated financial statements include the accounts of InnovAge, its wholly owned subsidiaries, variable interest entities (“VIEs”) for which

it is the primary beneficiary and entities for which it has a controlling interest.

The condensed consolidated financial statements include the accounts of InnovAge, its wholly owned subsidiaries, variable interest entities (“VIEs”)

for which it is the primary beneficiary and entities for which it has a controlling interest.

All intercompany accounts and transactions have been eliminated in consolidation.

1 unchanged sentence

Restatement of Prior Period Financial Statements

Subsequent to the issuance of the Company’s consolidated financial statements as of and for the year ended June 30, 2021, we identified an error in our consolidated balance sheet and statement of stockholders’ equity as of June 30, 2021 related to the presentation of redeemable noncontrolling interests.

Subsequent to the issuance of the Company’s condensed consolidated financial statements as of and for the year ended June 30, 2021, we identified an error in our consolidated balance sheet and statement of stockholders’ equity as of June 30, 2021 related to the presentation of redeemable noncontrolling interests.

The Company incorrectly recorded redeemable noncontrolling interests of $ 17.0 million as permanent equity rather than temporary equity as of June 30, 2021.

As a result, the Company is restating the June 30, 2021 condensed consolidated financial statements to reflect this reclassification from permanent to temporary equity and to record the related adjustment to redemption value as of June 30, 2021.

Management has evaluated the materiality of this misstatement and concluded that it is not material to the prior period.

As a result, the Company restated the June 30, 2021 condensed consolidated financial statements to reflect this reclassification from permanent to temporary equity and to record the related adjustment to redemption value as of June 30, 2021.

Management evaluated the materiality of this misstatement and concluded that it is not material to the prior period.

The effect of the restatement on the consolidated balance sheet as of June 30, 2021 is as follows ( in thousands ):

5 unchanged sentences

Total stockholders’ equity

The effect of the restatement on the balances as of June 30, 2021 included in the consolidated statement of stockholders’ equity as of September 30, 2021 is as follows ( in thousands ):

The effect of the restatement on the balances as of June 30, 2021 included in the consolidated statement of stockholders’ equity as of December 31, 2021 is as follows ( in thousands ):

Total Permanent

8 unchanged sentences

Property and Equipment

Property and equipment were comprised of the following as of September 30, 2021 and June 30, 2021:

Property and equipment were comprised of the following as of December 31, 2021 and June 30, 2021:

dollars in thousands

September 30, 2021

December 31, 2021

June 30, 2021

5 unchanged sentences

Total property and equipment, net

Depreciation of $ 3.1 million and $ 2.8 million was recorded during the three months ended September 30, 2021 and 2020, respectively.

Depreciation of $ 6.1 million and $ 5.6 million was recorded during the six months ended December 31, 2021 and 2020, respectively.

Coronavirus Pandemic (“COVID-19”)

5 unchanged sentences

As a PACE organization, 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 closed all our centers in March 2020 and transitioned to a 100% in-home and virtual care model.

We believe that the general lack of in-person interaction and the reduction in healthcare personnel, and specifically, trained personnel, impacted our ability to adhere to the complex government laws and regulations that apply to our business.

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.

1 unchanged sentence

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into legislation.

The CARES Act provides for $100.0 billion to healthcare providers, including hospitals on the front lines of the COVID-19 pandemic.

The CARES Act provided for $100.0 billion 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 allocated $10.0 million of funding from the federal CARES Act to managed long term care organizations.

Funding from the Act 24 of 2020 must 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.

Funding from the Act 24 of 2020 was 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.

We received $ 1.0 million in funding under the Act 24 of 2020, which was allocated to InnovAge centers in Pennsylvania.

1 unchanged sentence

The CARES Act also provides for the temporary suspension of the automatic 2% reduction of Medicare claim reimbursements (sequestration) for the period of May 1, 2020 through December 31, 2020.

The Consolidated Appropriations Act, 2021, enacted December 27, 2020, extended this suspension for three more months, through March 31, 2021.

1868, enacted on April14, 2021 further extends the suspension through December 31, 2021.

On December 10, 2021 the “Protecting Medicare and American Farmers from Sequester Cuts Act” extends the 2% Medicare sequester moratorium through March 31, 2022, and adjusts the sequester to 1% between April 1, 2022 and June 30, 2022.

Recently Adopted Accounting Pronouncements

2 unchanged sentences

This guidance is effective for companies with fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted.

The Company adopted ASU 2019-12 in the current quarter and it did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU 2019-12 during the quarter ended September 30, 2021 and it did not have a material effect on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

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.

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.

1 unchanged sentence

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.

leases that expire before the initial application date will not require any accounting adjustment.

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.

7 unchanged sentences

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.

We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.

The Company has not determined the effect of the standard on its condensed consolidated financial statements.

We do not expect that any other recently issued accounting guidance will have a significant effect on our condensed consolidated financial statements.

Revenue Recognition

15 unchanged sentences

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.

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.

1 unchanged sentence

Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program.

VA is included in “Private Pay and

other” and is also capitated.

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.

The Company disaggregates capitation revenue from the following sources for the three months ended:

September 30,

The Company disaggregates capitation revenue from the following sources for the six months ended:

Private pay and other

13 unchanged sentences

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 % of capitation revenues for both the three months ended September 30, 2021 and 2020 and (ii) 19 % and 21 % of external provider costs for the three months ended September 30, 2021 and 2020, respectively.

Our accounts receivable as of September 30, 2021 and June 30, 2021 is primarily from capitation revenue arrangements.

Medicare Part D comprised (i) 12 % of capitation revenues for both the six months ended December 31, 2021 and 2020 and (ii) 19 % and 20 % of external provider costs for the six months ended December 31, 2021 and 2020, respectively.

Our accounts receivable as of December 31, 2021 and June 30, 2021 is primarily from capitation revenue arrangements.

The concentration of net receivables from participants and third-party payers was as follows:

September 30,

Private pay and other

1 unchanged sentence

The allowance for uncollectible accounts reflects the Company’s best estimate of probable losses considering eligibility, historical experience, and existing economic conditions.

The balance of the allowance for uncollectible accounts was $ 5.2 million as of September 30, 2021, compared to $ 4.4 million as of June 30, 2021.

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 $ 2.9 million as of December 31, 2021, compared to $ 4.4 million as of June 30, 2021.

are written off as bad debts when they are deemed uncollectible based upon individual credit evaluations and specific circumstances underlying the accounts.

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 0.3 % and 0.4 % of total revenue for the three months ended September 30, 2021 and 2020, respectively.

Accounts receivable related to other service revenue were not significant as of both September 30, 2021 and June 30, 2021.

Other service revenue was 0.3 % and 0.5 % of total revenue for the six months ended December 31, 2021 and 2020, respectively.

Accounts receivable related to other service revenue were not significant as of both December 31, 2021 and June 30, 2021.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to change, as well as government review.

2 unchanged sentences

The Company holds equity method and cost method investments as of:

September 30,

Cost method investments

5 unchanged sentences

The investments do not have a readily determinable fair value and the Company has elected to record the investments 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 three months ended September 30, 2021 and 2020, there were no observable price changes or impairments recorded.

During the six months ended December 31, 2021 and 2020, there were no observable price changes or impairments recorded.

In August 2021, the Company acquired a minority interest equal to 806,481 shares of the outstanding common

9 unchanged sentences

Pinewood Lodge

The Company’s operations include a Senior Housing unit that primarily includes the accounts of Continental Community Housing (“CCH”), the general partner of Pinewood Lodge, LLP (“ PWD”) which was organized to develop, construct, own, maintain, and operate certain apartment complexes intended for rental to low-income elderly individuals aged 62 or older.

construct, own, maintain, and operate certain apartment complexes intended for rental to low-income elderly individuals aged 62 or older.

PWD is a VIE, but the Company is not the primary beneficiary.

2 unchanged sentences

PWD is accounted for using the equity method of accounting.

The equity earnings of PWD are

insignificant.

As of September 30, 2021, the balance of the Company’s investment in PWD is $ 0.8 million which represents the maximum exposure to loss.

The equity earnings of PWD are insignificant.

As of December 31, 2021, the balance of the Company’s investment in PWD is $ 0.8 million which represents the maximum exposure to loss.

Noncontrolling Interest

8 unchanged sentences

InnovAge Sacramento

On March 18, 2019, in connection with the formation of InnovAge Sacramento, the joint venture with 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.

On March 18, 2019, in connection with the formation of InnovAge Sacramento, the joint venture with Adventist Health System/West (“Advestist”) 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 26.4 % and 13.7 %, respectively.

Prior to January 1, 2021, the Company did not consolidate InnovAge Sacramento.

In the third quarter of fiscal year 2021, the Company made an additional contribution of $ 52,000 dollars to obtain an additional 0.1 % membership interest in the joint venture.

In the third quarter of fiscal year 2021, 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.

When the joint venture was formed, the Company issued warrants (the “Sacramento Warrants”) to purchase 5 % of its issued and outstanding common stock to Adventist at a par value of $ 0.001 per share and 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”).

Before consolidation, the Company recorded it’s proportionate share of net loss, which was a loss of $ 0.8 million for the three months ended September 30, 2020, as equity loss in the statement of operations.

Before consolidation, the Company recorded its proportionate share of net loss, which was a loss of $ 1.3 million for the six months ended December 31, 2020, as equity loss in the statement of operations.

When the joint venture was formed, the Company issued warrants to Adventist (the “Sacramento Warrants”) to purchase 5 % of its issued and outstanding common stock par value $ 0.001 per share, at an exercise price equal to the fair market value per share at the time of exercise of the warrant.

Pursuant to the original warrants, the Sacramento Warrants were to fully vest on the date on which Adventist would have 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 held equity (the “Investment Threshold”).

On February 9, 2021, we entered into an amendment agreement with 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 our common stock at an exercise price equal to the initial public offering price.

The warrant is exercisable for one year beginning March 8, 2021, the date of the consummation of our IPO.

As of September 30, 2021, Adventist had not exercised any warrants.

The warrant is exercisable

for one year beginning March 8, 2021, the date of the consummation of our IPO.

As of December 31, 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 Sacramento 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

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.

A charge of $ 2.3 million, representing the fair value of the Sacramento Warrants from inception through the date of completion of the IPO, was recorded in other income (expense) in the condensed consolidated statement of operations.

3 unchanged sentences

This resulted in recording a gain on consolidation of $ 10.9 million during the third quarter of fiscal year 2021.

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 September 30, 2021, none of the conditions specified in the JV Agreement had been met.

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 December 31, 2021, none of the conditions specified in the JV Agreement had been met.

At the time the Company became a publicly traded company these put rights held by the noncontrolling interests of the Joint Venture were required to be presented as temporary equity.

The carrying value of the redeemable noncontrolling interest as of September 30, 2021 was $ 16.4 million.

The fair value of the redeemable noncontrolling interest as of December 31, 2021 was $ 18.9 million.

Fair Value Measurements

10 unchanged sentences

The Company’s investment in InnovAge Sacramento includes a put right for the noncontrolling interest holders to require the Company to repurchase the interest of the noncontrolling interest holders at fair value, after the initial term of the management services agreement in 2028.

As a result, each period end the Company reports this put right at the greater of i) carrying value of the redeemable noncontrolling interest or ii) fair value of the redeemable noncontrolling interest.

As a result, at each fiscal period end the Company reports this put right at the greater of i) carrying value of the redeemable noncontrolling interest or (ii) fair value of the redeemable noncontrolling interest.

Because this asset does not have observable inputs, level 3 inputs are used to measure fair value.

For the three months ended September 30, 2021, the Company did not record any fair value adjustments as the fair value of the redeemable noncontrolling interest was not greater than the carrying value of the redeemable noncontrolling interest.

As of December 31, 2021, the Company recorded an adjustment to redemption value related to the redeemable noncontrolling interest of $ 2.6 million.

This adjustment represents the excess amount of fair value over the carrying value as of December 31, 2021.

The fair value of the redeemable noncontrolling interest is determined utilizing a discounted cash flow model.

Effective August 7, 2018, the Company finalized the acquisition of NewCourtland LIFE Program (“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.

On March 8 2021 we completed our IPO, which

satisfied the condition that the Company sell equity securities pursuant to an effective registration statement.

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.

Since all of the contingent consideration of $ 20.0 million was paid, the lease payments in certain real estate leases between the Company and NewCourtland were 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.

Changes in fair value of $ 0.7 million were recorded in other operating expense (income) for the three months ended September 30, 2020.

As of June 30, 2021 and September 30, 2021, there are no amounts of contingent consideration outstanding.

There were no transfers in and out of Level 3 during the three months ended September 30, 2020 or 2021.

Change in fair value of $ 1.0 million was recorded in other operating expense (income) for the six months ended December 31, 2020.

As of June 30, 2021 and December 31, 2021, there are no amounts of contingent consideration outstanding.

There were no transfers in and out of Level 3 during the six months ended December 31, 2021 or 2020.

Goodwill and Intangible Assets

Goodwill, which represents the excess of consideration paid over the fair value of net assets acquired through business acquisitions.

Goodwill amounted to $ 124.2 million at each of September 30, 2021 and June 30, 2021.

Goodwill amounted to $ 124.2 million at each of December 31, 2021 and June 30, 2021.

Goodwill is not amortized.

1 unchanged sentence

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 three months ended September 30, 2021 and 2020.

There were no indicators of impairment identified and no goodwill impairments recorded during the six months ended December 31, 2021 and 2020.

Intangibles assets consisted of the following as of:

September 30,

Definite-lived intangible assets

4 unchanged sentences

Intangible assets consist of customer relationships acquired through business acquisitions.

The Company recorded amortization expense of $ 0.2 million for both the three months ended September 30, 2021 and 2020, respectively.

The Company recorded amortization expense of $ 0.3 million for both the six months ended December 31, 2021 and 2020, respectively.

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 three months ended September 30, 2021 and 2020.

During the quarter ended September 30, 2021, the market value of our common stock declined below the carrying value of equity.

We were required to qualitatively assess whether a triggering event had occurred and whether it was more likely than not that our goodwill was impaired as of September 30, 2021.

There were no intangible asset impairments recorded during the six months ended December 31, 2021 and 2020.

During the six months ended December 31, 2021, the market value of our common stock declined below the carrying value of equity.

We were required to qualitatively assess whether a triggering event had occurred and whether it was more likely than not that our goodwill was impaired as of December 31, 2021.

On September 17, 2021, we were notified that CMS had determined to suspend new enrollments at our Sacramento center based on deficiencies detected in an audit related to participant quality of care, and on September 30, 2021, we were further notified that the State of California had followed in the determination of such sanctions.

The suspension will remain in effect until CMS and the State of California determine that we have remediated the deficiencies to their satisfaction.

We believe this decline in common stock price was the market reaction to the new enrollment suspension at our Sacramento center as of September 18, 2021.

Based on our interim qualitative assessment as of September 30, 2021, we determined that it was more-likely-than-not that the fair value of the Company was greater than the net book value and that we did not have a “triggering event”

requiring a quantitative or Step 1 assessment of Goodwill.

Our review of macroeconomic and industry considerations, as well as the Company's financial results of the west region for the first quarter of fiscal year 2022 and projections for the full fiscal year 2022, inclusive of a sustained impact of the enrollment suspension at Sacramento, were consistent with the expectations and sensitivities assessed as part of our annual goodwill impairment performed in the fourth quarter of fiscal year 2021.

If assumptions or estimates in the fair value calculations change or if future cash flows vary from what was expected, including those assumptions relating to the duration and severity of the financial impact of the enrollment suspension at Sacramento, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

On December 22, 2021, we were notified that CMS had determined to suspend new enrollments at our Colorado centers based on deficiencies detected in an audit related to participant quality of care, and on December 23, 2021, we were further notified that the Colorado Department of Health Care Policy and Financing (“HCPF”) intended to issue similar sanctions.

In each case, the suspension will remain in effect until CMS and the respective States determine that we have remediated the deficiencies to their satisfaction.

We believe this continued decline in common stock price was the market reaction to the additional enrollment suspensions.

Based on our interim qualitative assessment as of December 31, 2021, we determined that it was more-likely-than-not that the fair value of the Company was greater than the net book value and that we did not have a “triggering event” requiring a quantitative or Step 1 assessment of Goodwill.

Our review of macroeconomic and industry considerations, the Company's financial results of the central region and west region reporting units for the six months ended December 31, 2021 and financial projections for the full fiscal year 2022, inclusive of a sustained impact of the enrollment suspension in each case, were consistent with the expectations and sensitivities assessed as part of our annual goodwill impairment performed in the fourth quarter of fiscal year 2021.

If assumptions or estimates in the fair value calculations change or if future cash flows vary from what was expected, including those assumptions relating to the duration and severity of the financial impact of the enrollment suspension at Sacramento and Colorado, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

Property and equipment includes property under various capital leases.

These leases have expiration dates ranging from January 2022 to September 2027, varying interest rates, and generally include an option to purchase the equipment at the end of the underlying lease period.

The Company’s capital leases included the following at September 30, 2021 and June 30, 2021:

September 30, 2021

These leases have expiration dates ranging from August 2022 to November 2027, varying interest rates, and generally include an option to purchase the equipment at the end of the underlying lease period.

The Company’s capital leases included the following at December 31, 2021 and June 30, 2021:

December 31, 2021

June 30, 2021

2 unchanged sentences

Certain of the Company’s property and equipment is leased under operating leases.

Total rental expense under operating leases was $ 1.0 million for the each of three months ended September 30, 2021, and 2020.

Total rental expense under operating leases was $ 2.1 million and $ 2.3 million for the each of six months ended December 31, 2021, and 2020.

Future minimum lease payments for fiscal years beginning with remainder of fiscal year 2022 for capital leases having initial terms of more than one year and noncancelable operating leases were as follows:

8 unchanged sentences

Long Term Debt

Long-term debt consisted of the following at September 30, 2021 and June 30, 2021:

Long-term debt consisted of the following at December 31, 2021 and June 30, 2021:

Interest rate

Maturity date

September 30, 2021

December 31, 2021

June 30, 2021

10 unchanged sentences

(a) The interest rates on the Term Loan Facility and Revolving Credit Facility are described below.

(b) The remaining capacity under the Revolving Credit Facility as of September 30, 2021 was $ 100.0 million, subject to (i) any issued amounts under our letters of credit, which as of September 30, 2021 was $ 2.2 million, and (ii) applicable covenant compliance restrictions and any other conditions precedent to borrowing.

(b) The remaining capacity under the Revolving Credit Facility as of December 31, 2021 was $ 100.0 million, subject to (i) any issued amounts under our letters of credit, which as of December 31, 2021 was $ 2.2 million, and (ii) applicable covenant compliance restrictions and any other conditions precedent to borrowing.

2016 Credit Agreement

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The structure of the July 27, 2020 amendment to the 2016 Credit Agreement 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, and the write off of $ 1.0 million in debt issuance costs was recorded in loss on extinguishment of debt for the three months ended September 30 30, 2020.

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 capitalized debt issuance costs.

Total amortization of deferred financing costs was $ 0.3 million for the three months ended September 30, 2020.

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 capitalized

debt issuance costs.

Total amortization of deferred financing costs was $ 0.7 million for the six months ended December 31, 2020.

Concurrent with the Company’s entry into the 2021 Credit Agreement (as defined below), the Company terminated and repaid in full all outstanding indebtedness under the 2016 Credit Agreement.

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Outstanding principal amounts under the 2021 Credit Agreement accrue interest at a variable interest rate.

As of September 30, 2021, the interest rate on the Term Loan Facility was 1.84 %.

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.

As of September 30, 2021, we had no borrowings outstanding under the Revolving Credit Facility.

As of December 31, 2021, the interest rate on the Term Loan Facility was 1.84 %.

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.

As of December 31, 2021, we had no borrowings outstanding under the Revolving Credit Facility.

The 2021 Credit Agreement requires the Company to meet certain operational and reporting requirements, including, but not limited to, a secured net leverage ratio.

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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.

As of September 30, 2021, the Company was in compliance with the covenants of the 2021 Credit Agreement.

As of December 31, 2021, the Company was in compliance with the covenants of the 2021 Credit Agreement.

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 $ 0.1 million for the three months ended September 30, 2021.

Total amortization of deferred financing costs was $ 0.2 million for the six months ended December 31, 2021.

Convertible Term Loan

9 unchanged sentences

From time to time, in the normal course of business, the Company is involved in or subject to legal proceedings related to its business, including those described below.

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 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.

In July 2021, the Company received a civil investigative demand (“CID”) from the Attorney General for the State of Colorado.

The CID requests information and documents regarding Medicaid billing, patient services and referrals at InnovAge’s Colorado program.

We continue to fully cooperate with the Attorney General and produce the requested information and documentation.

We are currently unable to predict the outcome of this investigation.

On October 14, 2021, the Company was named as a defendant in a putative class action complaint filed in the District Court for the District of Colorado on behalf of individuals who purchased or acquired shares of the Company’s common stock during a specified period.

Through the complaint, plaintiffs are asserting claims against the Company, certain of the Company’s officers and the underwriters in the Company’s IPO, alleging violations of Sections 11 and 15 of the Securities Act of 1933 for making allegedly inaccurate and misleading statements and omissions in connection with the Company’s IPO and seeking compensatory damages, among other things.

Although the results of legal proceedings and claims are inherently unpredictable and uncertain, we do not believe that the outcomes of the legal proceedings with which we are currently involved, based on the currently available information, either individually or in the aggregate, will have a material adverse effect on our business, financial condition, or cash flows, though the outcomes could be material to the firms operating results for any particular period;

In July 2021, the Company received a civil investigative demand from the Attorney General for the State of Colorado under the Colorado Medicaid False Claims Act.

The demand requests information and documents regarding Medicaid billing, patient services and referrals in connection with the Company’s PACE program in Colorado.

We continue to fully cooperate with the Attorney General and produce the requested information and documentation.

We are currently unable to predict the outcome of this investigation.

In February 2022, the Company received a civil investigative demand from the Department of Justice (“DOJ”) under the Federal False Claims Act on similar subject matter.

The demand requests information and documents regarding audits, billing, orders tracking, and quality and timeliness of patient services in connection with the Company’s PACE programs in the states where the Company operates (California, Colorado, New Mexico, Pennsylvania, and Virginia).

The Company is fully cooperating with the DOJ to produce the requested information and documentation.

We are currently unable to predict the outcome of this investigation.

depending in part, upon the operating results of such period.

Regardless of the outcome, litigation

has the potential to have an adverse impact on us due to any related defense and settlement costs, diversion of management resources, and other factors.

Regardless of the outcome, litigation has the potential to have an adverse impact on us due to any related defense and settlement costs, diversion of management resources, and other factors.

Equity Owner Transaction

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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.

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, for the three months ended September 30, 2020, 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 owners as the costs were paid on behalf of the owners.

These costs were recorded during the three months ended September 30, 2020.

As part of the transaction, for the six months ended December 31, 2020, 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 owners as the costs were paid on behalf of the owners.

These costs were recorded during the six months ended December 31, 2020.

Stock-based Compensation

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Stock-based compensation expense is included in corporate, general and administrative expenses on our consolidated statements of operations.

Three Months Ended

September 30,

Six Months Ended

Stock options (a)

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Total stock-based compensation expense

(a) The amount for 2020 relates to stock-based compensation expense recognized as a result of the Cancellation Agreement, as defined and described in Note 11, “Stock-based Compensation”.

(a) The amount for 2020 relates to stock-based compensation expense recognized as a result of the Cancellation Agreement.

2016 Equity Incentive Plan

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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 and described in Note 11, “Stock-based Compensation” 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.

Additionally, as part of the 2016 Credit Agreement, the Company executed the Cancellation Agreement 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.

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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 September 30, 2021, a total of 13,009,137 profits interests units have been granted under the 2020 Equity Incentive Plan.

The Company uses the Monte Carlo option model to determine the fair value of the granted profits interests units.

There were no grants during the three months ended September 30, 2021.

A summary of profits interests activity for the three months ended September 30, 2021 was as follows:

A maximum number of 16,162,177

Class B Units are authorized for grant under the 2020 Equity Incentive Plan.

As of December 31, 2021, a total of 13,009,137 profits interests units have been granted under the 2020 Equity Incentive Plan.

The Company used the Monte Carlo option model to determine the fair value of the profits interests units at the time of the grant.

There were no grants during the six months ended December 31, 2021.

A summary of profits interests activity for the six months ended December 31, 2021 was as follows:

Weighted average

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Outstanding balance, June 30, 2021

Outstanding balance, September 30, 2021

Outstanding balance, December 31, 2021

Weighted average

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Outstanding balance, June 30, 2021

Outstanding balance, September 30, 2021

The total unrecognized compensation cost related to profits interests units outstanding as of September 30, 2021 was $ 9.6 million, comprised (i) $ 6.1 million related to time-based unit awards expected to be recognized over a weighted-average period of 0.9 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.

Outstanding balance, December 31, 2021

The total unrecognized compensation cost related to profits interests units outstanding as of December 31, 2021 was $ 8.2 million, comprised (i) $ 5.0 million related to time-based unit awards expected to be recognized over a weighted-average period of 0.9 years and (ii) $ 3.2 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 2021 Omnibus Incentive Plan, pursuant to which various stock-based awards may be granted to employees, directors, consultants, and advisers.

In March 2021, the compensation committee of our Board of Directors approved the InnovAge Holding Corp.

2021 Omnibus Incentive Plan (the “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 .

1 unchanged sentence

Certain other vesting periods have also been used.

The grant date fair value of restricted stock units is based on the closing market price of our common stock on the date of grant.

A summary of restricted stock units activity for the three months ended September 30, 2021 was as follows:

grant-date fair

The grant date fair value of restricted stock units with time based vesting is based on the closing market price of our common stock on the date of grant.

Restricted Stock Units

A summary of time-based vesting restricted stock units activity for the six months ended December 31, 2021 was as follows:

grant-date fair

Restricted stock units - time based

value per share

Outstanding balance, June 30, 2021

Outstanding balance, September 30, 2021

The total unrecognized compensation cost related to restricted stock units outstanding as of September 30, 2021 was $ 1.8 million and is expected to be recognized over a weighted-average period of 1.9 years .

The Company recorded a tax provision of $ 3.0 million and $ 4.9 million for the three months ended September 30, 2021 and 2020, respectively.

This represents an effective tax rate of 28.2 % and ( 11.0 )% for the three months ended September 30, 2021 and 2020, respectively.

The effective rate for the three months ended September 30, 2021 was different from the federal statutory rate primarily due to disallowed officers’ compensation under Internal Revenue Code (“IRC”) Section 162(m) and lobbying expenses which occurred during the three month period.

Outstanding balance, December 31, 2021

The total unrecognized compensation cost related to time based restricted stock units outstanding as of December 31, 2021 was $ 3.0 million and is expected to be recognized over a weighted-average period of 2.0 years.

A summary of performance based vesting restricted stock units activity for the six months ended December 31, 2021 was as follows:

grant-date fair

Restricted stock units - performance based

value per share

Outstanding balance, June 30, 2021

Outstanding balance, December 31, 2021

The fair value of the performance based restricted stock units and performance based stock options granted during the six months ended December 31, 2021, was based upon a Monte Carlo option pricing model using the assumptions in the following table:

Expected volatility

Expected term (in years)

Interest rate

Dividend yield

Weighted-average fair values

Fair value of underlying stock

The total unrecognized compensation cost related to performance based vesting restricted stock units outstanding as of December 31, 2021 was $ 1.3 million and is expected to be recognized over a weighted-average period of 3.8 years.

Nonqualified Stock Options

A summary of time-based vesting stock option activity for the six months ended December 31, 2021 was as follows:

grant-date fair

Stock options - time based

value per share

Outstanding balance, June 30, 2021

Outstanding balance, December 31, 2021

The total unrecognized compensation cost related to time-based vesting stock options outstanding as of December 31, 2021 was $ 0.9 million and is expected to be recognized over a weighted-average period of 2.8 years.

The fair value of the time-based stock options granted during the six months ended December 31, 2021, was based upon the Black-Scholes option pricing model using the assumptions in the following table:

Expected volatility

Weighted-average expected life (years) - time vesting units

Interest rate

Dividend yield

Weighted-average fair values

Fair value of underlying stock

A summary of performance-based vesting stock option activity for the six months ended December 31, 2021 was as follows:

grant-date fair

Stock options - performance based

value per share

Outstanding balance, June 30, 2021

Outstanding balance, December 31, 2021

The fair value of the performance-based stock options granted during the six months ended December 31, 2021, was based upon a Monte Carlo option pricing model using the assumptions in the table above.

The total unrecognized compensation cost related to performance-based vesting stock options outstanding as of December 31, 2021 was $ 2.3 million and is expected to be recognized over a weighted-average period of 3.8 years.

The Company recorded a tax provision of $ 4.2 million and $ 9.4 million for the six months ended December 31, 2021 and 2020, respectively.

This represents an effective tax rate of 32.5 % and ( 30.6 )% for the six months ended December 31, 2021 and 2020, respectively.

The effective rate for the six months ended December 31, 2021 was different from the federal statutory rate primarily due to disallowed officers’ compensation under Internal Revenue Code (“IRC”) Section 162(m) and lobbying expenses which occurred during the three month period.

The Company assesses the valuation allowance recorded against deferred tax assets at each reporting date.

2 unchanged sentences

In estimating income taxes, the Company assesses the relative merits and risks of the appropriate income tax treatment of transactions taking into account statutory, judicial, and regulatory guidance.

As of the three-month period ended September 30, 2021, the Company has determined that it is not “more likely than not” that the deferred tax assets associated with certain state net operating losses will be realized and as such continues to maintain a valuation allowance against these state deferred tax assets.

of the six-month period ended December 31, 2021, the Company has determined that it is not “more likely than not” that the deferred tax assets associated with certain state net operating losses will be realized and as such continues to maintain a valuation allowance against these state deferred tax assets.

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.

While several of these provisions may impact the Company, there have not been any significant impacts noted through September 30, 2021.

While several of these provisions may impact the Company, there have not been any significant impacts noted through December 31, 2021.

Earnings per Share

4 unchanged sentences

The following table sets forth the computation of basic and diluted net loss per common share:

Three months ended September 30,

Three months ended December 31,

Six months ended December 31,

in thousands, except share values

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along with certain corporate unallocated expenses.

The Company serves approximately 6,990 PACE participants, making it the largest PACE provider in the U.S.

As of December 31, 2021, the Company served approximately 7,050 PACE participants, making it the largest PACE provider in the U.S.

based upon participants served, and operates 18 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.

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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 revenues less external provider costs and cost of care

(excluding depreciation and amortization), which includes all medical and pharmacy costs.

Center-level Contribution Margin is defined as total revenues less external provider costs and cost of care (excluding depreciation and amortization), which includes all medical and pharmacy costs.

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 three months ended:

September 30, 2021

September 30, 2020

The following table summarizes the operating results regularly provided to the CODM by reportable segment for the six months ended:

December 31, 2021

December 31, 2020

All other (1)

17 unchanged sentences

Related-party

Pursuant to the PWD Amended and Restated Agreement of Limited Partnership, the general partner, who is a subsidiary of the Company (the “General Partner”), helped fund operating deficits and shortfalls of PWD in the form of a loan.

At each of September 30, 2021 and June 30, 2021, $ 0.7 million was recorded in Deposits and other.

At each of December 31, 2021 and June 30, 2021, $ 0.7 million was recorded in Deposits and other.

Additionally, the General Partner is paid an administration fee of $ 35,000 per year.

Subsequent Events

The Company has evaluated subsequent events through November 9, 2021, the date on which the consolidated financial statements were issued.

The Company has evaluated subsequent events through February 9, 2022, the date on which the condensed consolidated financial statements were issued.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements