What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-10 compared with 2022-02-09 · 225 added, 148 removed, 590 unchanged (39% of the section changed)

7 unchanged sentences

Restricted cash

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

Accounts receivable, net of allowance ($ 3,921 – March 31, 2022 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 December 31, 2021 and June 30, 2021;

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

500,000,000 authorized as of March 31, 2022 and June 30, 2021;

135,525,006 and 135,516,513 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively

Additional paid-in capital

9 unchanged sentences

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

Three Months Ended December 31,

Six Months Ended December 31,

Three Months Ended March 31,

Nine Months Ended March 31,

Capitation revenue

12 unchanged sentences

Loss on extinguishment of debt

Gain on equity method investment

Other income (expense)

1 unchanged sentence

Income (Loss) Before Income Taxes

Provision for Income Taxes

Provision (Benefit) for Income Taxes

Net Income (Loss)

10 unchanged sentences

(In thousands, except per share data)

For the Three Months Ended December 31, 2021

For the Three Months Ended March 31, 2022

Noncontrolling

5 unchanged sentences

Net Income (Loss)

Balances, September 30, 2021

Balances, December 31, 2021

Stock-based compensation

1 unchanged sentence

Adjustment to redemption value

Balances, December 31, 2021

For the Six Months Ended December 31, 2021

Balances, March 31, 2022

For the Nine Months Ended March 31, 2022

Noncontrolling

9 unchanged sentences

Adjustment to redemption value

Balances, December 31, 2021

For the Three Months Ended December 31, 2020

Balances, March 31, 2022

For the Three Months Ended March 31, 2021

Noncontrolling

Capital Stock

1 unchanged sentence

Noncontrolling

Balances, September 30, 2020

Stockholders'

(Temporary Equity)

Balances, December 31, 2020

Treasury stock retirement

( 16,197,849 )

Stock-based compensation

Owner contribution

Reclassification of warrant liability

Initial public offering of common stock, net of offering costs of $ 25,334

Consolidation of equity method investment

Adjustment to redemption value

Net income (loss)

Balances, December 31, 2020

For the Six Months Ended December 31, 2020

Balances, March 31, 2021

For the Nine Months Ended March 31, 2021

Noncontrolling

Capital Stock

1 unchanged sentence

Noncontrolling

Stockholders'

(Temporary Equity)

Balances, June 30, 2020

Treasury stock transaction

Owner distribution

Treasury stock retirement

( 16,197,849 )

Stock option cancellation

Time based awards- option cancelation

Stock-based compensation

Owner contribution

Reclassification of warrant liability

Capital contribution

Initial public offering of common stock, net of offering costs of $ 25,334

Consolidation of equity method investment

Adjustment to redemption value

Net income (loss)

Balances, December 31, 2020

Balances, March 31, 2021

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

3 unchanged sentences

(In thousands)

For the Six Months Ended December 31,

For the Nine Months Ended March 31,

Operating Activities

4 unchanged sentences

Depreciation and amortization

Gain on equity method investment

Loss on extinguishment of long-term debt

2 unchanged sentences

Deferred income taxes

Loss in equity of nonconsolidated entities

Change in fair value of warrants

Change in fair value of contingent consideration

20 unchanged sentences

Payment of financing costs and debt premiums

Proceeds from initial public offering of common stock

Treasury stock purchases

Payments under acquisition agreements

Payments related to option cancellation

Net cash used in financing activities

Net cash provided by (used in) financing activities

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS & RESTRICTED CASH

4 unchanged sentences

Income taxes paid

Property and equipment included in accounts payable

Prepayment penalty on extinguishment of debt

Intangibles and property and equipment included in accounts payable

Property and equipment purchased under capital leases

9 unchanged sentences

InnovAge Holding Corp.

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

and its subsidiaries, are headquartered in Denver, Colorado.

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.

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.

As of March 31, 2022, the Company served approximately 6,800 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.

6 unchanged sentences

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

During the nine months ended March 31, 2022, there were no significant changes to those accounting policies.

Basis of Preparation and Principles of Consolidation

10 unchanged sentences

Restatement of Prior Period Financial Statements

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 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.

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.

Additionally, the error also impacted our condensed consolidated statements of shareholders’ equity for the three months and nine-months ended March 31, 2021.

The Company incorrectly recorded redeemable noncontrolling interests of $ 17.0 million and $ 16.9 million as permanent equity rather than temporary equity as of June 30, 2021 and March 31, 2021, respectively.

As a result, the Company restated the June 30, 2021 and March 31, 2021 condensed consolidated financial statements to reflect this reclassification from permanent to temporary equity and to record the related adjustments to redemption value as of June 30, 2021 and March 31, 2021.

Management has 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 December 31, 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 March 31, 2022 is as follows ( in thousands ):

Total Permanent

7 unchanged sentences

Balances, June 30, 2021

The effect of the restatement on the consolidated statement of stockholders’ equity for the three months ended March 31, 2021 is as follows ( in thousands ):

Total Permanent

Noncontrolling

Stockholders’

(Temporary Equity)

As Previously Reported

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

The effect of the restatement on the consolidated statement of stockholders’ equity for the nine months ended March 31, 2021 is as follows ( in thousands ):

Total Permanent

Noncontrolling

Stockholders’

(Temporary Equity)

As Previously Reported

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Property and Equipment

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

Property and equipment were comprised of the following as of March 31, 2022 and June 30, 2021:

dollars in thousands

December 31, 2021

March 31, 2022

June 30, 2021

5 unchanged sentences

Total property and equipment, net

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

Depreciation of $ 3.8 million and $ 3.2 million was recorded during the three months ended March 31, 2022 and 2021, respectively.

Depreciation of $ 9.9 million and $ 8.8 million was recorded during the nine months ended March 31, 2022 and 2021, respectively.

Coronavirus Pandemic (“COVID-19”)

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 disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses worldwide.

As a PACE organization, we have been and will continue to be impacted by the effects of COVID-19.

5 unchanged sentences

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 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 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.

Under the CARES Act, the state of Pennsylvania signed into law the Act 24 of 2020.

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

10 unchanged sentences

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.

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.

30 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.

3 unchanged sentences

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 six months ended:

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

Private pay and other

______________

* 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.

10 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 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.

Medicare Part D comprised (i) 12 % of capitation revenues for both the nine months ended March 31, 2022 and 2021 and (ii) 23 % and 25 % of external provider costs for the nine months ended March 31, 2022 and 2021, respectively.

Our accounts receivable as of March 31, 2022 and June 30, 2021 is primarily from capitation revenue arrangements.

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

2 unchanged sentences

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 $ 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.

The balance of the allowance for uncollectible accounts was $ 3.9 million as of March 31, 2022, 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.

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 0.5 % 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.

Other service revenue was 0.2 % and 0.4 % of total revenue for the nine months ended March 31, 2022 and 2021, respectively, and 0.2 % and 0.3 % for the three months ended March 31, 2022 and 2021, respectively.

Accounts receivable related to other service revenue were not significant as of both March 31, 2022 and June 30, 2021.

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

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

During the nine months ended March 31, 2022 and 2021, 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

4 unchanged sentences

Since 2019, the Company has maintained an investment of $ 2.6 million in DispatchHealth Holdings, Inc.

(“Dispatch Heath”).

(“Dispatch Health”).

Dispatch Health offers complete in-home on-demand healthcare.

2 unchanged sentences

Pinewood Lodge

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

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.

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

3 unchanged sentences

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.

As of March 31, 2022, 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 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.

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 26.4 % and 13.7 %, respectively.

3 unchanged sentences

Accordingly, beginning January 1, 2021, the results of InnovAge Sacramento are included in our consolidated results 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.

Before consolidation on January 1, 2021, 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.

2 unchanged sentences

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 December 31, 2021, Adventist had not exercised any warrants.

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

The Sacramento Warrants expired in March 2022, without being exercised.

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.

7 unchanged sentences

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.

As of March 31, 2022, 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 fair value of the redeemable noncontrolling interest as of December 31, 2021 was $ 18.9 million.

The redeemable noncontrolling interest of $ 15.9 million was recorded at carrying value as of March 31, 2022.

Fair Value Measurements

12 unchanged sentences

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

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.

For the three months ended March 31, 2022, the Company recorded an adjustment to redemption value of the redeemable noncontrolling interest of $ 2.6 million, which was a reduction to carrying value.

This adjustment represents the excess amount of fair value over the carrying value as of March 31, 2022.

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

4 unchanged sentences

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.

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.

As of June 30, 2021 and March 31, 2022, there are no amounts of contingent consideration outstanding.

There were no transfers in and out of Level 3 during the nine months ended March 31, 2022 or 2021.

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 December 31, 2021 and June 30, 2021.

Goodwill amounted to $ 124.2 million at each of March 31, 2022 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 six months ended December 31, 2021 and 2020.

There were no indicators of impairment identified and no goodwill impairments recorded during the nine months ended March 31, 2022 and 2021.

Intangibles assets consisted of the following as of:

4 unchanged sentences

Balance as of end of period

Intangible assets consist of customer relationships acquired through business acquisitions.

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

Intangible assets consist primarily of customer relationships acquired through business acquisitions and technology-based assets.

The Company recorded amortization expense of $ 0.5 million and $ 0.2 million for the nine months ended March 31, 2022 and 2021, 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 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.

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.

There were no intangible asset impairments recorded during the nine months ended March 31, 2022 and 2021.

During the nine months ended March 31, 2022, the market value of our common stock declined below the carrying value of equity.

As a result, 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 March 31, 2022.

We believe the impact of the regulatory actions described below to our planned opening of new centers and expansion into new service areas met the criteria of a triggering event, which required us to perform quantitative procedures as part of a Step 1 goodwill impairment analysis to asses whether it was more-likely-than-not that the fair value of the Company was greater than the net book value.

In September 2021, we were notified that CMS and the State of California had determined to suspend new enrollments at our Sacramento center based on deficiencies detected in an audit related to participant provision of services.

In December 2021, we were notified that CMS and Colorado Department of Health Care Policy and Financing (“HCPF”) had determined to suspend new enrollments at our Colorado centers based on deficiencies detected in an audit related to participant provision of services.

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

During the third quarter ended March 31, 2022, we were notified by the State of Kentucky that they no longer intend to enter into an agreement with us relating to PACE services, and during the same period, CMS denied our initial application to develop a PACE center in the State of Indiana.

As a result of the above assessment, we concluded that there was no goodwill impairment based on a review of macroeconomic and industry considerations, the Company's financial results in each of our reporting units for the nine months ended March 31, 2022 and financial projections, inclusive of a sustained impact of the enrollment suspension and inability to open new centers.

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 or new regulatory sanctions or other actions are imposed on the Company, 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 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

These leases have expiration dates ranging from August 2022 to July 2032, 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 March 31, 2022 and June 30, 2021:

March 31, 2022

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 $ 2.1 million and $ 2.3 million for the each of six months ended December 31, 2021, and 2020.

Such leases generally have lease terms ranging from years 2022 through 2032 with renewal options.

Total rental expense under operating leases was $ 1.3 million and $ 3.5 million for the three and nine months ended March 31, 2022, respectively, and $ 1.4 million and $ 3.5 million for the three and nine months ended March 31, 2021 respectively.

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 December 31, 2021 and June 30, 2021:

Long-term debt consisted of the following at March 31, 2022 and June 30, 2021:

Interest rate

Maturity date

December 31, 2021

March 31, 2022

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 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.

(b) The remaining capacity under the Revolving Credit Facility as of March 31, 2022 was $ 100.0 million, subject to (i) any issued amounts under our letters of credit, which as of March 31, 2022 was $ 2.6 million, and (ii) applicable covenant compliance restrictions and any other conditions precedent to borrowing.

2016 Credit Agreement

2 unchanged sentences

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 six months ended December 31, 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.

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 $ 0.9 million for the nine months ended March 31, 2021.

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.

6 unchanged sentences

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

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

As of March 31, 2022, the interest rate on the Term Loan Facility was 2.21 %.

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.

As of March 31, 2022, 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.

1 unchanged sentence

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

As of March 31, 2022, 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 $ 0.2 million for the six months ended December 31, 2021.

Total amortization of deferred financing costs was $ 0.3 million for the nine months ended March 31, 2022.

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.

1 unchanged sentence

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.

The plaintiffs have indicated that they intend to file an amended complaint on or before June 14, 2022.

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

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.

6 unchanged sentences

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

On April 20, 2022, the Board of Directors of the Company received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters.

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

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 Company’s operating results for any particular period;

15 unchanged sentences

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 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.

As part of the transaction, for the nine months ended March 31, 2021, 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 nine months ended March 31, 2021.

Stock-based Compensation

A summary of our aggregate share-based compensation expense is set forth below.

A summary of our aggregate stock-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.

Six Months Ended

Nine Months Ended

Stock options (a)

9 unchanged sentences

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.

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 Incentive Plan was cancelled and replaced with the 2020 Equity Incentive Plan, as described below.

2 unchanged sentences

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

A maximum number of 16,162,177 Class B Units are authorized for grant under the 2020 Equity Incentive Plan.

As of March 31, 2022, 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:

There were no grants during the nine months ended March 31, 2022.

A summary of profits interests activity for the nine months ended March 31, 2022 was as follows:

Weighted average

2 unchanged sentences

Outstanding balance, June 30, 2021

Outstanding balance, December 31, 2021

( 2,409,972 )

Outstanding balance, March 31, 2022

Weighted average

2 unchanged sentences

Outstanding balance, June 30, 2021

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.

( 3,210,939 )

Outstanding balance, March 31, 2022

The total unrecognized compensation cost related to profits interests units outstanding as of March 31, 2022 was $ 6.4 million, comprised (i) $ 4.3 million related to time-based unit awards expected to be recognized over a weighted-average period of 0.9 years and (ii) $ 2.1 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

5 unchanged sentences

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.

Certain awards under this plan vest upon achieving specific share price performance critiera and are determined to have performance-based vesting conditions.

Restricted Stock Units

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

A summary of time-based vesting restricted stock units activity for the nine months ended March 31, 2022 was as follows:

grant-date fair

2 unchanged sentences

Outstanding balance, June 30, 2021

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:

Outstanding balance, March 31, 2022

The total unrecognized compensation cost related to time based restricted stock units outstanding as of March 31, 2022 was $ 4.0 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 nine months ended March 31, 2022 was as follows:

grant-date fair

2 unchanged sentences

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:

Outstanding balance, March 31, 2022

The fair value of the performance based restricted stock units and performance based stock options granted during the nine months ended March 31, 2022, was based upon a Monte Carlo option pricing model using the assumptions in the following table:

Expected volatility

4 unchanged sentences

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.

The total unrecognized compensation cost related to performance based vesting restricted stock units outstanding as of March 31, 2022 was $ 1.2 million and is expected to be recognized over a weighted-average period of 3.6 years.

Nonqualified Stock Options

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

A summary of time-based vesting stock option activity for the nine months ended March 31, 2022 was as follows:

grant-date fair

2 unchanged sentences

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:

Outstanding balance, March 31, 2022

The total unrecognized compensation cost related to time-based vesting stock options outstanding as of March 31, 2022 was $ 0.7 million and is expected to be recognized over a weighted-average period of 2.5 years.

The fair value of the time-based stock options granted during the nine months ended March 31, 2022, was based upon the Black-Scholes option pricing model using the assumptions in the following table:

Expected volatility

4 unchanged sentences

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:

A summary of performance-based vesting stock option activity for the nine months ended March 31, 2022 was as follows:

grant-date fair

2 unchanged sentences

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.

Outstanding balance, March 31, 2022

The fair value of the performance-based stock options granted during the nine months ended March 31, 2022, was based upon a Monte Carlo option pricing model using the assumptions in the table above under the ‘Restricted Stock Units’ heading.

The total unrecognized compensation cost related to performance-based vesting stock options outstanding as of March 31, 2022 was $ 2.2 million and is expected to be recognized over a weighted-average period of 3.6 years.

The Company recorded an income tax benefit of $ 4.1 million and $ 4.3 million for the three months ended March 31, 2022 and 2021, respectively.

The Company recorded a tax provision of $ 0.1 million and $ 5.2 million for the nine months ended March 31, 2022 and 2021, respectively.

This represents an effective tax rate of 56.6 % and 28.2 % for the three months ended March 31, 2022 and 2021, respectively.

This represents an effective tax rate of 1.4 % and ( 11.2 )% for the nine months ended March 31, 2022 and 2021, respectively.

The effective rate for the nine months ended March 31, 2022 was different from the federal statutory rate primarily due to the Company’s book loss offset partially by disallowed officers’ compensation under Internal Revenue Code (“IRC”) Section 162(m) and lobbying expenses which occurred during the nine 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.

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.

As of the nine-month period ended March 31, 2022, 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 December 31, 2021.

While several of these provisions may impact the Company, there have not been any significant impacts noted through March 31, 2022.

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 December 31,

Six months ended December 31,

Three months ended March 31,

Nine months ended March 31,

in thousands, except share values

15 unchanged sentences

along with certain corporate unallocated expenses.

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

As of March 31, 2022, the Company served approximately 6,800 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.

5 unchanged sentences

Additionally, under the Medicare Prescription Drug Plan, CMS shares part of the risk for providing prescription medication to the Company’s participants.

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 evaluates performance and allocates capital resources to each segment based on an operating model that is designed to maximize the provision of services provided and profitability.

The Company does not review assets by segment and therefore assets by segment are not disclosed below.

4 unchanged sentences

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 six months ended:

December 31, 2021

December 31, 2020

The following table summarizes the operating results regularly provided to the CODM by reportable segment for the three months ended March 31, 2022 and 2021:

March 31, 2022

March 31, 2021

All other (1)

11 unchanged sentences

Loss on extinguishment of debt

Gain on equity method investment

Other expense (income)

Income (Loss) Before Income Taxes

The following table summarizes the operating results regularly provided to the CODM by reportable segment for the nine months ended March 31, 2022 and 2021:

March 31, 2022

March 31, 2021

All other (1)

Capitation revenue

Other service revenue

Total revenues

External provider costs

Cost of care, excluding depreciation and amortization

Center-Level Contribution Margin

Overhead costs (2)

Depreciation and amortization

Other operating (income) expense

Interest expense, net

Loss on extinguishment of debt

Gain on equity method investment

Income (Loss) Before Income Taxes

(1) Center-level Contribution Margin from segments below the quantitative thresholds are attributable to two operating segments of the Company.

3 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

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

At each of March 31, 2022 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 February 9, 2022, the date on which the condensed consolidated financial statements were issued.

The Company has evaluated subsequent events through May 10, 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