What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-09-13 compared with 2021-09-23 · 305 added, 323 removed, 638 unchanged (50% of the section changed)

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(a) Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of June 30, 2022 and 2021

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Notes to Consolidated Financial Statements

(b) Supplementary Data

The information required by Item 302 of Regulation S-K has been omitted as we have elected to early adopt the changes to Item 302 contained in SEC Release No.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of InnovAge Holding Corp.

and subsidiaries (the "Company") as of June 30, 2021 and 2020, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the two years in the period ended June 30, 2021, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of June 30, 2022 and 2021, the related consolidated statements of operations, stockholders' equity, and cash flows, for each of the two years in the period ended June 30, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

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Deposits and other

Equity method investments

Other intangible assets, net

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Current portion of capital lease obligations

Contingent consideration

Total current liabilities

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Commitments and Contingencies (See Note 10)

Redeemable Noncontrolling Interests (See Note 5)

Stockholders’ Equity

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Retained earnings

Treasury stock;

0 and 102,030 shares of common stock at $ 0.0 and $ 1.89 per share as of June 30, 2021 and June 30, 2020, respectively

Total InnovAge Holding Corp.

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Noncontrolling

Noncontrolling Interests

Stockholders' Equity

(Temporary Equity)

in thousands, except share amounts

Balances, June 30, 2020

Grants of stock options and stock option expense

Net income (loss)

Balances, June 30, 2020

Treasury stock transaction

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Balances, June 30, 2021

Restated Balances, June 30, 2021

Balances, June 30, 2021

Stock-based compensation

Adjustment to redemption value

Balances, June 30, 2022

See Notes to Consolidated Financial Statements

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Change in fair value of warrants

Change in fair value of contingent consideration

Changes in operating assets and liabilities, net of acquisitions

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Due to Medicaid and Medicare

Deferred revenue

Net cash provided by (used in) operating activities

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Purchases of property and equipment

Proceeds from sales of property and equipment

Proceeds from net working capital settlements

Purchase of long term investment

Purchase of intangible assets

Purchase of cost method investment

Net cash used in investing activities

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Payments related to option cancellation

Net cash provided by financing activities

INCREASE IN CASH, CASH EQUIVALENTS & RESTRICTED CASH

Net cash provided by (used in) financing activities

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

CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD

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and certain of its subsidiaries converted from not-for-profit organizations to for-profit corporations, and Total Community Options Foundation, Inc.

(“Foundation”) and Johnson Adult Day Program, Inc.

(“Johnson”), both not-for-profit organizations, separated from Total Community Options, Inc.

and Johnson Adult Day Program, Inc, both not-for-profit organizations, separated from Total Community Options, Inc.

In connection with our initial public offering (“IPO”), which occurred in March 2021, we changed the name of our company from TCO Group Holdings, Inc.

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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 oversees, and in many cases directly provides, a broad range of medical and ancillary services for seniors in need of care and support to safely live independently in their homes and communities, including in-home care services (skilled, unskilled and personal care);

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All intercompany accounts and transactions have been eliminated in consolidation.

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.

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 adjustments 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.

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

As Previously

Redeemable Noncontrolling Interests (See Note 5)

Retained earnings

Total InnovAge Holding Corp.

Noncontrolling interests

Total stockholders’ equity

The effect of the restatement on the consolidated statement of stockholders’ equity as of June 30, 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, June 30, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, June 30, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, June 30, 2021

Use of Estimates

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The FDIC insurance coverage is $250,000 on the aggregate of interest bearing and non-interest bearing accounts.

Investments do not have a readily determinable fair value and are carried at cost, less impairment plus or minus any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

Investments are evaluated for impairment each reporting period using a qualitative assessment of impairment indicators.

If impairment indicators are present, the investment will be written down to its fair value and the difference between its fair value and carrying value will be recorded in net income.

No impairment indicators were present for the fiscal year ended June 30, 2021.

The Company had investments of $ 2.6 million as of both June 30, 2021 and 2020.

See Note 7 for more information.

Cost method investments do not have a readily determinable fair value and are carried at cost, less impairment plus or minus any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

The Company uses the equity method to account for investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies.

The Company’s investments in these nonconsolidated entities is reflected in the Company’s consolidated balance sheets under the equity method, and the Company’s proportionate net income (loss), if any, is included in the Company’s consolidated statements of operations as equity income (loss).

The Company evaluates its investments for impairment whenever events or changes in circumstances indicate that a decline in value has occurred that is other than temporary.

Evidence considered in this evaluation includes, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and the Company’s strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value.

If the investment is determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value.

There were no write-downs in the fiscal years ended June 30, 2022 or 2021.

See Note 5 “Investments” for more information.

Restricted Cash

Restricted cash includes (1) cash held in certificates of deposit of $ 2.2 million and collateral for letters of credit of $ 1.6 million as of June 30, 2021 and 2020, respectively, and (2) cash held for participants who have established a personal-needs account to pay for nonmedical personal expenses, payment of which only occurs upon participant authorization, in the amount of approximately $ 0.02 million as of both June 30, 2021 and 2020.

Restricted cash includes (1) cash held in certificates of deposit of $ 0.0 million and $ 2.2 million as of June 30, 2022 and 2021, respectively, and (2) cash held for participants who have established a personal-needs account to pay for nonmedical personal expenses, payment of which only occurs upon participant authorization, in the amount of approximately $ 0.02 million as of both June 30, 2022 and 2021.

The Company records a related deposit liability for any participant contributions to these personal-needs accounts in accounts payable and accrued expenses in the consolidated balance sheets.

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The Company provides comprehensive health care services to participants on the basis of capitated or fixed fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources.

The concentration of net receivables from participants and third-party payers as of June 30, 2021 and 2020 was as follows:

Private pay and other

The Company records accounts receivable at net realizable value, which includes an allowance for estimated uncollectible accounts.

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

The balance of the allowance for uncollectible accounts was $ 4.4 million as of June 30, 2021, compared to $ 6.4 million as of June 30, 2020.

In fiscal year 2021, the Company and the Colorado Department of Health Care Policy & Financing (“HCPF”) completed the reconciliation for fiscal years 2018 and 2019.

The reconciliation resulted in a reduction of accounts receivable of $ 17.0 million and due to Medicaid of $ 13.6 million, which was recorded in fiscal year 2021.

The Company does not expect adjustments related to the reconciliation to be significant in future periods.

See additional information in Note 3 “Revenue Recognition”.

Property and Equipment

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Ordinary repairs and maintenance are expensed as incurred.

During fiscal year 2020, the Company terminated the lease agreement at our Roosevelt Pennsylvania location, which resulted in a write off of leasehold improvements of $ 1.1 million which is disclosed within other income (expense) on the consolidated statement of operations .

The costs of acquiring or developing internal-use software, including directly related payroll costs for internal resources, are capitalized.

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No impairment charges were recorded in the fiscal years ended June 30, 2022 or 2021.

Equity Method Investments

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that a decline in value has occurred that is other than temporary.

If the investment is determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value.

There were no write-downs in the fiscal years ended June 30, 2021 or 2020.

Goodwill and Intangible Assets

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The Company tests goodwill for impairment annually on April 1st or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability.

These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale, disposition of a significant portion of the business, or other factors.

These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale, disposition

of a significant portion of the business, or other factors.

Impairment of goodwill is evaluated at the reporting unit level.

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The Company records contingent consideration at the time of agreement and records changes in the fair value of contingent consideration each reporting period in the consolidated statements of operations as a component of other operating expense (income).

During the year ended June 30, 2021, we paid contingent consideration relating to our acquisition of NewCourtland, as defined and described in Note 4.

During the year ended June 30, 2020, we paid contingent consideration related to (i) the acquisition of Riverside and (ii) acquisition of Charlottesville, each as defined and described in Note 4.

There are no amounts outstanding related to contingent consideration as of June 30, 2021.

During the year ended June 30, 2021, we paid contingent consideration relating to our acquisition of NewCourtland, as defined and described in Note 5 “Investments”.

There were no amounts outstanding related to contingent consideration as of June 30, 2022.

Debt Issuance Costs

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Revenue Recognition

The Company’s PACE operating segment provides comprehensive health care services to participants on the basis of fixed or capitated fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources.

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

The PACE state contracts between us and the respective state Medicaid administering agency are amended annually each June 30 in all states other than California and Pennsylvania, which contract on a calendar-year basis.

New agreements have been executed for the periods (i) January 1, 2021 through December 31, 2021 for California and (ii) July 1, 2021 through June 30, 2022 for all other states except Pennsylvania, for which we are currently operating in good standing under the 2020 amended agreement while the agency finalizes its 2021 amendment .

Capitation payments are recognized as revenue in the period in which the services are provided.

Capitation payments received for PACE participants under Medicare Advantage plans are subject to retroactive premium risk adjustments based upon various factors.

The Company estimates the amount of current-year adjustments in revenues.

As final settlements are determined by CMS, we record any corresponding retroactive adjustments.

Capitation revenues may be subject to adjustment as a result of examination by government agencies or contractors.

The audit process and the resolution of significant related matters as a result of these examinations often are not finalized until several years after the services are rendered.

Any adjustments resulting from these examinations are recorded in the period the Company is notified of them.

At times, the Company accepts participants into the program pending final authorization from Medicaid.

If Medicaid coverage is later denied and there are no alternative resources available to pay for services, the participant is disenrolled.

Any costs incurred on behalf of these participants were nominal in the fiscal years ended June 30, 2021 and 2020.

Adoption of ASC 606, Revenue from Contracts with Customers

ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) requires companies to exercise more judgment and recognize revenue using a five-step process.

The Company adopted ASC 606 using the modified retrospective method for all contracts effective July 1, 2020.

Under the modified retrospective method, the Company applied ASC 606 to contracts that were not complete as of July 1, 2020 and recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of accumulated deficit.

Prior periods were not adjusted.

No cumulative-effect adjustment in retained earnings was recorded as the adoption of ASC 606 did not materially impact the Company’s consolidated financial statements or results of operations.

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performed the following five steps:

revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performed the following five steps:

(i) Identify the contract(s) with a customer;

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and (v) Recognize revenue as the entity satisfies a performance obligation.

Revenues for the year ended June 30, 2020 were presented under ASC 605, Revenue Recognition (“ASC 605”).

Under ASC 605, the Company recognized revenue when all of the following criteria were met:

Persuasive evidence of an arrangement exists;

the sales price is fixed or determinable;

collection is reasonably assured;

and services have been rendered.

Capitation Revenue and Accounts Receivable

Our capitation revenue relates to contracts with participants in which our performance obligation is to provide healthcare services to the participants.

Revenues are recorded during the period our obligations to provide healthcare services are satisfied as noted below within each service type.

The Company contracts directly with Medicare and Medicaid on a PMPM basis.

We receive 100 % of the pooled capitated payment to directly provide or manage the healthcare needs of our participants.

Fees are recorded gross in revenues because the Company is acting as a principal in providing for or overseeing comprehensive care provided to the participants.

Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers.

In general, a participant enrolls in the PACE program and is considered a customer of InnovAge.

The Company considers all contracts with participants as a single performance obligation to provide comprehensive medical, health, and social services that integrate acute and long-term care.

The Company identified that contracts with customers in the PACE program have similar performance obligations and therefore groups them into one portfolio.

This performance obligation is satisfied as the Company provides comprehensive care to its participants.

Our revenues are based on the estimated per member, per month (“PMPM”) amounts we expect to be entitled to receive from the capitated fees per participant that are paid monthly by Medicare, Medicaid, the VA, and private pay sources.

Medicaid and Medicare capitation revenues are based on per-member, per-month capitation rates under the PACE program.

VA is included in “Private Pay and other” and is also capitated.

Private pay includes direct payments from participants who do not qualify for the full capitated rate and have to pay all or a portion of the capitated rate.

The Company disaggregates capitation revenue from the following sources for the year ended June 30:

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.

For certain capitation payments, the Company is subject to retroactive premium risk adjustments based on various factors.

The Company estimates the amount of the adjustment and records it monthly on a straight-line basis.

These adjustments are not expected to be material.

Our accounts receivable as of June 30, 2021 and 2020 is primarily from capitation revenue arrangements.

The capitation revenues are recognized based on the estimated PMPM transaction price to transfer the service for a distinct increment of the series (i.e.

We recognize revenue in the month in which participants are entitled to receive comprehensive care benefits during the contract term.

As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company also provides prescription drug benefits in accordance with Medicare Part D.

Monthly payments received from CMS and the participants represent the bid amount for providing prescription drug coverage.

The portion received from CMS is subject to risk sharing through Medicare Part D risk-sharing corridor provisions.

These risk-sharing corridor provisions compare costs targeted in the Company’s bid to actual prescription drug costs.

The Company estimates and records a monthly adjustment to Medicare Part D revenues associated with these risk-sharing corridor provisions.

Medicare Part D comprised (i) 12 % and 11 % of capitation revenues for the years ended June 30, 2021 and 2020, respectively, and (ii) 21 % and 19 % of external provider costs for the years ended June 30, 2021 and 2020, respectively.

Other Service Revenue and Accounts Receivable

Other service revenue is comprised of rents earned related to Senior Housing and other fee for service revenue.

Other service revenue was 0.4 % of total revenue for each of the years ended June 30, 2021 and 2020.

Accounts receivable related to other service revenue were not significant as of both June 30, 2021 and 2020, respectively.

Remaining Performance Obligations

As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a).

Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize revenue.

The Company had minimal unsatisfied performance obligations at the end of the reporting periods as our participants have received services through the end of the reporting period.

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

Failure to comply with these laws can expose the entity to significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs.

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

For a discussion of our revenue recognition policies, please see Note 3 “Revenue Recognition”.

Professional Liability Claims

The Company records a liability for medical malpractice claims based on estimated probable losses and costs associated with settling these claims and a receivable to reflect the estimated insurance recoveries, if any.

See Note 10 “Commitments and Contingencies”.

Advertising Costs

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

Shares issued pursuant to our equity incentive plans, as described in Note 13, are issued from authorized but unissued shares or from shares, if any, held by the Company as treasury stock.

Shares issued pursuant to our equity incentive plans are issued from authorized but unissued shares or from shares, if any, held by the Company as treasury stock.

See Note 11 “Stock-based Compensation”.

The Company and its subsidiaries calculate federal and state income taxes currently payable and for deferred income taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination based on the technical merits of the position.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be

sustained upon examination based on the technical merits of the position.

The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement.

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A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk or whose equity owners lack certain decision-making and economic rights.

The primary beneficiary is identified as the variable interest holder that

has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity.

The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity.

The primary beneficiary is required to consolidate the VIE.

SH1 and PWD, each as defined and described in Note 5, are considered to be VIEs.

SH1 and PWD, each as defined and described in Note 5 “Investments”, are considered to be VIEs.

The Company is not considered the primary beneficiary of PWD but is considered the primary beneficiary of SH1.

Coronavirus Disease ("COVID-19") Pandemic

In March 2020, the World Health Organization declared COVID-19 a pandemic.

The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption.

Governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary.

Many organizations and individuals, including the Company and its employees, continue to take additional steps to avoid or reduce infection, including limiting travel and working from home.

These measures are continuing to disrupt normal business operations both in and outside of affected areas and have had significant negative impacts on businesses worldwide.

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

however, we remain committed to carrying out our mission of caring for our participants.

We continue to closely monitor the impact of COVID-19 on all aspects of our business, including the impacts to our employees, participants and suppliers;

however, at this time, we are unable to estimate the ultimate impact the pandemic will have on our consolidated financial condition, results of operations or cash flows.

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

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

Under the CARES Act, the state of Pennsylvania signed into law the Act 24 of 2020, which allocates $10.0 million of funding from the federal CARES Act to managed long-term care organizations.

Funding from the Act 24 of 2020 was required to be used to cover necessary COVID-19 related costs incurred between March 1, 2020 and November 30, 2020 for entities in operation as of March 31, 2020.

Our Pennsylvania centers were granted $ 1.0 million of funding from Act 24.

During the year ended June 30, 2020, we recognized $ 0.7 million of such funds as a reduction of expense within our consolidated statement of operations, with the remaining $ 0.3 million recognized during the year ended June 30, 2021.

The CARES Act also provided for the temporary suspension of the automatic 2% reduction of Medicare claim reimbursements (sequestration) for the period of May 1, 2020 through December 31, 2021.

Recently Adopted Accounting Pronouncements

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 (“ASU 2014-09”), and has since issued various amendments which provide additional clarification and implementation guidance to Topic 606, Revenue from Contracts with Customers , which superseded revenue recognition guidance in ASC 605.

ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

This guidance is effective for the annual reporting period beginning July 1, 2020, and interim reporting periods within the annual reporting period beginning July 1, 2021.

Effective July 1, 2020, the Company adopted ASU 2014-09 using the modified retrospective method applied to those contracts which were not completed as of June 30, 2020.

As a result of electing the modified retrospective adoption approach, results for reporting periods beginning after July 1, 2020 are presented under ASC 606.

There was no material impact upon the adoption of ASC 606, therefore the Company did not record any adjustments to retained earnings at July 1, 2020 or for any periods previously presented.

Non-employee Awards

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation:

Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07), which simplifies the accounting for share-based payments granted to nonemployees for goods and services.

The effective date for this amendment is for fiscal years beginning after December 15, 2019.

Early adoption is permitted, but no earlier than a reporting entity’s adoption date of ASC 606.

Company adopted ASC 606 and ASU 2018-07 on July 1, 2020.

The adoption did not have a material impact on the Company’s consolidated financial statements.

Codification Improvements

In July 2018, the FASB issued ASU 2018-09, Codification Improvements (“ASU 2018-09”), which made minor amendments to the codification in order to correct errors, eliminate inconsistencies and provide clarifications in current guidance.

ASU 2018-09 amends Subtopics 470-50, Debt Modifications and Extinguishments, and 718-40, Compensation-Stock Compensation-Income Taxes, among other Topics amended within the update.

Several of the Topics within the ASU were effective immediately upon issuance of ASU 2018-09, however, some amendments require transition guidance which is effective for nonpublic business entities for fiscal years after beginning after December 15, 2019.

The Company adopted the new guidance on July 1, 2020, noting no impact on its consolidated financial statements and related disclosures.

Fair Value Measurements

In August 2018, the FASB issued ASC 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements.

ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with partial early adoption permitted for eliminated disclosures.

The method of adoption varies by the disclosure.

The Company adopted the new guidance on June 1, 2020, noting no impact on its consolidated financial statements and related disclosures.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes Topic 740-Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740.

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

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

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In June 2020, FASB issued ASU 2020-05 Revenue from contracts with customers (Topic 606) and leases (Topic 842)—Effective dates for certain entities which deferred the new lease standard effective date for the Company to December 15, 2022, with early adoption permitted.

The Company has not yet determined the effect of the standard on its ongoing financial reporting.

The Company will adopt this ASU in the fiscal year beginning July 1, 2022 and has not yet determined the effect of the standard on its ongoing financial reporting.

Financial Instruments

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The ASU is effective for private companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company will adopt this guidance for the annual and interim reporting periods beginning July 1, 2023.

The Company 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.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740.

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

Adoption of ASU 2019-12 is not expected to have a material effect on the Company’s consolidated financial statements.

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

Equity Owner Transaction

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

Revenue Recognition

Capitation Revenue and Accounts Receivable

Our capitation revenue relates to contracts with participants in which our performance obligation is to provide healthcare services to the participants.

Revenues are recorded during the period our obligations to provide healthcare services are satisfied as noted below within each service type.

The Company contracts directly with Medicare and Medicaid on a per member, per month (“PMPM”) basis.

We receive 100 % of the pooled capitated payment to directly provide or manage the healthcare needs of our participants.

Fees are recorded gross in revenues because the Company is acting as a principal in providing for or overseeing comprehensive care provided to the participants.

Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers.

In general, a participant enrolls in the PACE program and is considered a customer of InnovAge.

The Company considers all contracts with participants as a single performance obligation to provide comprehensive medical, health, and social services that integrate acute and long-term care.

The Company identified that contracts with customers in the PACE program have similar performance obligations and therefore groups them into one portfolio.

This performance obligation is satisfied as the Company provides comprehensive care to its participants.

Our revenues are based on the estimated PMPM amounts we expect to be entitled to receive from the capitated fees per participant that are paid monthly by Medicaid, Medicare, the VA, and private pay sources.

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.

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 year ended June 30:

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.

For certain capitation payments, the Company is subject to retroactive premium risk adjustments based on various factors.

The Company estimates the amount of the adjustment and records it monthly on a straight-line basis.

These adjustments are not expected to be material.

The capitation revenues are recognized based on the estimated PMPM transaction price to transfer the service for a distinct increment of the series (i.e.

We recognize revenue in the month in which participants are entitled to receive comprehensive care benefits during the contract term.

The Company also provides prescription drug benefits in accordance with Medicare Part D.

Monthly payments received from CMS and the participants represent the bid amount for providing prescription drug coverage.

The portion received from CMS is subject to risk sharing through Medicare Part D risk-sharing corridor provisions.

These risk-sharing

corridor provisions compare costs targeted in the Company’s bid to actual prescription drug costs.

The Company estimates and records a monthly adjustment to Medicare Part D revenues associated with these risk-sharing corridor provisions.

Medicare Part D comprised (i) 12 % of capitation revenues for each of the years ended June 30, 2022 and 2021, and (ii) 23 % and 21 % of external provider costs for the year ended June 30, 2022 and 2021, respectively.

The concentration of net receivables from participants and third-party payers as of June 30, 2022 and 2021 was as follows:

Private pay and other

The Company records accounts receivable at net realizable value, which includes an allowance for estimated uncollectible accounts.

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

The balance of the allowance for uncollectible accounts was $ 3.4 million as of June 30, 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.

In fiscal year 2021, the Company and the Colorado Department of Health Care Policy & Financing (“HCPF”) completed the reconciliation for fiscal years 2018 and 2019.

The reconciliation resulted in a reduction of accounts receivable of $ 17.0 million and due to Medicaid of $ 13.6 million, which was recorded in fiscal year 2021.

The Company does not expect adjustments related to the reconciliation to be significant in future periods.

Other Service Revenue and Accounts Receivable

Other service revenue is comprised of rents earned related to Senior Housing and other fee for service revenue.

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

Failure to comply with these laws can expose the entity to significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs.

See Note 10, “Commitments and Contingencies”.

Equity Owner Transaction and Treasury Stock

On July 27, 2020, the Company, Ignite Aggregator LP (“Purchaser”), and the former equity holders of the Company (“Sellers”) entered into a Securities Purchase Agreement (the “Agreement”), effective July 27, 2020.

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(the “LP”) resulting in the Company being wholly owned by the LP.

Concurrently with the entry into the Agreement, the Company amended and restated its 2016 Credit Agreement (as defined below), see Note 10 for further discussion.

A portion of the proceeds from the 2016 Credit Agreement were used by the Company to repurchase 16,095,819 shares of its common stock for $ 77.6 million from certain members of management, including certain members of the Board of Directors, and certain members of our equity partner.

The common stock was then recognized as Treasury stock.

The Treasury stock was retired in March 2021, see Note 14.

Additionally, as part of the Agreement, the Company executed an Option Cancellation Agreement (the “Cancellation Agreement”), which canceled the Company’s common stock option awards of 16,994,975 granted under the 2016 Equity Incentive Plan for $ 74.6 million.

Concurrently with the entry into the Agreement, the Company amended and restated its 2016 Credit Agreement (as defined below), see Note 8 “Long-term Debt” for further discussion.

A portion of the proceeds were used by the Company to repurchase 16,095,819 shares of its common stock from certain members of management, our Board of Directors and our equity partner, at $ 4.82 per share.

As a result of the repurchase, $ 77.6 million was recorded as Treasury stock.

In March 2021, the Company retired all outstanding shares of Treasury stock.

Incentive Plan for $ 74.6 million.

Such cancellation resulted in a settlement of the awards.

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On October 15, 2020, Finback Pace, LP contributed $ 20.0 million for an investment in the LP, which in turn contributed the funds to the Company.

Other than the consolidation of InnovAge Sacramento, which we accounted for as a step-acquisition and is described in Note 6, there were no acquisitions executed during the fiscal years 2020 or 2021.

Payments Pursuant to Acquisition Agreements

During the fiscal year ended June 30, 2019, the Company finalized the acquisition of NewCourtland LIFE Program (“NewCourtland”) in Pennsylvania.

The Company paid a base purchase price of $ 30 million, subject to certain net working capital and closing adjustments plus deferred cash consideration of up to $ 20 million.

On March 8, 2021, we completed our IPO, which satisfied the condition that the Company sell equity securities pursuant to an effective registration statement.

Accordingly, $ 20.0 million of contingent consideration was paid under the terms of the acquisition agreement.

During the fiscal year ended June 30, 2019, the Company finalized the acquisition of two Virginia PACE centers formerly part of Riverside Healthcare Association, Inc.’s PACE Program (“Riverside”).

The Company paid a base purchase price of $ 6.8 million, subject to certain net working capital and closing adjustments.

The Company finalized the net working capital and closing adjustment calculations during the fiscal year ended June 30, 2020, which resulted in the Company paying an additional $ 0.3 million to Riverside.

During the fiscal year ended June 30, 2019, the Company finalized the acquisition of Charlottesville Area Retirement Services, Inc.

(“Charlottesville”).

The Company paid a base purchase price of $ 5.26 million, subject to certain net working capital and closing adjustments.

Variable Interest Entity

The Company holds cost method and equity method investments as of June 30:

Cost method investments

Equity method investments

Total investments

Nonconsolidated Entities

Cost Method Investments

The Company maintains two investments that are accounted for using the cost method.

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 years ended June 30, 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 stock of Jetdoc, Inc.

(“Jetdoc”), a telehealth and virtual urgent care app dedicated to effectively connecting users with medical professionals, for cash consideration of $ 2.0 million.

The balance of the Company’s investment in Jetdoc is $ 2.0 million which represents the maximum exposure to loss.

Dispatch Health

On June 14, 2019, the Company invested $ 1.5 million in DispatchHealth Holdings, Inc., ("DispatchHealth") through the purchase of a portion of its outstanding Series B Preferred Stock.

On April 2, 2020, the Company invested an additional $ 1.1 million through the purchase of a portion of its outstanding Series C Preferred Stock.

The balance of the Company’s investment is $ 2.6 million which represents the maximum exposure to loss.

The investment does not have a readily determinable fair value and the Company has elected to record the investment at cost, less impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

During the period ended June 30, 2022 and 2021, there were no observable price changes.

Equity Method Investments

Pinewood Lodge

Pinewood Lodge, LLP (“PWD”) is a VIE, but the Company is not the primary beneficiary.

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The equity earnings of PWD are insignificant.

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

InnovAge Senior Housing Thornton, LLC (“SH1”) is a VIE.

The Company is the primary beneficiary of SH1 and consolidates SH1.

The Company is the primary beneficiary of SH1 because it has the power to direct the activities that are most significant to SH1 and has an obligation to absorb losses or the right to receive benefits from SH1.

The most significant activity of SH1 is the operation of the housing facility.

The Company has provided a subordinated loan to SH1 and has provided a guarantee for the convertible term loan held by SH1.

The following table shows the assets and liabilities of SH1 as of June 30:

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other

Property, plant and equipment, net

Deposits and other, net

Accounts payable and accrued expenses

Current portion long-term debt

Noncurrent liabilities

Long-term debt, net of debt issuance costs

Nonconsolidated Entities

Prior to January 1, 2021, the Company had two nonconsolidated equity method investments;

PWD and InnovAge Sacramento.

As of June 30, 2022, the balance of the Company’s investment in PWD was $ 0.8 million, which represents the maximum exposure to loss.

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.

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At the consummation of the JV Agreement, the Company issued to Adventist, warrants (the “Sacramento Warrants”) to purchase 5 % of the Company’s issued and outstanding common stock, par value $ 0.001 at an exercise price equal to the fair market value per share at the time of exercise of this warrant.

The Sacramento Warrants fully vest on the exercise date, which is defined as the date on which Adventist has made aggregate capital contributions in an amount greater than $ 25.0 million to one or more joint venture entities in which Adventist and the Company hold equity (the “Investment Threshold”).

The Sacramento Warrants originally fully vested on the exercise date, which was defined as the date on which Adventist had made aggregate capital contributions in an amount greater than $ 25.0 million to one or more joint venture entities in which Adventist and the Company hold equity (the “Investment Threshold”).

On February 9, 2021, the Company entered into an amendment agreement with our joint venture partner Adventist to amend the Sacramento Warrants.

The amendment removes the Investment Threshold requirement and grants Adventist the right to purchase up to $ 15.0 million of the Company’s common stock at an exercise price equal to the IPO price.

The warrant is exercisable for one year beginning on the date of the consummation of the IPO.

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

At inception, the Sacramento Warrants were initially determined to be equity-based payments to nonemployees and as such the measurement date for these warrants was considered to be the date when the Investment Threshold is reached.

The amendment removed the Investment Threshold requirement and granted Adventist the right to purchase up to $ 15.0 million of the Company’s common stock at an exercise price equal to the IPO price.

The warrant was exercisable for one year beginning on the date of the consummation of the IPO.

The warrant expired in March 2022 without being exercised.

The Sacramento Warrants were initially determined to be equity-based payments to nonemployees and as such the measurement date for these warrants was considered to be the date when the Investment Threshold is reached.

At the time of the amendment, due to the removal of the Investment Threshold, the warrants were evaluated under ASC 815-40, Contracts in an Entity’s Own Equity , which resulted in a liability classification from the date of the amendment through completion of our IPO, due to the variable amount of shares which could be issued.

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This resulted in a gain on consolidation of $ 10.9 million, which is recorded in gain on equity method investment in the condensed consolidated statement of operations.

The fair value of the previously held equity investments was determined using a discounted cash flow model.

The fair value of the previously held

equity investments was determined using a discounted cash flow model.

This resulted in a gain on consolidation of $ 10.9 million during the year ended June 30, 2021.

We accounted for the transaction as a business combination, which requires that we record the assets acquired and liabilities assumed at fair value.

The amount by which the purchase price exceeds the fair value of the net assets acquired is recorded as goodwill.

The fair value of the assets acquired and net liabilities assumed in the step acquisition are as follows as of January 1, 2021:

The fair value of the assets acquired and net liabilities assumed in the step acquisition of InnovAge Sacramento are as follows as of January 1, 2021:

Accounts receivable

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The Company’s interest in net loss

On June 14, 2019, the Company invested $ 1.5 million in DispatchHealth Holdings, Inc., ("DispatchHealth") through the purchase of a portion of its outstanding Series B Preferred Stock.

On April 2, 2020, the Company invested an additional $ 1.1 million through the purchase of a portion of its outstanding Series C Preferred Stock.

During the period ended June 30, 2021 and 2020, there were no observable price changes.

Consolidated Entities

Noncontrolling Interest

Senior Housing

InnovAge Senior Housing Thornton, LLC (“SH1”) is a VIE.

The Company is the primary beneficiary of SH1 and consolidates SH1.

The most significant activity of SH1 is the operation of the housing facility.

The Company has provided a subordinated loan to SH1 and has provided a guarantee for the convertible term loan held by SH1.

The following table shows the assets and liabilities of SH1 as of June 30:

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other

Property, plant and equipment, net

Deposits and other, net

Accounts payable and accrued expenses

Current portion long-term debt

Noncurrent liabilities

Long-term debt, net of debt issuance costs

InnovAge Sacramento

Effective January 1, 2021, we obtained control of InnovAge Sacramento through acquisition of an additional 0.1 % membership interest, which we consider to be a step acquisition, whereby the Company re-measured the previously held equity method investment to fair value.

Payment Pursuant to Acquisition Agreement

During the fiscal year ended June 30, 2019, the Company finalized the acquisition of NewCourtland LIFE Program (“NewCourtland”) in Pennsylvania.

The Company paid a base purchase price of $ 30 million, subject to certain net working capital and closing adjustments plus deferred cash consideration of up to $ 20 million.

On March 8, 2021, we completed our IPO, which satisfied the condition that the Company sell equity securities pursuant to an effective registration statement.

Accordingly, $ 20.0 million of contingent consideration was paid under the terms of the acquisition agreement during the year ended June 30, 2021.

Goodwill and Intangible Assets

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For purposes of the annual goodwill impairment assessment, the Company has identified three reporting units.

There were no indicators of impairment identified and no goodwill impairments recorded during the years ended June 30, 2021 and 2020.

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

In February 2022, we were notified by the States of Kentucky and Indiana that they have taken actions to suspend our ability to open de novo centers in those states .

We considered these events to be triggering events, which required us to perform quantitative procedures as part of a Step 1 goodwill impairment analysis to assess whether it was more-likely-than-not that the fair value of the Company was greater than the net book value during the quarter periods in which the events occurred.

As a result of the above interim assessment and our annual impairment test, we concluded that there was no goodwill impairment.

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, California 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.

There were no goodwill impairments recorded during the years ended June 30, 2022 and 2021.

The following summarizes the changes in goodwill for the fiscal years ended June 30:

Balance as of beginning of period

Adjustments (a)

Goodwill acquired during the period

Balance as of end of period

(a) The adjustment in fiscal year 2020 related to the final net working capital settlement for acquisitions that occurred during the fiscal year ended June 30, 2019.

Intangible assets consisted of the following as of June 30:

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Intangible assets with a finite useful life continue to be amortized over their useful lives.

The Company recorded amortization expense of $ 0.7 million and $ 0.6 million for the years ended June 30, 2021 and 2020, respectively.

The Company recorded amortization expense of $ 0.7 million for both years ended June 30, 2022 and 2021.

The total expected future annual amortization expense for the next 5 years ended June 30, is as follows:

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Property and equipment includes property under various capital leases.

These leases have expiration dates ranging from July 2021 to September 2025, varying interest rates, and generally include an option to purchase the equipment at fair value at the end of the underlying lease period.

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 fair value at the end of the underlying lease period.

The Company’s capital leases included the following:

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Term Loan Facility

Revolving Credit Facility

Convertible term loan

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The Company originally entered into a senior secured borrowing agreement (the “2016 Credit Agreement”) on May 13, 2016, that consisted of a senior secured term loan for $ 75.0 million and a revolving credit facility for $ 20.0 million.

The 2016 Credit Agreement was subsequently amended on May 2, 2019 to increase the senior secured term loan to $ 190.0 million and a revolving credit facility for $ 30.0 million and a delayed draw term loan facility (“DDTL”) for $ 45.0 million.

The senior secured term loan and the DDTL had a maturity date of May 2, 2025, and the revolving credit facility had a maturity date of May 2, 2024.

On July 27, 2020, the Company amended and restated the 2016 Credit Agreement once again to increase the senior secured term loan to $ 300.0 million, the revolving credit facility to $ 40.0 million and to terminate the DDTL.

The maturity date of the revolving credit facility was extended to July 27, 2025, the senior secured term loan was extended to July 27, 2026, and there were updates to certain covenants contained in the existing credit agreement.

Principal was paid each calendar quarter in an amount equal to 0.25 % of the aggregate outstanding principal amount.

The structure of the amendment to the 2016 Credit Agreement as amended on July 27, 2020 led to an extinguishment of debt for certain lenders and a modification of debt for other lenders.

The total debt structure extinguishment for certain lenders was $ 57.1 million which led to the write off of $ 1.0 million in debt issuance costs which was recorded in loss on extinguishment of debt for the year ended June 30, 2021.

The total debt structure that was modified was $ 250.0 million, while the new debt issued was $ 50.0 million, which resulted in $ 9.1 million of debt issuance costs being capitalized.

The 2016 Credit Agreement was subsequently amended (i) on May 2, 2019 to increase the senior secured term loan to $ 190.0 million and a revolving credit facility for $ 30.0 million and a delayed draw term loan facility (“DDTL”) for $ 45.0 million and (ii) on July 27, 2020, to increase the senior secured term loan to $ 300.0 million, the revolving credit facility to $ 40.0 million and to terminate the DDTL.

The 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 year ended June 30, 2021.

The total debt structure that was modified was $ 250.0 million, while the new debt issued was $ 50.0 million, which resulted in $ 9.1 million of capitalized debt issuance costs.

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

2021 Credit Agreement

On March 8, 2021, concurrently with the closing of the IPO, the Company entered into a new credit agreement (the “2021 Credit Agreement”) that replaced the 2016 Credit Agreement.

The 2021 Credit Agreement consists of a senior secured term loan (the “Term Loan Facility”) of $ 75.0 million principal amount and a revolving credit facility (the “Revolving Credit Facility”) of $ 100.0 million maximum borrowing capacity.

The 2021 Credit Agreement consists of a senior

secured term loan (the “Term Loan Facility”) of $ 75.0 million principal amount and a revolving credit facility (the “Revolving Credit Facility”) of $ 100.0 million maximum borrowing capacity.

The maturity date of each of the Term Loan Facility and the Revolving Credit Facility is March 8, 2026.

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Proceeds of the Term Loan Facility, together with proceeds from the IPO, were used to repay amounts outstanding under the 2016 Credit Agreement.

The structure of the 2021 Credit Agreement led to a 2.0 % prepayment fee as the cancellation of the 2016 Credit Agreement occurred prior to the first anniversary of the July 27, 2020 amendment of the 2016 Credit Agreement, an extinguishment of debt for certain lenders, and a modification of debt for other lenders.

The total prepayment fee was $ 6.0 million and is recorded in loss on extinguishment of debt in the consolidated statements of operations.

The total debt structure extinguishment for certain lenders was $ 250.0 million which led to the write off of $ 7.5 million in debt issuance costs which was recorded in loss on extinguishment of debt for the year ended June 30, 2021.

The total debt structure that was modified was $ 25.0 million related to each of the term loan and the revolver, while the new debt issued was $ 50.0 million related to the term loan and $ 75.0 million related to the revolver.

This resulted in $ 2.1 million of debt issuance costs being capitalized.

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

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

As of June 30, 2020, the interest rate on the senior secured term loan under the 2016 Credit Agreement was 6.0 %.

Prior to the entry into the 2021 Credit Agreement, the revolving credit facility fee accrued at 0.5 %.

As of June 30, 2022 and 2021, the interest rate on the Term Loan Facility was 3.83 % and 1.84 %, respectively.

Under the terms of the 2021 Credit Agreement, the Revolving Credit Facility fee accrues at 0.25 % of the average daily unused amount and is paid quarterly.

During the year ended June 30, 2020, the Company borrowed $ 25.0 million under the revolving credit facility at an interest rate of 3.94 %, to ensure sufficient funds available during the unknown time of the COVID-19 pandemic and for general corporate purposes.

The Company repaid all outstanding amounts on the revolving credit facility and as of June 30, 2021 had no outstanding borrowings.

During the year ended June 30, 2020, the Company borrowed and repaid $ 25.0 million under the revolving credit facility at an interest rate of 3.94 %, to ensure sufficient funds available during the unknown time of the COVID-19 pandemic and for general corporate purposes.

The Company repaid all outstanding amounts on the Revolving Credit Facility during the year ended June 30, 2021.

As of June 30, 2022, we had no borrowings outstanding under the facility.

The remaining capacity under the Revolving Credit Facility as of June 30, 2022 was $ 100.0 million, subject to (i) any issued amounts under our letters of credit, which as of June 30, 2022 was $ 2.6 million, and (ii) applicable covenant compliance restrictions and any other conditions precedent to borrowing.

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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.

The Company was in compliance with the covenants of the 2021 Credit Agreement and the 2016 Credit Agreement as of June 30, 2021 and 2020, respectively.

The Company was in compliance with the covenants of the 2021 Credit Agreement as of June 30, 2022 and 2021, respectively.

The deferred financing costs of $ 2.0 million are amortized over the term of the underlying debt and unamortized amounts have been offset against long-term debt in the consolidated balance sheets.

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The Company paid a base purchase price of $ 30.0 million, subject to certain net working capital and closing adjustments plus contingent consideration of up to $ 20.0 million.

Such contingent consideration will be paid over a specified period if certain conditions outlined in the Securities Purchase Agreement are met.

These conditions are based upon the performance of the PACE centers acquired in the NewCourtland acquisition for the two fiscal years following the acquisition, as well as potential payments to be made in the event of the Company being acquired, selling substantially all of its assets, or selling equity securities pursuant to an effective registration statement under the Securities Act of 1933.

If all of the contingent consideration of $ 20.0 million is paid, the lease payments in certain real estate leases between the Company and NewCourtland are reduced from their current amounts and allow the Company to exercise its option to purchase the leased buildings at fair market value, after the initial term of the lease.

On March 8, 2021, we completed our IPO, which satisfied the condition that the Company sell equity securities pursuant to an effective registration statement.

On March 8, 2021, we completed our IPO, which satisfied one of the conditions outlined in the Securities Purchase Agreement.

Accordingly, $ 20.0 million of contingent consideration was paid under the terms of the Securities Purchase Agreement.

There are no amounts of contingent consideration outstanding after the $ 20.0 million payment.

Changes in fair value resulted in immaterial amounts recorded in other operating (income) expense within the consolidated statement for the fiscal years ended June 30, 2021 and 2020.

There were no transfers in and out of Level 3 during the fiscal year ended June 30, 2021 and 2020.

Changes in fair value resulted in immaterial amounts recorded in other operating (income) expense within the consolidated statement for the fiscal years ended June 30, 2021.

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, 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.

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

As of June 30, 2022, the Company’s redeemable noncontrolling interest was recorded at carrying value of $ 15.3 million.

There were no transfers in and out of Level 3 during the fiscal years ended June 30, 2022 and 2021.

The Company’s policy is to recognize transfers as of the actual date of the event or change in circumstances.

Nonrecurring Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis.

No such amounts were recorded during the years ended June 30, 2021 or 2020.

Commitments and Contingencies

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The Company expenses legal costs as such costs are incurred.

On October 14, 2021, and subsequently amended on June 21, 2022, 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 directors, Apax Partners, L.P., Welsh, Carson, Anderson & Stowe and the underwriters in the Company’s IPO, alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 for making allegedly inaccurate and misleading statements and omissions in connection with the Company’s IPO and subsequent earnings calls and public filings, and seeking compensatory damages, among other things.

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.

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 continues to fully cooperate with the DOJ and produce the requested information and documentation.

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.

Because the results of legal proceedings and claims are inherently unpredictable and uncertain, we are currently unable to predict whether the legal proceedings we are involved in will, either individually or in the aggregate, have a material adverse effect on our business, financial condition, or cash flows.

The outcomes of legal proceedings and claims could be material to the Company’s operating results for any particular period, 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.

Stock-based Compensation

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Total stock-based compensation expense

(a) The amount for 2021 relates to stock-based compensation expense recognized as a result of the Cancellation Agreement transaction, as defined and described below.

(a) The amount for 2021 relates to stock-based compensation expense recognized as a result of the Cancellation Agreement.

2016 Equity Incentive Plan

The Company maintained the 2016 Equity Incentive Plan pursuant to which various stock-based awards may be granted to employees, directors, consultants, and advisers.

The total number of shares of the Company’s common stock

that was authorized under the 2016 Equity Incentive Plan was 17,836,636 , of which a total of 16,994,976 awards were granted.

The 2016 Equity Incentive Plan provided for the following general vesting terms:

a) Half vested over time (“Time Vesting Awards”).

Time Vesting Awards vested on the first anniversary of the grant date in the range of 25 % to 62.5 % , and the remaining Time Vesting Awards vest ratably on a semiannual basis thereafter through the fourth anniversary of the grant date.

b) Half vested upon the attainment of certain performance-based criteria measured at the time the Company experiences a liquidity event, as defined by the 2016 Equity Incentive Plan (“Contingent Performance-Based Awards”).

Stock options were exercisable over a period of time not to exceed 10 years from the date of grant.

Cancellation of Stock Option Awards Under 2016 Equity Incentive Plan

On July 27, 2020, the Company, Ignite Aggregator LP, and the equity holders of the Company entered into a Securities Purchase Agreement, and in conjunction therewith, the Company amended and restated the 2016 Credit Agreement.

The Company maintained the 2016 Equity Incentive Plan pursuant to which various stock-based awards were granted to employees, directors, consultants, and advisers.

The total number of shares of the Company’s common stock that was authorized under the 2016 Equity Incentive Plan was 17,836,636 , of which a total of 16,994,976 awards were granted.

On July 27, 2020, the Company, Ignite Aggregator LP (the “LP”), and the equity holders of the Company entered into a Securities Purchase Agreement, and in conjunction therewith, the Company amended and restated the 2016 Credit Agreement.

A portion of the proceeds from the 2016 Credit Agreement were used by the Company to repurchase 16,095,819 shares of its common stock from the certain members of management, the Board of Directors, and members of our equity partner.

Additionally, as part of the 2016 Credit Agreement, the Company executed the Cancellation Agreement, as defined in Note 3, with each of the 2016 Equity Incentive Plan option holders, pursuant to which the Company’s 16,994,976 common stock options which were granted under the 2016 Equity Incentive Plan, were cancelled.

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

The Company utilized the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant.

This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate, and dividend yield.

The Company’s expected volatility was based on the historical volatility of similar publicly traded companies deemed by the Company to be its peers.

The risk-free interest rate assumption was based upon the Federal Reserve Board’s Treasury Constant Maturities for the expected term of the Company’s stock option awards, and the selected dividend yield assumption was determined in view of the Company’s historical and estimated dividend payout.

The Company has no reason to believe that the expected volatility of its stock price would differ significantly from the historical volatility of its peers.

The Company used the simplified method to calculate the expected term for the time vesting awards.

The expected term for the contingent performance-based awards was the contractual term.

The Company estimated the fair value of stock options granted using the following weighted-average assumptions:

Expected volatility

34.9 % - 39.3

Expected life (years)

Interest rate

Dividend yield

Weighted-average fair value

Fair value of underlying stock

A summary of the stock option activity for the year ended June 30, 2021 was as follows:

Time-based option awards

exercise price

term (in years)

Outstanding balance, June 30, 2020

$ 1.00 - $ 2.35

( 8,497,488 )

$ 1.00 - $ 2.35

Outstanding balance, June 30, 2021

Performance-based option awards

exercise price

term (in years)

Outstanding balance, June 30, 2020

( 8,497,488 )

Outstanding balance, June 30, 2021

The 2016 Equity Incentive Plan was cancelled and replaced with the 2020 Equity Incentive Plan, as described below.

2020 Equity Incentive Plan

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(i) The profits interests receive distributions (other than tax distributions) only upon a liquidity event, as defined, that exceed a threshold equivalent to the fair value of the LP, as determined by the Company’s Board of Directors, at the grant date.

(ii) A portion of the units vest over a period of continuous employment or service (service-vesting units) while the other portion of the units only vest based on the level of aggregate multiple of invested capital and internal rate of return achieved by Ignite Aggregator LP, one of the limited partners of the LP, upon a change of control of the Company (performance-vesting units).

rate of return achieved by Ignite Aggregator LP, one of the limited partners of the LP, upon a change of control of the Company (performance-vesting units).

The performance-vesting units are subject to a market condition, which the Company incorporated as part of its determination of the grant date fair value of the units.

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

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

As these awards were granted prior to our IPO, the stock price was based on the price realized in the equity owner transaction.

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The expected term of the units represents the time the units are expected to be outstanding.

assumptions under the Monte Carlo model related to the profits interests units, presented on a weighted-average basis, are provided below:

The assumptions under the Monte Carlo model related to the profits interests units, presented on a weighted-average basis, are provided below:

Expected volatility

9 unchanged sentences

Outstanding balance, June 30, 2021

( 2,807,201 )

( 1,621,988 )

Outstanding balance, June 30, 2022

3 unchanged sentences

Outstanding balance, June 30, 2021

( 4,005,397 )

Outstanding balance, June 30, 2022

4 unchanged sentences

The total number of shares of the Company’s common stock authorized under the 2021 Omnibus Incentive Plan is 14,700,000 .

The Company has issued time-based restricted stock units under this plan to its employees which generally vest (i) on March 4, 2023, the second anniversary of the grant date, or (ii) over a three-year period with one -third vesting on each anniversary of the date of grant.

Certain other vesting periods have also

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

A summary of restricted stock units activity for the year ended June 30, 2021 was as follows:

grant-date fair

The Company has issued time-based restricted stock units under

this plan to its employees which generally vest (i) on March 4, 2023, the second anniversary of the grant date, (ii) over a three-year period with one -third vesting on each anniversary of the date of grant, or (iii) at other dates.

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.

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

Restricted Stock Units

A summary of time-based vesting restricted stock units activity for the year ended June 30, 2022, was as follows:

grant-date fair

Restricted stock units - time based

value per share

1 unchanged sentence

Outstanding balance, June 30, 2022

The total unrecognized compensation cost related to restricted stock units outstanding as of June 30, 2021 was $ 1.1 million and is expected to be recognized over a weighted-average period of 2.2 years.

Treasury Stock

On July 27, 2020, as a part of the amendment and restatement of the 2016 Credit Agreement, a portion of the proceeds were used by the Company to repurchase 16,095,819 shares of its common stock from certain members of management, our Board of Directors and our equity partner, at $ 4.82 per share.

As a result of the repurchase, $ 77.6 million was recorded as Treasury stock, see Note 3 for further discussion.

In March 2021, the Company retired all outstanding shares of Treasury stock and at June 30, 2021 there were no shares of treasury stock outstanding.

No repurchases were made in fiscal year ended June 30, 2021.

The total unrecognized compensation cost related to time-based restricted stock units outstanding as of June 30, 2022, was $ 3.0 million and is expected to be recognized over a weighted-average period of 1.9 years.

A summary of performance-based vesting restricted stock units activity for the year ended June 30, 2022, was as follows:

grant-date fair

Restricted stock units - performance based

value per share

Outstanding balance, June 30, 2021

Outstanding balance, June 30, 2022

The fair value of the performance-based restricted stock units and performance-based stock options granted during the year ended June 30, 2022, 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 June 30, 2022, was $ 1.1 million and is expected to be recognized over a weighted-average period of 3.3 years.

Nonqualified Stock Options

A summary of time-based vesting stock option activity for the year ended June 30, 2022, was as follows:

grant-date fair

Stock options - time based

value per share

Outstanding balance, June 30, 2021

Outstanding balance, June 30, 2022

The total unrecognized compensation costs related to time-based vesting stock options outstanding as of June 30, 2022, was $ 0.6 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 year ended June 30, 2022, 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 year ended June 30, 2022, was as follows:

grant-date fair

Stock options - performance based

value per share

Outstanding balance, June 30, 2021

Outstanding balance, June 30, 2022

The fair value of the performance-based stock options granted during the year ended June 30, 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 June 30, 2022, was $ 2.0 million and is expected to be recognized over a weighted-average period of 3.4 years.

The Company’s effective income tax rate for the years ended June 30, 2022 and 2021 was ( 10.0 %) and ( 27.9 %), respectively, which differed from the amount computed by applying the applicable U.S.

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(a) Reflects the permanent addback for the Section 162(m) limitation, which limits the deduction of compensation for the five highest paid officers to $ 1,000,000 .

(b) Amount relates to transaction costs incurred as a result of the July 27, 2020 transaction between us, an affiliate of Apax Partners and our then existing equity holders entering into a Securities Purchase Agreement (the “Apax Transaction”).

(b) Amount relates to transaction costs incurred as a result of the July 27, 2020 transaction between us, Ignite Aggregator LP (an investment vehicle owned by certain funds advised by Apax Partners LLP) and our then existing equity holders entering into a Securities Purchase Agreement.

Provision for income taxes consisted of the following for the years ended June 30, 2022 and 2021:

6 unchanged sentences

Deferred tax assets:

Federal net operating losses

State net operating losses

5 unchanged sentences

Accrued bonuses

Interest Expense

Total deferred tax assets

8 unchanged sentences

The Company had state net operating loss carryforwards of $ 73.1 million and $ 30.9 million at June 30, 2022 and 2021, respectively, which will begin to expire in 2037 if not utilized.

Additionally, the Company has no federal net operating loss carryforwards as of June 30, 2021 and 2020.

Included in this is a city net operating loss which will begin to expire in 2025 if not utilized.

Additionally, the Company federal net operating loss carryforwards of $ 14.7 million and $ 0 as of June 30, 2022 and 2021, respectively.

Valuation Allowance

The Company has provided $ 1.9 million and $ 0.4 million at June 30, 2021 and June 30, 2020, respectively, as a valuation allowance against its deferred tax assets for state net operating losses where there is not sufficient positive evidence to substantiate that these deferred tax assets will be realized at a more-likely-than-not level of assurance.

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitation and technical corrections to tax depreciation methods for qualified improvement property.

The Company continues to examine the impacts that the CARES Act may have on its business.

As a result of the CARES Act, it is anticipated that the Company will fully utilize all interest expense with no additional disallowed interest expense through June 30, 2021.

While several other CARES Act provisions may impact the Company, there have not been any significant impacts noted through June 30, 2021.

The Company has provided $ 4.1 million and $ 1.9 million at June 30, 2022 and June 30, 2021, respectively, as a valuation allowance against its deferred tax assets for state net operating losses and state 163(j) interest expense limitations where there is not sufficient positive evidence to substantiate that these deferred tax assets will be realized at a more-likely-than-not level of assurance.

The Company had no uncertain tax positions at June 30, 2022 and 2021.

6 unchanged sentences

The Company is subject to income tax examinations by U.S.

federal and state jurisdictions for the period ended June 30, 2018 and forward.

federal and state jurisdictions for the period ended June 30, 2019

The Company is subject to income tax examinations by California, Colorado and New Mexico state jurisdictions for the period ended June 30, 2018 and forward.

1 unchanged sentence

Pursuant to the PWD Amended and Restated Agreement of Limited Partnership, Continental Community Housing, the general partner of PWD and our wholly-owned subsidiary (the “General Partner”), helped fund operating deficits and shortfalls of PWD in the form of a loan (the “PWD Loan”).

At June 30, 2021 and 2020, $ 0.7 million and $ 0.6 million, respectively, was recorded in Deposits and other.

At each of June 30, 2022 and 2021, $ 0.7 million was recorded in Deposits and other.

The PWD Loan does not accrue interest.

46 unchanged sentences

Earnings per Share

Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period.

Basic earnings (loss) per share (“EPS”) is computed using the weighted-average number of common shares outstanding during the period.

Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding options, using the treasury stock method and the average market price of the Company’s common stock during the applicable period.

2 unchanged sentences

As of June 30, 2022, there were 1,035,066 performance-based awards excluded from the calculation of diluted EPS.

There were no performance-based awards excluded from diluted EPS at June 30, 2021.

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

7 unchanged sentences

Subsequent Event

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

(“Jetdoc”), a telehealth and virtual urgent care app dedicated to effectively connecting users with medical professionals, for cash consideration of $ 2.0 million.

The Company has evaluated subsequent events through September 13, 2022, the date on which the condensed consolidated financial statements were issued.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data