What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-05-10 · 209 added, 413 removed, 402 unchanged (61% of the section changed)

4 unchanged sentences

(In thousands, except per share data)

September 30,

Current Assets

1 unchanged sentence

Restricted cash

Accounts receivable, net of allowance ($ 3,921 – March 31, 2022 and $ 4,350 – June 30, 2021)

Prepaid expenses and other

Accounts receivable, net of allowance ($ 4,264 – September 30, 2022 and $ 3,403 – June 30, 2022)

Prepaid expenses

Income tax receivable

2 unchanged sentences

Property and equipment, net

Operating lease assets

Deposits and other

Intangible assets, net

Other intangible assets, net

Total noncurrent assets

5 unchanged sentences

Current portion of long-term debt

Current portion of capital lease obligations

Current portion of finance lease obligations

Current portion of operating lease obligations

Deferred revenue

Total current liabilities

1 unchanged sentence

Deferred tax liability, net

Capital lease obligations

Finance lease obligations

Operating lease obligations

Other noncurrent liabilities

5 unchanged sentences

Common stock, $ 0.001 par value;

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

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

500,000,000 authorized as of September 30, 2022 and June 30, 2022;

135,570,078 and 135,532,811 issued shares as of September 30, 2022 and June 30, 2022, respectively

Additional paid-in capital

Retained earnings

Retained earnings (deficit)

Total InnovAge Holding Corp.

7 unchanged sentences

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

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Capitation revenue

6 unchanged sentences

Depreciation and amortization

Other operating income

Total expenses

2 unchanged sentences

Interest expense, net

Loss on extinguishment of debt

Gain on equity method investment

Other income (expense)

13 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except per share data)

For the Three Months Ended March 31, 2022

Noncontrolling

Capital Stock

Treasury Stock

Noncontrolling

Stockholders'

(Temporary Equity)

Net Income (Loss)

Balances, December 31, 2021

Stock-based compensation

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2022

For the Nine Months Ended March 31, 2022

Noncontrolling

(In thousands, except share amounts)

Capital Stock

1 unchanged sentence

Noncontrolling

Stockholders'

Noncontrolling Interests

Stockholders' Equity

(Temporary Equity)

Net Income (Loss)

Balances, June 30, 2021

Stock-based compensation

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2022

For the Three Months Ended March 31, 2021

Noncontrolling

Capital Stock

Treasury Stock

Noncontrolling

Stockholders'

(Temporary Equity)

Balances, December 31, 2020

Treasury stock retirement

( 16,197,849 )

Stock-based compensation

Reclassification of warrant liability

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

Consolidation of equity method investment

Adjustment to redemption value

Adjustments to redemption value

Net income (loss)

Balances, March 31, 2021

For the Nine Months Ended March 31, 2021

Noncontrolling

Balances, September 30, 2021

Capital Stock

1 unchanged sentence

Noncontrolling

Stockholders'

Noncontrolling Interests

Stockholders' Equity

(Temporary Equity)

Balances, June 30, 2022

Treasury stock transaction

Treasury stock retirement

( 16,197,849 )

Stock option cancellation

Time based awards- option cancelation

Stock-based compensation

Reclassification of warrant liability

Capital contribution

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

Consolidation of equity method investment

Adjustment to redemption value

Adjustments to redemption value

Net income (loss)

Balances, March 31, 2021

Balances, September 30, 2022

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

3 unchanged sentences

(In thousands)

For the Nine Months Ended March 31,

For the Three Months Ended September 30,

Operating Activities

1 unchanged sentence

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities

Loss on disposal of assets

(Gain) Loss on disposal of assets

Provision for uncollectible accounts

Depreciation and amortization

Gain on equity method investment

Loss on extinguishment of long-term debt

Noncash lease expense

Amortization of deferred financing costs

1 unchanged sentence

Deferred income taxes

Change in fair value of warrants

Change in fair value of contingent consideration

Changes in operating assets and liabilities, net of acquisitions

Accounts receivable, net

Prepaid expenses and other

Prepaid expenses

Income tax receivable

3 unchanged sentences

Due to Medicaid and Medicare

Net cash provided by (used in) operating activities

Operating lease liabilities

Deferred revenue

Net cash provided by operating activities

Investing Activities

Purchases of property and equipment

Purchase of intangible assets

Purchase of cost method investment

1 unchanged sentence

Financing Activities

Distributions to owners

Owner contributions

Payments on capital lease obligations

Proceeds from long-term debt

Payments for finance lease obligations

Principal payments on long-term debt

Payment of financing costs and debt premiums

Proceeds from initial public offering of common stock

Treasury stock purchases

Payments under acquisition agreements

Payments related to option cancellation

Net cash provided by (used in) financing activities

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

Net cash used in financing activities

INCREASE IN CASH, CASH EQUIVALENTS & RESTRICTED CASH

CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD

3 unchanged sentences

Income taxes paid

Prepayment penalty on extinguishment of debt

Intangibles and property and equipment included in accounts payable

Property and equipment purchased under capital leases

Property and equipment included in accounts payable

Property and equipment purchased under finance leases

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

3 unchanged sentences

InnovAge Holding Corp.

(formerly, TCO Group Holdings, Inc.) was formed May 13, 2016, to acquire the business of Total Community Options, Inc.

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

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

to InnovAge Holding Corp.

InnovAge Holding Corp.

and its subsidiaries, are headquartered in Denver, Colorado.

4 unchanged sentences

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

As of March 31, 2022, the Company served approximately 6,800 PACE participants, making it the largest PACE provider in the United States of America (the “U.S.”) based upon participants served, and operates 18 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.

As of September 30, 2022, the Company served approximately 6,540 PACE participants, making it the largest PACE provider in the United States of America (the “U.S.”) based upon participants served, and operates 18 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.

PACE is a fully-capitated managed care program, which serves the frail elderly, and predominantly dual-eligible, population in a community-based service model.

2 unchanged sentences

Additionally, under the Medicare Prescription Drug Plan, the Centers for Medicare and Medicaid Services (“CMS”) share part of the risk for providing prescription medication to the Company’s participants.

On March 8, 2021, we completed our IPO.

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

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

Summary of Significant Accounting Policies

The Company described its significant accounting policies in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 30, 2022 (“2022 10-K”).

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

With the exception of Recently Adopted Accounting Pronouncements described below, there were no significant changes to those accounting policies during the three months ended September 30, 2022.

Basis of Preparation and Principles of Consolidation

8 unchanged sentences

All intercompany accounts and transactions have been eliminated in consolidation.

The Company does not have any components of comprehensive income and comprehensive income is equal to net income reported in the statements of operations for all periods presented.

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.

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

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

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

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

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

As Previously

Redeemable Noncontrolling Interests (See Note 4)

Retained earnings

Total InnovAge Holding Corp.

Noncontrolling interests

Total stockholders’ equity

The effect of the restatement on the balances as of June 30, 2021 included in the consolidated statement of stockholders’ equity as of March 31, 2022 is as follows ( in thousands ):

Total Permanent

Noncontrolling

Stockholders’

(Temporary Equity)

As Previously Reported

Balances, June 30, 2021

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

Total Permanent

Noncontrolling

Stockholders’

(Temporary Equity)

As Previously Reported

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

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

Total Permanent

Noncontrolling

Stockholders’

(Temporary Equity)

As Previously Reported

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, March 31, 2021

The Company does not have any components of comprehensive income and comprehensive income is equal to net income (loss) reported in the statements of operations for all periods presented.

Property and Equipment

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

Property and equipment were comprised of the following as of September 30, 2022 and June 30, 2022:

dollars in thousands

March 31, 2022

September 30, 2022

June 30, 2022

3 unchanged sentences

Construction in progress

Less accumulated depreciation and amortization

accumulated depreciation and amortization

Total property and equipment, net

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

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

Coronavirus Pandemic (“COVID-19”)

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

We closed all our centers in March 2020 and transitioned to a 100% in-home and virtual care model.

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

We remain committed to carrying out our mission of caring for our participants.

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

Due to the numerous evolving factors, we are unable to reliably 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.

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

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

Of the $ 1.0 million, $ 0.7 million was recognized prior June 30, 2020 and the remaining balance of $ 0.3 million was recognized during the year ended June 30, 2021.

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

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

1868, enacted on April 14, 2021 further extends the suspension through December 31, 2021.

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

Depreciation of $ 3.1 million and $ 3.1 million was recorded during the three months ended September 30, 2022 and 2021, respectively.

Recently Adopted Accounting Pronouncements

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.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 Leases (“ASU 2016-02”), which was intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements.

Under the new guidance, lessees are required to recognize a right-of-use (“ROU”) asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than 12 months.

Additionally, this guidance requires enhanced disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements.

In June 2020, the 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 interim periods beginning after December 15, 2022, with early adoption permitted.

We adopted the new standard on July 1, 2022 using the modified retrospective transition approach as permitted in ASU 2018-11.

In accordance with this approach, the effective date of Topic 842 is also the application date of the new requirements, with prior comparative periods presented in the financial statements with the legacy requirements of ASC Topic 840, Leases.

We elected the package of practical expedients which permits us not to reassess under the new lease standard our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under the new lease standard.

We also elected to adopt the optional transition method which allows an entity to recognize, if necessary, a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company did not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment conclusions on the ROU assets.

Comparative periods presented in the financial statements continue to be presented in accordance with GAAP related to leases prior to transitioning to the new lease standard.

The adoption of Topic 842 resulted in the recognition of operating lease liabilities and ROU assets of $ 25.1 million and $ 23.6 million, respectively, while our accounting for capital leases (now referred to as finance leases) remained substantially unchanged.

The impact of adopting Topic 842 was not material to our Statements of Operations and Statements of Cash Flows.

See Note 7, “Leases.”

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02 Leases (“ASU 2016-02”), which was intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements.

Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than 12 months.

Additionally, this guidance will require disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements.

The guidance should be applied under a modified retrospective transition approach for leases existing at the beginning of the earliest comparative period presented in the adoption-period financial statements.

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

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

The Company 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

30 unchanged sentences

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

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

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

September 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.

10 unchanged sentences

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

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

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

Medicare Part D comprised 13 % and 12 % of capitation revenues for the three months ended September 30, 2022 and 2021, respectively.

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

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

September 30,

Private pay and other

1 unchanged sentence

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

The balance of the allowance for uncollectible accounts was $ 3.9 million as of March 31, 2022, compared to $ 4.4 million as of June 30, 2021.

The balance of the allowance for uncollectible accounts was $ 4.3 million as of September 30, 2022, compared to $ 3.4 million as of June 30, 2022.

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

1 unchanged sentence

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

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

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

Other service revenue was 0.2 % and 0.3 % of total revenue for the three months ended September 30, 2022 and 2021, respectively.

Accounts receivable related to other service revenue was not significant as of both September 30, 2022 and June 30, 2022.

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

2 unchanged sentences

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

September 30,

Cost method investments

5 unchanged sentences

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

During the nine months ended March 31, 2022 and 2021, there were no observable price changes or impairments recorded.

During the three months ended September 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

2 unchanged sentences

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

Dispatch Health

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

(“Dispatch Health”).

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

DispatchHealth

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.

7 unchanged sentences

The equity earnings of PWD are insignificant.

As of March 31, 2022, the balance of the Company’s investment in PWD is $ 0.8 million which represents the maximum exposure to loss.

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

Noncontrolling Interest

10 unchanged sentences

Further, Adventist contributed $ 5.8 million in cash and Eskaton contributed $ 3.0 million in cash for membership interests of 26.4 % and 13.7 %, respectively.

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

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

With the acquisition of the additional 0.1 % membership interest, the Company obtained control of InnovAge Sacramento effective January 1, 2021.

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

Before consolidation on January 1, 2021, the Company recorded its proportionate share of net loss, which was a loss of $ 1.3 million for the six months ended December 31, 2020, as equity loss in the statement of operations.

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

Pursuant to the original warrants, the Sacramento Warrants were to fully vest on the date on which Adventist would have made aggregate capital contributions in an amount greater than $ 25.0 million to one or more joint venture entities in which Adventist and the Company held equity (the “Investment Threshold”).

On February 9, 2021, we entered into an amendment agreement with Adventist to amend the Sacramento Warrants.

The amendment removes the Investment Threshold requirement and grants Adventist the right to purchase up to $ 15.0 million of our common stock at an exercise price equal to the initial public offering price.

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

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

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

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

Upon completion of the IPO, the number of shares to be issued were no longer variable, which resulted in the warrants being recorded in equity.

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

As described above, 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 remeasured the previously held equity method investment to 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 previously held equity investments was determined using a discounted cash flow model.

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

In fiscal year 2021, the Company made an additional contribution of $ 52,000 and obtained an additional 0.1 % membership interest in the joint venture, which resulted in the Company obtaining control and consolidating InnovAge Sacramento as of January 1, 2021.

The InnovAge California PACE-Sacramento LLC Limited Liability Company Agreement (the “JV Agreement”) includes numerous provisions whereby, if certain conditions are met, the Joint Venture may be required to purchase, at fair market value, certain members’ interests or certain members may be required to purchase, at fair market value, the interests of certain other members.

As of March 31, 2022, none of the conditions specified in the JV Agreement had been met.

As of September 30, 2022, none of the conditions specified in the JV Agreement had been met.

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

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

The redeemable noncontrolling interest of $ 14.7 million was recorded at carrying value as of September 30, 2022.

Fair Value Measurements

12 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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

As of September 30, 2022, the Company’s redeemable noncontrolling interest was recorded at carrying value of $ 14.7 million.

There were no transfers in and out of Level 3 during the three months ended September 30, 2022 or 2021.

Goodwill and Intangible Assets

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

Goodwill amounted to $ 124.2 million at each of March 31, 2022 and June 30, 2021.

Goodwill represents the excess of cost over the fair value of net assets acquired.

Goodwill amounted to $ 124.2 million at each of September 30, 2022 and June 30, 2022.

Goodwill is not amortized.

1 unchanged sentence

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

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

There were no indicators of impairment identified and no goodwill impairments recorded during the three months ended September 30, 2022 and 2021.

Intangibles assets consisted of the following as of:

September 30,

Definite-lived intangible assets

3 unchanged sentences

Balance as of end of period

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

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

Intangible assets consist primarily of customer relationships acquired through business acquisitions.

The Company recorded amortization expense of $ 0.2 million and $ 0.2 million for the three months ended September 30, 2022 and 2021, respectively.

We review the recoverability of other intangible assets in conjunction with long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

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

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

As a result, we were required to qualitatively assess whether a triggering event had occurred and whether it was more likely than not that our goodwill was impaired as of March 31, 2022.

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

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

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

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

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

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

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

Property and equipment includes property under various capital leases.

These leases have expiration dates ranging from August 2022 to July 2032, varying interest rates, and generally include an option to purchase the equipment at the end of the underlying lease period.

The Company’s capital leases included the following at March 31, 2022 and June 30, 2021:

March 31, 2022

June 30, 2021

Less accumulated depreciation

Total capital leases

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

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

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

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

There were no intangible asset impairments recorded during the three months ended September 30, 2022 and 2021.

Leasing Arrangements as Lessee

The Company leases certain property and equipment under various third-party operating and finance lease agreements.

The Company determines if an arrangement is or contains a lease at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset.

The leases are noncancelable and expire on various terms from 2022 through 2032.

We determine if an arrangement is a lease upon commencement of the contract.

If an arrangement

is determined to be a long-term lease (greater than 12 months), we recognize an ROU asset and lease liability based on the present value of the future minimum lease payments over the lease term at the commencement date.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

Our lease terms may also include options to extend or terminate the lease when it is reasonably certain that we will exercise those options.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have elected to apply the short-term lease exception for contracts that have a lease term of twelve months or less and do not include an option to purchase the underlying asset.

Therefore, we do not recognize a ROU asset or lease liability for such contracts.

We recognize short-term lease payments as expense on a straight-line basis over the lease term.

Variable lease payments that do not depend on an index or rate are recognized as expense.

Certain leases include escalations based on inflation indexes and fair market value adjustments.

Operating lease liabilities are calculated using the prevailing index or rate at lease commencement for such leases.

The following table presents the components of our ROU assets and their classification in our Balance Sheet at September 30, 2022:

Component of Lease Balances

Balance Sheet Line Items

Three months ended September 30,

Operating lease assets

Finance lease assets

Property and equipment, net

Total leased assets

The following table presents the components of our lease cost and the classification of such costs in our Statements of Operations for the three months ended September 30, 2022:

Component of Lease Cost

Statements of Operations Line Items

Three months ended September 30,

Operating lease cost

Cost of care excluding depreciation and amortization and Corporate, general and administrative

Finance lease expense:

Amortization of leased assets

Depreciation and amortization

Interest on lease liabilities

Interest expense, net

Variable lease cost

Cost of care excluding depreciation and amortization and Corporate, general and administrative

Short-term lease cost

Cost of care excluding depreciation and amortization and Corporate, general and administrative

Total lease expense

The following table includes the weighted-average lease terms and discount rates for operating and finance leases as of September 30, 2022:

Weighted average remaining lease term:

September 30,

Operating leases

Capital Leases

Minimum Lease

Finance leases

Weighted average discount rate:

September 30,

Operating leases

Finance leases

The following table includes the future maturities of lease payments for operating leases and finance leases for periods subsequent to September 30, 2022:

Amount remaining in 2023

Less amount representing interest

Total minimum lease payments

Less current maturities

Noncurrent maturities

Total lease payments

Less liability accretion / imputed interest

Total lease liabilities

Current lease liabilities

Total long-term lease liabilities

The following table includes the future maturities of minimum rental payments that are required to be paid under all non-cancelable operating and capital lease obligations as previously disclosed in our 2022 Annual Report on Form 10-K as of June 30, 2022, prior to the adoption of ASC 842:

Amount remaining in 2023

Total minimal rental payments

Amount representing interest

Current portion

Long-term portion

Long Term Debt

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

Interest rate

Maturity date

March 31, 2022

June 30, 2021

Long-term debt consisted of the following at September 30, 2022 and June 30, 2022:

September 30,

Senior secured borrowings:

Term Loan Facility

March 8, 2026

Revolving Credit Facility (b)

March 8, 2026

Convertible term loan

August 20, 2030

Less unamortized debt issuance costs

Less current maturities

unamortized debt issuance costs

current maturities

Noncurrent maturities

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

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

2016 Credit Agreement

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 (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 nine months ended March 31, 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.

Total amortization of deferred financing costs was $ 0.9 million for the nine months ended March 31, 2021.

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

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

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.

On March 8, 2021, the Company entered into a credit agreement (the “2021 Credit Agreement”) that replaced its prior 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.

Loans under the 2021 Credit Agreement are secured by substantially all of the Company’s assets.

Principal on the Term Loan Facility is paid each calendar quarter beginning September 2021 in an amount equal to 1.25 % of the initial term loan on closing date.

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

Principal on the Term Loan Facility is paid each calendar quarter in an amount equal to 1.25 % of the initial term loan on closing date.

Proceeds of the Term Loan Facility, together with proceeds from the Company’s initial public offering (“IPO”), were used to repay long term debt amounts then outstanding.

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

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

As of September 30, 2022, the interest rate on the Term Loan Facility was 2.21 %.

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

As of March 31, 2022, we had no borrowings outstanding under the Revolving Credit Facility.

As of September 30, 2022, we had no borrowings outstanding under the Revolving Credit Facility.

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

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The 2021 Credit Agreement also provides certain restrictions on dividend payments and other equity transactions and requires the Company to make prepayments under specified circumstances.

As of March 31, 2022, the Company was in compliance with the covenants of the 2021 Credit Agreement.

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

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

As of September 30, 2022, the Company was in compliance with the covenants of the 2021 Credit Agreement.

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

Total amortization of deferred financing costs was $ 0.3 million for the three months ended September 30, 2022.

Convertible Term Loan

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The Company expenses legal costs as such costs are incurred.

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

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

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

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 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, as amended (the “Exchange Act”), 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.

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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.

The Company continues 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.

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

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

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.

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

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

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

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.

Equity Owner Transaction

On July 27, 2020, InnovAge Holding Corp.

(formerly TCO Group Holdings, Inc.), Ignite Aggregator LP (“Purchaser”), and the former equity holders of InnovAge Holding Corp.

(“Sellers”) entered into a Securities Purchase Agreement (the “Agreement”), effective July 27, 2020.

Under the terms of the Agreement, the Sellers sold a portion of their equity interest to the Purchaser.

The Purchaser and the Sellers then contributed their equity interests in the Company to a newly formed limited partnership, TCO Group Holdings, L.P.

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

Concurrently with the entry into the Agreement, the Company amended and restated its 2016 Credit Agreement, see Note 8, “Long Term Debt” 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.

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

Such cancellation resulted in a settlement of the awards.

Vesting of the contingent performance-based awards was not deemed probable at the time of the settlement resulting in the settlement of the contingent performance-based awards being recorded as Corporate, general and administrative.

Vesting of the time vesting awards was deemed probable at the time of the settlement resulting in a portion of the settlement of the time vesting awards being recorded as Corporate, general and administrative expense and the remainder being recorded as a reduction to Additional paid-in capital.

Of the total settlement, $ 45.4 million was recorded as Corporate, general and administrative expense and $ 32.4 million was recorded as a reduction to Additional paid-in capital.

The Cancellation Agreement resulted in the option holders receiving the same amount of cash that they would have received had they exercised their options, participated in the repurchase described above and sold their remaining shares.

As part of the transaction, for the nine months ended March 31, 2021, the Company incurred $ 22.6 million in transaction costs, of which $ 13.1 million was recognized as Corporate, general and administrative expense and $ 9.5 million was recognized as a distribution to owners as the costs were paid on behalf of the owners.

These costs were recorded during the nine months ended March 31, 2021.

Stock-based Compensation

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

Nine Months Ended

Stock options (a)

Three months ended September 30,

Stock options

Profits interests units

1 unchanged sentence

Total stock-based compensation expense

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

2020 Equity Incentive Plan

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, 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 with each of the 2016 Equity Incentive Plan option holders, pursuant to which the Company’s 16,994,976 common stock options which were granted under the 2016 Equity Incentive Plan, were cancelled.

The Cancellation Agreement resulted in the option holders receiving the same amount of cash that they would have received had they exercised their options,

participated in the repurchase described above and sold their remaining shares.

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

2020 Equity Incentive Plan

Profits Interests

The LP maintains the 2020 Equity Incentive Plan pursuant to which interests in the LP in the form of Class B Units (profits interests) may be granted to employees, directors, consultants, and advisers.

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

As of March 31, 2022, a total of 13,009,137 profits interests units have been granted under the 2020 Equity Incentive Plan.

TCO Group Holdings, L.P.

(the “LP”), the Company’s largest shareholder and prior to the IPO, the Company’s parent, maintains the 2020 Equity Incentive Plan pursuant to which interests in the LP in the form of Class B Units (profits interests) could be granted to employees, directors, consultants, and advisers.

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

As of September 30, 2022, a total of 13,009,137 profits interests units had been granted under the 2020 Equity Incentive Plan.

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

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

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

There were no grants following the IPO and during the three months ended September 30, 2022.

A summary of profits interests activity for the three months ended September 30, 2022 was as follows:

Weighted average

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Outstanding balance, June 30, 2022

( 2,409,972 )

Outstanding balance, March 31, 2022

Outstanding balance, September 30, 2022

Weighted average

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Outstanding balance, June 30, 2022

( 3,210,939 )

Outstanding balance, March 31, 2022

The total unrecognized compensation cost related to profits interests units outstanding as of March 31, 2022 was $ 6.4 million, comprised (i) $ 4.3 million related to time-based unit awards expected to be recognized over a weighted-average period of 0.9 years and (ii) $ 2.1 million related to performance-based unit awards, which will be recorded when it is probable that the performance-based criteria will be met.

Outstanding balance, September 30, 2022

The total unrecognized compensation cost related to profits interests units outstanding as of September 30, 2022 was $ 2.8 million, comprised (i) $ 1.6 million related to time-based unit awards expected to be recognized over a weighted-average period of 0.9 years and (ii) $ 1.3 million related to performance-based unit awards, which will be recorded when it is probable that the performance-based criteria will be met.

2021 Omnibus Incentive Plan

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

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

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

The Company has issued time-based stock options under this plan to its employees which generally vest at various intervals over a three-year period.

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 nine months ended March 31, 2022 was as follows:

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

grant-date fair

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Outstanding balance, June 30, 2022

Outstanding balance, March 31, 2022

The total unrecognized compensation cost related to time based restricted stock units outstanding as of March 31, 2022 was $ 4.0 million and is expected to be recognized over a weighted-average period of 2.0 years.

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

Outstanding balance, September 30, 2022

The total unrecognized compensation cost related to time based restricted stock units outstanding as of September 30, 2022 was $ 5.9 million and is expected to be recognized over a weighted-average period of 2.6 years.

A summary of performance based vesting restricted stock units activity for the three months ended September 30, 2022 was as follows:

grant-date fair

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Outstanding balance, June 30, 2022

Outstanding balance, March 31, 2022

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

Expected volatility

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 March 31, 2022 was $ 1.2 million and is expected to be recognized over a weighted-average period of 3.6 years.

Outstanding balance, September 30, 2022

The total unrecognized compensation cost related to performance based vesting restricted stock units outstanding as of September 30, 2022 was $ 1.0 million and is expected to be recognized over a weighted-average period of 3.1 years.

Nonqualified Stock Options

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

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

grant-date fair

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Outstanding balance, June 30, 2022

Outstanding balance, March 31, 2022

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

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

Outstanding balance, September 30, 2022

The total unrecognized compensation cost related to time-based vesting stock options outstanding as of September 30, 2022 was $ 0.6 million and is expected to be recognized over a weighted-average period of 2.4 years.

The fair value of the time-based stock options granted during the three months ended September 30, 2022, was based upon the Black-Scholes option pricing model using the assumptions in the following table:

Expected volatility

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Fair value of underlying stock

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

A summary of performance-based vesting stock option activity for the three months ended September 30, 2022 was as follows:

grant-date fair

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Outstanding balance, June 30, 2022

Outstanding balance, March 31, 2022

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

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

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

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

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

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

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

Outstanding balance, September 30, 2022

The total unrecognized compensation cost related to performance-based vesting stock options outstanding as of September 30, 2022 was $ 1.9 million and is expected to be recognized over a weighted-average period of 3.1 years.

The Company recorded an income tax benefit of $ 3.5 million and an income tax provision of $ 3.0 million for the three months ended September 30, 2022 and 2021, respectively.

This represents an effective tax rate of 20.6 % and 28.2 % for the three months ended September 30, 2022 and 2021, respectively.

The effective rate for the three months ended September 30, 2022 was different from the federal statutory rate primarily due to the Company’s book loss offset partially by disallowed officers’ compensation under Internal Revenue Code (“IRC”) Section 162(m), disallowed stock options related to the profit interest units, and lobbying expenses which occurred during the three month period.

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

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

As of the nine-month period ended March 31, 2022, the Company has determined that it is not “more likely than not” that the deferred tax assets associated with certain state net operating losses will be realized and as such continues to maintain a valuation allowance against these state deferred tax assets.

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

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

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

As of the three-month period ended September 30, 2022, the Company has determined that it is not “more likely than not” that the deferred tax assets associated with certain state net operating losses will be realized and as such continues to maintain a valuation allowance against these state deferred tax assets.

The Company has provided $ 4.1 million at each of September 30, 2022 and June 30, 2022, 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.

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.

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When net income from continuing operations exists, performance-based units, are omitted from the calculation of diluted EPS until it is determined that the performance criteria has been met at the end of the reporting period.

As of September 30, 2022, there was no dilutive shares therefore, there was no difference between basic and diluted net loss per common shares.

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

Three months ended March 31,

Nine months ended March 31,

Three months ended September 30,

in thousands, except share values

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Weighted average common shares outstanding (basic)

Earnings (loss) per share - basic

Dilutive shares

Weighted average common shares outstanding (diluted)

Earnings (loss) per share -diluted

EPS (diluted)

Segment Reporting

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The PACE-related operating segments are based on three geographic divisions, which are West, Central, and East.

Due to the similar economic characteristics, nature of services, and customers, we have aggregated our West, Central, and East operating segments into one reportable segment for PACE.

Due to the similar economic characteristics, nature of services, and customers, we have aggregated our West, Central, and East operating

segments into one reportable segment for PACE.

The Company’s remaining two operating segments relate to Homecare and Senior Housing, which are immaterial operating segments, and are shown below as "Other"

along with certain corporate unallocated expenses.

As of March 31, 2022, the Company served approximately 6,800 PACE participants, making it the largest PACE provider in the U.S.

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

PACE, an alternative to nursing homes, is a managed care, capitated program, which serves the frail elderly in a community-based service model.

Participants receive all medical services through a comprehensive, consolidated model of care.

Capitation payments are received from Medicare parts C and D;

the VA, and private pay sources.

The Company is at risk for all health and allied care costs incurred with respect to the care of its participants, although it does negotiate discounted rates with its provider network consisting of hospitals, nursing homes, assisted living facilities, and medical specialists.

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

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

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The Company allocates corporate level expenses to its segments with a majority of the allocation going to the PACE segment.

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

March 31, 2022

March 31, 2021

The following table summarizes the operating results regularly provided to the CODM by reportable segment:

September 30, 2022

September 30, 2021

(In thousands)

All other (1)

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Depreciation and amortization

Other operating income

Interest expense, net

Loss on extinguishment of debt

Gain on equity method investment

Other expense (income)

Income (Loss) Before Income Taxes

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

March 31, 2022

March 31, 2021

All other (1)

Capitation revenue

Other service revenue

Total revenues

External provider costs

Cost of care, excluding depreciation and amortization

Center-Level Contribution Margin

Overhead costs (2)

Depreciation and amortization

Other operating (income) expense

Interest expense, net

Loss on extinguishment of debt

Gain on equity method investment

Income (Loss) Before Income Taxes

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

2 unchanged sentences

(2) Overhead consists of the Sales and marketing and Corporate, general and administrative financial statement line items.

Related-party

Related Party Transactions

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

At each of March 31, 2022 and June 30, 2021, $ 0.7 million was recorded in Deposits and other.

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

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

Subsequent Events

The Company has evaluated subsequent events through May 10, 2022, the date on which the condensed consolidated financial statements were issued.

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

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

What changed 10-Q

Item 1. Financial Statements