InnovAge Holding Corp. 10-Q

Item 1. Financial Statements INNOVAGE HOLDING CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, June 30, ​ ​ 2022 ​ 2022 Assets ​ ​ ​ ​ ​ ​ Current Assets ​ ​ Cash and cash equivalents ​ $ 188,222 ​ $ 184,429 Restricted cash ​ 17 ​ 17 Accounts receivable, net of allowance ($ 4,264 – September 30, 2022 and $ 3,403 – June 30, 2022) ​ 37,517 ​ 35,907 Prepaid expenses ​ 12,165 ​ 13,842 Income tax receivable ​ 5,010 ​ 6,761 Total current assets ​ 242,931 ​ 240,956 Noncurrent Assets ​ ​ Property and equipment, net ​ 181,086 ​ 176,260 Operating lease assets ​ ​ 22,995 ​ ​ — Investments ​ 5,493 ​ 5,493 Deposits and other ​ 2,565 ​ 2,812 Goodwill ​ 124,217 ​ 124,217 Other intangible assets, net ​ 5,693 ​ 5,858 Total noncurrent assets ​ 342,049 ​ 314,640 Total assets ​ $ 584,980 ​ $ 555,596 Liabilities and Stockholders' Equity ​ ​ Current Liabilities ​ ​ Accounts payable and accrued expenses ​ $ 50,858 ​ $ 50,562 Reported and estimated claims ​ 35,974 ​ 38,454 Due to Medicaid and Medicare ​ ​ 10,633 ​ ​ 9,130 Current portion of long-term debt ​ 3,793 ​ 3,793 Current portion of finance lease obligations ​ 3,376 ​ 3,368 Current portion of operating lease obligations ​ ​ 3,420 ​ ​ — Deferred revenue ​ 23,361 ​ ​ — Total current liabilities ​ 131,415 ​ 105,307 Noncurrent Liabilities ​ ​ Deferred tax liability, net ​ 14,290 ​ 17,761 Finance lease obligations ​ ​ 8,792 ​ ​ 9,440 Operating lease obligations ​ 20,725 ​ — Other noncurrent liabilities ​ 1,135 ​ 1,134 Long-term debt, net of debt issuance costs ​ 67,369 ​ 68,210 Total liabilities ​ 243,726 ​ 201,852 Commitments and Contingencies (See Note 9) ​ ​ Redeemable Noncontrolling Interests (See Note 4) ​ ​ 14,734 ​ ​ 15,278 Stockholders’ Equity ​ ​ Common stock, $ 0.001 par value; 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 ​ 136 ​ 136 Additional paid-in capital ​ 328,708 ​ 327,499 Retained earnings (deficit) ​ ( 8,344 ) ​ 4,729 Total InnovAge Holding Corp. ​ 320,500 ​ 332,364 Noncontrolling interests ​ 6,020 ​ 6,102 Total stockholders’ equity ​ 326,520 ​ 338,466 Total liabilities and stockholders’ equity ​ $ 584,980 ​ $ 555,596 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 5 Table of Contents INNOVAGE HOLDING CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (In thousands, except number of shares and per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ ​ 2022 ​ ​ 2021 ​ Revenues ​ ​ Capitation revenue $ 170,931 ​ $ 172,554 ​ Other service revenue 287 ​ 516 ​ Total revenues 171,218 ​ 173,070 ​ Expenses ​ ​ External provider costs 96,237 ​ 90,012 ​ Cost of care, excluding depreciation and amortization 53,557 ​ 40,728 ​ Sales and marketing 4,413 ​ 6,293 ​ Corporate, general and administrative 30,181 ​ 21,084 ​ Depreciation and amortization 3,433 ​ 3,293 ​ Total expenses 187,821 ​ 161,410 ​ Operating Income (Loss) ( 16,603 ) ​ 11,660 ​ ​ ​ ​ ​ ​ ​ ​ Other Income (Expense) ​ ​ Interest expense, net ( 603 ) ​ ( 547 ) ​ Other income (expense) 37 ​ ( 493 ) ​ Total other expense ( 566 ) ​ ( 1,040 ) ​ Income (Loss) Before Income Taxes ( 17,169 ) ​ 10,620 ​ Provision (Benefit) for Income Taxes ( 3,470 ) ​ 2,996 ​ Net Income (Loss) ( 13,699 ) ​ 7,624 ​ Less: net loss attributable to noncontrolling interests ( 626 ) ​ ( 62 ) ​ Net Income (Loss) Attributable to InnovAge Holding Corp. $ ( 13,073 ) ​ $ 7,686 ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of common shares outstanding - basic 135,566,117 ​ 135,516,513 ​ Weighted-average number of common shares outstanding - diluted 135,566,117 ​ 135,516,513 ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share - basic $ ( 0.10 ) ​ $ 0.06 ​ Net income (loss) per share - diluted $ ( 0.10 ) ​ $ 0.06 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ ​ 6 Table of Contents ​ INNOVAGE HOLDING CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (In thousands, except share amounts) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional Retained ​ ​ ​ Total Redeemable ​ ​ ​ Capital Stock ​ Paid-in ​ Earnings ​ Treasury Stock ​ Noncontrolling ​ Permanent ​ Noncontrolling Interests ​ Net Income ​ ​ Shares ​ Amount ​ Capital ​ (Deficit) ​ Shares ​ Amount ​ Interests ​ Stockholders' Equity ​ (Temporary Equity) ​ (Loss) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2021 135,516,513 ​ $ 136 ​ $ 323,760 ​ $ 10,663 — ​ $ — ​ $ 6,420 ​ $ 340,979 ​ ​ 16,986 ​ ​ ​ Stock-based compensation — ​ — ​ 958 ​ — — ​ — ​ — ​ 958 ​ ​ — ​ ​ ​ Adjustments to redemption value — ​ — ​ — ​ 587 — ​ — ​ — ​ 587 ​ ​ ( 587 ) ​ ​ ​ Net income (loss) — ​ — ​ — ​ 7,686 — ​ — ​ ( 94 ) ​ 7,592 ​ ​ 32 ​ ​ 7,624 Balances, September 30, 2021 ​ 135,516,513 ​ $ 136 ​ $ 324,718 ​ $ 18,936 — ​ $ — ​ $ 6,326 ​ $ 350,116 ​ $ 16,431 ​ $ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional Retained ​ ​ ​ Total Redeemable ​ ​ ​ Capital Stock ​ Paid-in ​ Earnings ​ Treasury Stock ​ Noncontrolling ​ Permanent ​ Noncontrolling Interests ​ Net Income ​ ​ Shares ​ Amount ​ Capital ​ (Deficit) ​ Shares ​ Amount ​ Interests ​ Stockholders' Equity ​ (Temporary Equity) ​ (Loss) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2022 135,532,811 ​ $ 136 ​ $ 327,499 ​ $ 4,729 — ​ $ — ​ $ 6,102 ​ $ 338,466 ​ ​ 15,278 ​ ​ ​ Stock-based compensation 37,267 ​ — ​ 1,209 ​ — — ​ — ​ — ​ 1,209 ​ ​ — ​ ​ ​ Adjustments to redemption value ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ Net income (loss) — ​ — ​ — ​ ( 13,073 ) — ​ — ​ ( 82 ) ​ ( 13,155 ) ​ ​ ( 544 ) ​ ​ ( 13,699 ) Balances, September 30, 2022 ​ 135,570,078 ​ $ 136 ​ $ 328,708 ​ $ ( 8,344 ) — ​ $ — ​ $ 6,020 ​ $ 326,520 ​ $ 14,734 ​ $ ​ ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 7 Table of Contents INNOVAGE HOLDING CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended September 30, ​ ​ 2022 ​ 2021 Operating Activities ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 13,699 ) ​ $ 7,624 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities ​ ​ (Gain) Loss on disposal of assets ​ ( 37 ) ​ 493 Provision for uncollectible accounts ​ 1,571 ​ 1,268 Depreciation and amortization ​ 3,433 ​ 3,293 Noncash lease expense ​ ​ 761 ​ ​ — Amortization of deferred financing costs ​ 107 ​ 107 Stock-based compensation ​ 1,209 ​ 958 Deferred income taxes ​ ( 3,470 ) ​ 1,230 Changes in operating assets and liabilities, net of acquisitions ​ ​ Accounts receivable, net ​ ( 3,180 ) ​ 2,929 Prepaid expenses ​ 1,678 ​ ( 1,597 ) Income tax receivable ​ 1,750 ​ 1,766 Deposits and other ​ 246 ​ ( 309 ) Accounts payable and accrued expenses ​ 1,155 ​ 1,248 Reported and estimated claims ​ ( 2,480 ) ​ 106 Due to Medicaid and Medicare ​ 1,503 ​ 1,443 Operating lease liabilities ​ ( 781 ) ​ — Deferred revenue ​ 23,361 ​ — Net cash provided by operating activities ​ 13,127 ​ 20,559 Investing Activities ​ ​ Purchases of property and equipment ​ ( 7,666 ) ​ ( 3,042 ) Purchase of cost method investment ​ — ​ ( 2,000 ) Net cash used in investing activities ​ $ ( 7,666 ) ​ $ ( 5,042 ) Financing Activities ​ ​ ​ ​ ​ Payments for finance lease obligations ​ ( 720 ) ​ ( 505 ) Principal payments on long-term debt ​ ( 948 ) ​ ( 947 ) Net cash used in financing activities ​ ( 1,668 ) ​ ( 1,452 ) ​ ​ ​ ​ ​ ​ ​ INCREASE IN CASH, CASH EQUIVALENTS & RESTRICTED CASH ​ 3,793 ​ 14,065 CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD ​ 184,446 ​ 203,700 CASH, CASH EQUIVALENTS & RESTRICTED CASH, END OF PERIOD ​ $ 188,239 ​ $ 217,765 ​ ​ ​ ​ ​ ​ ​ Supplemental Cash Flows Information ​ ​ Interest paid ​ $ 700 ​ $ 573 Income taxes paid ​ $ 13 ​ $ — Property and equipment included in accounts payable ​ $ 2,446 ​ $ 272 Property and equipment purchased under finance leases ​ $ 80 ​ $ 127 The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 8 Table of Contents ​ INNOVAGE HOLDING CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) ​ Note 1: Business InnovAge Holding Corp. and its subsidiaries, are headquartered in Denver, Colorado. The Company manages, and in many cases directly provides, a broad range of medical and ancillary services for seniors in need of care and support to safely live independently in their homes and communities, including in-home care services (skilled, unskilled and personal care); in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to the Program of All-Inclusive Care for the Elderly (“PACE”) center and third-party medical appointments; and care management. The Company manages its business as one reportable segment, PACE. As of 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. InnovAge is obligated to provide, and participants receive all needed healthcare services through an all-inclusive, coordinated model of care, and the Company is at risk for 100 % of healthcare costs incurred with respect to the care of its participants. PACE programs receive capitation payments directly from Medicare Parts C and D, Medicaid, Veterans Administration (“VA”), and private pay sources. Additionally, under the Medicare Prescription Drug Plan, the Centers for Medicare and Medicaid Services (“CMS”) share part of the risk for providing prescription medication to the Company’s participants. The Company’s common stock is traded on the Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbol “INNV.” ​ Note 2: 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”). 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 The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such regulations. These financial statements have been prepared on a basis consistent with the accounting principles applied for the fiscal year ended June 30, 2022. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. The condensed consolidated financial statements include the accounts of InnovAge, its wholly owned subsidiaries, variable interest entities (“VIEs”) 9 Table of Contents for which it is the primary beneficiary and entities for which it has a controlling interest. All intercompany accounts and transactions have been eliminated in consolidation. 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 September 30, 2022 and June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ dollars in thousands ​ Useful Lives ​ September 30, 2022 ​ June 30, 2022 Land N/A ​ $ 11,980 ​ $ 11,980 Buildings and leasehold improvements 10 - 40 years ​ 122,076 ​ 122,076 Software 3 - 5 years ​ 16,425 ​ 16,264 Equipment and vehicles 3 - 7 years ​ 48,054 ​ 47,546 Construction in progress N/A ​ 42,783 ​ 35,479 ​ ​ ​ 241,318 ​ ​ 233,345 Less: accumulated depreciation and amortization ​ ​ ( 60,232 ) ​ ( 57,085 ) Total property and equipment, net ​ ​ ​ $ 181,086 ​ $ 176,260 ​ 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 Leases 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.” 10 Table of Contents ​ Recent Accounting Pronouncements Not Yet Adopted Financial Instruments In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ( “ASU 2019-04” ) , which requires entities to use a current expected credit loss (“CECL”) model to measure impairment for most financial assets that are not recorded at fair value through net income. Under the CECL model, an entity will estimate lifetime expected credit losses considering available relevant information about historical events, current conditions and supportable forecasts. The CECL model does not apply to available-for-sale debt securities. This guidance also expands the required credit loss disclosures and will be applied using a modified retrospective approach by recording a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2019-04 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt this guidance for the annual and interim reporting periods beginning July 1, 2023. The Company has not determined the effect of the standard on its condensed consolidated financial statements. We do not expect that any other recently issued accounting guidance will have a significant effect on our condensed consolidated financial statements. ​ Note 3: Revenue Recognition Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performed the following five steps: (i) Identify the contract(s) with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; and (v) Recognize revenue as the entity satisfies a performance obligation. 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. 11 Table of Contents The Company disaggregates capitation revenue from the following sources for the three months ended: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ 2022 2021 Medicaid 55 % 53 % Medicare 45 % 47 % Private pay and other * % * % Total 100 % 100 % * Less than 1 % ​ The Company determined the transaction price for these contracts is the amount we expect to be entitled to, which is the most likely amount. For certain capitation payments, the Company is subject to retroactive premium risk adjustments based on various factors. The Company estimates the amount of the adjustment and records it monthly on a straight-line basis. These adjustments are not expected to be material. The capitation revenues are recognized based on the estimated PMPM transaction price to transfer the service for a distinct increment of the series (i.e. month). We recognize revenue in the month in which participants are entitled to receive comprehensive care benefits during the contract term. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component. The Company also provides prescription drug benefits in accordance with Medicare Part D. Monthly payments received from CMS and the participants represent the bid amount for providing prescription drug coverage. The portion received from CMS is subject to risk sharing through Medicare Part D risk-sharing corridor provisions. These risk-sharing corridor provisions compare costs targeted in the Company’s bid to actual prescription drug costs. The Company estimates and records a monthly adjustment to Medicare Part D revenues associated with these risk-sharing corridor provisions. Medicare Part D comprised 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, ​ June 30, ​ ​ 2022 2022 Medicaid 45 % 70 % Medicare 48 % 22 % Private pay and other 7 % 8 % Total 100 % 100 % ​ The Company records accounts receivable at net realizable value, which includes an allowance for estimated uncollectible accounts. The allowance for uncollectible accounts reflects the Company’s best estimate of probable losses considering eligibility, historical experience, and existing economic conditions. 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. 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 0.2 % 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. 12 Table of Contents 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 9, “Commitments and Contingencies.” ​ Note 4: Investments The Company holds equity method and cost method investments as of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ June 30, in thousands 2022 2022 Cost method investments ​ $ 4,645 ​ $ 4,645 Equity method investments ​ 848 ​ 848 Total investments ​ $ 5,493 ​ $ 5,493 ​ 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 three months ended September 30, 2022 and 2021, there were no observable price changes or impairments recorded. Jetdoc ​ 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. ​ 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. ​ Equity Method Investments ​ Pinewood Lodge ​ The Company’s operations include a Senior Housing unit that primarily includes the accounts of Continental Community Housing (“CCH”), the general partner of Pinewood Lodge, LLP (“ PWD”) which was organized to develop, construct, own, maintain, and operate certain apartment complexes intended for rental to low-income elderly individuals aged 62 or older. PWD is a VIE, but the Company is not the primary beneficiary. The Company does not have the power to direct the activities that most significantly impact the economic performance of PWD. Accordingly, the Company does not consolidate PWD. PWD is accounted for using the equity method of accounting. The equity earnings of PWD are insignificant. 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. 13 Table of Contents Noncontrolling Interest Senior Housing ​ The Company’s operations include a 0.01 % partnership interest in InnovAge Senior Housing Thornton, LLC (“SH1”), which was organized to develop, construct, own, maintain, and operate certain apartment complexes intended for rental to low-income elderly individuals aged 62 or older. SH1 is a VIE. The Company is the primary beneficiary of SH1 and consolidates SH1. The Company is the primary beneficiary of SH1 as 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 senior housing facility. The Company has provided a subordinated loan to SH1 and has provided a guarantee for a convertible term loan held by SH1. Redeemable Noncontrolling Interest InnovAge Sacramento ​ On March 18, 2019, in connection with the formation of InnovAge Sacramento, the joint venture with Adventist Health System/West (“Adventist”) and Eskaton Properties, Incorporated (“Eskaton”), the Company contributed $ 9.0 million in cash and land valued at $ 4.2 million for a 59.9 % membership interest in the joint venture, InnovAge Sacramento. Further, Adventist contributed $ 5.8 million in cash and Eskaton contributed $ 3.0 million in cash for membership interests of 26.4 % and 13.7 %, respectively. 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 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 $ 14.7 million was recorded at carrying value as of September 30, 2022. ​ Note 5: Fair Value Measurements Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants, at the measurement date. A fair value hierarchy was established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources outside the reporting entity. Unobservable inputs are inputs that reflect the Company’s own assumptions based on market data and assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The sensitivity to changes in inputs and their impact on fair value measurements can be significant. The three levels of inputs that may be used to measure fair value are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date Level 2 Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the assets or liabilities 14 Table of Contents Level 3 Unobservable inputs to the valuation techniques that are significant to the fair value measurements of the assets or liabilities Recurring Measurements 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 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. Note 6: Goodwill and Intangible Assets 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. Pursuant to ASC 350, “ Intangibles – Goodwill and Other ,” we review the recoverability of goodwill annually as of April 1 or whenever significant events or changes occur which might impair the recovery of recorded amounts. For purposes of the annual goodwill impairment assessment, the Company has identified three reporting units. There were no indicators of impairment identified and no goodwill impairments recorded during the three months ended September 30, 2022 and 2021. Intangibles assets consisted of the following as of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ June 30, in thousands 2022 2022 Definite-lived intangible assets ​ $ 6,600 ​ $ 6,600 Indefinite-lived intangible assets ​ ​ 2,000 ​ ​ 2,000 Total intangible assets ​ ​ 8,600 ​ ​ 8,600 Accumulated amortization ​ ​ ( 2,907 ) ​ ​ ( 2,742 ) Balance as of end of period ​ $ 5,693 ​ $ 5,858 ​ 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 three months ended September 30, 2022 and 2021. ​ Note 7: Leases 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 15 Table of Contents 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, ​ ​ ​ 2022 ​ ​ in thousands Assets: ​ ​ ​ Operating lease assets Operating lease assets $ 22,995 Finance lease assets Property and equipment, net 10,434 Total leased assets ​ $ 33,429 ​ 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, ​ ​ ​ 2022 ​ ​ in thousands Operating lease cost Cost of care excluding depreciation and amortization and Corporate, general and administrative $ 1,025 Finance lease expense: ​ ​ ​ Amortization of leased assets Depreciation and amortization 769 Interest on lease liabilities Interest expense, net ​ 317 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 ​ 11 Total lease expense ​ $ 2,122 ​ 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, ​ ​ 2022 Operating leases 8.8 years Finance leases ​ 3.8 years ​ 16 Table of Contents ​ ​ ​ ​ Weighted average discount rate: ​ September 30, ​ ​ ​ 2022 ​ Operating leases 6.61 % Finance leases ​ 8.76 % ​ The following table includes the future maturities of lease payments for operating leases and finance leases for periods subsequent to September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating ​ Finance ​ ​ ​ in thousands ​ Lease ​ Lease ​ Total Amount remaining in 2023 ​ $ 3,586 ​ $ 3,320 ​ $ 6,906 2024 ​ 4,543 ​ 3,922 ​ 8,465 2025 ​ 4,136 ​ 3,140 ​ 7,276 2026 ​ 4,061 ​ 2,115 ​ 6,176 2027 ​ 3,764 ​ 1,419 ​ 5,183 Thereafter ​ 10,302 ​ 537 ​ 10,839 Total lease payments ​ 30,392 ​ 14,453 ​ 44,845 Less liability accretion / imputed interest ​ ( 6,247 ) ​ ( 2,285 ) ​ ( 8,532 ) Total lease liabilities ​ 24,145 ​ 12,168 ​ 36,313 Less: Current lease liabilities ​ 3,420 ​ 3,376 ​ 6,796 Total long-term lease liabilities ​ $ 20,725 ​ $ 8,792 ​ $ 29,517 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating ​ Capital in thousands ​ Lease ​ Lease Amount remaining in 2023 ​ $ 4,873 ​ $ 4,405 2024 ​ 4,581 ​ 3,909 2025 ​ 4,122 ​ 3,126 2026 ​ 4,061 ​ 2,092 2027 ​ 3,764 ​ 1,393 Thereafter ​ 10,265 ​ 535 Total minimal rental payments ​ 31,666 ​ 15,460 Less: Amount representing interest ​ ​ ​ ​ ( 2,652 ) Subtotal ​ ​ ​ ​ 12,808 Current portion ​ ​ ​ ​ 3,368 Long-term portion ​ ​ ​ ​ $ 9,440 ​ ​ ​ ​ ​ ​ 17 Table of Contents Note 8. Long Term Debt Long-term debt consisted of the following at September 30, 2022 and June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, June 30, ​ ​ 2022 ​ 2022 ​ ​ in thousands Senior secured borrowings: ​ ​ ​ ​ ​ ​ Term Loan Facility ​ $ 70,313 ​ $ 71,250 Convertible term loan ​ 2,317 ​ 2,327 Total debt ​ 72,630 ​ 73,577 Less: unamortized debt issuance costs ​ 1,468 ​ 1,574 Less: current maturities ​ 3,793 ​ 3,793 Noncurrent maturities ​ $ 67,369 ​ $ 68,210 (a) The interest rates on the Term Loan Facility and Revolving Credit Facility are described below. (b) The remaining capacity under the Revolving Credit Facility as of September 30, 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, 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 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 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 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. Additionally, annual capital expenditures and permitted investments, including acquisitions, are limited to amounts specified in the 2021 Credit Agreement. The 2021 Credit Agreement also provides certain restrictions on dividend payments and other equity transactions and requires the Company to make prepayments under specified circumstances. 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 On June 29, 2015, SH1 entered into a convertible term loan. Monthly principal and interest payments of $ 0.02 million commenced on September 1, 2015. The loan is secured by a deed of trust to Public Trustee, assignment of leases and rents, security agreements, and SH1’s fixture filing. ​ ​ 18 Table of Contents Note 9: Commitments and Contingencies Professional Liability The Company pays fixed premiums for annual professional liability insurance coverage under a claims-made policy. Under such policy, only claims made and reported to the insurer are covered during the policy term, regardless of when the incident giving rise to the claim occurred. The Company records claim liabilities and expected recoveries, if any, at gross amounts. The Company is not currently aware of any unasserted claims or unreported incidents that are expected to exceed medical malpractice insurance coverage limits. Litigation From time to time, in the normal course of business, the Company is involved in or subject to legal proceedings related to its business, including those described below. The Company regularly evaluates the status of claims and legal proceedings in which it is involved in order to assess whether a loss is probable or there is a reasonable possibility that a loss may have been incurred, and to determine if accruals are appropriate. The Company 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 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. ​ 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. 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. 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. ​ ​ ​ 19 Table of Contents Note 10: Stock-based Compensation A summary of our aggregate stock-based compensation expense is set forth below. Stock-based compensation expense is included in corporate, general and administrative expenses on our consolidated statements of operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ 2022 2021 ​ ​ in thousands ​ ​ ​ ​ ​ ​ ​ Stock options ​ $ 570 ​ $ — Profits interests units ​ 254 ​ 590 Restricted stock units ​ ​ 476 ​ ​ 368 Total stock-based compensation expense ​ $ 1,300 ​ $ 958 ​ 2020 Equity Incentive Plan Profits Interests 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted average Time-based unit awards ​ units ​ grant date fair value ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2022 2,158,072 ​ $ 1.28 Granted ​ — ​ $ — Forfeited — ​ $ — Vested ​ ( 821,331 ) ​ $ 1.28 Outstanding balance, September 30, 2022 1,336,741 ​ $ 1.28 ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted average Performance-based unit awards ​ units ​ grant date fair value ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2022 2,217,865 ​ $ 0.57 Granted ​ — ​ $ — Forfeited — ​ $ — Vested ​ — ​ $ — Outstanding balance, September 30, 2022 2,217,865 ​ $ 0.57 ​ 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. 20 Table of Contents 2021 Omnibus Incentive Plan In March 2021, the compensation committee of our Board of Directors approved the InnovAge Holding Corp. 2021 Omnibus Incentive Plan (the “2021 Omnibus Incentive Plan”), pursuant to which various stock-based awards may be granted to employees, directors, consultants, and advisers. The total number of shares of the Company’s common stock authorized under the 2021 Omnibus Incentive Plan is 14,700,000 . 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 been used. 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 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 three months ended September 30, 2022 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ average ​ ​ Number of ​ ​ grant-date fair Restricted stock units - time based ​ awards ​ ​ value per share ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2022 476,768 ​ $ 9.69 Forfeited ​ ( 84,688 ) ​ $ 5.45 Vested ​ ( 51,519 ) ​ $ 4.50 Granted 986,200 ​ $ 5.99 Outstanding balance, September 30, 2022 1,326,761 ​ $ 5.99 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ average ​ ​ Number of ​ ​ grant-date fair Restricted stock units - performance based ​ awards ​ ​ value per share ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2022 258,767 ​ $ 5.18 Forfeited ​ — ​ $ — Vested — ​ $ — Granted ​ — ​ $ — Outstanding balance, September 30, 2022 258,767 ​ $ 5.18 ​ 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. 21 Table of Contents Nonqualified Stock Options A summary of time-based vesting stock option activity for the three months ended September 30, 2022 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ average ​ ​ Number of ​ ​ grant-date fair Stock options - time based ​ awards ​ ​ value per share ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2022 554,499 ​ $ 1.61 Granted 81,082 ​ $ 0.80 Forfeited ​ — ​ $ — Outstanding balance, September 30, 2022 635,581 ​ $ 1.21 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ Expected volatility ​ ​ 34.5 % Weighted-average expected life (years) - time vesting units ​ ​ 2.9 ​ Interest rate ​ 1.56 % Dividend yield ​ 0 % Weighted-average fair values ​ $ 0.80 ​ Fair value of underlying stock $ 3.70 ​ ​ A summary of performance-based vesting stock option activity for the three months ended September 30, 2022 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ average ​ ​ Number of ​ ​ grant-date fair Stock options - performance based ​ awards ​ ​ value per share ​ ​ ​ ​ ​ ​ Outstanding balance, June 30, 2022 776,299 ​ $ 3.08 Granted — ​ $ — Forfeited ​ — ​ $ — Outstanding balance, September 30, 2022 776,299 ​ $ 3.08 ​ 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. ​ Note 11: Income Taxes 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. 22 Table of Contents 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. The determination of whether a valuation allowance for deferred tax assets is appropriate requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize deferred tax assets, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. In estimating income taxes, the Company assesses the relative merits and risks of the appropriate income tax treatment of transactions taking into account statutory, judicial, and regulatory guidance. As of the three-month period ended September 30, 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. ​ Note 12: Earnings per Share 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. When a loss from continuing operations exists, all dilutive securities and potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share. When net income from continuing operations exists, performance-based units, are omitted from the calculation of diluted EPS until it is determined that the performance criteria has been met at the end of the reporting period. As of 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 September 30, in thousands, except share values 2022 2021 Net income (loss) attributable to InnovAge Holding Corp. ​ $ ( 13,073 ) ​ $ 7,686 Weighted average common shares outstanding (basic) ​ 135,566,117 ​ 135,516,513 EPS (basic) ​ $ ( 0.10 ) ​ $ 0.06 ​ ​ ​ ​ ​ ​ ​ Dilutive shares ​ — ​ — Weighted average common shares outstanding (diluted) ​ 135,566,117 ​ 135,516,513 EPS (diluted) ​ $ ( 0.10 ) ​ $ 0.06 ​ ​ Note 13: Segment Reporting The Company applies ASC Topic 280, " Segment Reporting ," which establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about operations, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the Company’s chief executive officer, who is the chief operating decision maker (“CODM”), and for which discrete financial information is available. The Company has determined that it has five operating segments, three of which are related to the Company’s PACE offering. The PACE-related operating segments are based on three geographic divisions, which are West, Central, and East. Due to the similar economic characteristics, nature of services, and customers, we have aggregated our West, Central, and East operating 23 Table of Contents 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. The Company evaluates performance and allocates capital resources to each segment based on an operating model that is designed to maximize the provision of services provided and profitability. The Company does not review assets by segment and therefore assets by segment are not disclosed below. For the periods presented, all of the Company’s long-lived assets were located in the U.S. and all revenue was earned in the U.S. The Company’s management uses Center-level Contribution Margin as the measure for assessing performance of its segments. Center-level Contribution Margin is defined as total revenues less external provider costs and cost of care (excluding depreciation and amortization), which includes all medical and pharmacy costs. The Company allocates corporate level expenses to its segments with a majority of the allocation going to the PACE segment. The following table summarizes the operating results regularly provided to the CODM by reportable segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ September 30, 2021 (In thousands) PACE All other (1) Totals PACE All other (1) Totals Capitation revenue ​ $ 170,931 ​ $ — ​ $ 170,931 ​ $ 172,554 ​ $ — ​ $ 172,554 Other service revenue ​ 77 ​ 210 ​ 287 ​ 9 ​ 507 ​ 516 Total revenues ​ 171,008 ​ 210 ​ 171,218 ​ 172,563 ​ 507 ​ 173,070 External provider costs ​ 96,237 ​ — ​ 96,237 ​ 90,012 ​ — ​ 90,012 Cost of care, excluding depreciation and amortization ​ 53,411 ​ 146 ​ 53,557 ​ 40,101 ​ 627 ​ 40,728 Center-Level Contribution Margin ​ 21,360 ​ 64 ​ 21,424 ​ 42,450 ​ ( 120 ) ​ ​ 42,330 Overhead costs (2) ​ 34,574 ​ 20 ​ 34,594 ​ 27,391 ​ ( 14 ) ​ 27,377 Depreciation and amortization ​ 3,326 ​ 107 ​ 3,433 ​ 3,185 ​ 108 ​ 3,293 Interest expense, net ​ ( 557 ) ​ ( 46 ) ​ ( 603 ) ​ ( 496 ) ​ ( 51 ) ​ ( 547 ) Other expense (income) ​ 37 ​ — ​ 37 ​ ( 493 ) ​ — ​ ( 493 ) Income (Loss) Before Income Taxes ​ $ ( 17,060 ) ​ $ ( 109 ) ​ $ ( 17,169 ) ​ $ 10,885 ​ $ ( 265 ) ​ $ 10,620 ​ (1) Center-level Contribution Margin from segments below the quantitative thresholds are attributable to two operating segments of the Company. Those segments consist of Homecare and Senior Housing. Neither of those segments has ever met any of the quantitative thresholds for determining reportable segments. (2) Overhead consists of the Sales and marketing and Corporate, general and administrative financial statement line items. ​ ​ Note 14: 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 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. ​ Note 15: Subsequent Events The Company has evaluated subsequent events through the date on which the condensed consolidated financial statements were issued. ​ ​ 24 Table of Contents