What changed in this filing

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Item 1. Financial Statements

2023-02-07 compared with 2022-11-08 · 150 added, 100 removed, 511 unchanged (33% of the section changed)

4 unchanged sentences

(In thousands, except per share data)

September 30,

Current Assets

Cash and cash equivalents

Short-term investments

Restricted cash

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

Accounts receivable, net of allowance ($ 4,202 – December 31, 2022 and $ 3,403 – June 30, 2022)

Prepaid expenses

15 unchanged sentences

Current portion of operating lease obligations

Deferred revenue

Total current liabilities

10 unchanged sentences

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

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

135,596,225 and 135,532,811 issued shares as of December 31, 2022 and June 30, 2022, respectively

Additional paid-in capital

9 unchanged sentences

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

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Capitation revenue

26 unchanged sentences

(In thousands, except share amounts)

For the Three Months Ended December 31, 2022

Capital Stock

Treasury Stock

Noncontrolling

2 unchanged sentences

(Temporary Equity)

Balances, September 30, 2022

Stock-based compensation

Adjustments to redemption value

Balances, December 31, 2022

For the Six Months Ended December 31, 2022

Capital Stock

Noncontrolling

Noncontrolling Interests

Stockholders' Equity

(Temporary Equity)

Balances, June 30, 2022

1 unchanged sentence

Adjustments to redemption value

Net income (loss)

Balances, December 31, 2022

For the Three Months Ended December 31, 2021

Capital Stock

Noncontrolling

Noncontrolling Interests

Stockholders' Equity

(Temporary Equity)

Balances, September 30, 2021

Stock-based compensation

Adjustments to redemption value

Net income (loss)

Balances, December 31, 2021

For the Six Months Ended December 31, 2021

Capital Stock

Treasury Stock

Noncontrolling

6 unchanged sentences

Net income (loss)

Balances, September 30, 2022

Balances, December 31, 2021

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

3 unchanged sentences

(In thousands)

For the Three Months Ended September 30,

For the Six Months Ended December 31,

Operating Activities

4 unchanged sentences

Depreciation and amortization

Noncash lease expense

Operating lease rentals

Amortization of deferred financing costs

10 unchanged sentences

Operating lease liabilities

Deferred revenue

Net cash provided by operating activities

Net cash provided (used) by operating activities

Investing Activities

Purchases of property and equipment

Purchases of short-term investments

Purchase of cost method investment

4 unchanged sentences

Net cash used in financing activities

INCREASE IN CASH, CASH EQUIVALENTS & RESTRICTED CASH

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

CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD

16 unchanged sentences

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.

As of December 31, 2022, the Company served approximately 6,460 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.

5 unchanged sentences

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

With the exception of Recently Adopted Accounting Pronouncements described below, there were no significant changes to those accounting policies during the six months ended December 31, 2022.

Basis of Preparation and Principles of Consolidation

10 unchanged sentences

Property and Equipment

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

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

dollars in thousands

September 30, 2022

December 31, 2022

June 30, 2022

5 unchanged sentences

Total property and equipment, net

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

Depreciation of $ 3.3 million and $ 2.8 million was recorded during the three months ended December 31, 2022 and 2021, respectively.

Depreciation of $ 6.5 million and $ 6.1 million was recorded during the six months ended December 31, 2022 and 2021, respectively.

Recently Adopted Accounting Pronouncements

24 unchanged sentences

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:

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

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

18 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 three months ended:

September 30,

Costs to obtain contracts consist of sales commissions for new enrollees and are included in deposits and other.

These costs are amortized over a three-year period which corresponds to

the average time a participant is enrolled in the PACE program.

As of December 31, 2022 and June 30, 2022 contract assets included within deposits and other were $ 0.5 million and nil , respectively.

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

Private pay and other

12 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 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.

Medicare Part D comprised 12 % of capitation revenues for each of the three months ended December 31, 2022 and 2021.

Medicare Part D comprised 12 % of capitation revenues for each of the six months ended December 31, 2022 and 2021.

Our accounts receivable as of December 31, 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 $ 4.3 million as of September 30, 2022, compared to $ 3.4 million as of June 30, 2022.

The balance of the allowance for uncollectible accounts was $ 4.2 million as of December 31, 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 0.3 % 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.

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

Other service revenue was 0.2 % and 0.3 % of total revenue for the six months ended December 31, 2022 and 2021, respectively.

Accounts receivable related to other service revenue was not significant as of both December 31, 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 three months ended September 30, 2022 and 2021, there were no observable price changes or impairments recorded.

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

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

12 unchanged sentences

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.

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.

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

Noncontrolling Interest

12 unchanged sentences

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

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

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

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

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

The redeemable noncontrolling interest of $ 14.1 million was recorded at carrying value as of December 31, 2022.

Fair Value Measurements

2 unchanged sentences

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.

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.

3 unchanged sentences

Unobservable inputs to the valuation techniques that are significant to the fair value measurements of the assets or liabilities

The following table shows the Company’s cash, cash equivalents and marketable securities by significant investment category as of December 31, 2022:

Money market funds

Recurring Measurements

3 unchanged sentences

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.

As of December 31, 2022, the Company’s redeemable noncontrolling interest was recorded at carrying value of $ 14.1 million.

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

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 amounted to $ 124.2 million at each of December 31, 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 three months ended September 30, 2022 and 2021.

Intangibles assets consisted of the following as of:

September 30,

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

Intangible assets consisted of the following as of:

Definite-lived intangible assets

4 unchanged sentences

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.

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

The Company recorded amortization expense of $ 0.3 million and $ 0.3 million for the six months ended December 31, 2022 and 2021, respectively.

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

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

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

Leasing Arrangements as Lessee

3 unchanged sentences

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.

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.

7 unchanged sentences

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:

The following table presents the components of our ROU assets and their classification in our Balance Sheet at December 31, 2022:

Component of Lease Balances

Balance Sheet Line Items

Three months ended September 30,

Six months ended December 31,

Operating lease assets

3 unchanged sentences

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:

The following table presents the components of our lease cost and the classification of such costs in our Statements of Operations for the six months ended December 31, 2022:

Component of Lease Cost

Statements of Operations Line Items

Three months ended September 30,

Six months ended December 31,

Operating lease cost

10 unchanged sentences

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:

The following table includes the weighted-average lease terms and discount rates for operating and finance leases as of December 31, 2022:

Weighted average remaining lease term:

September 30,

Operating leases

1 unchanged sentence

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:

The following table includes the future maturities of lease payments for operating leases and finance leases for periods subsequent to December 31, 2022:

Amount remaining in 2023

11 unchanged sentences

Long-Term Debt

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

September 30,

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

Senior secured borrowings:

4 unchanged sentences

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 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.

The remaining capacity under the Revolving Credit Facility as of December 31, 2022 was $ 97.2 million, subject to (i) any issued amounts under our letters of credit, which as of December 31, 2022 was $ 2.8 million, and (ii) applicable to covenant compliance restrictions and any other conditions precedent to borrowing.

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

2 unchanged sentences

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 %.

As of December 31, 2022, the interest rate on the Term Loan Facility was 6.14 %.

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.

As of December 31, 2022, we had no borrowings outstanding, $ 2.8 million of letters of credit issued, and $ 97.2 million of remaining capacity under the Revolving Credit Facility.

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

1 unchanged sentence

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

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

As of December 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 condensed consolidated balance sheets.

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

Total amortization of deferred financing costs was $ 0.2 million for the six months ended December 31, 2022.

Convertible Term Loan

1 unchanged sentence

Monthly principal and interest payments of $ 0.02 million commenced on September 1, 2015.

The loan bears interest at an annual rate of 6.68 %, with the remaining principal balance due upon maturity at August 20, 2030.

The loan is secured by a deed of trust to Public Trustee, assignment of leases and rents, security agreements, and SH1’s fixture filing.

9 unchanged sentences

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.

Through the complaint, plaintiffs are asserting claims against the Company, certain of the Company’s officers and directors, the Company’s former CEO, Apax Partners, L.P., Welsh, Carson, Anderson & Stowe and the underwriters in the Company’s IPO alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 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 to impose control person liability against the officer and director defendants, Apax Partners, L.P.

and Welsh, Carson, Anderson & Stowe.

The complaint seeks compensatory damages, among other things.

On September 13, 2022, the Company and the officer and director defendants and Apax Partners, L.P.

and Welsh, Carson, Anderson & Stowe filed a motion to dismiss the amended complaint for failure to state a claim upon which relief can be granted.

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

5 unchanged sentences

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).

In December 2022, the Company received a supplemental civil investigative demand requesting supplemental information on the same matters.

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

8 unchanged sentences

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

Three months ended September 30,

Six months ended December 31,

Three months ended December 31,

Stock options

7 unchanged sentences

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.

As of December 31, 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:

There were no grants following the IPO and during the six months ended December 31, 2022.

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

Weighted average

2 unchanged sentences

Outstanding balance, June 30, 2022

Outstanding balance, September 30, 2022

Outstanding balance, December 31, 2022

Weighted average

2 unchanged sentences

Outstanding balance, June 30, 2022

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.

Outstanding balance, December 31, 2022

The total unrecognized compensation cost related to profits interests units outstanding as of December 31, 2022 was $ 2.5 million, comprised (i) $ 1.3 million related to time-based unit awards expected to be recognized over a weighted-average period of 0.9 years and (ii) $ 1.2 million related to performance-based unit awards, which will be recorded when it is probable that the performance-based criteria will be met.

2021 Omnibus Incentive Plan

9 unchanged sentences

Restricted Stock Units

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

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

grant-date fair

2 unchanged sentences

Outstanding balance, June 30, 2022

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:

Outstanding balance, December 31, 2022

The total unrecognized compensation cost related to time based restricted stock units outstanding as of December 31, 2022 was $ 5.1 million and is expected to be recognized over a weighted-average period of 2.3 years.

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

grant-date fair

2 unchanged sentences

Outstanding balance, June 30, 2022

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.

Outstanding balance, December 31, 2022

The total unrecognized compensation cost related to performance based vesting restricted stock units outstanding as of December 31, 2022 was $ 1.0 million and is expected to be recognized over a weighted-average period of 2.8 years.

Nonqualified Stock Options

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

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

grant-date fair

2 unchanged sentences

Outstanding balance, June 30, 2022

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:

Outstanding balance, December 31, 2022

The total unrecognized compensation cost related to time-based vesting stock options outstanding as of December 31, 2022 was $ 0.5 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 six months ended December 31, 2022, was based upon the Black-Scholes option pricing model using the assumptions in the following table:

Expected volatility

4 unchanged sentences

Fair value of underlying stock

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

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

grant-date fair

2 unchanged sentences

Outstanding balance, June 30, 2022

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.

Outstanding balance, December 31, 2022

The total unrecognized compensation cost related to performance-based vesting stock options outstanding as of December 31, 2022 was $ 1.7 million and is expected to be recognized over a weighted-average period of 2.9 years.

The Company recorded an income tax benefit of $ 2.9 million and an income tax provision of $ 1.2 million for the three months ended December 31, 2022 and 2021, respectively.

The Company recorded an income tax benefit of $ 6.4 million and an income tax provision of $ 4.2 million for the six months ended December 31, 2022 and 2021, respectively.

represents an effective tax rate of 20.9 % and 32.5 % for the three months ended December 31, 2022 and 2021, respectively.

This represents an effective tax rate of 20.9 % and 32.5 % for the six months ended December 31, 2022 and 2021, respectively.

The effective rate for the six months ended December 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), disallowed stock options related to the profit interest units, exclusion of losses from entities not subject to tax, and lobbying expenses which occurred during the three month period.

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

2 unchanged sentences

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

As of the three-month period ended September 30, 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.

As of the six-month period ended December 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 Company has provided $ 4.1 million at each of December 31, 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

3 unchanged sentences

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.

For the three and six months ended December 31, 2022, 424,316 and 14,076 potentially diluted securities, respectively, were excluded from the weighted-average shares used to calculate the diluted net loss per common share as they would have an anti-dilutive effect.

There were no potentially dilutive shares for the three and six months ended December 31, 2021, 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,

Three months ended December 31,

Six months ended December 31,

in thousands, except share values

11 unchanged sentences

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"

2 unchanged sentences

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.

For the periods presented, all of the Company’s long-lived assets were located in the United States and all revenue was earned in the United States.

The Company’s management uses Center-level Contribution Margin as the measure for assessing performance of its segments.

1 unchanged sentence

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

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

December 31, 2022

December 31, 2021

(In thousands)

12 unchanged sentences

Income (Loss) Before Income Taxes

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

December 31, 2022

December 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

Interest expense, net

Other expense (income)

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.

4 unchanged sentences

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.

At each of December 31, 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 the date on which the condensed consolidated financial statements were issued.

On January 23, 2023, CMS and the Colorado Department of Healthcare Policy & Financing (“HCPF”) released the enrollment sanctions for all of our Colorado centers.

CMS and HCPF will require the Company to conduct post-sanction corrective action and monitoring activities to address any issues identified during the validation audits.

The release of both sanctions permits the Company to resume normal enrollment of eligible Colorado seniors into its PACE program at its six Colorado centers.

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