What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-09-12 compared with 2022-09-13 · 313 added, 335 removed, 608 unchanged (52% of the section changed)

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

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

and subsidiaries (the "Company") as of June 30, 2023 and 2022, the related consolidated statements of operations, stockholders' equity, and cash flows, for each of the two years in the period ended June 30, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

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We believe that our audits provide a reasonable basis for our opinion.

Emphasis of a Matter

As discussed in Note 2 to the financial statements, the Company adopted ASU 2016-02, Leases, and related amendments (Topic 842) on July 1, 2022.

/s/ Deloitte & Touche LLP

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Consolidated Balance Sheets

2023 June 30,

Current Assets

Cash and cash equivalents $ 127,249 $ 184,429

Short-term investments 46,213 —

Restricted cash 16 17

Accounts receivable, net of allowance ($ 4,161 – June 30, 2023 and $ 3,403 – June 30, 2022)

24,344 35,907

Prepaid expenses 17,145 13,842

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Property and equipment, net 192,188 176,260

Operating lease assets 21,210 —

Investments 5,493 5,493

Deposits and other 3,823 2,812

Goodwill 124,217 124,217

Other intangible assets, net 5,198 5,858

Total noncurrent assets 352,129 314,640

Total assets $ 567,358 $ 555,596

Liabilities and Stockholders' Equity

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Due to Medicaid and Medicare 9,142 9,130

Income tax payable 1,212 —

Current portion of long-term debt 3,795 3,793

Current portion of capital lease obligations

Current portion of finance lease obligations 4,722 3,368

Current portion of operating lease obligations 3,530 —

Deferred revenue 28,115 —

Total current liabilities 148,450 105,307

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Deferred tax liability, net 6,236 17,761

Capital lease obligations

Finance lease obligations 13,114 9,440

Operating lease obligations 18,828 —

Other noncurrent liabilities 1,086 1,134

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Additional paid-in capital 332,107 327,499

Retained earnings

Retained earnings (deficit) ( 35,944 ) 4,729

Total InnovAge Holding Corp.

296,299 332,364

Noncontrolling interests 5,793 6,102

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Depreciation and amortization 15,419 13,924

Other operating expense

Total expenses 737,482 703,046

Operating Income (Loss)

Operating Loss ( 49,395 ) ( 4,406 )

Other Income (Expense)

Interest expense, net ( 1,522 ) ( 2,526 )

Loss on extinguishment of debt

Gain on equity method investment

Other expense

Other income (expense) 124 ( 305 )

Total other expense ( 1,398 ) ( 2,831 )

Income (Loss) Before Income Taxes

Provision for Income Taxes

Net Income (Loss)

Loss Before Income Taxes ( 50,793 ) ( 7,237 )

Provision (Benefit) for Income Taxes ( 7,241 ) 723

Net Loss ( 43,552 ) ( 7,960 )

net loss attributable to noncontrolling interests ( 2,879 ) ( 1,439 )

Net Income (Loss) Attributable to InnovAge Holding Corp.

Net Loss Attributable to InnovAge Holding Corp.

$ ( 40,673 ) $ ( 6,521 )

Weighted-average number of common shares outstanding - basic

135,593,824 135,519,970

Weighted-average number of common shares outstanding - diluted

Net income (loss) per share - basic

Net income (loss) per share - diluted

135,593,824 135,519,970

Net loss per share - basic $ ( 0.30 ) $ ( 0.05 )

Net loss per share - diluted $ ( 0.30 ) $ ( 0.05 )

See Notes to Consolidated Financial Statements

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Consolidated Statements of Stockholders’ Equity

Capital Stock

Treasury Stock

Noncontrolling

Capital Stock Additional

Capital Retained

(Deficit) Noncontrolling

Interests Total Permanent Stockholders' Equity

Noncontrolling Interests

Stockholders' Equity

(Temporary Equity)

(Temporary Equity) Net Loss

Shares Amount

in thousands, except share amounts

Balances, June 30, 2021 135,516,513 $ 136 $ 323,760 $ 10,663 $ 6,420 $ 340,979 $ 16,986

Treasury stock transaction

Treasury stock retirement

( 16,197,849 )

Stock option cancellation

Time based awards- option cancellation

Stock-based compensation 16,298 — 3,739 — — 3,739 —

Reclassification of warrant liability

Capital contribution

Initial public offering of common stock, net of offering costs of $ 28,445

Consolidation of equity method investment

Adjustment to redemption value — — — 587 — 587 ( 587 )

Net loss — — — ( 6,521 ) ( 318 ) ( 6,839 ) ( 1,121 ) ( 7,960 )

Balances, June 30, 2022 135,532,811 $ 136 $ 327,499 $ 4,729 $ 6,102 $ 338,466 $ 15,278

Restated Balances, June 30, 2021

Balances, June 30, 2022 135,532,811 $ 136 $ 327,499 $ 4,729 $ 6,102 $ 338,466 $ 15,278 —

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Adjustment to redemption value — — — — — — —

Net loss — — — ( 40,673 ) ( 309 ) ( 40,982 ) ( 2,570 ) ( 43,552 )

Balances, June 30, 2023 135,639,845 $ 136 $ 332,107 $ ( 35,944 ) $ 5,793 $ 302,092 $ 12,708 $

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Operating Activities

Net income (loss)

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

Net loss $ ( 43,552 ) $ ( 7,960 )

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

Loss on disposal of assets 1,107 305

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Depreciation and amortization 15,419 13,924

Gain on equity method investment

Loss on extinguishment of long-term debt

Operating lease rentals 4,604 —

Amortization of deferred financing costs 429 429

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Deferred income taxes ( 11,525 ) 2,061

Loss in equity of nonconsolidated entities

Change in fair value of warrants

Changes in operating assets and liabilities, net of acquisitions

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Due to Medicaid and Medicare 12 2,029

Net cash provided by (used in) operating activities

Income taxes payable 1,212 —

Operating lease liabilities ( 5,187 ) —

Net cash provided by operating activities 20,236 27,302

Investing Activities

Purchases of property and equipment ( 23,354 ) ( 38,238 )

Purchase of intangible assets

Purchases of short-term investments ( 46,167 ) —

Purchase of cost method investment — ( 2,000 )

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Financing Activities

Distributions to owners

Capital contributions

Payments on capital lease obligations

Proceeds from long-term debt

Payments for finance lease obligations ( 4,103 ) ( 2,528 )

Principal payments on long-term debt ( 3,793 ) ( 3,790 )

Payment of financing costs and debt premiums

Proceeds from initial public offering of common stock

Treasury stock purchases

Payments under acquisition agreements

Payments related to option cancellation

Net cash provided by (used in) financing activities

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

Net cash used in financing activities ( 7,896 ) ( 6,318 )

DECREASE IN CASH, CASH EQUIVALENTS & RESTRICTED CASH ( 57,181 ) ( 19,254 )

CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD 184,446 203,700

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InnovAge Holding Corp.

(formerly, TCO Group Holdings, Inc.) (the “Company”) and certain wholly owned subsidiaries were formed as for-profit corporations effective May 13, 2016, for the purpose of purchasing all the outstanding common stock of Total Community Options, Inc.

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

In connection with this purchase, Total Community Options, Inc.

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

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

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

to InnovAge Holding Corp.

InnovAge Holding Corp.

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

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

in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities;

and its subsidiaries (the “Company”), are headquartered in Denver, Colorado.

The Company fulfills a broad range of medical and ancillary services for seniors in need of care and support to safely live independently in their communities, including 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;

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As of June 30, 2023, the Company served approximately 6,400 PACE participants, making it the largest PACE provider in the United States of America (the U.S.) based upon participants served, and operates 17 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.

During the third quarter ended March 31, 2023, the Company consolidated its Germantown LIFE center with its Allegheny and Henry Avenue LIFE centers in Pennsylvania.

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

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

On March 3, 2021, the Company’s Registration Statement on Form S-1 with respect to the Company’s IPO of shares of common stock, par value $ 0.001 per share, was declared effective by the Securities and Exchange Commission (“SEC”).

The Company’s common stock began trading on March 4, 2021 on the Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbol “INNV”.

On March 8, 2021, we completed our IPO in which we issued and sold 16,666,667 shares of our common stock at an offering price of $ 21.00 per share.

In addition, the underwriters had the option to purchase 2,500,000 additional shares of common stock, and on March 9, 2021, the underwriters exercised the option to purchase 2,329,234 shares of common stock.

We received net proceeds of $ 370.5 million, after deducting underwriting discounts and commissions of $ 23.9 million and deferred offering costs of $ 4.5 million.

Deferred, direct offering costs were capitalized and consisted of fees and expenses incurred in connection with the sale of our common stock in the IPO, including the legal, accounting, printing and other offering related costs.

Upon completion of the IPO, these deferred offering costs were reclassified from current assets to stockholders’ equity and recorded against the net proceeds from the offering.

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

Summary of Significant Accounting Policies

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All intercompany accounts and transactions have been eliminated in consolidation.

Restatement of Prior Period Financial Statements

Subsequent to the issuance of the Company’s consolidated financial statements as of and for the year ended June 30, 2021, we identified an error in our consolidated balance sheet and statement of stockholders’ equity as of June 30, 2021 related to the presentation of redeemable noncontrolling interests.

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

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

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

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

As Previously

Redeemable Noncontrolling Interests (See Note 5)

Retained earnings

Total InnovAge Holding Corp.

Noncontrolling interests

Total stockholders’ equity

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

Total Permanent

Noncontrolling

Stockholders’

(Temporary Equity)

As Previously Reported

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, June 30, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, June 30, 2021

Consolidation of equity method investment

Net income (loss)

Adjustment to redemption value

Balances, June 30, 2021

Use of Estimates

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deferred taxes, including the determination of a need for a valuation allowance;

valuation of the contingent consideration;

legal contingencies, including medical malpractice claims;

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There were no write-downs in the fiscal years ended June 30, 2023 or 2022.

See Note 5 “Investments” for more information.

See Note 4 “Cost and Equity Method Investments” for more information.

Short-term Investments

Short-term investments consist of investments in managed income fund securities managed by major financial institutions.

These securities are measured at fair value on a recurring basis with changes in fair value recognized in earnings.

The estimated fair value of the short-term investments is valued using quoted market prices in active markets and classified as Level 1 of the fair value hierarchy.

Dividend income is reported within other income (expense) in the Company’s consolidated statement of operations.

Dividends received are reinvested in fund securities.

We may sell these securities at any time for use in current operations.

As a result, we classify our short-term investments as current assets on the Company’s consolidated balance sheets.

Restricted Cash

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

Restricted cash includes cash held for participants who have established a personal-needs account to pay for nonmedical personal expenses, payment of which only occurs upon participant authorization, in the amount of approximately $ 0.02 million as of both June 30, 2023 and 2022.

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

Accounts Receivable

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

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

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

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

dollars in thousands

Buildings and leasehold improvements

10 - 40 years

Equipment and vehicles

Construction in progress

dollars in thousands Estimated

Useful Lives 2023 2022

Land N/A $ 11,970 $ 11,980

Buildings and leasehold improvements 10 - 40 years

124,263 122,076

Software 3 - 5 years

26,656 16,264

Equipment and vehicles 3 - 7 years

57,754 47,546

Construction in progress N/A 42,223 35,479

262,865 233,345

Less accumulated depreciation and amortization ( 70,677 ) ( 57,085 )

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

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

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

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

Impairment of goodwill is evaluated at the reporting unit level.

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Reported and estimated claims consist of unpaid claims reported as of the balance sheet date and estimates of claims incurred on or before June 30 that have not been reported by that date (IBNR).

Such estimates are developed using actuarial methods and are based on many variables, including the utilization of health care services, historical payment patterns, cost trends, and other factors.

Such estimates are developed using actuarial methods and are based on many variables, including the utilization of healthcare services, historical payment patterns, cost trends, and other factors.

These complex estimation methods and the resulting reserves are continually reviewed and updated, and any adjustments deemed necessary to contemplate new or updated information are reflected in current operations.

Contingent Consideration

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

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

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

Debt Issuance Costs

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Such costs are being amortized over the term of the underlying debt using the straight-line method, as the difference between that and the effective interest method are immaterial.

Treasury Stock

Treasury stock purchases are accounted for under the cost method where the entire cost of the acquired stock is recorded as treasury stock.

Gains and losses on the subsequent reissuance of shares are credited or charged to paid-in-capital in excess of par value using the average-cost method.

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.

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 performed the following five steps:

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

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

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

Medicaid and Medicare capitation revenues are based on a per member, per month (“PMPM”) capitation rates under the PACE program.

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

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Stock-based Compensation

The Company has long-term equity incentive plans that provide for stock-based compensation, including the granting of stock options, profits interest units and restricted stock units to employees, directors, consultants, or advisers, as determined by each of the respective plans.

The Company and its principal shareholder have long-term equity incentive plans that provide for stock-based compensation, including the granting of stock options, profits interest units and restricted stock units to employees, directors, consultants, or advisers, as determined by each of the respective plans.

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

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

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

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

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

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

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The primary beneficiary is required to consolidate the VIE.

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

InnovAge Senior Housing Thornton, LLC (“SH1”) and Pinewood Lodge, LLC (“PWD”) are considered to be VIEs.

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

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act").

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.

As a result, the Company's consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Adopted Accounting Pronouncements

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

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

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

The Company adopted ASU 2019-12 during the quarter ended September 30, 2021 and it did not have a material effect on the Company’s condensed consolidated financial statements.

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

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

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

In June 2020, the FASB issued ASU 2020-05 Revenue from contracts with customers (Topic 606) and leases (Topic 842) – Effective dates for certain entities which deferred the new lease standard effective date for the Company to interim periods beginning after December 15, 2021, 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 6, “Leases.”

Recent Accounting Pronouncements Not Yet Adopted

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

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

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

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

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

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

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

Financial Instruments

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

The Company will adopt this guidance for

the annual and interim reporting periods beginning July 1, 2023.

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

The Company has not determined the effect of the standard on its consolidated financial statements.

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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.

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

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

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

Medicaid 54 % 54 %

Medicare 46 % 46 %

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.

The Company determined that 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.

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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.

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

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

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

Medicare Part D comprised (i) 13 % and 12 % of capitation revenues for each of the years ended June 30, 2023 and 2022, respectively, and (ii) 23 % and 23 % of external provider costs for the year ended June 30, 2023 and 2022, respectively.

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

The concentration of net receivables from participants and third-party payers as of June 30, 2023 and 2022 was as follows:

Medicaid 61 % 70 %

Medicare 29 % 22 %

Private pay and other 10 % 8 %

Total 100 % 100 %

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

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

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

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

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

Other Service Revenue and Accounts Receivable

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See Note 9, “Commitments and Contingencies”.

Equity Owner Transaction and Treasury Stock

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

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

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

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

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

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

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

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

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

Incentive Plan for $ 74.6 million.

Such cancellation resulted in a settlement of the awards.

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

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

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

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

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

Capital Contribution

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

Cost and Equity Method Investments

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

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Dispatch Health

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

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

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

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

During the period ended June 30, 2023 and 2022, there were no observable price changes or impairments.

Equity Method Investments

Pinewood Lodge

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

Pinewood Lodge, LLP 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.

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As of June 30, 2023, the balance of the Company’s investment in PWD was $ 0.8 million, which represents the maximum exposure to loss.

InnovAge Sacramento

On March 18, 2019, in connection with the formation of InnovAge Sacramento, the joint venture with Adventist Health System/West (“Adventist”) and Eskaton Properties, Incorporated (“Eskaton”), the Company contributed $ 9.0 million in cash and land valued at $ 4.2 million for a 59.9 % membership interest in the joint venture, InnovAge Sacramento.

Further, Adventist contributed $ 5.8 million in cash and Eskaton contributed $ 3.0 million in cash for membership interests of 26.41 % and 13.69 %, respectively.

The Company made an additional contribution of $ 52,000 to obtain an additional 0.1 % membership interest in the joint venture.

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

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

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

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

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

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

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

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

The warrant expired in March 2022 without being exercised.

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

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

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

In 2021, we recorded a charge of $ 2.3 million, representing the fair value of the warrants from inception through the date of completion of the IPO, in other income (expense) in the condensed consolidated statement of operations.

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

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

The fair value of the previously held

equity investments was determined using a discounted cash flow model.

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

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

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

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

Accounts receivable

Property and equipment, net

Accounts payable

Reported and estimated claims

Due to Medicaid and Medicare

Capital leases

Other liabilities

Total liabilities

The following table sets forth the results of InnovAge Sacramento for the six months ended December 31, 2020.

The results of InnovAge Sacramento are consolidated beginning January 1, 2021.

Six Months Ended

December 31, 2020

Total revenue

members’ interest

The Company’s interest

Cost of operations:

Total cost of operations

members’ interest

The Company’s interest

The Company’s interest in net loss

Consolidated Entities

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Senior Housing

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

InnovAge Senior Housing Thornton, LLC is a VIE.

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

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Current portion long-term debt — 43

Deferred revenue 2 —

Noncurrent liabilities 454 454

Long-term debt, net of debt issuance costs 3,784 3,784

Redeemable Noncontrolling Interest

InnovAge Sacramento

Payment Pursuant to Acquisition Agreement

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

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

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

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

InnovAge Sacramento is a joint venture with Adventist Health System/West (“Adventist”) and Eskaton Properties, Incorporated (“Eskaton”).

On March 18, 2019, in connection with the formation of InnovAge Sacramento, 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.

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 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.

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.

As of June 30, 2023, none of the conditions specified in the JV Agreement had been met.

These put rights held by the noncontrolling interests of the joint venture are required to be presented as temporary equity.

The redeemable noncontrolling interest of $ 12.7 million was recorded at carrying value as of June 30, 2023.

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 June 30, 2023 and June 30, 2022.

The Company did no t have any acquisitions resulting in goodwill during the year ended June 30, 2023 and 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.

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

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

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

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

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

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

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

Balance as of beginning of period

Goodwill acquired during the period

Balance as of end of period

There were no goodwill impairments recorded during the year ended June 30, 2023 and 2022.

Intangible assets consisted of the following as of June 30:

in thousands 2023 2022

Definite-lived intangible assets

Customer relationships $ 6,600 $ 6,600

Indefinite-lived intangible assets

Permits 2,000 2,000

Total intangible assets 8,600 8,600

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

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

The Company recorded amortization expense of $ 0.7 million for each of the years ended June 30, 2023 and 2022, respectively.

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

Amortization Expense

in thousands Amortization Expense

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 years ended June 30, 2023 and 2022.

Property and equipment includes property under various capital leases.

These leases have expiration dates ranging from August 2022 to November 2027, varying interest rates, and generally include an option to purchase the equipment at fair value at the end of the underlying lease period.

The Company’s capital leases included the following:

Less accumulated depreciation

Total capital leases

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

Total rental expense under operating leases was $ 4.9 million and $ 4.5 million for the year ended June 30, 2022 and 2021, respectively.

Future minimum lease payments related to (i) capital leases having initial terms of more than one year and (ii) non-cancelable operating leases as of June 30, 2022 were as follows:

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 2023 through 2032.

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

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

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

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

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

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

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

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

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

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

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

On March 20, 2023, we consolidated our Germantown center in Pennsylvania with two of our existing centers.

Upon consolidation, we terminated our Germantown center lease and recognized lease termination costs of $ 0.6 million.

Lease termination costs are included in other income (expense) on our consolidated statements of operations.

The following table presents the components of our ROU assets and their classification in our Balance Sheet at June 30, 2023.

Component of Lease Balances Balance Sheet Line Items Year Ended June 30,

Operating lease assets Operating lease assets $ 21,210

Finance lease assets Property and equipment, net 16,378

Total leased assets $ 37,588

The following table presents the components of our lease cost and the classification of such costs in our Statement of Operations for the year ended June 30, 2023.

Component of Lease Cost Statement of Operations Line Items Year Ended June 30,

Operating lease cost Cost of care excluding depreciation and amortization and Corporate, general and administrative $ 4,642

Finance lease expense:

Amortization of leased assets Depreciation and amortization 3,080

Interest on lease liabilities Interest expense, net 1,255

Variable lease cost Cost of care excluding depreciation and amortization and Corporate, general and administrative 82

Short-term lease cost Cost of care excluding depreciation and amortization and Corporate, general and administrative 108

Total lease expense:

The following table includes the weighted-average lease terms and discount rates for operating and finance leases as of June 30, 2023.

Weighted average remaining lease term:

Operating leases 7.9 years

Finance leases 3.9 years

Weighted average discount rate June 30,

Operating leases 6.60 %

Capital Leases

Minimum Lease

Less amount representing interest

Total minimum lease payments

Less current maturities

Noncurrent maturities

Finance leases 7.80 %

The following table includes the future maturities of lease payments for operating leases and finance leases for periods subsequent to June 30, 2023.

in thousands Operating Lease Finance Lease Total

2024 $ 4,882 $ 5,970 $ 10,852

2025 4,356 5,270 9,626

2026 4,283 4,245 8,528

2027 3,981 3,549 7,530

2028 3,140 1,759 4,899

Thereafter 7,033 — 7,033

Total lease payments 27,675 20,793 48,468

Less liability accretion / imputed interest ( 5,317 ) ( 2,957 ) ( 8,274 )

Total lease liabilities 22,358 17,836 40,194

Current lease liabilities 3,530 4,722 8,252

Total long-term lease liabilities $ 18,828 $ 13,114 $ 31,942

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, prior to the adoption of ASC 842:

in thousands Operating Lease Capital Lease

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 minimum rental payments 31,666 15,460

Amount representing interest ( 2,652 )

Subtotal 12,808

Current portion 3,368

Long-term portion $ 9,440

Long-term Debt

The components of our long-term debt are as follows:

2023 June 30,

Senior secured borrowings:

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Convertible term loan 2,284 2,327

Total debt 69,784 73,577

Less unamortized debt issuance costs 1,145 1,574

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2021 Credit Agreement

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

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

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

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

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

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

2021 Credit Agreement

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

The 2021 Credit Agreement consists of a senior

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

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

As of June 30, 2023, we had no borrowings outstanding under the facility.

The remaining capacity under the Revolving Credit Facility as of June 30, 2023 was $ 97.2 million, subject to (i) any issued amounts under our letters of credit, which as of June 30, 2023 was $ 2.8 million, and (ii) applicable covenant compliance restrictions and any other conditions precedent to borrowing.

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

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

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

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

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

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

U.S.-dollar LIBOR ceased to be published on June 30, 2023.

As such, during fiscal year 2023, the Company prospectively adjusted the effective interest rate for debt and now utilizes SOFR as the effective interest rate.

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

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The Company was in compliance with the covenants of the 2021 Credit Agreement as of June 30, 2023 and 2022, respectively.

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

Total amortization of deferred financing costs was $ 0.4 million and $ 1.1 million for the year ended June 30, 2022 and 2021, respectively.

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

Total amortization of deferred financing costs was $ 0.4 million and $ 0.4 million for the years ended June 30, 2023 and 2022, respectively.

Convertible Term Loan

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Year ending June 30:

Thereafter 2,021

Total debt $ 69,784

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.

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.

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Level 3 Unobservable inputs to the valuation techniques that are significant to the fair value measurements of the assets or liabilities

Recurring Measurements

Effective August 7, 2018, the Company finalized the acquisition of NewCourtland in Pennsylvania.

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

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

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

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

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

As a result, at each fiscal period end the Company reports this put right at the greater of i) carrying value of the redeemable noncontrolling interest or (ii) fair value of the redeemable noncontrolling interest.

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

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

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

The following table shows the Company’s cash, cash equivalents and marketable securities by significant investment category as of June 30, 2023.

in thousands Amortized Cost Fair Value Cash and Cash Equivalents Short-term Investments

Cash $ 49,775 $ 49,775 $ 49,775 $ —

Money market funds 77,474 77,474 77,474 —

Mutual funds 46,170 46,213 — 46,213

Total $ 173,419 $ 173,462 $ 127,249 $ 46,213

There were no transfers in and out of Level 3 during the fiscal years ended June 30, 2023 and 2022.

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The Company expenses legal costs as such costs are incurred.

On October 14, 2021, and subsequently amended on June 21, 2022, the Company was named as a defendant in a putative class action complaint filed in the District Court for the District of Colorado on behalf of individuals who purchased or acquired shares of the Company’s common stock during a specified period.

Through the complaint, plaintiffs are asserting claims against the Company, certain of the Company’s officers and directors, Apax Partners, L.P., Welsh, Carson, Anderson & Stowe and the underwriters in the Company’s IPO, alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 for making allegedly inaccurate and misleading statements and omissions in connection with the Company’s IPO and subsequent earnings calls and public filings, and seeking compensatory damages, among other things.

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

Civil Investigative Demands

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.

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

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.

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.

Stockholder Lawsuits

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.

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, Brian Hall, 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.

On May 15, 2023, Mr.

Hall filed a lawsuit in the Delaware Court of Chancery asserting derivative claims for breach of fiduciary duty against certain of the Company’s current and former officers and directors generally relating to alleged failures by the defendants to take remedial actions to address the matters that resulted in sanctions by CMS at certain of the Company’s centers, and alleged misstatements in the Company’s public filings relating to those matters.

On June 28, 2023, upon stipulation of the parties, the court entered an order staying the litigation pending the resolution of the motion to dismiss in the Securities Action or upon fifteen days’ notice by any party to the litigation.

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

Other Matters

In the third fiscal quarter of 2023, the Company agreed to settle a wage and hour class action lawsuit in the State of California for a cash payment of $ 1.2 million.

The agreement is subject to court approval.

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.

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Year ended June 30,

Stock options (a)

Stock options $ 1,010 $ 719

Profits interests units 867 1,162

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Total stock-based compensation expense $ 4,993 $ 3,739

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

2020 Equity Incentive Plan

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

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

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

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

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

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

2020 Equity Incentive Plan

Profits Interests

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

TCO Group Holdings, L.P.

(the “LP”), the Company’s largest shareholder and prior to the IPO, the Company’s parent, maintains the TCO Group Holdings, L.P.

Equity Incentive Plan (the “2020 Equity Incentive Plan”) pursuant to which interests in the LP in the form of Class B Units (profits interests) may be granted to employees, directors, consultants, advisers, and other services providers (including partners) of the LP or any of its affiliates, including the Company.

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

Both performance-based and time-based units were issued under the plan.

As of June 30, 2023, a total of 13,009,137 profits interests units have been granted under the 2020 Equity Incentive Plan.

These profits interests represented profits interest ownership in the LP tied solely to the accretion, if any, in the value of the LP following the date of issuance of such profits interests.

Profits interests participated in any increase of LP value related to their profits interests after the hurdle value had been achieved and the LP profits interests received the agreed-upon return on their invested capital.

The hurdle value per unit is $ 5.49 for both the performance-based and time-based units.

Each profits interests unit contains the following material terms:

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

(ii) A portion of the units vest over a period of continuous employment or service (service-vesting units) while the other portion of the units only vest based on the level of aggregate multiple of invested capital and internal

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

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

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

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

These profits interests represent profits interest ownership in the LP tied solely to the accretion, if any, in the value of the LP following the date of issuance of such profits interests.

Profits interests participate in any increase of LP value after a hurdle rate is achieved and, for performance-based units, the LP profits interests receive the agreed-upon return on their invested capital and internal rate of return, as applicable.

The hurdle rate per unit is $ 5.49 for both the performance-based and time-based units outstanding as of June 30, 2023.

Each award of profits interests is subject to the following material terms:

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

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

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

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

As the awards outstanding as of June 30, 2023, were granted prior to our IPO, the stock price was based on prices realized in equity transactions prior to being publicly traded.

Expected stock price volatility was based on consideration of indications observed from several publicly traded peer companies.

10 unchanged sentences

A summary of profits interests activity for the year ended June 30, 2023, was as follows:

Weighted average

Time-based unit awards

Time-based unit awards Number of

units Weighted average

grant date fair value

Outstanding balance, June 30, 2021

( 2,807,201 )

( 1,621,988 )

Outstanding balance, June 30, 2022

Weighted average

Performance-based unit awards

Unvested balance, June 30, 2022 2,158,072 $ 1.28

Granted — $ —

Forfeited ( 49,654 ) $ 1.28

Vested ( 844,081 ) $ 1.28

Unvested balance, June 30, 2023 1,264,337 $ 1.28

Performance-based unit awards Number of

units Weighted average

grant date fair value

Outstanding balance, June 30, 2021

( 4,005,397 )

Outstanding balance, June 30, 2022

Unvested balance, June 30, 2022 2,217,865 $ 0.57

Granted — $ —

Forfeited ( 99,307 ) $ 0.57

Unvested balance, June 30, 2023 2,118,558 $ 0.57

The total unrecognized compensation cost related to profits interests units outstanding as of June 30, 2023 was $ 2.1 million, comprised (i) $ 0.9 million related to time-based unit awards expected to be recognized over a weighted-average period of 1.8 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

In March 2021, the compensation committee of our Board of Directors approved the InnovAge Holding Corp.

In March 2021, the Board of Directors approved the InnovAge Holding Corp.

2021 Omnibus Incentive Plan (“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, (ii) over a three-year period with one -third vesting on each anniversary of the date of grant, or (iii) at other dates.

Certain other vesting periods have also been used.

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

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

2 unchanged sentences

A summary of time-based vesting restricted stock units activity for the year ended June 30, 2023, was as follows:

Restricted stock units - time based Number of

awards Weighted

grant-date fair

Restricted stock units - time based

value per share

Outstanding balance, June 30, 2022 476,768 $ 9.69

Forfeited ( 236,344 ) $ 5.19

Vested ( 194,337 ) $ 6.29

Granted 1,827,707 $ 6.49

Outstanding balance, June 30, 2023 1,873,794 $ 10.10

1 unchanged sentence

A summary of performance-based vesting restricted stock units activity for the year ended June 30, 2023, was as follows:

Restricted stock units - performance based Number of

awards Weighted

grant-date fair

Restricted stock units - performance based

value per share

Outstanding balance, June 30, 2022 258,767 $ 5.18

Forfeited — $ —

Granted — $ —

Outstanding balance, June 30, 2023 258,767 $ 5.18

9 unchanged sentences

A summary of time-based vesting stock option activity for the year ended June 30, 2023, was as follows:

Stock options - time based Number of

awards Weighted

grant-date fair

Stock options - time based

value per share

Outstanding balance, June 30, 2022 554,499 $ 1.61

Granted 162,162 $ 0.80

Forfeited — $ —

Exercised — $ —

Expired — $ —

Outstanding balance, June 30, 2023 716,661 $ 1.43

Exercisable balance, June 30, 2023 207,936 $ 0.21

The total unrecognized compensation costs related to time-based vesting stock options outstanding as of June 30, 2023, was $ 0.4 million and is expected to be recognized over a weighted-average period of 1.8 years.

7 unchanged sentences

A summary of performance-based vesting stock option activity for the year ended June 30, 2023, was as follows:

Stock options - performance based Number of

awards Weighted

grant-date fair

Stock options - performance based

value per share

Outstanding balance, June 30, 2022 776,299 $ 3.08

Granted — $ —

Forfeited — $ —

Outstanding balance, June 30, 2023 776,299 $ 3.08

6 unchanged sentences

IRC Section 162(m) limitation (a) 588 506

Transaction costs (b)

Change in valuation allowance 4,297 2,738

2 unchanged sentences

Income from entities not subject to taxation 605 302

State tax ( 2,678 ) ( 2,354 )

Provision for income taxes $ ( 7,241 ) $ 723

___________________________________

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

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

Provision for income taxes consisted of the following for the years ended June 30, 2023 and 2022:

Year ended June 30,

Federal $ 3,709 $ ( 998 )

State 575 ( 339 )

Total current tax expense 4,284 ( 1,337 )

Federal ( 10,263 ) 1,408

State ( 1,262 ) 652

Total deferred tax expense ( 11,525 ) 2,060

3 unchanged sentences

Deferred tax assets:

Amortization $ 629 $ 686

Federal net operating losses 17,147 3,083

State net operating losses 5,701 4,048

Transaction costs

Provision for uncollectible accounts 1,114 869

4 unchanged sentences

Interest Expense 791 496

Lease liability 6,784 —

Total deferred tax assets 35,196 11,328

2 unchanged sentences

Deferred tax liabilities:

Goodwill ( 6,697 ) ( 9,108 )

Depreciation ( 13,137 ) ( 8,430 )

Equity investment ( 5,019 ) ( 5,429 )

Prepaid expenses ( 1,792 ) ( 2,072 )

ROU asset ( 6,436 ) —

Other ( 4 ) —

Total deferred tax liabilities ( 33,085 ) ( 25,039 )

3 unchanged sentences

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

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

Additionally, the Company has federal net operating loss carryforwards of $ 81.7 million and $ 14.7 million as of June 30, 2023 and 2022, respectively which do not expire.

Valuation Allowance

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

The Company has provided $ 8.3 million and $ 4.1 million at June 30, 2023 and June 30, 2022, respectively, as a valuation allowance against its deferred tax assets for federal and state net operating losses and state 163(j) interest expense limitations where there is not sufficient positive evidence to substantiate that these deferred tax assets will be realized at a more-likely-than-not level of assurance.

The Company had no uncertain tax positions at June 30, 2023 and 2022.

6 unchanged sentences

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

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

federal and state jurisdictions for the period ended June 30, 2020 and forward.

The Company is subject to income tax examinations by California, Colorado and New Mexico state jurisdictions for the period ended June 30, 2019 and forward.

1 unchanged sentence

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

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

The PWD Loan does not accrue interest.

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

At each of June 30, 2023 and 2022, $ 0.7 million was recorded in Deposits and other.

Segment Reporting

12 unchanged sentences

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

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

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

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

6 unchanged sentences

The following table summarizes the operating results regularly provided to the CODM by reportable segment for the twelve months ended:

June 30, 2022

June 30, 2021

All other (1)

June 30, 2023 June 30, 2022

in thousands PACE All other (1)

Totals PACE All other (1)

Capitation revenue $ 686,836 $ — $ 686,836 $ 696,998 $ — $ 696,998

5 unchanged sentences

Overhead costs (2)

135,264 — 135,264 125,948 ( 94 ) 125,854

Depreciation and amortization 14,959 460 15,419 13,491 433 13,924

Equity loss — — — — — —

Other operating (income) expense — — — — — —

4 unchanged sentences

Income (Loss) Before Income Taxes $ ( 50,493 ) $ ( 300 ) $ ( 50,793 ) $ ( 6,628 ) $ ( 609 ) $ ( 7,237 )

___________________________________

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

4 unchanged sentences

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.

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

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

As of June 30, 2023 and 2022, there were 1,035,066 performance-based awards excluded from the calculation of diluted EPS.

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

2 unchanged sentences

Net income (loss) attributable to InnovAge Holding Corp.

$ ( 40,673 ) $ ( 6,521 )

Weighted average common shares outstanding (basic) 135,593,824 135,519,970

EPS (basic) $ ( 0.30 ) $ ( 0.05 )

Dilutive shares — —

5 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data