UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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TABLE OF CONTENTS
2
InnovAge Holding Corp. and Subsidiaries
Quarterly Report on Form 10-Q
For the quarterly period ended December 31, 2021
Cautionary Note on Forward-Looking Statements
Throughout this Quarterly Report on Form 10-Q, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal” or similar terminology. Forward-looking statements may be identified by the fact that they do not relate strictly to historical or current facts and may include statements about our expectations to increase the number of participants we serve, to grow enrollment and capacity within existing centers, to build de novo centers, and other similar statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Part I, Item 2, and “Risk Factors,” included in Part II, Item 1A, but may be found in other locations as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:
● | the results of periodic inspections, reviews and audits under the federal and state government programs, including the ongoing audit of our Albuquerque, New Mexico center, the sanctions currently in place on our centers in Colorado and in our Sacramento center in California and our ability to sufficiently cure any deficiencies identified by the respective federal and state government programs; |
● | the impact on our business of security breaches, loss of data or other disruptions causing the compromise of sensitive information or preventing us from accessing critical information; |
● | our ability to develop and maintain proper and effective internal control over financial reporting; |
● | the impact on our business of disruptions in our disaster recovery systems or management continuity planning; |
● | the impact of any restrictions on our use of or ability to license data or our failure to license data and integrate third-party technologies; |
● | our ability to attract and retain highly qualified personnel; |
● | our management team’s limited experience managing a public company and recent Chief Executive Officer succession; |
● | the impact on our business of the termination of our leases, increases in rent or inability to renew or extend leases; |
● | the impact of failures by our suppliers, material price increases on supplies, lack of reimbursement for drugs we purchase or limitations on our ability to access new technology or products; |
● | our ability to maintain our corporate culture; |
● | the impact of competition for physicians and nurses, shortages of qualified personnel and related increases in our labor costs; |
● | our ability to attract and retain the services of key primary care physicians; |
● | the risk that our submissions to health plans may contain inaccurate or unsupportable information regarding risk adjustment scores of members; |
● | our ability to accurately estimate incurred but not reported medical expense; |
● | the impact of negative publicity regarding the managed healthcare industry; |
● | the impact of state and federal efforts to reduce Medicaid spending; |
● | the impact on our centers of adverse weather conditions and other factors beyond our control; and |
● | other factors disclosed in the section entitled “Risk Factors” in our Annual Report for the year ended June 30, 2021 filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2021 as well as in this Quarterly Report on Form 10-Q. |
3
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other public communications and filings with the SEC. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Unless otherwise specified or unless the context requires otherwise, all references in this Quarterly Report on Form 10-Q to “InnovAge,” “the Company,” “we,” “us,” and “our,” or similar references, refer to InnovAge Holding Corp. and our consolidated subsidiaries.
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PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
| December 31, |
| June 30, | |||
2021 | 2021 | |||||
Assets | ||||||
Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Restricted cash |
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Accounts receivable, net of allowance ($ |
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Prepaid expenses and other |
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Income tax receivable |
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Total current assets |
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Noncurrent Assets |
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Property and equipment, net |
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Investments |
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Deposits and other |
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Goodwill |
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Intangible assets, net |
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Total noncurrent assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable and accrued expenses | $ | | $ | | ||
Reported and estimated claims |
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Due to Medicaid and Medicare | | | ||||
Current portion of long-term debt |
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Current portion of capital lease obligations |
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Total current liabilities |
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Noncurrent Liabilities |
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Deferred tax liability, net |
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Capital lease obligations |
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Other noncurrent liabilities |
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Long-term debt, net of debt issuance costs |
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Total liabilities |
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Commitments and Contingencies (See Note 9) |
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Redeemable Noncontrolling Interests (See Note 4) | | | ||||
Stockholders’ Equity |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total InnovAge Holding Corp. |
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Noncontrolling interests |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except number of shares and per share data)
(Unaudited)
Three Months Ended December 31, | Six Months Ended December 31, | ||||||||||||
2021 |
| 2020 | 2021 |
| 2020 | ||||||||
Revenues |
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Capitation revenue | $ | | $ | | $ | | $ | | |||||
Other service revenue |
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Total revenues |
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Expenses |
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External provider costs |
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Cost of care, excluding depreciation and amortization |
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Sales and marketing |
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Corporate, general and administrative |
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Depreciation and amortization |
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Equity loss |
| — |
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| — |
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Other operating income |
| — |
| ( |
| — |
| ( | |||||
Total expenses |
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Operating Income (Loss) |
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Other Income (Expense) |
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Interest expense, net |
| ( |
| ( |
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Loss on extinguishment of debt |
| — | — |
| — | ( | |||||||
Other income (expense) |
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| ( |
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Total other expense |
| ( |
| ( |
| ( |
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Income (Loss) Before Income Taxes |
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Provision for Income Taxes |
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Net Income (Loss) |
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Less: net loss attributable to noncontrolling interests |
| ( |
| ( |
| ( |
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Net Income (Loss) Attributable to InnovAge Holding Corp. | $ | | $ | | $ | | $ | ( | |||||
Weighted-average number of common shares outstanding - basic |
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Weighted-average number of common shares outstanding - diluted |
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Net income (loss) per share - basic | $ | | $ | | $ | | $ | ( | |||||
Net income (loss) per share - diluted | $ | | $ | | $ | | $ | ( |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except per share data)
(Unaudited)
For the Three Months Ended December 31, 2021 | ||||||||||||||||||||||||||||
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| Total |
| Redeemable |
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Additional | Retained | Permanent | Noncontrolling | |||||||||||||||||||||||||
Capital Stock | Paid-in | Earnings | Treasury Stock | Noncontrolling | Stockholders' | Interests | ||||||||||||||||||||||
Shares | Amount | Capital | (Deficit) | Shares | Amount | Interests | Equity | (Temporary Equity) | Net Income (Loss) | |||||||||||||||||||
Balances, September 30, 2021 |
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Stock-based compensation | - | - | | - | - | - | - | | - | |||||||||||||||||||
Net income (loss) | - | - | - | | - | - | ( | | ( | |||||||||||||||||||
Adjustment to redemption value |
| - |
| - |
| - |
| ( |
| - |
| - |
| - |
| ( |
| | $ | - | ||||||||
Balances, December 31, 2021 |
| | $ | | $ | | $ | |
| - | $ | - | $ | | $ | | $ | |
For the Six Months Ended December 31, 2021 | ||||||||||||||||||||||||||||
Total |
| Redeemable | ||||||||||||||||||||||||||
Additional | Retained | Permanent | Noncontrolling | |||||||||||||||||||||||||
Capital Stock | Paid-in | Earnings | Treasury Stock | Noncontrolling | Stockholders' | Interests | ||||||||||||||||||||||
Shares | Amount | Capital | (Deficit) | Shares | Amount | Interests | Equity | (Temporary Equity) | Net Income (Loss) | |||||||||||||||||||
Balances, June 30, 2021 |
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Stock-based compensation | - | - | | - | - | - | - | | - | |||||||||||||||||||
Net income (loss) | - | - | - | | ( | | ( | |||||||||||||||||||||
Adjustment to redemption value |
| - |
| - |
| - |
| ( |
| - |
| - |
| - |
| ( |
| | $ | - | ||||||||
Balances, December 31, 2021 |
| | $ | | $ | | $ | |
| - | $ | - | $ | | $ | | $ | |
7
| For the Three Months Ended December 31, 2020 | |||||||||||||||||||||
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| Additional |
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Capital Stock | Paid-in | Retained | Treasury Stock | Noncontrolling | ||||||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Interests |
| Total | |||||||
Balances, September 30, 2020 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | $ | ( | ||||||
Stock-based compensation |
| — |
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Owner contribution |
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Net income (loss) |
| — |
| — |
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Balances, December 31, 2020 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | $ | ( |
| For the Six Months Ended December 31, 2020 | |||||||||||||||||||||
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| Additional |
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Capital Stock | Paid-in | Retained | Treasury Stock | Noncontrolling | ||||||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Interests |
| Total | |||||||
Balances, June 30, 2020 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | $ | | ||||||
Treasury stock transaction |
| — |
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Owner distribution |
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Time based awards- option cancelation |
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Stock-based compensation |
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Owner contribution |
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Net income (loss) |
| — |
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| ( |
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| — |
| ( |
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Balances, December 31, 2020 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | $ | ( |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Six Months Ended December 31, | |||||||
2021 | 2020 | ||||||
Operating Activities | |||||||
Net income (loss) | $ | | $ | ( | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
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Loss on disposal of assets |
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Provision for uncollectible accounts |
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Depreciation and amortization |
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Loss on extinguishment of long-term debt |
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Amortization of deferred financing costs |
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Stock-based compensation |
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Deferred income taxes |
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Loss in equity of nonconsolidated entities |
| — |
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Change in fair value of contingent consideration | — | ( | |||||
Changes in operating assets and liabilities, net of acquisitions |
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Accounts receivable, net |
| ( |
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Prepaid expenses and other |
| ( |
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Income tax receivable |
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Deposits and other |
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Accounts payable and accrued expenses |
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Reported and estimated claims |
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Due to Medicaid and Medicare |
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Net cash provided by (used in) operating activities |
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Investing Activities |
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Purchases of property and equipment |
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Purchase of intangible assets |
| — |
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Purchase of cost method investment |
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Net cash used in investing activities | $ | ( | $ | ( | |||
Financing Activities |
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Distributions to owners | $ | — | $ | ( | |||
Owner contributions |
| — |
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Payments on capital lease obligations |
| ( |
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Proceeds from long-term debt | — | | |||||
Principal payments on long-term debt |
| ( |
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Payment of financing costs and debt premiums |
| — |
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Treasury stock purchases |
| — |
| ( | |||
Payments related to option cancellation | — | ( | |||||
Net cash used in financing activities |
| ( |
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INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS & RESTRICTED CASH |
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CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD |
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CASH, CASH EQUIVALENTS & RESTRICTED CASH, END OF PERIOD | $ | | $ | | |||
Supplemental Cash Flows Information |
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Interest paid | $ | | $ | | |||
Income taxes paid | $ | | $ | | |||
Property and equipment included in accounts payable | $ | | $ | | |||
Property and equipment purchased under capital leases | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1:Business
InnovAge Holding Corp. (formerly, TCO Group Holdings, Inc.) was formed May 13, 2016, to acquire the business of Total Community Options, Inc. d/b/a InnovAge, which was formed in May 2007. In connection with the Company’s initial public offering (“IPO”), which occurred in March 2021, we changed the name of our Company from TCO Group Holdings, Inc. to InnovAge Holding Corp.
InnovAge Holding Corp. and its subsidiaries, which are headquartered in Denver, Colorado have a record of innovation, quality, and sensitivity to the needs of participants and staff. The Company manages, and in many cases directly provides, a broad range of medical and ancillary services for seniors in need of care and support to safely live independently in their homes and communities, including in-home care services (skilled, unskilled and personal care); in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to the Program of All-Inclusive Care for the Elderly (“PACE”) center and third-party medical appointments; and care management. The Company manages its business as
As of December 31, 2021, the Company served approximately
PACE is a fully-capitated managed care program, which serves the frail elderly, and predominantly dual-eligible, population in a community-based service model. InnovAge is obligated to provide and participants receive all needed healthcare services through an all-inclusive, coordinated model of care, and the Company is at risk for
On March 8, 2021, we completed our IPO. The Company’s common stock began trading on the Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbol “INNV”.
Note 2:Summary of Significant Accounting Policies
The Company described its significant accounting policies in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 30, 2021 (“2021 10-K”). During the six months ended December 31, 2021, there were no significant changes to those accounting policies.
Basis of Preparation and Principles of Consolidation
The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such regulations. These financial statements have been prepared on a basis consistent with the accounting principles applied for the fiscal year ended June 30, 2021. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. The condensed consolidated financial statements include the accounts of InnovAge, its wholly owned subsidiaries, variable interest entities (“VIEs”)
10
for which it is the primary beneficiary and entities for which it has a controlling interest. All intercompany accounts and transactions have been eliminated in consolidation.
The Company does not have any components of comprehensive income and comprehensive income is equal to net income reported in the statements of operations for all periods presented.
Restatement of Prior Period Financial Statements
Subsequent to the issuance of the Company’s condensed 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 $
As Previously | ||||||
| Reported |
| Adjustments |
| As Restated | |
Redeemable Noncontrolling Interests (See Note 4) |
| — |
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Retained earnings |
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| ( |
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Total InnovAge Holding Corp. |
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| ( |
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Noncontrolling interests |
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| ( |
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Total stockholders’ equity |
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| ( |
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The effect of the restatement on the balances as of June 30, 2021 included in the consolidated statement of stockholders’ equity as of December 31, 2021 is as follows (in thousands):
Redeemable | ||||||||
Total Permanent | Noncontrolling | |||||||
Retained | Noncontrolling | Stockholders’ | Interests | |||||
| Earnings |
| Interests |
| Equity |
| (Temporary Equity) | |
As Previously Reported |
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Balances, June 30, 2021 |
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| — |
Adjustments |
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Balances, June 30, 2021 |
| ( |
| ( |
| ( |
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As Restated |
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Balances, June 30, 2021 |
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Property and Equipment
Property and equipment were comprised of the following as of December 31, 2021 and June 30, 2021:
| Estimated |
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dollars in thousands | Useful Lives | December 31, 2021 | June 30, 2021 | ||||||
Land |
| N/A | $ | | $ | | |||
Buildings and leasehold improvements |
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Software |
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Equipment and vehicles |
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Construction in progress |
| N/A |
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Less accumulated depreciation and amortization |
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| ( |
| ( | ||||
Total property and equipment, net | $ | | $ | |
11
Depreciation of $
Coronavirus Pandemic (“COVID-19”)
In March 2020, the World Health Organization declared COVID-19 a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption. Governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary. Many organizations and individuals, including the Company and its employees, continue to take additional steps to avoid or reduce infection, including limiting travel and working from home. These measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses worldwide. As a PACE organization, we have been and will continue to be impacted by the effects of COVID-19. We closed all our centers in March 2020 and transitioned to a 100% in-home and virtual care model. We believe that the general lack of in-person interaction and the reduction in healthcare personnel, and specifically, trained personnel, impacted our ability to adhere to the complex government laws and regulations that apply to our business. We remain committed to carrying out our mission of caring for our participants. We continue to closely monitor the impact of COVID-19 on all aspects of our business, including the impacts to our employees, participants and suppliers. Due to the numerous evolving factors, we are unable to reliably estimate the ultimate impact the pandemic will have on our consolidated financial condition, results of operations or cash flows.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into legislation. The CARES Act provided for $100.0 billion to healthcare providers, including hospitals on the front lines of the COVID-19 pandemic. Under the CARES Act, the state of Pennsylvania signed into law the Act 24 of 2020, which allocated $10.0 million of funding from the federal CARES Act to managed long term care organizations. Funding from the Act 24 of 2020 was to be used to cover necessary COVID-19 related costs incurred between March 1, 2020 and November 30, 2020 for entities in operation as of March 31, 2020. We received $
Recently Adopted Accounting Pronouncements
Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes Topic 740-Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for companies with fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted. The Company adopted ASU 2019-12 during the quarter ended September 30, 2021 and it did not have a material effect on the Company’s condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
Leases
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
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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
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which requires entities to use a current expected credit loss (“CECL”) model to measure impairment for most financial assets that are not recorded at fair value through net income. Under the CECL model, an entity will estimate lifetime expected credit losses considering available relevant information about historical events, current conditions and supportable forecasts. The CECL model does not apply to available-for-sale debt securities. This guidance also expands the required credit loss disclosures and will be applied using a modified retrospective approach by recording a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2019-04 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt this guidance for the annual and interim reporting periods beginning July 1, 2023. The Company has not determined the effect of the standard on its condensed consolidated financial statements.
We do not expect that any other recently issued accounting guidance will have a significant effect on our condensed consolidated financial statements.
Note 3:Revenue Recognition
Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performed the following five steps: (i) Identify the contract(s) with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; and (v) Recognize revenue as the entity satisfies a performance obligation.
Capitation Revenue and Accounts Receivable
Our capitation revenue relates to contracts with participants in which our performance obligation is to provide healthcare services to the participants. Revenues are recorded during the period our obligations to provide healthcare services are satisfied as noted below within each service type. The Company contracts directly with Medicare and Medicaid on a per member, per month (“PMPM”) basis. We receive
Fees are recorded gross in revenues because the Company is acting as a principal in providing for or overseeing comprehensive care provided to the participants. Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers.
In general, a participant enrolls in the PACE program and is considered a customer of InnovAge. The Company considers all contracts with participants as a single performance obligation to provide comprehensive medical, health, and social services that integrate acute and long-term care. The Company identified that contracts with customers in the PACE
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program have similar performance obligations and therefore groups them into one portfolio. This performance obligation is satisfied as the Company provides comprehensive care to its participants.
Our revenues are based on the estimated PMPM amounts we expect to be entitled to receive from the capitated fees per participant that are paid monthly by Medicaid, Medicare, the VA, and private pay sources. Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program. VA is included in “Private Pay and other” and is also capitated. Private pay includes direct payments from participants who do not qualify for the full capitated rate and have to pay all or a portion of the capitated rate.
The Company disaggregates capitation revenue from the following sources for the six months ended:
| December 31, |
| |||
| 2021 |
| 2020 |
| |
Medicaid |
| | % | | % |
Medicare |
| | % | | % |
Private pay and other |
| * | % | | % |
Total |
| | % | | % |
______________
* Less than
The Company determined the transaction price for these contracts is the amount we expect to be entitled to, which is the most likely amount. For certain capitation payments, the Company is subject to retroactive premium risk adjustments based on various factors. The Company estimates the amount of the adjustment and records it monthly on a straight-line basis. These adjustments are not expected to be material.
The capitation revenues are recognized based on the estimated PMPM transaction price to transfer the service for a distinct increment of the series (i.e. month). We recognize revenue in the month in which participants are entitled to receive comprehensive care benefits during the contract term. As the period between the time of se