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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to  

Commission File Number: 001-40159

Graphic

InnovAge Holding Corp.

(Exact name of registrant as specified in its charter)

Delaware

81-0710819

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

8950 E. Lowry Boulevard

Denver, CO

(Address of Principal Executive Offices)

80230

(Zip Code)

(844) 803-8745

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

INNV

The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

As of May 9, 2022, there were 135,525,006 of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS

Page

Part I

Financial Information

Item 1.

Financial Statements (Unaudited)

5

Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and June 30, 2021

5

Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2022 and 2021 (Unaudited)

6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, 2022 and 2021 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2022 and 2021 (Unaudited)

9

Notes to Condensed Consolidated Financial Statements as of March 31, 2022 (Unaudited)

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

46

Part II

Other Information

47

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

51

Exhibit Index

52

Signatures

53

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InnovAge Holding Corp. and Subsidiaries

Quarterly Report on Form 10-Q

For the quarterly period ended March 31, 2022

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 with respect to current audits and legal proceedings and actions, relationships and discussions with regulatory agencies, our expectations with respect to correcting deficiencies raised in audits and other processes, and 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 audits of our Albuquerque, New Mexico center and San Bernadino, California 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 results of regulatory processes and voluntary actions relating to planned de novo centers;
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;

3

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general macro-economic and geopolitical events, including the heightened inflation, increase in interest rates and the war in Ukraine; 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.

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)

    

March 31, 

    

June 30, 

2022

2021

Assets

Current Assets

 

  

 

  

Cash and cash equivalents

$

199,493

$

201,466

Restricted cash

 

18

 

2,234

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

 

31,905

 

32,582

Prepaid expenses and other

 

13,572

 

9,249

Income tax receivable

 

5,461

 

5,401

Total current assets

 

250,449

 

250,932

Noncurrent Assets

 

  

 

  

Property and equipment, net

 

163,882

 

142,715

Investments

 

5,493

 

3,493

Deposits and other

 

5,378

 

3,877

Goodwill

 

124,217

 

124,217

Intangible assets, net

 

8,772

 

6,518

Total noncurrent assets

 

307,742

 

280,820

Total assets

$

558,191

$

531,752

Liabilities and Stockholders' Equity

 

  

 

  

Current Liabilities

 

  

 

  

Accounts payable and accrued expenses

$

41,834

$

32,361

Reported and estimated claims

 

36,012

 

33,234

Due to Medicaid and Medicare

9,530

7,101

Current portion of long-term debt

 

3,793

 

3,790

Current portion of capital lease obligations

 

3,216

 

2,079

Total current liabilities

 

94,385

 

78,565

Noncurrent Liabilities

 

  

 

  

Deferred tax liability, net

 

15,781

 

15,700

Capital lease obligations

 

10,282

 

5,190

Other noncurrent liabilities

 

2,570

 

2,758

Long-term debt, net of debt issuance costs

 

69,051

 

71,574

Total liabilities

 

192,069

 

173,787

Commitments and Contingencies (See Note 9)

 

  

 

  

Redeemable Noncontrolling Interests (See Note 4)

15,996

16,986

Stockholders’ Equity

 

  

 

  

Common stock, $0.001 par value; 500,000,000 authorized as of March 31, 2022 and June 30, 2021; 135,525,006 and 135,516,513 shares issued and outstanding as of March 31, 2022 and June 30, 2021, respectively

 

136

 

136

Additional paid-in capital

 

326,346

 

323,760

Retained earnings

 

17,437

 

10,663

Total InnovAge Holding Corp.

 

343,919

 

334,559

Noncontrolling interests

 

6,207

 

6,420

Total stockholders’ equity

 

350,126

 

340,979

Total liabilities and stockholders’ equity

$

558,191

$

531,752

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 March 31, 

Nine Months Ended March 31, 

2022

    

2021

2022

    

2021

Revenues

  

 

  

  

 

  

 

Capitation revenue

$

176,988

$

155,835

$

524,507

$

464,294

Other service revenue

 

371

 

473

 

1,273

 

1,890

Total revenues

 

177,359

 

156,308

 

525,780

 

466,184

Expenses

 

  

 

  

 

  

 

  

External provider costs

 

103,254

 

75,389

 

284,299

 

224,215

Cost of care, excluding depreciation and amortization

 

46,102

 

39,565

 

129,740

 

115,922

Sales and marketing

 

6,144

 

5,592

 

19,117

 

14,335

Corporate, general and administrative

 

24,682

 

18,595

 

74,248

 

105,901

Depreciation and amortization

 

3,850

 

3,311

 

10,435

 

9,262

Equity loss

 

 

 

 

1,343

Other operating income

 

 

19,222

 

 

18,211

Total expenses

 

184,032

 

161,674

 

517,839

 

489,189

Operating Income (Loss)

 

(6,673)

 

(5,366)

 

7,941

 

(23,005)

Other Income (Expense)

 

  

 

  

 

  

 

  

Interest expense, net

 

(709)

 

(4,876)

 

(1,930)

 

(17,061)

Loss on extinguishment of debt

 

(13,488)

 

(14,479)

Gain on equity method investment

10,871

10,871

Other income (expense)

 

108

 

(2,267)

 

(358)

 

(2,222)

Total other expense

 

(601)

 

(9,760)

 

(2,288)

 

(22,891)

Income (Loss) Before Income Taxes

 

(7,274)

 

(15,126)

 

5,653

 

(45,896)

Provision (Benefit) for Income Taxes

 

(4,116)

 

(4,264)

 

81

 

5,159

Net Income (Loss)

 

(3,158)

 

(10,862)

 

5,572

 

(51,055)

Less: net loss attributable to noncontrolling interests

 

(337)

 

(352)

 

(616)

 

(595)

Net Income (Loss) Attributable to InnovAge Holding Corp.

$

(2,821)

$

(10,510)

$

6,188

$

(50,460)

Weighted-average number of common shares outstanding - basic

 

135,516,608

 

121,324,980

 

135,516,544

 

119,619,806

Weighted-average number of common shares outstanding - diluted

 

135,516,608

 

121,324,980

 

135,530,793

 

119,619,806

Net income (loss) per share - basic

$

(0.02)

$

(0.09)

$

0.05

$

(0.42)

Net income (loss) per share - diluted

$

(0.02)

$

(0.09)

$

0.05

$

(0.42)

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

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Table of Contents

INNOVAGE HOLDING CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except per share data)

(Unaudited)

For the Three Months Ended March 31, 2022

    

    

    

    

    

    

    

    

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, December 31, 2021

 

135,516,513

 

136

 

325,501

 

17,695

 

-

 

-

 

6,254

 

349,586

 

18,850

 

Stock-based compensation

8,493

-

845

-

-

-

-

845

-

Net income (loss)

-

-

-

(2,821)

-

-

(47)

(2,868)

(290)

(3,158)

Adjustment to redemption value

 

-

 

-

 

-

 

2,563

 

-

 

-

 

-

 

2,563

 

(2,563)

Balances, March 31, 2022

 

135,525,006

$

136

$

326,346

$

17,437

 

-

$

-

$

6,207

$

350,126

$

15,996

For the Nine Months Ended March 31, 2022

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

 

135,516,513

 

136

 

323,760

 

10,663

 

-

 

-

 

6,420

 

340,979

 

16,986

 

Stock-based compensation

8,493

-

2,586

-

-

-

-

2,586

-

Net income (loss)

-

-

-

6,188

(213)

5,975

(403)

$

5,572

Adjustment to redemption value

 

-

 

-

 

-

 

586

 

-

 

-

 

-

 

586

 

(586)

Balances, March 31, 2022

 

135,525,006

$

136

$

326,346

$

17,437

 

-

$

-

$

6,207

$

350,126

$

15,996

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For the Three Months Ended March 31, 2021

  

  

  

  

  

  

Total

 

Redeemable

Additional

Permanent

Noncontrolling

Capital Stock

Paid-in

Retained

Treasury Stock

Noncontrolling

Stockholders'

 

Interests

Net Income

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Interests

    

Equity

 

(Temporary Equity)

(Loss)

Balances, December 31, 2020

 

132,718,461

$

133

$

24,552

$

15,330

 

16,197,849

$

(77,796)

$

6,492

$

(31,289)

$

-

$

Treasury stock retirement

 

(16,197,849)

 

(16)

 

(77,780)

 

 

(16,197,849)

 

77,796

 

 

-

Stock-based compensation

 

 

 

530

 

 

 

 

 

530

-

Reclassification of warrant liability

2,264

2,264

-

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

18,995,901

19

373,561

373,580

-

Consolidation of equity method investment

 

 

 

 

 

 

 

 

16,838

Adjustment to redemption value

(344)

(344)

 

344

Net income (loss)

 

 

 

 

(10,510)

 

 

 

(89)

 

(10,599)

(263)

$

(10,862)

Balances, March 31, 2021

 

135,516,513

$

136

$

323,127

$

4,476

 

$

$

6,403

$

334,142

$

16,919

    

For the Nine Months Ended March 31, 2021

  

  

  

  

  

  

Total

 

Redeemable

Additional

Permanent

Noncontrolling

Capital Stock

Paid-in

Retained

Treasury Stock

Noncontrolling

Stockholders'

 

Interests

Net Income

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Interests

    

Equity

 

(Temporary Equity)

(Loss)

Balances, June 30, 2020

 

132,718,461

$

133

$

36,338

$

64,737

 

102,030

$

(193)

$

6,735

$

107,750

$

-

$

Treasury stock transaction

 

 

 

 

 

16,095,819

 

(77,603)

 

 

(77,603)

-

Treasury stock retirement

(16,197,849)

(16)

(77,780)

(16,197,849)

77,796

-

Stock option cancellation

 

 

 

 

(9,457)

 

 

 

 

(9,457)

-

Time based awards- option cancelation

 

 

 

(32,358)

 

 

 

 

 

(32,358)

-

Stock-based compensation

 

 

 

1,102

 

 

 

 

 

1,102

-

Reclassification of warrant liability

2,264

2,264

-

Capital contribution

20,000

20,000

-

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

18,995,901

19

373,561

373,580

-

Consolidation of equity method investment

 

 

 

 

 

 

 

 

16,838

Adjustment to redemption value

(344)

(344)

 

344

Net income (loss)

 

 

 

 

(50,460)

 

 

 

(332)

 

(50,792)

(263)

$

(51,055)

Balances, March 31, 2021

 

135,516,513

$

136

$

323,127

$

4,476

 

$

$

6,403

$

334,142

$

16,919

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 Cash Flows

(In thousands)

(Unaudited)

For the Nine Months Ended March 31, 

2022

2021

Operating Activities

Net income (loss)

$

5,572

$

(51,055)

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

 

 

  

Loss on disposal of assets

 

358

 

2

Provision for uncollectible accounts

 

4,834

 

4,144

Depreciation and amortization

 

10,435

 

9,262

Gain on equity method investment

(10,871)

Loss on extinguishment of long-term debt

 

 

8,494

Amortization of deferred financing costs

 

322

 

948

Stock-based compensation

 

2,586

 

1,102

Deferred income taxes

 

81

 

(3,464)

Change in fair value of warrants

 

 

2,264

Change in fair value of contingent consideration

1,343

Changes in operating assets and liabilities, net of acquisitions

 

  

 

Accounts receivable, net

 

(4,157)

 

(1,402)

Prepaid expenses and other

 

(4,323)

 

635

Income tax receivable

 

(60)

 

1,613

Deposits and other

 

(1,501)

 

(606)

Accounts payable and accrued expenses

 

4,705

 

7,717

Reported and estimated claims

 

2,778

 

114

Due to Medicaid and Medicare

 

2,429

 

12,732

Net cash provided by (used in) operating activities

 

24,059

 

(17,028)

Investing Activities

 

  

 

  

Purchases of property and equipment

 

(20,141)

 

(14,083)

Purchase of intangible assets

 

(1,437)

 

(2,000)

Purchase of cost method investment

 

(2,000)

 

Net cash used in investing activities

$

(23,578)

$

(16,083)

Financing Activities

 

Distributions to owners

$

$

(9,458)

Owner contributions

 

 

20,000

Payments on capital lease obligations

 

(1,829)

 

(1,685)

Proceeds from long-term debt

375,000

Principal payments on long-term debt

 

(2,841)

 

(512,649)

Payment of financing costs and debt premiums

 

 

(8,896)

Proceeds from initial public offering of common stock

 

 

373,580

Treasury stock purchases

 

 

(77,603)

Payments under acquisition agreements

 

 

(3,622)

Payments related to option cancellation

(32,358)

Net cash provided by (used in) financing activities

 

(4,670)

 

122,309

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

 

(4,189)

 

89,198

CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD