SEC Filing | InnovAge

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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 September 30, 2022

☐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

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 November 7, 2022, there were 135,570,008 of the registrant’s common stock outstanding.

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		Page

Part I	Financial Information

Item 1.	Financial Statements (Unaudited)	5

	Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and June 30, 2022	5

	Condensed Consolidated Statements of Operations for the three months ended September 30, 2022 and 2021 (Unaudited)	6

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2022 and 2021 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2022 and 2021 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements as of September 30, 2022 (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

Part II	Other Information	40

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

Exhibit Index		41

Signatures		42

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InnovAge Holding Corp. and Subsidiaries

Quarterly Report on Form 10-Q

For the quarterly period ended September 30, 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, audits and investigations under the federal and state government programs, including 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 including with respect to the audits of our Albuquerque, New Mexico center and San Bernardino, California center;

●

the adverse impact of inspections, reviews, audits, investigations, legal proceedings, enforcement actions and litigation, including the current civil investigative demands initiated by federal and state agencies, as well as the litigation and other proceedings initiated by, or on behalf, of our stockholders;

●

the risk that the cost of providing services will exceed our compensation under the Program of All Inclusive Care for the Elderly (“PACE”);

●

the dependence of our revenues and operations upon a limited number of government payors;

●

changes in the rules governing the Medicare, Medicaid or PACE programs or applicable licensure requirements;

●

the risk that our submissions to government payors may contain inaccurate or unsupportable information, including regarding risk adjustment scores of participants;

●

the viability of our business strategy and our ability to realize expected results;

●

the impact on our business of renegotiation, non-renewal or termination of capitation agreements with government payors;

●

the impact of state and federal efforts to reduce healthcare spending;

●

the impact on our business from an economic downturn

●

the effects of a pandemic, epidemic or outbreak of an infectious disease, including the ongoing effects of COVID-19;

●

our dependence on our senior management team and other key employees;

●

the effect of sustained inflation on our business;

●

the impact of failures by our suppliers, sustained material price increases on supplies or limitations on our ability to access new technology or medical products;

●

the effect of our relatively limited operating history as a for-profit company on investors’ ability to evaluate our current business and future prospects;

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●

our ability to enroll or attract new participants and grow our revenue, especially as a result of the sanctions currently in place on our centers in Colorado and in our Sacramento center in California and actions from other states;

●

the concentration of our presence in Colorado;

●

our ability to manage our operations effectively, execute our business plan, maintain effective levels of service and participant satisfaction and adequately address competitive challenges;

●

our ability to compete in the healthcare industry;

●

our ability to establish a presence in new geographic markets, especially as a result of the actions taken by certain states and us in light of our ongoing audit processes;

●

the impact of competition for physicians and other clinical personnel and related increases in our labor costs;

●

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 effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems;

●

our ability to accurately estimate incurred but not reported medical expense or the risk scores of our participants;

●

risks associated with our use of “open-source” software;

●

the impact on our business of the termination of our leases, increases in rent or inability to renew or extend leases;

●

our ability to maintain our corporate culture;

●

the impact of negative publicity regarding the managed healthcare industry;

●

the impact of weather and other factors beyond our control;

●

our ability to adhere to complex and changing government laws and regulations in the healthcare industry, including U.S. Healthcare reform, the regulation of the corporate practice of medicine and the Health Information Technology for Economic and Clinical Health Act of 2009 (the “HITECH Act”), and their implementing regulations (collectively, “HIPAA”), CCPA and other privacy laws and regulations in the healthcare industry;

●

our status as a “controlled company”;

●

our ability to maintain effective internal controls over financial reporting and other enhanced requirements of being a public company;

●

our ability to maintain and enhance our reputation and brand recognition;

●

the impact on our business of disruptions in our disaster recovery systems or business continuity planning;

●

changes in accounting principles and guidance, resulting in unfavorable accounting charges or effects; and

●other factors disclosed in the section entitled “Risk Factors” in our Annual Report for the year ended June 30, 2022 filed with the Securities and Exchange Commission (the “SEC”) on September 13, 2022, as supplemented by our subsequent filings with the SEC.

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)


	September 30,		June 30,
	2022		2022
Assets
Current Assets
Cash and cash equivalents	$	188,222	$	184,429
Restricted cash		17		17
Accounts receivable, net of allowance ($4,264 – September 30, 2022 and $3,403 – June 30, 2022)		37,517		35,907
Prepaid expenses		12,165		13,842
Income tax receivable		5,010		6,761
Total current assets		242,931		240,956
Noncurrent Assets
Property and equipment, net		181,086		176,260
Operating lease assets		22,995		—
Investments		5,493		5,493
Deposits and other		2,565		2,812
Goodwill		124,217		124,217
Other intangible assets, net		5,693		5,858
Total noncurrent assets		342,049		314,640
Total assets	$	584,980	$	555,596
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses	$	50,858	$	50,562
Reported and estimated claims		35,974		38,454
Due to Medicaid and Medicare		10,633		9,130
Current portion of long-term debt		3,793		3,793
Current portion of finance lease obligations		3,376		3,368
Current portion of operating lease obligations		3,420		—
Deferred revenue		23,361		—
Total current liabilities		131,415		105,307
Noncurrent Liabilities
Deferred tax liability, net		14,290		17,761
Finance lease obligations		8,792		9,440
Operating lease obligations		20,725		—
Other noncurrent liabilities		1,135		1,134
Long-term debt, net of debt issuance costs		67,369		68,210
Total liabilities		243,726		201,852
Commitments and Contingencies (See Note 9)
Redeemable Noncontrolling Interests (See Note 4)		14,734		15,278
Stockholders’ Equity
Common stock, $0.001 par value; 500,000,000 authorized as of September 30, 2022 and June 30, 2022; 135,570,078 and 135,532,811 issued shares as of September 30, 2022 and June 30, 2022, respectively		136		136
Additional paid-in capital		328,708		327,499
Retained earnings (deficit)		(8,344)		4,729
Total InnovAge Holding Corp.		320,500		332,364
Noncontrolling interests		6,020		6,102
Total stockholders’ equity		326,520		338,466
Total liabilities and stockholders’ equity	$	584,980	$	555,596

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

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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 September 30,
		2022		2021
Revenues
Capitation revenue	$	170,931	$	172,554
Other service revenue		287		516
Total revenues		171,218		173,070
Expenses
External provider costs		96,237		90,012
Cost of care, excluding depreciation and amortization		53,557		40,728
Sales and marketing		4,413		6,293
Corporate, general and administrative		30,181		21,084
Depreciation and amortization		3,433		3,293
Total expenses		187,821		161,410
Operating Income (Loss)		(16,603)		11,660

Other Income (Expense)
Interest expense, net		(603)		(547)
Other income (expense)		37		(493)
Total other expense		(566)		(1,040)
Income (Loss) Before Income Taxes		(17,169)		10,620
Provision (Benefit) for Income Taxes		(3,470)		2,996
Net Income (Loss)		(13,699)		7,624
Less: net loss attributable to noncontrolling interests		(626)		(62)
Net Income (Loss) Attributable to InnovAge Holding Corp.	$	(13,073)	$	7,686

Weighted-average number of common shares outstanding - basic		135,566,117		135,516,513
Weighted-average number of common shares outstanding - diluted		135,566,117		135,516,513

Net income (loss) per share - basic	$	(0.10)	$	0.06
Net income (loss) per share - diluted	$	(0.10)	$	0.06

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

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INNOVAGE HOLDING CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


				Additional		Retained							Total		Redeemable
	Capital Stock			Paid-in		Earnings		Treasury Stock			Noncontrolling		Permanent		Noncontrolling Interests		Net Income
	Shares	Amount		Capital		(Deficit)		Shares	Amount		Interests		Stockholders' Equity		(Temporary Equity)		(Loss)

Balances, June 30, 2021	135,516,513	$	136	$	323,760	$	10,663	—	$	—	$	6,420	$	340,979		16,986
Stock-based compensation	—		—		958		—	—		—		—		958		—
Adjustments to redemption value	—		—		—		587	—		—		—		587		(587)
Net income (loss)	—		—		—		7,686	—		—		(94)		7,592		32		7,624
Balances, September 30, 2021	135,516,513	$	136	$	324,718	$	18,936	—	$	—	$	6,326	$	350,116	$	16,431	$


				Additional		Retained							Total		Redeemable
	Capital Stock			Paid-in		Earnings		Treasury Stock			Noncontrolling		Permanent		Noncontrolling Interests		Net Income
	Shares	Amount		Capital		(Deficit)		Shares	Amount		Interests		Stockholders' Equity		(Temporary Equity)		(Loss)

Balances, June 30, 2022	135,532,811	$	136	$	327,499	$	4,729	—	$	—	$	6,102	$	338,466		15,278
Stock-based compensation	37,267		—		1,209		—	—		—		—		1,209		—
Adjustments to redemption value	—		—		—		—	—		—		—		—		—
Net income (loss)	—		—		—		(13,073)	—		—		(82)		(13,155)		(544)		(13,699)
Balances, September 30, 2022	135,570,078	$	136	$	328,708	$	(8,344)	—	$	—	$	6,020	$	326,520	$	14,734	$

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

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INNOVAGE HOLDING CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	For the Three Months Ended September 30,
	2022		2021
Operating Activities
Net income (loss)	$	(13,699)	$	7,624
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
(Gain) Loss on disposal of assets		(37)		493
Provision for uncollectible accounts		1,571		1,268
Depreciation and amortization		3,433		3,293
Noncash lease expense		761		—
Amortization of deferred financing costs		107		107
Stock-based compensation		1,209		958
Deferred income taxes		(3,470)		1,230
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable, net		(3,180)		2,929
Prepaid expenses		1,678		(1,597)
Income tax receivable		1,750		1,766
Deposits and other		246		(309)
Accounts payable and accrued expenses		1,155		1,248
Reported and estimated claims		(2,480)		106
Due to Medicaid and Medicare		1,503		1,443
Operating lease liabilities		(781)		—
Deferred revenue		23,361		—
Net cash provided by operating activities		13,127		20,559
Investing Activities
Purchases of property and equipment		(7,666)		(3,042)
Purchase of cost method investment		—		(2,000)
Net cash used in investing activities	$	(7,666)	$	(5,042)
Financing Activities
Payments for finance lease obligations		(720)		(505)
Principal payments on long-term debt		(948)		(947)
Net cash used in financing activities		(1,668)		(1,452)

INCREASE IN CASH, CASH EQUIVALENTS & RESTRICTED CASH		3,793		14,065
CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD		184,446		203,700
CASH, CASH EQUIVALENTS & RESTRICTED CASH, END OF PERIOD	$	188,239	$	217,765

Supplemental Cash Flows Information
Interest paid	$	700	$	573
Income taxes paid	$	13	$	—
Property and equipment included in accounts payable	$	2,446	$	272
Property and equipment purchased under finance leases	$	80	$	127

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

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INNOVAGE HOLDING CORP. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1: Business

InnovAge Holding Corp. and its subsidiaries, are headquartered in Denver, Colorado. The Company manages, and in many cases directly provides, a broad range of medical and ancillary services for seniors in need of care and support to safely live independently in their homes and communities, including in-home care services (skilled, unskilled and personal care); in-center services such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to the Program of All-Inclusive Care for the Elderly (“PACE”) center and third-party medical appointments; and care management. The Company manages its business as one reportable segment, PACE.

As of September 30, 2022, the Company served approximately 6,540 PACE participants, making it the largest PACE provider in the United States of America (the “U.S.”) based upon participants served, and operates 18 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.

PACE is a fully-capitated managed care program, which serves the frail elderly, and predominantly dual-eligible, population in a community-based service model. InnovAge is obligated to provide, and participants receive all needed healthcare services through an all-inclusive, coordinated model of care, and the Company is at risk for 100% of healthcare costs incurred with respect to the care of its participants. PACE programs receive capitation payments directly from Medicare Parts C and D, Medicaid, Veterans Administration (“VA”), and private pay sources. Additionally, under the Medicare Prescription Drug Plan, the Centers for Medicare and Medicaid Services (“CMS”) share part of the risk for providing prescription medication to the Company’s participants.

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

Note 2: Summary of Significant Accounting Policies

The Company described its significant accounting policies in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended June 30, 2022 (“2022 10-K”). With the exception of Recently Adopted Accounting Pronouncements described below, there were no significant changes to those accounting policies during the three months ended September 30, 2022.

Basis of Preparation and Principles of Consolidation

The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such regulations. These financial statements have been prepared on a basis consistent with the accounting principles applied for the fiscal year ended June 30, 2022. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. The condensed consolidated financial statements include the accounts of InnovAge, its wholly owned subsidiaries, variable interest entities (“VIEs”)

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for which it is the primary beneficiary and entities for which it has a controlling interest. All intercompany accounts and transactions have been eliminated in consolidation.

The Company does not have any components of comprehensive income and comprehensive income is equal to net income (loss) reported in the statements of operations for all periods presented.

Property and Equipment

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


	Estimated
dollars in thousands	Useful Lives	September 30, 2022		June 30, 2022
Land	N/A	$	11,980	$	11,980
Buildings and leasehold improvements	10 - 40 years		122,076		122,076
Software	3 - 5 years		16,425		16,264
Equipment and vehicles	3 - 7 years		48,054		47,546
Construction in progress	N/A		42,783		35,479
			241,318		233,345
Less: accumulated depreciation and amortization			(60,232)		(57,085)
Total property and equipment, net		$	181,086	$	176,260

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

Recently Adopted Accounting Pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 Leases (“ASU 2016-02”), which was intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a right-of-use (“ROU”) asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than 12 months. Additionally, this guidance requires enhanced disclosures to help investors and other financial statement users to better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. In June 2020, the FASB issued ASU 2020-05 Revenue from contracts with customers (Topic 606) and leases (Topic 842) – Effective dates for certain entities which deferred the new lease standard effective date for the Company to interim periods beginning after December 15, 2022, with early adoption permitted.

We adopted the new standard on July 1, 2022 using the modified retrospective transition approach as permitted in ASU 2018-11. In accordance with this approach, the effective date of Topic 842 is also the application date of the new requirements, with prior comparative periods presented in the financial statements with the legacy requirements of ASC Topic 840, Leases. We elected the package of practical expedients which permits us not to reassess under the new lease standard our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under the new lease standard. We also elected to adopt the optional transition method which allows an entity to recognize, if necessary, a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company did not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment conclusions on the ROU assets. Comparative periods presented in the financial statements continue to be presented in accordance with GAAP related to leases prior to transitioning to the new lease standard. The adoption of Topic 842 resulted in the recognition of operating lease liabilities and ROU assets of $25.1 million and $23.6 million, respectively, while our accounting for capital leases (now referred to as finance leases) remained substantially unchanged. The impact of adopting Topic 842 was not material to our Statements of Operations and Statements of Cash Flows. See Note 7, “Leases.”

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Recent Accounting Pronouncements Not Yet Adopted

Financial Instruments

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which requires entities to use a current expected credit loss (“CECL”) model to measure impairment for most financial assets that are not recorded at fair value through net income. Under the CECL model, an entity will estimate lifetime expected credit losses considering available relevant information about historical events, current conditions and supportable forecasts. The CECL model does not apply to available-for-sale debt securities. This guidance also expands the required credit loss disclosures and will be applied using a modified retrospective approach by recording a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2019-04 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt this guidance for the annual and interim reporting periods beginning July 1, 2023. The Company has not determined the effect of the standard on its condensed consolidated financial statements.

We do not expect that any other recently issued accounting guidance will have a significant effect on our condensed consolidated financial statements.

Note 3: Revenue Recognition

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performed the following five steps: (i) Identify the contract(s) with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; and (v) Recognize revenue as the entity satisfies a performance obligation.

Capitation Revenue and Accounts Receivable

Our capitation revenue relates to contracts with participants in which our performance obligation is to provide healthcare services to the participants. Revenues are recorded during the period our obligations to provide healthcare services are satisfied as noted below within each service type. The Company contracts directly with Medicare and Medicaid on a per member, per month (“PMPM”) basis. We receive 100% of the pooled capitated payment to directly provide or manage the healthcare needs of our participants.

Fees are recorded gross in revenues because the Company is acting as a principal in providing for or overseeing comprehensive care provided to the participants. Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which it operates does not require such registration for risk-bearing providers.

In general, a participant enrolls in the PACE program and is considered a customer of InnovAge. The Company considers all contracts with participants as a single performance obligation to provide comprehensive medical, health, and social services that integrate acute and long-term care. The Company identified that contracts with customers in the PACE program have similar performance obligations and therefore groups them into one portfolio. This performance obligation is satisfied as the Company provides comprehensive care to its participants.

Our revenues are based on the estimated PMPM amounts we expect to be entitled to receive from the capitated fees per participant that are paid monthly by Medicaid, Medicare, the VA, and private pay sources. Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program. VA is included in “Private Pay and other” and is also capitated. Private pay includes direct payments from participants who do not qualify for the full capitated rate and have to pay all or a portion of the capitated rate.

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


	September 30,
	2022		2021
Medicaid	55	%	53	%
Medicare	45	%	47	%
Private pay and other	*	%	*	%
Total	100	%	100	%

* Less than 1%

The Company determined the transaction price for these contracts is the amount we expect to be entitled to, which is the most likely amount. For certain capitation payments, the Company is subject to retroactive premium risk adjustments based on various factors. The Company estimates the amount of the adjustment and records it monthly on a straight-line basis. These adjustments are not expected to be material.

The capitation revenues are recognized based on the estimated PMPM transaction price to transfer the service for a distinct increment of the series (i.e. month). We recognize revenue in the month in which participants are entitled to receive comprehensive care benefits during the contract term. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company also provides prescription drug benefits in accordance with Medicare Part D. Monthly payments received from CMS and the participants represent the bid amount for providing prescription drug coverage. The portion received from CMS is subject to risk sharing through Medicare Part D risk-sharing corridor provisions. These risk-sharing corridor provisions compare costs targeted in the Company’s bid to actual prescription drug costs. The Company estimates and records a monthly adjustment to Medicare Part D revenues associated with these risk-sharing corridor provisions. Medicare Part D comprised 13% and 12% of capitation revenues for the three months ended September 30, 2022 and 2021, respectively.

Our accounts receivable as of September 30, 2022 and June 30, 2022 is primarily from capitation revenue arrangements. The concentration of net receivables from participants and third-party payers was as follows:


	September 30,		June 30,
	2022		2022
Medicaid	45	%	70	%
Medicare	48	%	22	%
Private pay and other	7	%	8	%
Total	100	%	100	%

The Company records accounts receivable at net realizable value, which includes an allowance for estimated uncollectible accounts. The allowance for uncollectible accounts reflects the Company’s best estimate of probable losses considering eligibility, historical experience, and existing economic conditions. The balance of the allowance for uncollectible accounts was $4.3 million as of September 30, 2022, compared to $3.4 million as of June 30, 2022. Accounts are written off as bad debts when they are deemed uncollectible based upon individual credit evaluations and specific circumstances underlying the accounts.

Other Service Revenue and Accounts Receivable

Other service revenue is comprised of rents earned related to Senior Housing and other fee for service revenue. Other service revenue was 0.2% and 0.3% of total revenue for the three months ended September 30, 2022 and 2021, respectively. Accounts receivable related to other service revenue was not significant as of both September 30, 2022 and June 30, 2022.

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Laws and regulations governing the Medicare and Medicaid programs are complex and subject to change, as well as government review. Failure to comply with these laws can expose the entity to significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs. See Note 9, “Commitments and Contingencies.”

Note 4: Investments

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


	September 30,		June 30,
in thousands	2022		2022
Cost method investments	$	4,645	$	4,645
Equity method investments		848		848
Total investments	$	5,493	$	5,493

Nonconsolidated Entities

Cost Method Investments

The Company maintains two investments that are accounted for using the cost method. The investments do not have a readily determinable fair value and the Company has elected to record the investments at cost, less impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. During the three months ended September 30, 2022 and 2021, there were no observable price changes or impairments recorded.

Jetdoc

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

stock of Jetdoc, Inc. (“Jetdoc”), a telehealth and virtual urgent care app dedicated to effectively connecting users with medical professionals, for cash consideration of $2.0 million. The balance of the Company’s investment in Jetdoc is $2.0 million which represents the maximum exposure to loss.

DispatchHealth

On June 14, 2019, the Company invested $1.5 million in DispatchHealth Holdings, Inc. ("DispatchHealth"), through the purchase of a portion of its outstanding Series B Preferred Stock. On April 2, 2020, the Company invested an additional $1.1 million through the purchase of a portion of its outstanding Series C Preferred Stock. The balance of the Company’s investment is $2.6 million which represents the maximum exposure to loss.

Equity Method Investments

Pinewood Lodge

The Company’s operations include a Senior Housing unit that primarily includes the accounts of Continental Community Housing (“CCH”), the general partner of Pinewood Lodge, LLP (“ PWD”) which was organized to develop, construct, own, maintain, and operate certain apartment complexes intended for rental to low-income elderly individuals aged 62 or older.

PWD is a VIE, but the Company is not the primary beneficiary. The Company does not have the power to direct the activities that most significantly impact the economic performance of PWD. Accordingly, the Company does not consolidate PWD. PWD is accounted for using the equity method of accounting. The equity earnings of PWD are insignificant. As of September 30, 2022, the balance of the Company’s investment in PWD is $0.8 million which represents the maximum exposure to loss.

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Noncontrolling Interest

Senior Housing

The Company’s operations include a 0.01% partnership interest in InnovAge Senior Housing Thornton, LLC (“SH1”), which was organized to develop, construct, own, maintain, and operate certain apartment complexes intended for rental to low-income elderly individuals aged 62 or older.

SH1 is a VIE. The Company is the primary beneficiary of SH1 and consolidates SH1. The Company is the primary beneficiary of SH1 as it has the power to direct the activities that are most significant to SH1 and has an obligation to absorb losses or the right to receive benefits from SH1. The most significant activity of SH1 is the operation of the senior housing facility. The Company has provided a subordinated loan to SH1 and has provided a guarantee for a convertible term loan held by SH1.

Redeemable Noncontrolling Interest

InnovAge Sacramento

On March 18, 2019, in connection with the formation of InnovAge Sacramento, the joint venture with Adventist Health System/West (“Adventist”) and Eskaton Properties, Incorporated (“Eskaton”), the Company contributed $9.0 million in cash and land valued at $4.2 million for a 59.9% membership interest in the joint venture, InnovAge Sacramento. Further, Adventist contributed $5.8 million in cash and Eskaton contributed $3.0 million in cash for membership interests of 26.4% and 13.7%, respectively. In fiscal year 2021, the Company made an additional contribution of $52,000 and obtained an additional 0.1% membership interest in the joint venture, which resulted in the Company obtaining control and consolidating InnovAge Sacramento as of January 1, 2021.

The InnovAge California PACE-Sacramento LLC Limited Liability Company Agreement (the “JV Agreement”) includes numerous provisions whereby, if certain conditions are met, the Joint Venture may be required to purchase, at fair market value, certain members’ interests or certain members may be required to purchase, at fair market value, the interests of certain other members. As of September 30, 2022, none of the conditions specified in the JV Agreement had been met. At the time the Company became a publicly traded company these put rights held by the noncontrolling interests of the joint venture were required to be presented as temporary equity. The redeemable noncontrolling interest of $14.7 million was recorded at carrying value as of September 30, 2022.

Note 5: Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants, at the measurement date. A fair value hierarchy was established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources outside the reporting entity. Unobservable inputs are inputs that reflect the Company’s own assumptions based on market data and assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The sensitivity to changes in inputs and their impact on fair value measurements can be significant.

The three levels of inputs that may be used to measure fair value are:

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date

Level 2

Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the assets or liabilities

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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

The Company’s investment in InnovAge Sacramento includes a put right for the noncontrolling interest holders to require the Company to repurchase the interest of the noncontrolling interest holders at fair value, after the initial term of the management services agreement in 2028. As a result, at each fiscal period end the Company reports this put right at the greater of (i) carrying value of the redeemable noncontrolling interest or (ii) fair value of the redeemable noncontrolling interest. Because this asset does not have observable inputs, level 3 inputs are used to measure fair value. The fair value of the redeemable noncontrolling interest is determined utilizing a discounted cash flow model. As of September 30, 2022, the Company’s redeemable noncontrolling interest was recorded at carrying value of $14.7 million.

There were no transfers in and out of Level 3 during the three months ended September 30, 2022 or 2021.

Note 6: Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill amounted to $124.2 million at each of September 30, 2022 and June 30, 2022. Goodwill is not amortized.

Pursuant to ASC 350, “Intangibles – Goodwill and Other,” we review the recoverability of goodwill annually as of April 1 or whenever significant events or changes occur which might impair the recovery of recorded amounts. For purposes of the annual goodwill impairment assessment, the Company has identified three reporting units. There were no indicators of impairment identified and no goodwill impairments recorded during the three months ended September 30, 2022 and 2021.

Intangibles assets consisted of the following as of:


	September 30,		June 30,
in thousands	2022		2022
Definite-lived intangible assets	$	6,600	$	6,600
Indefinite-lived intangible assets		2,000		2,000
Total intangible assets		8,600		8,600
Accumulated amortization		(2,907)		(2,742)
Balance as of end of period	$	5,693	$	5,858

Intangible assets consist primarily of customer relationships acquired through business acquisitions. The Company recorded amortization expense of $0.2 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively.

We review the recoverability of other intangible assets in conjunction with long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. There were no intangible asset impairments recorded during the three months ended September 30, 2022 and 2021.

Note 7: Leases

Leasing Arrangements as Lessee

The Company leases certain property and equipment under various third-party operating and finance lease agreements. The Company determines if an arrangement is or contains a lease at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. The leases are noncancelable and expire on various terms from 2022 through 2032. We determine if an arrangement is a lease upon commencement of the contract. If an arrangement

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is determined to be a long-term lease (greater than 12 months), we recognize an ROU asset and lease liability based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our lease terms may also include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have elected to apply the short-term lease exception for contracts that have a lease term of twelve months or less and do not include an option to purchase the underlying asset. Therefore, we do not recognize a ROU asset or lease liability for such contracts. We recognize short-term lease payments as expense on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or rate are recognized as expense. Certain leases include escalations based on inflation indexes and fair market value adjustments. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement for such leases.

The following table presents the components of our ROU assets and their classification in our Balance Sheet at September 30, 2022:


Component of Lease Balances	Balance Sheet Line Items		Three months ended September 30,
			2022
		in thousands
Assets:
Operating lease assets	Operating lease assets	$	22,995
Finance lease assets	Property and equipment, net		10,434
Total leased assets		$	33,429

The following table presents the components of our lease cost and the classification of such costs in our Statements of Operations for the three months ended September 30, 2022:


Component of Lease Cost	Statements of Operations Line Items		Three months ended September 30,
			2022
		in thousands
Operating lease cost	Cost of care excluding depreciation and amortization and Corporate, general and administrative	$	1,025
Finance lease expense:
Amortization of leased assets	Depreciation and amortization		769
Interest on lease liabilities	Interest expense, net		317
Variable lease cost	Cost of care excluding depreciation and amortization and Corporate, general and administrative		—
Short-term lease cost	Cost of care excluding depreciation and amortization and Corporate, general and administrative		11
Total lease expense		$	2,122

The following table includes the weighted-average lease terms and discount rates for operating and finance leases as of September 30, 2022:


Weighted average remaining lease term:		September 30,
		2022
Operating leases		8.8 years
Finance leases		3.8 years

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Weighted average discount rate:	September 30,
	2022
Operating leases	6.61	%
Finance leases	8.76	%

The following table includes the future maturities of lease payments for operating leases and finance leases for periods subsequent to September 30, 2022:


	Operating		Finance
in thousands	Lease		Lease		Total
Amount remaining in 2023	$	3,586	$	3,320	$	6,906
2024		4,543		3,922		8,465
2025		4,136		3,140		7,276
2026		4,061		2,115		6,176
2027		3,764		1,419		5,183
Thereafter		10,302		537		10,839
Total lease payments		30,392		14,453		44,845
Less liability accretion / imputed interest		(6,247)		(2,285)		(8,532)
Total lease liabilities		24,145		12,168		36,313
Less: Current lease liabilities		3,420		3,376		6,796
Total long-term lease liabilities	$	20,725	$	8,792	$	29,517

The following table includes the future maturities of minimum rental payments that are required to be paid under all non-cancelable operating and capital lease obligations as previously disclosed in our 2022 Annual Report on Form 10-K as of June 30, 2022, prior to the adoption of ASC 842:


	Operating		Capital
in thousands	Lease		Lease
Amount remaining in 2023	$	4,873	$	4,405
2024		4,581		3,909
2025		4,122		3,126
2026		4,061		2,092
2027		3,764		1,393
Thereafter		10,265		535
Total minimal rental payments		31,666		15,460
Less: Amount representing interest				(2,652)
Subtotal				12,808
Current portion				3,368
Long-term portion			$	9,440

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Note 8. Long Term Debt

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


	September 30,		June 30,
	2022		2022

	in thousands
Senior secured borrowings:
Term Loan Facility	$	70,313	$	71,250
Convertible term loan		2,317		2,327
Total debt		72,630		73,577
Less: unamortized debt issuance costs		1,468		1,574
Less: current maturities		3,793		3,793
Noncurrent maturities	$	67,369	$	68,210

(a)

The interest rates on the Term Loan Facility and Revolving Credit Facility are described below.

(b)

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

2021 Credit Agreement

On March 8, 2021, the Company entered into a credit agreement (the “2021 Credit Agreement”) that replaced its prior credit agreement. The 2021 Credit Agreement consists of a senior secured term loan (the “Term Loan Facility”) of $75.0 million principal amount and a revolving credit facility (the “Revolving Credit Facility”) of $100.0 million maximum borrowing capacity. Loans under the 2021 Credit Agreement are secured by substantially all of the Company’s assets. Principal on the Term Loan Facility is paid each calendar quarter in an amount equal to 1.25% of the initial term loan on closing date. Proceeds of the Term Loan Facility, together with proceeds from the Company’s initial public offering (“IPO”), were used to repay long term debt amounts then outstanding.

Outstanding principal amounts under the 2021 Credit Agreement accrue interest at a variable interest rate. As of September 30, 2022, the interest rate on the Term Loan Facility was 2.21%. Under the terms of the 2021 Credit Agreement, the Revolving Credit Facility fee accrues at 0.25% of the average daily unused amount and is paid quarterly. As of September 30, 2022, we had no borrowings outstanding under the Revolving Credit Facility.

The 2021 Credit Agreement requires the Company to meet certain operational and reporting requirements, including, but not limited to, a secured net leverage ratio. Additionally, annual capital expenditures and permitted investments, including acquisitions, are limited to amounts specified in the 2021 Credit Agreement. The 2021 Credit Agreement also provides certain restrictions on dividend payments and other equity transactions and requires the Company to make prepayments under specified circumstances. As of September 30, 2022, the Company was in compliance with the covenants of the 2021 Credit Agreement.

The deferred financing costs of $2.0 million are amortized over the term of the underlying debt and unamortized amounts have been offset against long-term debt in the condensed consolidated balance sheets. Total amortization of deferred financing costs was $0.3 million for the three months ended September 30, 2022.

Convertible Term Loan

On June 29, 2015, SH1 entered into a convertible term loan. Monthly principal and interest payments of $0.02 million commenced on September 1, 2015. The loan is secured by a deed of trust to Public Trustee, assignment of leases and rents, security agreements, and SH1’s fixture filing.

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Note 9: Commitments and Contingencies

Professional Liability

The Company pays fixed premiums for annual professional liability insurance coverage under a claims-made policy. Under such policy, only claims made and reported to the insurer are covered during the policy term, regardless of when the incident giving rise to the claim occurred. The Company records claim liabilities and expected recoveries, if any, at gross amounts. The Company is not currently aware of any unasserted claims or unreported incidents that are expected to exceed medical malpractice insurance coverage limits.

Litigation

From time to time, in the normal course of business, the Company is involved in or subject to legal proceedings related to its business, including those described below. The Company regularly evaluates the status of claims and legal proceedings in which it is involved in order to assess whether a loss is probable or there is a reasonable possibility that a loss may have been incurred, and to determine if accruals are appropriate. The Company expenses legal costs as such costs are incurred.

On October 14, 2021, and subsequently amended on June 21, 2022, the Company was named as a defendant in a putative class action complaint filed in the District Court for the District of Colorado on behalf of individuals who purchased or acquired shares of the Company’s common stock during a specified period. Through the complaint, plaintiffs are asserting claims against the Company, certain of the Company’s officers and the underwriters in the Company’s IPO, alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for making allegedly inaccurate and misleading statements and omissions in connection with the Company’s IPO and subsequent earnings calls and public filings, and seeking compensatory damages, among other things. We are currently unable to predict the outcome of this matter.

In July 2021, the Company received a civil investigative demand from the Attorney General for the State of Colorado under the Colorado Medicaid False Claims Act. The demand requests information and documents regarding Medicaid billing, patient services and referrals in connection with the Company’s PACE program in Colorado. The Company continues to fully cooperate with the Attorney General and produce the requested information and documentation. We are currently unable to predict the outcome of this investigation.

In February 2022, the Company received a civil investigative demand from the Department of Justice (“DOJ”) under the Federal False Claims Act on similar subject matter. The demand requests information and documents regarding audits, billing, orders tracking, and quality and timeliness of patient services in connection with the Company’s PACE programs in the states where the Company operates (California, Colorado, New Mexico, Pennsylvania, and Virginia). The Company continues to fully cooperate with the DOJ and produce the requested information and documentation. We are currently unable to predict the outcome of this investigation.

On April 20, 2022, the Board of Directors of the Company received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters. We are currently unable to predict the outcome of this matter.

Because the results of legal proceedings and claims are inherently unpredictable and uncertain, we are currently unable to predict whether the legal proceedings we are involved in will, either individually or in the aggregate, have a material adverse effect on our business, financial condition, or cash flows. The outcomes of legal proceedings and claims could be material to the Company’s operating results for any particular period, depending in part, upon the operating results of such period. Regardless of the outcome, litigation has the potential to have an adverse impact on us due to any related defense and settlement costs, diversion of management resources, and other factors.

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Note 10: Stock-based Compensation

A summary of our aggregate stock-based compensation expense is set forth below. Stock-based compensation expense is included in corporate, general and administrative expenses on our consolidated statements of operations.


	Three months ended September 30,
	2022		2021

	in thousands

Stock options	$	570	$	—
Profits interests units		254		590
Restricted stock units		476		368
Total stock-based compensation expense	$	1,300	$	958

2020 Equity Incentive Plan

Profits Interests

TCO Group Holdings, L.P. (the “LP”), the Company’s largest shareholder and prior to the IPO, the Company’s parent, maintains the 2020 Equity Incentive Plan pursuant to which interests in the LP in the form of Class B Units (profits interests) could be granted to employees, directors, consultants, and advisers. A maximum number of 16,162,177 Class B Units were authorized for grant under the 2020 Equity Incentive Plan. As of September 30, 2022, a total of 13,009,137 profits interests units had been granted under the 2020 Equity Incentive Plan.

The Company used the Monte Carlo option model to determine the fair value of the profits interests units at the time of the grant. There were no grants following the IPO and during the three months ended September 30, 2022.

A summary of profits interests activity for the three months ended September 30, 2022 was as follows:


	Number of	Weighted average
Time-based unit awards	units	grant date fair value

Outstanding balance, June 30, 2022	2,158,072	$	1.28
Granted	—	$	—
Forfeited	—	$	—
Vested	(821,331)	$	1.28
Outstanding balance, September 30, 2022	1,336,741	$	1.28


	Number of	Weighted average
Performance-based unit awards	units	grant date fair value

Outstanding balance, June 30, 2022	2,217,865	$	0.57
Granted	—	$	—
Forfeited	—	$	—
Vested	—	$	—
Outstanding balance, September 30, 2022	2,217,865	$	0.57

The total unrecognized compensation cost related to profits interests units outstanding as of September 30, 2022 was $2.8 million, comprised (i) $1.6 million related to time-based unit awards expected to be recognized over a weighted-average period of 0.9 years and (ii) $1.3 million related to performance-based unit awards, which will be recorded when it is probable that the performance-based criteria will be met.

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2021 Omnibus Incentive Plan

In March 2021, the compensation committee of our Board of Directors approved the InnovAge Holding Corp. 2021 Omnibus Incentive Plan (the “2021 Omnibus Incentive Plan”), pursuant to which various stock-based awards may be granted to employees, directors, consultants, and advisers. The total number of shares of the Company’s common stock authorized under the 2021 Omnibus Incentive Plan is 14,700,000. The Company has issued time-based restricted stock units under this plan to its employees which generally vest (i) on March 4, 2023, the second anniversary of the grant date, or (ii) over a three-year period with one-third vesting on each anniversary of the date of grant. Certain other vesting periods have also been used. The grant date fair value of restricted stock units with time based vesting is based on the closing market price of our common stock on the date of grant. Certain awards under this plan vest upon achieving specific share price performance criteria and are determined to have performance-based vesting conditions. The Company has issued time-based stock options under this plan to its employees which generally vest at various intervals over a three-year period. Certain awards under this plan vest upon achieving specific share price performance criteria and are determined to have performance-based vesting conditions.

Restricted Stock Units

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


			Weighted
			average
	Number of		grant-date fair
Restricted stock units - time based	awards		value per share

Outstanding balance, June 30, 2022	476,768	$	9.69
Forfeited	(84,688)	$	5.45
Vested	(51,519)	$	4.50
Granted	986,200	$	5.99
Outstanding balance, September 30, 2022	1,326,761	$	5.99

The total unrecognized compensation cost related to time based restricted stock units outstanding as of September 30, 2022 was $