10q10k10q10k.net

What changed in InnovAge Holding Corp.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of InnovAge Holding Corp.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+541 added−591 removedSource: 10-K (2024-09-10) vs 10-K (2023-09-12)

Top changes in InnovAge Holding Corp.'s 2024 10-K

541 paragraphs added · 591 removed · 418 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

104 edited+17 added−29 removed123 unchanged
Biggest changeReinvest in the InnovAge Platform to optimize performance • We believe that our ongoing investment in the InnovAge Platform drives greater efficiency across our business, creating a virtuous cycle that allows us to continue providing necessary care to our participants.
Biggest changeIn fiscal year 2024, we opened the Orlando PACE center as a joint venture with Orlando Health, a healthcare system broadly recognized for its care programs, services and extensive community outreach and support with the goal of magnifying the impact and extend the reach of PACE services for eligible seniors in the Orlando market. 6 Table of Contents Reinvest in the InnovAge Platform to optimize performance • We believe that our ongoing investment in the InnovAge Platform drives greater efficiency across our business, creating a virtuous cycle that allows us to continue providing necessary care to our participants.
Private parties initiate qui tam whistleblower lawsuits against any person or entity under the FCA in the name of the federal government, as well as under the false claims’ laws of several states, and may share in the proceeds of a successful suit. Generally, federal and state governments have made investigating and prosecuting healthcare fraud and abuse a priority.
Private parties may initiate qui tam whistleblower lawsuits against any person or entity under the FCA in the name of the federal government, as well as under the false claims’ laws of several states, and may share in the proceeds of a successful suit. Generally, federal and state governments have made investigating and prosecuting healthcare fraud and abuse a priority.
In addition, state and federal budgetary shortfalls and constraints pose potential risks for our revenue streams. We cannot predict how government payors or healthcare consumers might 13 Table of Contents react to federal and state healthcare legislation and regulation, whether already enacted or enacted in the future, nor can we predict what form such legislation or regulations will take.
In addition, state and federal budgetary shortfalls and constraints pose potential risks for our revenue streams. We cannot predict how government payors or healthcare consumers might react to federal and state healthcare legislation and regulation, whether already enacted or enacted in the future, nor can we predict 13 Table of Contents what form such legislation or regulations will take.
In addition, employers are required to provide or employ hepatitis B vaccinations, personal protective equipment and other safety 14 Table of Contents devices, infection control training, post-exposure evaluation and follow-up, waste disposal techniques and procedures and work practice controls. Employers are also required to comply with various record-keeping requirements.
In addition, employers 14 Table of Contents are required to provide or employ hepatitis B vaccinations, personal protective equipment and other safety devices, infection control training, post-exposure evaluation and follow-up, waste disposal techniques and procedures and work practice controls. Employers are also required to comply with various record-keeping requirements.
Risk Factors—Risks Related to Our Business—The healthcare industry is highly competitive and, if we are not able to compete effectively, our business could be harmed.” We believe the principal competitive factors for serving adults dually-eligible for Medicare and Medicaid and who meet nursing home eligibility criteria include: participant experience, quality of care, health outcomes, total cost of care, brand identity and trust in that brand.
Risk Factors—Risks Related to Our Business—“The healthcare industry is highly competitive and, if we are not able to compete effectively, our business could be harmed.” We believe the principal competitive factors for serving adults dually-eligible for Medicare and Medicaid and who meet nursing home eligibility criteria include: participant experience, quality of care, health outcomes, total cost of care, brand identity and trust in that brand.
Healthcare Reform Efforts The U.S. federal and state governments continue to enact and seriously consider many broad-based legislative and regulatory proposals that have had a material impact on or could materially impact various aspects of the healthcare system and our business, operating results and/or cash flows.
Healthcare Reform Efforts The U.S. federal and state governments continue to enact and consider many broad-based legislative and regulatory proposals that have had a material impact on or could materially impact various aspects of the healthcare system and our business, operating results and/or cash flows.
These provisions include, but are not limited to: • not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”); • a requirement to present only two years of audited financial statements, plus unaudited condensed consolidated financial statements for any interim period and related discussion in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; • reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and • exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
These provisions include, but are not limited to: • not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”); • a requirement to present only two years of audited financial statements, plus unaudited condensed consolidated financial statements for any interim period and related discussion in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; • reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and • exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
These exceptions and their various requirements apply based on the level of risk assumed by the arrangement’s participants. These new regulations purport to ease the compliance burden for healthcare providers across the industry while maintaining strong safeguards to protect patients and programs from fraud and abuse.
These exceptions and their various requirements apply based on the level of risk assumed by the arrangement’s participants. These regulations purport to ease the compliance burden for healthcare providers across the industry while maintaining strong safeguards to protect patients and programs from fraud and abuse.
Addressing social determinants of health . Our care delivery model is designed to provide services that mitigate challenges presented by participants’ social determinants of health, such as: • Economic stability • Transportation • Physical environment • Community and social context • Food and nutrition • Health literacy • Fitness Our technology suite.
Our care delivery model is designed to provide services that mitigate challenges presented by participants’ social determinants of health, such as: • Economic stability • Transportation • Physical environment • Community and social context • Food and nutrition • Health literacy • Fitness Our technology suite.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests. Available Information Our internet website is www.innovage.com.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. Available Information Our internet website is www.innovage.com.
Licensing Laws We, our healthcare professionals, and our centers are subject to various state and local licensure and certification requirements in connection with our provision of healthcare and other services.
Licensing Laws We, our healthcare professionals, and our centers are subject to various federal, state and local licensure and certification requirements in connection with our provision of healthcare and other services.
Census Bureau from 2018, representing seniors who we believe are dually eligible for Medicare and Medicaid and meet the nursing home eligibility criteria for PACE. We expect to prioritize growth in high-density urban and suburban areas, where there are sizable numbers of frail dual-eligible seniors who would benefit most from our program.
Census Bureau from 2018, representing seniors who we believe are dually eligible for Medicare and Medicaid and meet the nursing home eligibility criteria for PACE. We prioritize growth in high-density urban and suburban areas, where there are sizable numbers of frail dual-eligible seniors who would benefit most from our program.
We will remain an emerging growth company until the earlier of (1) June 30, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the date on which we are deemed to be a large accelerated filer or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
We will remain an emerging growth company until the earlier of (1) June 30, 2026, (2) the last day of the 16 Table of Contents fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the date on which we are deemed to be a large accelerated filer or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Certain states in which we do business or may desire to do business in the future have certificate of need programs regulating the establishment or expansion of healthcare facilities, including our community centers. These regulations can be complex and time-consuming to ensure compliance with.
Certain states in which we do business or may desire to do business in the future have certificate of need programs regulating the establishment or expansion of healthcare facilities, including our participant centers. These regulations can be complex and time-consuming to ensure compliance with.
These regulatory requirements apply to all healthcare facilities, including our community centers, and require employers to make a determination as to which employees may be exposed to blood or other potentially infectious materials and to have in effect a written exposure control plan.
These regulatory requirements apply to all healthcare facilities, including our participant centers, and require employers to make a determination as to which employees may be exposed to blood or other potentially infectious materials and to have in effect a written exposure control plan.
Given our scale across geographies, we believe we are positioned to capitalize on a significant market opportunity to provide care to frail, high-cost, dual-eligible seniors. Our care model targets the most complex, frail subset of the dual-eligible senior population. We estimated our target population at approximately 2.2 million in 2022 based on data from the U.S.
Given our scale across geographies, we believe we are positioned to capitalize on a significant market opportunity to provide care to frail, high-cost, dual-eligible seniors. Our care model targets the most complex, frail subset of the dual-eligible senior population. We estimated our target population at approximately 2.3 million in 2023 based on data from the U.S.
Under Section 6031 of the Deficit Reduction Act of 2005, as amended, if a state enacts a false claims act that is at least as stringent as the federal statute and that also meets certain other requirements, the state will be eligible to receive a greater share of any monetary recovery obtained pursuant to certain actions brought under the state’s false claims act.
Under Section 6031 of the Deficit Reduction Act of 2005, as amended, if a state enacts a false claims act that is at least as stringent as the 11 Table of Contents federal statute and that also meets certain other requirements, the state will be eligible to receive a greater share of any monetary recovery obtained pursuant to certain actions brought under the state’s false claims act.
Privacy and Security HIPAA requires covered entities, and the business associates with whom such covered entities contract for services involving the use or disclosure of protected health information to provide certain protections to our participants and their health information.
Privacy and Security HIPAA requires covered entities, and the business associates with whom such covered entities contract for services involving the use or disclosure of protected health information to provide certain protections to their patients or participants and their health information.
Whether identified through such audits or other avenues, our failure to comply with the federal and state laws applicable to our business has and may continue to result in significant or material retroactive adjustments to and/or withholding of capitation payments, fines, criminal liability, civil monetary penalties, requirements to make significant changes to our operations, corrective action plans, CMS imposed sanctions (including suspension or exclusion from participation in government programs), loss of contracts, or cessation of our services.
Whether identified through such audits or other avenues, our failure to comply with the federal and state laws applicable to our business could result in significant or material retroactive adjustments to and/or withholding of capitation payments, fines, criminal liability, civil monetary penalties, requirements to make significant changes to our operations, corrective action plans, CMS imposed sanctions (including suspension or exclusion from participation in government programs), loss of contracts, or cessation of our services.
Our model handles all transportation to and from medical appointments and center visits, helps participants with ADLs, and creates social outlets for participants to reduce isolation. Most importantly, we believe we offer “peace of mind” to our participants’ families who know their loved one’s complex needs are cared for.
Our model handles all transportation to and from medical appointments and center visits, helps participants with ADLs, and creates social outlets for participants to reduce isolation. Most importantly, we believe we offer “peace of mind” to our participants’ families who know their loved one’s complex 5 Table of Contents needs are cared for.
These assessment surveys, allow the Company to develop trainings tailored to the most prevalent needs identified by our employees. 16 Table of Contents Implications of being an emerging growth company and a smaller reporting company We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
These assessment surveys, allow the Company to develop trainings tailored to the most prevalent needs identified by our employees. Implications of being an emerging growth company and a smaller reporting company We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
It is not yet clear what effect, if any, these legislative changes and any subsequent implementing regulations and guidance will have on our business. • The “Medicare Program; Contract Year 2024 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly” final rule (“PACE Final Rule”) set out a number of changes for PACE organizations, including (i) clarifying that CMS has enforcement discretion to impose civil monetary penalties or an intermediate sanction in the event CMS has made a determination that could lead to the termination of a PACE program; and (ii) reinstating the requirement that PACE organizations to enter into written contracts with each outside organization, agency, or individual that furnishes administrative or care-related services not furnished directly by the PACE organization, including 25 medical specialties enumerated by the PACE Final Rule.
It is not yet clear what effect, if any, these legislative changes and any subsequent implementing regulations and guidance will have on our business. • The “Medicare Program; Contract Year 2024 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly” final rule (“PACE Final Rule”) set out a number of changes for PACE organizations, including (i) clarifying that CMS has enforcement discretion to impose civil monetary penalties or an intermediate sanction in the event CMS has made a determination that could lead to the termination of a PACE program; and (ii) reinstating the requirement that PACE organizations enter into written contracts with each outside organization, agency, or individual that furnishes administrative or care-related services not furnished directly by the PACE organization, including 25 medical specialties enumerated by the PACE Final Rule. • The remaining provisions of the PACE final rule from 2024 were issued alongside the new PACE Final Rule for 2025.
We have endeavored to structure our joint venture to satisfy as many elements of the applicable safe harbor for investments in small entities as we believe are commercially reasonable.
We have endeavored to structure our joint ventures to satisfy as many elements of the applicable safe harbor for investments in small entities as we believe are commercially reasonable.
Any allegations or findings that we have violated the FCA could have a material adverse impact on our reputation, business, results of operations and financial condition. 11 Table of Contents In addition to the FCA, the various states in which we operate have adopted their own analogs of the FCA.
Any allegations or findings that we have violated the FCA could have a material adverse impact on our reputation, business, results of operations and financial condition. In addition to the FCA, the various states in which we operate have adopted their own analogs of the FCA.
If these types of changes are implemented in the future, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA. • Legislation enacted in 2011 requires CMS to sequester or reduce all Medicare payments, including payments to PACE organizations, by two percent per year for a period of years. • The Inflation Reduction Act of 2022 includes a few provisions intended to lower the costs of some drugs covered under Medicare Part D and to limit Medicare beneficiaries’ out-of-pocket spending under the Medicare Part D benefit.
If these types of changes are implemented in the future, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA. • Legislation enacted in 2011 requires CMS to sequester or reduce all Medicare payments, including payments to PACE organizations, by two percent per year beginning on April 1, 2013. • The Inflation Reduction Act of 2022 includes a few provisions intended to lower the costs of some drugs covered under Medicare Part D and to limit Medicare beneficiaries’ out-of-pocket spending under the Medicare Part D benefit.
If any of our operations are found to violate applicable laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: • suspension, termination or exclusion of our participation in government payor programs; • loss of our licenses required to operate healthcare facilities or administer prescription drugs in the states in which we operate; • criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, Civil Monetary Penalties Law, the False Claims Act (“FCA”) and/or state analogs to these federal enforcement authorities, or other regulatory requirements; • enforcement actions by governmental agencies and/or state law claims for monetary damages by patients or employees relating to breach of, impermissible use or disclosure of, or other incident relating to protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) that we collect, use, and disclose, in violation of federal or state health privacy laws, including, for example and without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended by HIPAA, the CCPA as amended by the California Privacy Rights Act of 2020 (“CPRA”), other state data privacy and security laws, and the Privacy Act of 1974; • mandated changes to our practices or procedures that significantly increase operating expenses or decrease our revenue; • imposition of and compliance with corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our business practices which could lead to potential fines, among other things; • termination of various relationships and/or contracts related to our business, including joint venture arrangements, contracts with government payors, and real estate leases or contracts with clinical providers; • changes in and reinterpretation of rules and laws by a regulatory agency board, or court, such as state corporate practice of medicine laws, that could affect the structure and management of our business; 7 Table of Contents • changes in payor reimbursement, including negative adjustments to government payment models including, but not limited to, Medicare Parts C and D and Medicaid; and • harm to our reputation, which could negatively impact our business relationships, the terms of government payor contracts, our ability to attract and retain participants, physicians, and other clinicians, our ability to obtain financing and our access to new business opportunities, among other things.
If any of our operations are found to violate applicable laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: • suspension, termination or exclusion of our participation in government payor programs; • loss of our licenses required to operate healthcare facilities or administer prescription drugs in the states in which we operate; • criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, Civil Monetary Penalties Law, the False Claims Act (“FCA”) and/or state analogs to these federal enforcement authorities, or other regulatory requirements; • enforcement actions by governmental agencies and/or state law claims for monetary damages by patients or employees relating to breach of, impermissible use or disclosure of, or other incident relating to protected health information (“PHI”) and other types of personal data or personally identifiable information (collectively, “PII” and, together with PHI, “PHI/PII”) that we collect, use, and disclose, in violation of federal or state privacy laws, including, for example and without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended by HITECH Act (“HIPAA”), or state data privacy and security laws; • mandated changes to our practices or procedures that significantly increase operating expenses or decrease our revenue; • imposition of and compliance with corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our business practices which could lead to potential fines, among other things; • termination of various relationships and/or contracts related to our business, including joint venture arrangements, contracts with government payors, and real estate leases or contracts with clinical providers; • changes in and reinterpretation of rules and laws by a regulatory agency board, or court, such as state corporate practice of medicine laws, that could affect the structure and management of our business; • changes in payor reimbursement, including negative adjustments to government payment models including, but not limited to, Medicare Parts C and D and Medicaid; and • harm to our reputation, which could negatively impact our business relationships, the terms of government payor contracts, our ability to attract and retain participants, physicians, and other clinicians, our ability to obtain financing and our access to new business opportunities, among other things. 7 Table of Contents We expect that our industry will continue to be subject to substantial regulation, the scope and effect of which are difficult to predict.
To the extent we fall within the 10 Table of Contents types of entities to which the Stark Law applies, then we need to ensure that any financial relationships that we have with a referring provider would satisfy a statutory or regulatory exception to the Stark Law prohibition.
To the extent we fall within the types of entities to which the Stark Law applies, then we need to ensure that any financial relationships that we have with a referring provider would satisfy a statutory or regulatory exception to the Stark Law prohibition.
While the states in which we operate do not currently impose these regulations on entities solely bearing risk under the PACE 8 Table of Contents program, these states may seek to license or otherwise regulate our operations and financial solvency in the future; further, states in which we expand in the future may impose similar requirements on our operations.
While the states in which we operate do not currently impose these regulations on entities solely bearing risk under the PACE program, these states may seek to license or otherwise regulate our operations and financial solvency in the future; further, states in which we expand in the future may impose similar requirements on our operations.
Among other changes, the new regulations contain safe harbors for value-based arrangements centering around value-based enterprises, which are enterprises, such as ours, composed of participants collaborating to achieve one or more value-based purposes, including coordinating, and managing the care of a target patient population and coordinating and managing the care of a target population.
Among other changes, these regulations contained safe harbors for value-based arrangements centering around value-based enterprises, which are enterprises, such as ours, composed of participants collaborating to achieve one or more value-based purposes, including coordinating, and managing the care of a target patient population and coordinating and managing the care of a target population.
Additionally, on December 1, 2022, OCR issued guidance on the use of tracking technologies on websites and mobile applications by covered entities and business associates, indicating that certain information collected by tracking technology vendors from websites and applications may cause a breach under HIPAA.
Additionally, beginning in December 2022, OCR has issued guidance on the use of tracking technologies on websites and mobile applications by covered entities and business associates, indicating that certain information collected by tracking technology vendors from websites and applications may cause a breach under HIPAA.
We incorporate population-specific design elements, such as grab bars and rounded hallways, to accommodate the frailty and the prevalence of dementia among our participant population. The size and design of our centers enable us to deliver a significant portion of our participants’ care in one location, simplifying the healthcare experience for participants and their families. Our in-home care capabilities .
We incorporate population-specific design elements, such as grab bars and rounded hallways, to accommodate the frailty and the prevalence of dementia among our participant population. The size and design of our centers enable us to 4 Table of Contents deliver a significant portion of our participants’ care in one location, simplifying the healthcare experience for participants and their families.
Any failure to satisfy applicable laws and regulations could have a material adverse impact on our business, results of operations, financial condition, cash flows and reputation.
Any failure to 8 Table of Contents satisfy applicable laws and regulations could have a material adverse impact on our business, results of operations, financial condition, cash flows and reputation.
Civil penalties for violation of the Anti-Kickback Statute include up to $112,131 in monetary penalties per violation, fines, or penalties of up to three times the total payments between the parties to the arrangement and potential exclusion from participation in Medicare and Medicaid.
Civil penalties for violation of the Anti-Kickback Statute include up to $120,816 in monetary penalties per violation, fines, or penalties of up to three times the total payments between the parties to the arrangement and potential exclusion from participation in Medicare and Medicaid.
This is driven by two factors: (i) we provide care for a higher acuity population, with an average Medicare Risk Adjustment Factor (“RAF”) score of 2.46 based on InnovAge data as of June 30, 2023, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019, and (ii) we have Medicaid spend in addition to Medicare.
This is driven by two factors: (i) we believe we provide care for a higher acuity population, with an average Medicare Risk Adjustment Factor (“RAF”) score of 2.46 based on InnovAge data as of June 30, 2024, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019, with a higher RAF score indicating poorer health and higher predicted healthcare costs, and (ii) we have Medicaid spend in addition to Medicare.
Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility nor control over the timing of such payments. Human Capital Resources As of June 30, 2023, we had approximately 2,100 employees, including 1,200 clinical professionals (excluding contract labor).
Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility nor control over the timing of such payments. Human Capital Resources As of June 30, 2024, we had approximately 2,350 employees, including over 1,300 clinical professionals (excluding contract labor).
The IDTs meet multiple times per week to discuss each 4 Table of Contents participant’s care plan and closely monitor key clinical metrics to ensure each participant receives optimal treatment based on his or her current conditions. Our community-based care delivery model. Our high-touch model delivers care across a continuum of community-based settings.
The IDTs meet multiple times per week to discuss each participant’s care plan and closely monitor key clinical metrics so that each participant receives optimal treatment based on his or her current conditions. Our community-based care delivery model. Our high-touch model delivers care across a continuum of community-based settings.
According to data from the Office of the Actuary of CMS, healthcare spending in the United States grew at approximately 5% per year from 2016 to 2021, and in 2021 represented $4.3 trillion of annual spend, or 18.3% of U.S. GDP. The overall growth rate of healthcare spending is expected to accelerate due to the aging population.
According to data from the Office of the Actuary of CMS, healthcare spending in the United States grew at approximately 5% per year from 2017 to 2022, and in 2022 represented $4.5 trillion of annual spend, or 17.3% of U.S. GDP. The overall growth rate of healthcare spending is expected to accelerate due to the aging population.
In this Annual Report on Form 10-K, the terms “we”, “our”, “our company” and “us” may refer, as the context requires, to InnovAge or collectively to InnovAge and its subsidiaries. InnovAge is headquartered in Denver, Colorado. The Company manages its business as one reportable segment, PACE.
In this Annual Report, the terms “we”, “our”, “our company” and “us” may refer, as the context requires, to InnovAge or collectively to InnovAge and its subsidiaries. InnovAge is headquartered in Denver, Colorado and manages its business as one reportable segment, PACE.
Such audits have in the past, and may in the future, result in the identification of deficiencies in connection with our compliance with regulatory requirements, participant quality of care, care plan development and implementation, grievance and appeal processes, clinicians acting outside of their scope of practice, and other issues. See Item 1A.
Such audits have in the past, and may in the future, result in the identification of deficiencies in connection with our compliance with regulatory requirements, participant quality of care, care plan development and implementation, grievance and appeal processes, clinicians acting outside of their scope of practice, and other issues. See Item 1A. Risk Factors, “Risks Related to Regulation” .
Based on InnovAge data as of June 30, 2023, the typical InnovAge participant had, on average, eleven chronic conditions and, based on the data most recently available to us from a 2021 modified health outcomes survey, required, on average, assistance with two or more activities of daily living (“ADLs”).
Based on InnovAge data as of June 30, 2024, the typical InnovAge participant had, on average, ten chronic conditions and, based on the data most recently available to us from a 2022 modified health outcomes survey, required, on average, assistance with two or more activities of daily living (“ADLs”).
Government healthcare spend is disproportionally concentrated on the dual-eligible population, who typically suffer from multiple chronic conditions and require long-term services and supports. Medicare and Medicaid spend on average three times more per capita on a dual-eligible senior than a Medicare-only senior.
We believe government healthcare spend is higher for the dual-eligible population, who typically suffer from multiple chronic conditions and require long-term services and supports. We believe Medicare and Medicaid spend on average three times more per capita on a dual-eligible senior than a Medicare-only senior.
Based on InnovAge data as of June 30, 2023, the typical InnovAge participant had, on average, eleven chronic conditions and, based on the data most recently available to us from a 2021 modified health outcomes survey, required, on average, assistance with two or more ADLs.
Based on InnovAge data as of June 30, 2024, the typical InnovAge participant had, on average, ten chronic conditions and, based on the data most recently available to us from a 2022 modified health outcomes survey, required, on average, assistance with two or more ADLs.
Though no assurances can be made in the future, we have historically used our best estimate for accruing for this payment, and we received net positive true-up payments during the fiscal years ended June 30, 2023 and 2022.
We estimate and accrue for the expected true-up payments of our participants. Though no assurances can be made in the future, we have historically used our best estimate for accruing for this payment, and we received net positive true-up payments during the fiscal years ended June 30, 2024 and 2023.
We operate one of our centers, our Sacramento, California center, under a joint venture with a not-for-profit healthcare provider and may enter other joint ventures with providers and payors in the future.
We operate two of our centers, our Sacramento, California center, and Orlando, Florida center, under joint ventures, each with a not-for-profit healthcare provider. We may enter other joint ventures with providers and payors in the future.
We include our website address on this Annual Report on Form 10-K for reference only. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report or document we file with, or furnish to, the SEC. 17 Table of Contents
We include our website address on this Annual Report for reference only. The information contained on our website is not incorporated by reference into this Annual Report or any other report or document we file with, or furnish to, the SEC.
We believe that our employees are drawn to this mission and our values, which is why our voluntary retention rate was 64.7% over fiscal year 2023. Additionally, in our most recent employee engagement survey conducted in April 2022, 73% of our employees indicated that they feel engaged by their work at InnovAge .
We believe that our employees are drawn to this mission and our values, which is why our voluntary retention rate was 68% over fiscal year 2024. Additionally, in our most recent employee engagement survey conducted in February 2024, 75% of our employees indicated that they feel engaged by their work at InnovAge .
As noted above, the ACA provides that claims for payment that are tainted by a violation of the federal Anti-Kickback Statute (which could include, for example, illegal incentives or remuneration in exchange for enrollment or referrals) are false for purposes of the FCA.
The Affordable Care Act (“ACA”) provides that claims for payment that are tainted by a violation of the federal Anti-Kickback Statute (which could include, for example, illegal incentives or remuneration in exchange for enrollment or referrals) are false for purposes of the FCA.
Any allegations or findings that we or our providers have violated any of these laws or regulations could have a material adverse impact on our reputation, business, results of operations and financial condition.
Such laws may negatively affect our ability to grow our business. Any allegations or findings that we or our providers have violated any of these laws or regulations could have a material adverse impact on our reputation, business, results of operations and financial condition.
Our vertically integrated care model and full-risk contracts incentivize us to coordinate and manage all aspects of a participant’s health.
Our vertically integrated care model and full-risk contracts requires us to coordinate and manage all aspects of a participant’s health, and deliver the necessary care.
By bringing acquired organizations under the InnovAge Platform, we hope to further realize revenue growth and improve operational efficiency and care delivery post-integration. • We believe there is a robust landscape of potential tuck-in acquisitions to supplement our organic growth. Since the Company was released from sanctions, we have recommenced our efforts to pursue tuck-in acquisitions.
By bringing acquired organizations under the InnovAge Platform, we hope to further realize revenue growth and improve operational efficiency and care delivery post-integration. • We believe there is a robust landscape of potential tuck-in acquisitions to supplement our organic growth.
These exceptions and safe harbors are voluntary. To receive safe harbor protection, business transactions and arrangements must meet all the requirements of a safe harbor. However, transactions and arrangements that do not satisfy 9 Table of Contents all elements of a relevant safe harbor do not necessarily render the arrangement per se illegal.
To receive safe harbor protection, business transactions and arrangements must meet all the requirements of a safe harbor. However, transactions and arrangements that do not satisfy all elements of a relevant safe harbor do not necessarily render the arrangement per se illegal.
Of these estimated PACE eligible participants, only approximately 70,000 are enrolled in a PACE program, based on a July 2023 report from the National PACE Association, and over the next five years, the National PACE Association is targeting a PACE enrollment increase at a compound annual growth rate (“CAGR”) of approximately 21%.
Of these estimated PACE eligible participants, only approximately 77,000 are enrolled in a PACE program, based on a June 2024 report from the National PACE Association, and over the next four years, the National PACE Association is targeting a PACE enrollment increase at a compound annual growth rate (“CAGR”) of approximately 23%.
Costs under the PACE program were estimated to be 15% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of available data by the National PACE Association in July 2023.
Costs under the PACE program are estimated to be 12% lower on average than for a comparable dual-eligible population aged 65 and older under Medicaid, based on an analysis of most recently available data by the National PACE Association in January 2024.
PACE As of June 30, 2023, the Company served approximately 6,400 PACE participants, making it the largest PACE provider in the United States of America (the “U.S.”) based on participants served, and operated 17 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.
PACE As of June 30, 2024, the Company served approximately 7,020 PACE participants, making it the largest PACE provider in the United States (the “U.S.”) based on participants served, and operated 20 PACE centers across California, Colorado, Florida, New Mexico, Pennsylvania and Virginia.
Additional security 12 Table of Contents requirements apply to electronic PHI. These regulations also provide our participants with substantive rights with respect to their health information. The HIPAA privacy and security regulations also require covered entities to enter into written agreements with their business associates.
These regulations also provide our participants with substantive rights with respect to their health information. The HIPAA privacy and security regulations also require covered entities to enter into written agreements with their business associates.
Our in-home care capabilities are designed to enable our participants to live safely in their homes and avoid nursing homes to the extent safely possible. We directly deliver or manage all skilled and unskilled care a participant may require to live independently at home. Additionally, we have dedicated strategic partnerships with “hospital-at-home” providers to deliver acute care in-home when appropriate.
Our in-home care capabilities . Our in-home care capabilities are designed to enable our participants to live safely in their homes and avoid nursing homes to the extent safely possible. We directly deliver or manage all skilled and unskilled care a participant may require to live independently at home.
As a result, as of June 30, 2023, approximately 90% of our participants lived in their preferred setting: their home or community. We believe our care model also delivers better clinical outcomes: our participants have fewer hospital admissions, fewer low- to medium-severity emergency room visits and lower 30-day hospital readmission rates.
As a result, as of June 30, 2024, approximately 92% of our participants lived in their preferred setting: their home or community. We believe our care model also delivers better clinical outcomes: our participants have fewer hospital admissions and lower hospital readmission rates.
Healthcare spending on nursing care facilities and continuing care retirement communities was expected to reach approximately $201.4 billion in 2023, based on the latest projections made by the Office of the Actuary of CMS, which is a 1.9% increase compared to the 2023 projection from the prior year.
Healthcare spending on nursing care facilities and continuing care retirement communities is expected to reach approximately $216.3 billion in 2024, based on the latest projections made by the Office of the Actuary of CMS, which is a 3.3% increase compared to the current 2023 projection.
We therefore see higher levels of per-participant medical costs in our second and third fiscal quarters. Medical costs also depend upon the number of business days in a period, and shorter periods will have lower 15 Table of Contents medical costs.
We therefore see higher levels of per-participant medical costs in our second and third fiscal quarters. Medical costs also depend upon the number of business days in a period, with shorter periods generally having lower medical costs, all else being equal.
We expect that our industry will continue to be subject to substantial regulation, the scope and effect of which are difficult to predict. Our activities have been and could continue to be subject to investigations, audits and inquiries by various government and regulatory agencies with whom we contract at any time in the future. See Item 1A.
Our activities have been and could continue to be subject to investigations, audits and inquiries by various government and regulatory agencies with whom we contract at any time in the future. See Item 1A.
The HIPAA privacy and security regulations extensively regulate the use and disclosure of PHI and require covered entities and their business associates, to develop and maintain policies and maintain policies and procedures with respect to PHI that is used to disclosed and implement and maintain administrative, physical, and technical safeguards to protect the security of such information.
The HIPAA privacy and security regulations extensively regulate the use and disclosure of PHI and require covered entities and their business associates, to develop and maintain policies and procedures and implement and maintain administrative, physical, and technical safeguards to protect 12 Table of Contents the security of such information. Additional security requirements apply to electronic PHI.
There can be no assurance that we will not be the subject of an investigation (arising out of a reportable breach incident, audit or otherwise) alleging non-compliance with HIPAA regulations in our maintenance of PHI. We may also be subject to other laws governing the privacy and security of data, such as the CCPA and data breach notification laws.
There can be no assurance that we will not be the subject of an investigation (arising out of a reportable breach incident, audit or otherwise) alleging non-compliance with HIPAA regulations in our maintenance of PHI.
As of June 30, 2023, 90% of our participants are able to live safely in their homes and communities. Our interdisciplinary care teams. The IDT structure is core to our clinical model. Our IDTs oversee all aspects of each participant’s unique care plan and function as the core group of care providers to our participants.
Our interdisciplinary care teams. The IDT structure is core to our clinical model. Our IDTs oversee all aspects of each participant’s unique care plan and function as the core group of care providers to our participants.
Various other federal and state laws restrict the use and protect the privacy and security of individually identifiable information, as well as employee personal information, including certain state laws modeled to some extent on the European Union’s General Data Protection Regulation.
Looking ahead, it is possible that Congress could pursue a federal privacy bill to harmonize privacy regimes across states. Various other federal and state laws restrict the use and protect the privacy and security of individually identifiable information, as well as employee personal information, including certain state laws modeled to some extent on the European Union’s General Data Protection Regulation.
Additionally, some states have enacted statutes and regulations similar to the federal Anti-Kickback Statute, which may be applicable regardless of the payor source for the patient. These state laws may contain exceptions and safe harbors that are different from and/or more limited than those of federal law and that may vary from state to state.
Unlike the federal Anti-Kickback Statute, however, certain state laws may be applicable regardless of the payor source for the patient. 9 Table of Contents Moreover, these state laws may contain exceptions and safe harbors that are different from and/or more limited than those of federal law and that may vary from state to state.
Penalties for violation of the Stark Law include denial of payment, recoupment, refunds of amounts paid in violation of the law, exclusion from the Medicare or Medicaid programs, and substantial civil monetary penalties ($27,750 per prohibited item or service and $185,009 if there is a circumvention scheme; penalty amounts reflect current 2022 levels and are adjusted for inflation from time to time).
Penalties for violation of the Stark Law include denial of payment, recoupment, refunds of amounts paid in violation of the law, exclusion from the Medicare or Medicaid programs, and substantial civil monetary penalties ($29,899 per prohibited item or service and $199,338 if there is a circumvention scheme; penalty amounts reflect current 2023 levels and are adjusted for inflation from time to time). 10 Table of Contents Claims filed in violation of the Stark Law may be deemed false claims under the FCA.
Our Growth Strategy Increase participant enrollment and capacity within existing centers • For the fiscal year ended June 30, 2023, our participant census was approximately 6,400 across our 17 centers in five states.
Our Growth Strategy Increase participant enrollment and capacity within our centers • For the fiscal year ended June 30, 2024, our participant census was approximately 7,020 across our 20 centers in six states.
The COVID-19 pandemic amplified several flaws in the current legacy healthcare delivery system. Traditional healthcare providers faced dwindling fee-for-service visits during the stay-at-home orders, government restrictions and general patient fear of medical settings. This not only reduced revenues for traditional providers, but also strained their ability to provide necessary care for their patients.
The COVID-19 pandemic amplified several flaws in the current legacy healthcare delivery system, including the need for integrated, multimodal value-based care delivery models. Traditional healthcare providers faced dwindling fee-for-service visits during the stay-at-home orders, government restrictions and general patient fear of medical settings, reducing their revenue and straining their ability to provide care.
In addition, the ACA amended the federal Anti-Kickback Statute to provide that any claims for items or services resulting from a violation of the federal Anti-Kickback Statute are considered false or fraudulent for purposes of the FCA, which is further discussed below. The federal Anti-Kickback Statute includes statutory exceptions and regulatory safe harbors that protect certain arrangements.
In addition, the federal Anti-Kickback Statute provides that any claims for items or services resulting from a violation of the federal Anti-Kickback Statute are considered false or fraudulent for purposes of the FCA, which is further discussed below.
As of January 30, 2023, the minimum False Claims Act penalty increased from $12,537 to $13,508 per claim. The maximum penalty has increased from $25,076 to $27,018 per claim.
As of February 12, 2024, the minimum False Claims Act penalty increased from $13,508 to $13,946 per claim. The maximum penalty has increased from $27,018 to $27,894 per claim.
Claims filed in violation of the Stark Law may be deemed false claims under the FCA. In addition to the Stark Law, various states in which we operate have adopted their own self-referral prohibition statutes.
In addition to the Stark Law, various states in which we operate have adopted their own self-referral prohibition statutes.
We have built the largest PACE-focused operation in the country based on number of 3 Table of Contents participants; we are 16% larger than the size of our closest PACE-focused competitor, more than 30 times larger than the typical PACE operator and the only for-profit PACE operator with a footprint in three or more states.
We have built the largest PACE-focused operation in the country based on number of participants, with 20 operational centers across six states; we are 11% larger than the size of our closest PACE-focused competitor and more than 30 times larger than the typical PACE operator.
A higher RAF score indicates poorer health and higher predicted healthcare costs. Our platform is designed to enable participants to exercise their preference to age independently in their homes and stay active in their communities for as long as safely possible. All of our participants are certified as nursing home-eligible.
Our platform is designed to enable participants to exercise their preference to age independently in their homes and stay active in their communities for as long as safely possible. All of our participants are certified as nursing home-eligible. As of June 30, 2024, 92% of our participants were able to live safely in their homes and communities.
As of June 30, 2023, our employed workforce was comprised of individuals who identified as women – 77%, and minorities – 49%. Five of nine members of our executive leadership team identify as women as of June 30, 2023.
As of June 30, 2024, our employed workforce was comprised of individuals who identified as women – 76%, and minorities – 52%. Four of eleven members of our leadership team identify as women as of June 30, 2024.
As part of the Regulatory Sprint, CMS also issued a sweeping set of regulations that introduce significant new value-based terminology and exceptions to the Stark Law. CMS has implemented new exceptions for certain remuneration exchanged between or among eligible participants in value-based arrangements.
In parallel with OIG’s regulations on value-based care discussed above, on January 19, 2021, CMS issued a sweeping set of regulations that introduce significant new value-based terminology and exceptions to the Stark Law, including new exceptions for certain remuneration exchanged between or among eligible participants in value-based arrangements.
Any findings that we have violated these laws could have a material adverse impact on our business, results of operations, financial condition, cash flows, reputation and stock price.
Any findings that we have violated these laws could have a material adverse impact on our business, results of operations, financial condition, cash flows, reputation and stock price. The federal Anti-Kickback Statute includes statutory exceptions and regulatory safe harbors that protect certain arrangements. These exceptions and safe harbors are voluntary.
We are steadfastly dedicated to fostering an atmosphere that champions diversity, equity, and inclusion throughout all sectors of InnovAge. Our commitment remains in building a culture where individual distinctions are not just acknowledged but deeply valued. In our previous engagement survey from April 2022, 79.2% of employees indicated that they feel that they can be their authentic selves at work.
Diversity At InnovAge, we strive to be a reflection of the diverse communities that we serve. We are steadfastly dedicated to fostering an atmosphere that champions diversity, equity, and inclusion throughout all sectors of InnovAge. Our commitment remains in building a culture where individual distinctions are not just acknowledged but deeply valued.
Build de novo centers • We believe de novo centers generate compelling long-term unit economics and the potential for robust internal rates of return. • We have operated our platform across different geographies and we expect to prioritize a list of target markets that we believe are optimal environments to launch the InnovAge Platform.
We also have one additional planned de novo center in Downey, California. • We believe de novo centers generate compelling long-term unit economics and the potential for robust internal rates of return. • We have operated our platform across different geographies and we expect to prioritize a list of target markets that we believe are optimal environments to launch the InnovAge Platform. • Our approach to de novo developments includes building centers to our experience-based specifications, with flexibility for future center expansion factored into the blueprints where possible.
In addition, the retrospective capitation payments we receive for each participant are determined by a participant’s RAF score, which is calculated twice per year and is based on the evolving acuity and chronic conditions of a participant. We estimate and accrue for the expected true-up payments of our participants.
There is also increased variability of participant enrollment during the open enrollment period, which occurs during our third fiscal quarter. 15 Table of Contents In addition, the retrospective capitation payments we receive for each participant are determined by a participant’s RAF score, which is calculated twice per year and is based on the evolving acuity and chronic conditions of a participant.
Without personalized, patient-centered care that removes barriers to preventative or other early treatment, high-cost, dual-eligible seniors would continue to likely over-utilize healthcare in higher-cost settings, such as emergency rooms and nursing homes. Government payors have responded by incentivizing a transition to value-based reimbursement models for dual-eligible seniors. A recent example of this has been the growth of the PACE program.
Without personalized, patient-centered care that removes barriers to preventative or other early treatment, high-cost, dual-eligible seniors would continue to likely over-utilize healthcare in higher-cost settings, such as emergency rooms and nursing homes.

… 70 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

193 edited+48 added−111 removed202 unchanged
Biggest changeIn addition to the provisions of the FCA, the federal government can use several criminal statutes to prosecute persons who are alleged to have submitted false or fraudulent claims for payment to the federal government. 36 Table of Contents If any of our operations are found to violate these or other government laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: • suspension, termination or exclusion of our participation in government payment programs; • refunds of amounts received in violation of law or applicable payment program requirements dating back to the applicable statute of limitation periods; • loss of our licenses required to operate healthcare centers, complete certain limited lab testing or administer prescription drugs in the states in which we operate; • criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the Anti-Kickback Statute, Civil Monetary Penalties Statute and FCA, or other failures to meet regulatory requirements; • enforcement actions by governmental agencies or state attorneys general and/or state law claims for monetary damages by patients or employees who believe their PHI/PII has been impermissibly used or disclosed or not properly safeguarded, or their rights with respect to PHI/PII have been protected, in violation of federal or state health privacy laws, including, for example and without limitation, HIPAA, CCPA as amended by the CPRA, and the Privacy Act of 1974; • mandated changes to our practices or procedures that significantly increase operating expenses; • imposition of and compliance with corporate integrity agreements, monitoring agreements or corrective action plans that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our billing and business practices which could lead to potential fines, among other things; • termination of various relationships and/or contracts related to our business, including joint venture arrangements, real estate leases and consulting agreements; and • harm to our reputation, which could negatively impact our business relationships, affect our ability to attract and retain participants and healthcare professionals, affect our ability to obtain financing and decrease access to new business opportunities, among other things.
Biggest changeIf any of our operations are found to violate these or other government laws or regulations, we could suffer severe consequences that would have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price, including: • suspension, termination or exclusion of our participation in government payment programs; • refunds of amounts received in violation of law or applicable payment program requirements dating back to the applicable statute of limitation periods; • criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the Anti-Kickback Statute, Civil Monetary Penalties Statute and FCA, or other failures to meet regulatory requirements; • enforcement actions by governmental agencies and/or state law claims for monetary damages for patients or employees relating to breach or impermissible use or disclosure of, or other incident relating to PHI and other types of personal data or PII that we collect, use, and disclose, in violation of federal or state privacy laws, including, for example and without limitation, HIPAA or state data privacy and security laws; • mandated changes to our practices or procedures that could significantly increase operating expenses; • imposition of and compliance with corporate integrity agreements, monitoring agreements or corrective action plans that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our billing and business practices; • termination of various relationships and/or contracts related to our business, including joint venture arrangements, real estate leases and consulting agreements; and • harm to our reputation, which could negatively impact our business relationships, affect our ability to attract and retain participants and healthcare professionals, affect our ability to obtain financing and decrease access to new business opportunities, among other things.
Additionally, our organizational structure continues to become more complex as we expand our operational, financial and management controls, as well as our reporting systems and procedures as a public company. We may require significant capital expenditures and the allocation of valuable management resources to grow and evolve our operational and financial operations and grow.
Additionally, our organizational structure continues to become more complex as we grow and expand our operational, financial and management controls, as well as our reporting systems and procedures as a public company. We may require significant capital expenditures and the allocation of valuable management resources to grow and evolve our operational and financial operations and grow.
A security breach, security incident, or privacy violation that leads to unauthorized use, disclosure, access, acquisition, loss or modification of, or that prevents access to or otherwise impacts the confidentiality, security, or integrity of, participant or employee information, including PHI/PII that we or our third-party service providers process, could harm our reputation and business, compel us to comply with breach notification laws, cause us to incur significant costs for investigation, containment, remediation, mitigation, fines, penalties, settlements, notification to individuals, regulators, media, credit bureaus, and other third parties, complimentary credit monitoring, identity theft protection, training and similar services to participants and/or employees where required by law or otherwise appropriate, for measures intended to repair or replace systems or technology and to prevent future occurrences.
A security breach, security incident, or privacy violation that leads to unauthorized use, disclosure, access, acquisition, loss or modification of, or that prevents access to or otherwise impacts the confidentiality, security, or integrity of, participant or employee information, including PHI/PII that we or our third-party service providers process, could harm our reputation and business, compel us to comply with breach notification laws, cause us to incur significant costs for investigation, containment, remediation, mitigation, fines, penalties, settlements, notification to individuals, regulators, media, credit bureaus, and other third parties, complimentary credit monitoring, identity theft protection, training and similar services to participants and/or employees where required by law or otherwise appropriate, for measures intended to 31 repair or replace systems or technology and to prevent future occurrences.
Additionally, even after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company” if the market value of our common stock held by non-affiliates is below $250 million (or $700 million if our annual revenue is less than $100 million) as of December 31 in any given year, which would allow us to continue taking advantage of these exemptions.
Additionally, even after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company” if the market value of our common stock held by non-affiliates is below $250 million (or $700 million if our annual revenue is less than $100 million) as of December 31 in any given year, which would allow us to continue taking advantage of certain of these exemptions.
Risk Factors, “Risks Related to Our Business—We are subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.” Additionally, the federal government has used the FCA to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare, Medicaid, and other federally funded healthcare programs.
Risk Factors, “Risks Related to Our Business—We are subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.” Additionally, the federal government has used the FCA to prosecute a wide variety of alleged false claims 34 and fraud allegedly perpetrated against Medicare, Medicaid, and other federally funded healthcare programs.
In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
If we fail to effectively manage our potential growth and change or fail to ensure that the level of care and services provided by our employees complies with regulatory and contractual requirements, and levels of patient service and satisfaction, our brand and reputation, could suffer, adversely affecting our ability to attract and retain participants and employees and lead to the need for corrective actions.
If we fail to effectively manage our potential growth and change or fail to ensure that the level of care and services provided by our employees complies with regulatory and contractual requirements, and levels of patient service and satisfaction, our brand and reputation, could suffer, adversely affecting our ability to attract and retain participants and employees and lead to the need for corrective actions or sanctions.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our shareholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our shareholders and the federal district courts of the United States as the 42 exclusive forum for litigation arising under the Securities Act, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.
For example, the CCPA provides certain exceptions for PHI, but is still applicable to certain PII we process in the ordinary course of our business. The effects of the CCPA are wide-ranging and afford consumers certain rights with respect to PII, including a private right of action for data breaches involving certain personal information of California residents.
For example, the CCPA provides certain exceptions for PHI, but is still applicable to certain PII we process in the ordinary course of our business. The effects of the CCPA are wide-ranging and afford consumers certain rights with respect to PII, including a private right of action for data breaches involving certain personal 37 information of California residents.
If we are unable to convince the frail, dual-eligible senior population of the benefits of the InnovAge Platform or if potential or existing participants prefer the healthcare provider model of one of our competitors, we may not be able to effectively implement our growth strategy, which depends on our ability to attract new participants.
If we are unable to convince the frail, dual-eligible senior population of the benefits of the InnovAge Platform or if potential or existing participants prefer the healthcare provider model of one of our 21 competitors, we may not be able to effectively implement our growth strategy, which depends on our ability to attract new participants.
In addition, we could be liable for penalties to the federal government under the FCA, which may include per claim penalties, plus up to three times the amount of damages caused by each false claim, which can be as much as the amounts received directly or indirectly from the government for each such false claim.
In addition, we could be liable 27 for penalties to the federal government under the FCA, which may include per claim penalties, plus up to three times the amount of damages caused by each false claim, which can be as much as the amounts received directly or indirectly from the government for each such false claim.
If those changes are implemented, we cannot predict whether the amount of fixed federal funding to the states will be based on current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA.
If those changes are implemented, we cannot predict whether the amount of fixed federal funding to the states will be based on 28 current payment amounts, or if it will be based on lower payment amounts, which would negatively impact those states that expanded their Medicaid programs in response to the ACA.
Among other things, these provisions: • allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders; • provide for a classified board of directors with staggered three-year terms; • prohibit shareholder action by written consent from and after the date on which the Principal Shareholders beneficially own, in the aggregate, less than 35% of our common stock then outstanding; 45 Table of Contents • provide that, from and after the date on which the Principal Shareholders beneficially own less than 50% of our common stock then outstanding, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of the holders of at least 66 2 ∕ 3 % in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and • establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings, provided, however, that at any time when a Principal Shareholder beneficially owns at least 5% of our common stock then outstanding, such advance notice procedure will not apply to such Principal Shareholder.
Among other things, these provisions: • allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders; • provide for a classified board of directors with staggered three-year terms; • prohibit shareholder action by written consent from and after the date on which the Principal Shareholders beneficially own, in the aggregate, less than 35% of our common stock then outstanding; • provide that, from and after the date on which the Principal Shareholders beneficially own less than 50% of our common stock then outstanding, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of the holders of at least 66 2 ∕ 3 % in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and • establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings, provided, however, that at any time when a Principal Shareholder beneficially owns at least 5% of our common stock then outstanding, such advance notice procedure will not apply to such Principal Shareholder.
If the guidance we provide falls short or we are unable to meet the expectations of analysts or investors, the trading price of our common stock could decline substantially. Risks Related to Our Business Our growth strategy may not prove viable, and we may not realize expected results therefrom.
If the guidance we provide falls short or we are unable to meet the expectations of analysts or investors, the trading price of our common stock could decline substantially. 19 Risks Related to Our Business Our growth strategy may not prove viable, and we may not realize expected results therefrom.
In particular, for so long as the Principal Shareholders continue to own a significant percentage of our stock, the Principal Shareholders will be able to cause or prevent a change of control of us or a change in the composition of our Board and could preclude any unsolicited acquisition of us.
In particular, for so long as the Principal Shareholders continue to own a significant percentage of our stock, the Principal Shareholders will be able to cause or prevent a change of control of us or a change in 39 the composition of our Board and could preclude any unsolicited acquisition of us.
Any future pandemic, epidemic or outbreak of an infectious disease may adversely affect our business if one of the geographies we serve is affected by such outbreak, particularly at the onset of any such outbreak before response protocols have been developed.
Any future pandemic, epidemic or outbreak of an infectious disease may adversely affect our business if one or all of the geographies we serve is affected by such outbreak, particularly at the onset of any such outbreak before response protocols have been developed.
As a result of such variability and unpredictability, we may also fail to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results could fall short of our expectations or any guidance we provide.
As a result of such variability and unpredictability, our revenue or operating results could fall short of our expectations or any guidance we provide and we may also fail to meet the expectations of industry or financial analysts or investors for any period.
If we or our third-party service providers are unable to prevent or mitigate security breaches, security incidents or privacy violations in the future, or if we or our third-party service providers are unable to implement satisfactory remedial measures with respect to known or future security incidents, or if it is perceived that we have been unable to do so, our operations could be disrupted, we may be unable to provide access to our systems, and we could suffer a loss of participants, loss of reputation, adverse impacts on participant and investor confidence, financial loss, governmental investigations or other actions, regulatory or contractual penalties, and other claims and liability.
If we or our third-party service providers are unable to prevent or mitigate security breaches, security incidents or privacy violations, or if we or our third-party service providers are unable to implement satisfactory remedial measures with respect to known or future security incidents, or if it is perceived that we have been unable to do so, our operations could be disrupted, we may be unable to provide access to our systems, and we could suffer a loss of participants, loss of reputation, adverse impacts on participant and investor confidence, financial loss, governmental investigations or other actions, regulatory or contractual penalties, and other claims and liability.
Our ability to grow depends upon a number of factors, including future audits, investigations and ongoing or new remediation efforts, recruiting new participants, finding suitable geographies that have aging populations and viable rate structures, entering into government payor arrangements in new jurisdictions, ensuring compliance with regulatory and contractual requirements, identifying appropriate locations or existing centers, purchasing centers or obtaining leases, completing build-outs of new centers within proposed timelines and budgets and hiring members of our IDTs and other employees.
Our ability to grow depends upon a number of factors, including results of audits, investigations and ongoing or new remediation efforts, recruiting new participants, finding suitable geographies that have aging populations and viable rate structures, entering into government payor arrangements in new jurisdictions, ensuring compliance with regulatory and contractual requirements, identifying appropriate locations or existing centers, purchasing centers or obtaining leases, completing build-outs of new centers within proposed timelines and budgets and hiring members of our IDTs and other employees.
Additionally, we are party to a registration rights agreement with TCO Group Holdings, L.P., the investment vehicle through which the Principal Shareholders hold their investment, which requires us to effect the registration of the Principal Shareholders’ shares in certain circumstances.
We are party to a registration rights agreement with TCO Group Holdings, L.P., the investment vehicle through which the Principal Shareholders hold their investment, which requires us to effect the registration of the Principal Shareholders’ shares in certain circumstances.
Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings.
Our decision to issue securities in any future offering will depend on market conditions 45 and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings.
When an entity is determined to have violated the FCA, the government may impose civil fines and penalties ranging from $13,508 to $27,018 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; • the federal false claims laws, which impose criminal penalties on individuals who make or present a false, fictitious, or fraudulent claim to the government that the individual knew was false, fictitious, or fraudulent, and was made with the specific intent to violate the law or with a consciousness of wrongdoing; • state false claims laws, which generally follow the FCA and apply to claims submitted to state healthcare programs, and state health insurance fraud laws that impose penalties for the submission of false or fraudulent claims by providers to commercial insurers or other payors of healthcare services; • the federal Civil Monetary Penalties Statute and associated regulations, which impose civil fines for, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know such remuneration is likely to influence the beneficiary’s selection of a particular provider or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies, and which authorize assessments and program exclusion for various forms of fraud and abuse involving the Medicare and Medicaid programs; • the federal healthcare fraud statute and its implementing regulations, which created federal criminal laws that prohibit, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • federal and state laws regarding the collection, use disclosure and, protection of personal identifiable information or PII and protected health information or PHI (e.g., HIPAA, CCPA) and the storage, handling, 35 Table of Contents shipment, disposal and/or dispensing of pharmaceuticals and blood products and other biological materials, and many other applicable state and federal laws and requirements; • state and federal statutes and regulations that govern workplace health and safety; • federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation to provide services to patients or to enroll and participate in the Medicaid programs, to report certain changes in their operations to the agencies that administer these programs and, in some cases, to re-enroll in these programs when changes in direct or indirect ownership occur; • federal and state scope of practice and other laws pertaining to the provision of services by qualified healthcare providers, including those pertaining to the provision of services by nurse practitioners and physician assistants in certain settings and requirements for physician supervision of those services; • state laws restricting the corporate practice of medicine; and • federal or state consumer protection laws that regulate various trade practices (e.g. consumer communications or consumer-facing activities).
When an entity is determined to have violated the FCA, the government may impose civil fines and penalties ranging from $13,946 to $27,894 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; • the federal false claims laws, which impose criminal penalties on individuals who make or present a false, fictitious, or fraudulent claim to the government that the individual knew was false, fictitious, or fraudulent, and was made with the specific intent to violate the law or with a consciousness of wrongdoing; • state false claims laws, which generally follow the FCA and apply to claims submitted to state healthcare programs, and state health insurance fraud laws that impose penalties for the submission of false or fraudulent claims by providers to commercial insurers or other payors of healthcare services; • the federal Civil Monetary Penalties Statute and associated regulations, which impose civil fines for, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know such remuneration is likely to influence the beneficiary’s selection of a particular provider or supplier of services reimbursable by Medicare or a state healthcare program, unless an 33 exception applies, and which authorize assessments and program exclusion for various forms of fraud and abuse involving the Medicare and Medicaid programs; • the federal healthcare fraud statute and its implementing regulations, which created federal criminal laws that prohibit, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • federal and state laws regarding the collection, use disclosure and, protection of personal identifiable information or PII and protected health information or PHI (e.g., HIPAA and the CCPA) and the storage, handling, shipment, disposal and/or dispensing of pharmaceuticals and blood products and other biological materials, and many other applicable state and federal laws and requirements; • state and federal statutes and regulations that govern workplace health and safety; • federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation to provide services to patients or to enroll and participate in the Medicaid programs, to report certain changes in their operations to the agencies that administer these programs and, in some cases, to re-enroll in these programs when changes in direct or indirect ownership occur; • federal and state scope of practice and other laws pertaining to the provision of services by qualified healthcare providers, including those pertaining to the provision of services by nurse practitioners and physician assistants in certain settings and requirements for physician supervision of those services; • state laws restricting the corporate practice of medicine; and • federal or state consumer protection laws that regulate various trade practices (e.g. consumer communications or consumer-facing activities).
In addition to the Principal Shareholders’ beneficial ownership of a combined 86% of our common stock, our Director Nomination Agreement, certificate of incorporation and bylaws and the Delaware General Corporation Law (the “DGCL”), contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board or the Principal Shareholders, even if doing so might be beneficial to our shareholders.
In addition to the Principal Shareholders’ beneficial ownership of a combined 83% of our common stock, our Director Nomination Agreement, certificate of incorporation and bylaws and the Delaware General Corporation Law (the “DGCL”), contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board or the Principal Shareholders, even if doing so might be beneficial to our shareholders.
However, we have and expect to continue making significant investments in growing our business and increasing our participant base, building capabilities to increase our sophistication as a payor to drive clinical value, improve outcomes, and manage cost trends, expanding our operations, hiring additional employees for growing or new centers, introducing or improving technology, and operating as a public company.
However, we have made and expect to continue making significant investments in growing our business and increasing our participant base, 25 building capabilities to increase our sophistication as a payor to drive clinical value, improve outcomes, and manage cost trends, expanding our operations, hiring additional employees for growing or new centers, introducing or improving technology, and operating as a public company.
In addition, some states in which we operate undergo periodic reconciliations with respect to enrollments that present a risk to our business, results of operations, financial condition and cash flows. • Allegations of failure and failure to adhere to complex government laws and regulations that apply to our business, have had and could in the future have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price.
Some states in which we operate undergo periodic reconciliations with respect to enrollments that present a risk to our business. • Allegations of failure and failure to adhere to complex government laws and regulations, have had and could in the future have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price.
In addition, we will be required to comply with laws and regulations of states that may differ from the ones in which we currently operate, and could face competitors with greater knowledge of such local markets. We anticipate that further geographic expansion will require us to make a substantial investment of management time, capital and/or other resources.
In addition, we are required to comply with laws and regulations of states that may differ from the ones in which we currently operate, and could face competitors with greater knowledge of such local markets. We anticipate that further geographic expansion will require us to make a substantial investment of management time, capital and/or other resources.
Security breaches of this infrastructure, whether ours or of our third-party service providers, including physical or electronic break-ins, computer viruses, ransomware, attacks by hackers and similar breaches, and employee or contractor error, negligence or malfeasance, have occurred in the past, and have in the past and could in the future, create system disruptions, shutdowns or unauthorized access, acquisition, use, disclosure or 31 Table of Contents modifications of such data or information, and could cause PHI/PII to be accessed, acquired, used, disclosed or modified without authorization, to be made publicly available, or to be further accessed, acquired, used or disclosed.
Security breaches of this infrastructure, whether ours or of our third-party service providers, including physical or electronic break-ins, computer viruses, ransomware, attacks by hackers and similar breaches, and employee or contractor error, negligence or malfeasance, have occurred in the past, and have in the past and could in the future, create system disruptions, shutdowns or unauthorized access, acquisition, use, disclosure or modifications of such data or information, and could cause PHI/PII to be accessed, acquired, used, disclosed or modified without authorization, to be made publicly available, or to be further accessed, acquired, used or disclosed.
In general, inspections, reviews, audits, requests for information or investigations with adverse findings, and in particular the audits described above, have resulted in and may further result in: • temporary or permanent enrollment sanctions in the affected center(s), as was the case with our Sacramento, California center and our centers in the State of Colorado; • refunding amounts we have been paid by the government; • state or federal agencies imposing corrective action plans, fines, penalties, training, policies and procedures, monitoring, and other requirements; • temporary suspension of payments; • debarment or exclusion from participation in federal healthcare programs; • self-disclosure of violations to applicable regulatory authorities; • damage to our reputation; • the revocation of a center’s license; and • loss of certain rights under, or termination of, our contracts with government payors.
In general, inspections, reviews, audits, requests for information or investigations with adverse findings, and in particular the audits described above, have resulted in and may further result in: • temporary or permanent enrollment sanctions in the affected center(s), as was the case with our Sacramento, California center and our centers in the State of Colorado; • refunding amounts we have been paid by the government; • state or federal agencies imposing corrective action plans, fines, penalties, training, policies and procedures, monitoring, and other requirements; • temporary suspension of payments; • debarment or exclusion from participation in federal healthcare programs; • self-disclosure of violations to applicable regulatory authorities; • damage to our reputation; • the revocation of a center’s license or suspension of state attestations to open de novo centers; and • loss of certain rights under, or termination of, our contracts with government payors.
The demand requests information and documents regarding audits, billing, orders tracking, and quality and timeliness of patient services in connection with the Company’s PACE programs in the states where the Company operates (California, Colorado, New Mexico, Pennsylvania, and Virginia). In December 2022, the Company received a supplemental civil investigative demand from the DOJ requesting supplemental information on the same matters.
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 of California, Colorado, New Mexico, Pennsylvania, and Virginia. In December 2022, the Company received a supplemental civil investigative demand from the DOJ requesting supplemental information on the same matters.
We routinely take the steps we believe are necessary to retain or obtain all requisite licensure and operating authorities. While we endeavor to comply with federal, state and local licensing and certification laws and regulations and standards as we interpret them, the laws and regulations in these areas are complex, changing and often subject to varying interpretations.
We routinely take the steps we believe are necessary to retain or obtain requisite licensure and operating authorities. While we endeavor to comply with federal, state and local licensing and certification laws and regulations and standards as we interpret them, the laws and regulations in these areas are complex, changing and often 35 subject to varying interpretations.
There can be no assurance that a PACE organization will not be randomly selected or targeted for review by CMS or that the outcome of such a review will not result in a material adjustment in our revenue and profitability, even if the information we submitted to CMS is accurate and supportable.
There can be no assurance that a PACE organization, including us, will not be randomly selected or targeted for review by CMS or that the outcome of such a review will not result in a material adjustment in our revenue and profitability, even if the information we submitted to CMS is accurate and supportable.
Accordingly, for such period of time, the Principal Shareholders will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amending our charter and bylaws, which govern the rights attached to our common stock.
Accordingly, for such period of time, the Principal Shareholders will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amend our charter and bylaws, which govern the rights attached to our common stock.
However, some of the healthcare laws and regulations applicable to us are subject to limited or evolving interpretations, and a review of our business or operations by a court, law enforcement or a regulatory authority might result in a determination that could have a material adverse effect on us.
Moreover, some of the healthcare laws and regulations applicable to us are subject to limited or evolving interpretations, and a review of our business or operations by a court, law enforcement or a regulatory authority might result in a determination that could have a material adverse effect on us.
Our Principal Shareholders beneficially own approximately 86% of our common stock, which means that together they control the vote of all matters submitted to a vote of our stockholders, including the election of members of the Board of Directors of the Company (the “Board”) and all other corporate decisions.
Our Principal Shareholders beneficially own approximately 83% of our common stock, which means that together they control the vote of all matters submitted to a vote of our stockholders, including the election of members of the Board of Directors of the Company (the “Board”) and all other corporate decisions.
However, if certain events occur prior to the end of such five-year period, including if we become a “large 43 Table of Contents accelerated filer,” our annual gross revenue exceeds $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period.
However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period.
These budget deficits at federal, state and local government entities have decreased, and may continue to decrease, spending for health and human service programs, including Medicare, Medicaid, 25 Table of Contents PACE and similar programs, which represent nearly all of the payor sources for our centers and which may have a material effect on our results of operations and financial condition.
These budget deficits at federal, state and local government entities have decreased, and may continue to decrease, spending for health and human service programs, including Medicare, Medicaid, PACE and similar programs, which represent nearly all of the payor sources for our centers and which may have a material effect on our results of operations and financial condition.
Substantial changes in the risk adjustment mechanism, including changes that result from enforcement or audit actions, could materially affect our capitated reimbursement. 27 Table of Contents Renegotiation, non-renewal or termination of capitation agreements with government payors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Substantial changes in the risk adjustment mechanism, including changes that result from enforcement or audit actions, could materially affect our capitated reimbursement. Renegotiation, non-renewal or termination of capitation agreements with government payors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We further endeavor to structure all of our relationships with physicians, providers, and other third parties to comply with state and federal anti-kickback laws and other applicable healthcare laws. We utilize considerable resources to monitor laws and regulations and implement necessary changes.
We further endeavor to structure our relationships with physicians, providers, and other third parties to comply with state and federal anti-kickback laws and other applicable healthcare laws. We utilize considerable resources to monitor laws and regulations and implement necessary changes.
Similarly, changes in private payor reimbursement policies could lead to adverse changes in Medicare, Medicaid and other governmental healthcare programs, which could have a material adverse effect on our business, financial condition and results of operations.
Similarly, changes in private payor reimbursement policies could lead to adverse changes in Medicare, Medicaid and other governmental healthcare programs, which could have a material adverse effect on our business, financial condition and result of operations.
These fluctuations may be driven by a variety of factors, many of which are outside of our control, including, but not limited to: • our ability to execute our growth strategy, including our ability to identify and successfully complete acquisition and expand via de novo centers within existing and new markets; • our inability to control expenses and increases to the cost of care, including as a result of the composition of our participant pool, macroeconomic factors such as such as labor shortages, high inflation, and COVID-19; • the results of current and future, routine and non-routine inspections, reviews, audits and investigations under federal and state government programs and contracts, and any resulting sanctions or remediation efforts as a result of such government actions; and • legal proceedings, enforcement actions and litigation, malpractice and privacy disputes to which we are currently and may in the future be party to.
These fluctuations may be driven by a variety of factors, many of which are outside of our control, including, but not limited to: • our ability to execute our growth strategy, including our ability to identify and successfully complete acquisitions and expand via de novo centers within existing and new markets; • our inability to control expenses and increases to the cost of care, including as a result of the composition of our participant pool, macroeconomic factors such as such as labor shortages, high inflation, and health emergencies; • the results of current and future, routine and non-routine inspections, reviews, audits and investigations under federal and state government programs and contracts, and any resulting sanctions or remediation efforts as a result of such government actions; and • legal proceedings, enforcement actions and litigation, malpractice and privacy disputes to which we are currently and may in the future be party to.
In addition, our employment agreements with our executive officers and other key personnel do not require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time.
Our employment agreements with our executive officers and other key personnel do not require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time.
Further, if labor market conditions continue to disrupt our ability to recruit healthcare professionals , we may not be able to execute our growth plan and grow capacity in our existing centers or open de novo centers or we may have to do so at costs higher than originally budgeted, which, in turn, could increase our capital needs during a time of rising interest rates and when conditions in the credit and capital markets are volatile.
In addition, if labor market conditions continue to disrupt our ability to recruit healthcare professionals , we may not be able to execute our growth plan and grow capacity in our existing centers or open de novo centers or we may have to do so at costs higher than originally budgeted, which, in turn, could increase our capital needs during a time of high interest rates and when conditions in the credit and capital markets are volatile.
If our new hires perform poorly, if we are unsuccessful in hiring, training, managing and integrating these new employees, if we are not successful in retaining our existing employees, or if we are unable to provide the care and services that our participants require in compliance with regulatory requirements, our business may be adversely affected.
If our new hires perform poorly, if we 20 are unsuccessful in hiring, training, managing and integrating these new employees, if we are not successful in retaining our existing employees, or if we are unable to provide the care and services that our participants require in compliance with regulatory requirements, our business will be adversely affected.
Thereafter, we will have to, among other things, recruit and retain qualified personnel, develop new centers and establish new relationships or contracts with physicians and other healthcare and services providers.
Thereafter, we have to, among other things, recruit and retain qualified 30 personnel, develop new centers and establish new relationships or contracts with physicians and other healthcare and services providers.
We have implemented certain administrative, physical and technological safeguards to address these risks; however, such policies and procedures may not address certain HIPAA requirements or address situations that could lead to increased privacy or security risks, and agreements with contractors and other third-party service providers who handle this PHI/PII and other sensitive data and information for us.
We have implemented certain administrative, physical and technological safeguards through our Cybersecurity Program to address these risks; however, such policies and procedures may not address certain HIPAA requirements or address situations that could lead to increased privacy or security risks, and agreements with contractors and other third-party service providers who handle this PHI/PII and other sensitive data and information for us.
The demand requests information and documents regarding Medicaid billing, patient services and referrals in connection with the Company’s PACE program in Colorado. We continue 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.
The demand requests information and documents regarding Medicaid billing, patient services and referrals in connection with the Company’s PACE program in Colorado. We continue to fully cooperate with the Attorney General. We are currently unable to predict the outcome of this investigation.
Any failure to satisfy applicable laws and regulations could have a material adverse impact on our business, results of operations, financial condition, cash flows, and reputation. 37 Table of Contents If we are unable to effectively adapt to changes in the healthcare industry, including changes to laws and regulations regarding or affecting U.S. healthcare reform, our business may be harmed.
Any failure to satisfy applicable laws and regulations could have a material adverse impact on our business, results of operations, financial condition, cash flows, and reputation. If we are unable to effectively adapt to changes in the healthcare industry, including changes to laws and regulations regarding or affecting U.S. healthcare reform, our business could be harmed.
Risk Factors, “Risks Related to Our Business—A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide has and in the future could adversely affect our business” and “Risks Related to Our Business—We conduct a significant percentage of our operations in the State of Colorado and, as a result, we are particularly susceptible to any reduction in budget appropriations for our services or any other adverse developments in that state.” Because we rely on a limited number of government-funded agencies, namely CMS and state Medicaid agencies, for a significant portion of our revenues, we depend on federal funding, as well as the financial condition of the states in which we operate, and each state’s commitment to its participation in the PACE program.
Risk Factors, “Risks Related to Our Business—A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, such as COVID-19, as well as weather and other factors have affected, and could in the future adversely affect our business” and “Risks Related to Our Business—We conduct a significant percentage of our operations in the State of Colorado and, as a result, we are particularly susceptible to any reduction in budget appropriations for our services or any other adverse developments in that state.” Because we rely on a limited number of government-funded agencies, namely CMS and state Medicaid agencies, for a significant portion of our revenues, we depend on federal funding, as well as the financial condition of the states in which we operate, and each state’s commitment to its participation in the PACE program.
Failure to comply with these licensing and certification laws, regulations and standards could result in cessation of our services, prior payments by government payors being subject to recoupment, corrective action plans, the suspension of participant enrollment or requirements to make significant changes to our operations and can give rise to civil or, in extreme cases, criminal penalties.
Failure to comply with these licensing and certification laws, regulations and standards could result in cessation of our services, recoupment of prior payments by government payors, corrective action plans, the suspension of participant enrollment or requirements to make significant changes to our operations and can give rise to civil or, in certain cases, criminal penalties.
Due to budget constraints, including resulting from a potential economic downturn or recession, we may experience negative Medicaid capitated rate payment pressure from certain states where we operate, such as Colorado, where we conduct a significant percentage of our operations.
Due to budget constraints, including resulting from a potential recession, we may experience negative Medicaid capitated rate payment pressure from certain states where we operate, such as Colorado, where we conduct a significant percentage of our operations.
In addition, our operating results and the trading price of our shares may fluctuate in response to various factors, including: • developments and results of audits, sanctions, investigations and litigation; • market conditions in our industry or the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new solutions or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • sales, or anticipated sales, of large blocks of our stock; • additions or departures of key personnel; • regulatory or political developments; • litigation and governmental investigations; • changing economic conditions; • investors’ perception of us and our prospects; 47 Table of Contents • events beyond our control such as inflationary pressures, increased interest rates, weather, public health events, such as the COVID-19 pandemic, and war, including uncertainties surrounding the Russia and Ukraine war; and • any default on our indebtedness.
In addition, our operating results and the trading price of our shares may fluctuate in response to various factors, including: • developments and results of audits, sanctions, investigations and litigation; • market conditions in our industry or the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new solutions or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • sales, or anticipated sales, of large blocks of our stock; • additions or departures of key personnel; • regulatory or political developments; • litigation and governmental investigations; • changing economic and macroeconomic conditions; • inflationary pressures, increased interest rates, weather, public health events, such as the COVID-19 pandemic, and war, including uncertainties surrounding the Russia and Ukraine war and the Israel-Hamas war; • investors’ perception of us and our prospects; and • any default on our indebtedness.
The Principal Shareholders also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
The Principal Shareholders also may pursue business and investment opportunities that may be complementary to our business, and, as a result, those opportunities may not be available to us.
When aggregating the revenue associated with Medicare and Medicaid by state, Colorado, California and Virginia accounted for a total of approximately 83.0% and 83.3% of our capitation revenue for the years ended June 30, 2023 and 2022, respectively.
When aggregating the revenue associated with Medicare and Medicaid by state, Colorado, California and Virginia accounted for a total of approximately 84.3% and 83.0% of our capitation revenue for the years ended June 30, 2024 and 2023, respectively.
Department of Justice to investigate such allegations, and because qui tam suits are filed under seal, we could be subject to suits of which we are not aware or have been ordered by the presiding court not to discuss or disclose.
DOJ to investigate such allegations, and because qui tam suits are filed under seal, we could be subject to suits of which we are not aware or have been ordered by the presiding court not to discuss or disclose.
If we are unable to increase participant enrollment, increase utilization of capacity at our centers, build de novo centers, manage our external provider costs, expand into new geographies, or find, evaluate and execute on new business opportunities, we may be unable to grow and our business and results of operations will be materially adversely affected.
If we are unable to increase utilization of capacity at our centers through enrollment, ramp up de novo centers, build new de novo centers, manage our external provider costs, expand into new geographies, or find, evaluate and execute on new business opportunities, we may be unable to grow and our business and results of operations will be materially adversely affected.
The healthcare Industry is highly competitive and, if we are not able to compete effectively, our business could be harmed. We compete directly with national, regional and local providers of healthcare for participants and clinical providers. We also compete directly with payors and other alternate managed care programs for participants.
The healthcare industry is highly competitive and, if we are not able to compete effectively, our business could be harmed. We compete directly with national, regional and local providers of healthcare for participants and clinical providers, including new or growing participants and providers. We also compete directly with payors and other alternate managed care programs for participants.
Risks Related to Regulation Allegations of failure and failure to adhere to all the complex government laws and regulations that apply to our business have had and could in the future have material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price.
Risks Related to Regulation Allegations that we have failed to adhere to all of the complex government laws and regulations that apply to our business have had and could in the future have a material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price.
Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly.
Our level of indebtedness may place us at a competitive disadvantage to our competitors that are less leveraged. Fluctuations in interest rates can increase borrowing costs. Increases in interest rates directly impact the amount of interest we are required to pay and reduce earnings accordingly.
Other states, including Colorado, Connecticut, Utah, and Virginia, have enacted similar privacy laws that impose new obligations or limitations in areas affecting our business and we continue to assess the impact of this state legislation on our business as additional information and guidance becomes available. Efforts at the federal level to enact similar laws have been ongoing.
Other states have enacted similar privacy laws that impose new obligations or limitations in areas affecting our business and we continue to assess the impact of this state legislation on our business as additional information and guidance becomes available. Efforts at the federal level to enact similar laws have been ongoing.
Factors that may cause medical expenses to exceed estimates include: • the health status of participants requiring higher levels of care, such as nursing home care or higher incidents of hospitalization; • higher than expected utilization of new or existing healthcare services; • more frequent catastrophic medical cases (e.g. transplants); • an increase in the cost of healthcare services and supplies, whether as a result of inflation, wage increases, purchases of vaccines and PPE as a result of the COVID-19 pandemic, other health emergencies, or otherwise; • emergence of new high-cost medications to treat conditions that are common in our population, such as lecanemab for Alzeimer’s Dementia; • changes to mandated benefits or other changes in healthcare laws, regulations and practices; • increased costs attributable to specialist physicians, hospitals and ancillary providers; • changes in the demographics of our participants and medical trends; 24 Table of Contents • contractual or claims disputes with providers, hospitals or other service providers; • the occurrence of catastrophes, health emergencies, including epidemics or pandemics or acts of terrorism; and • the reduction of government payor payments.
Factors that may cause medical expenses to exceed estimates include: • the health status of participants requiring higher levels of care, such as nursing home care or higher incidents of hospitalization; • higher than expected utilization of new or existing healthcare services; • more frequent catastrophic medical cases (e.g. transplants); • an increase in the cost of healthcare services and supplies, whether as a result of inflation, wage increases, purchases of vaccines and personal protective equipment as a result of a pandemic or epidemic, other health emergencies, or otherwise; • emergence of new high-cost medications to treat conditions that are common in our population, such as lecanemab for Alzheimer’s Dementia; • changes to mandated benefits or other changes in healthcare laws, regulations and practices; • increased costs attributable to specialist physicians, hospitals and ancillary providers; • changes in the demographics of our participants and medical trends; • contractual or claims disputes with providers, hospitals or other service providers; • the occurrence of catastrophes, health emergencies, including epidemics or pandemics or acts of terrorism; and • the reduction of government payor payments.
In addition to the expected costs to grow our business, we also expect to continue to incur compliance costs, as a result of sanctions and maintaining high quality of care across our centers, as well as additional legal, accounting and other expenses as we continue to establish the Company as a public company.
In addition to the expected costs to grow our business, we also expect to continue to incur compliance costs, as a result of audits and maintaining high quality of care across our centers, as well as additional legal, accounting and other expenses as we continue to operate as a public company.
Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In certain geographic areas, we have a large concentration of centers that may be simultaneously affected by health emergencies, such as the COVID-19 pandemic, adverse weather conditions or other events.
Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In certain geographic areas, we have a large concentration of centers that may be simultaneously affected by health emergencies, adverse weather conditions or other events.
Approximately 99.8% and 99.7% of our revenue for the years ended June 30, 2023 and 2022, respectively, was derived from capitation agreements with government payors in which we receive fixed PMPM fees.
Approximately 99.9% and 99.8% of our revenue for the years ended June 30, 2024 and 2023, respectively, was derived from capitation agreements with government payors in which we receive fixed PMPM fees.
These laws and regulations are often uncertain, contradictory, and subject to changing or differing 39 Table of Contents interpretations, and we expect new laws, rules and regulations regarding privacy, data protection, and information security to be proposed and enacted in the future.
These laws and regulations are often uncertain, contradictory, and subject to changing or differing interpretations, and we expect new laws, rules and regulations regarding privacy, data protection, and information security to be proposed and enacted in the future.
Cyber-attacks are becoming more sophisticated, and frequent, and we or our third-party service providers may be unable to anticipate these techniques or to implement adequate protective measures against them or to prevent future attacks. The remote work environment has increased these risks.
Cyber-attacks are becoming more sophisticated, and frequent, and we or our third-party service providers may be unable to anticipate these techniques or to implement adequate protective measures against them or to prevent future attacks. The prevalence of smart/handheld devices and the remote work environment has increased these risks.
You should read these risk factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our consolidated financial statements and related notes in Item 8 of this Annual Report on Form 10-K.
You should read these risk factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our consolidated financial statements and related notes in Item 8 of this Annual Report.
The Principal Shareholders may also assign such right to their affiliates. The Director Nomination Agreement also provides for certain consent rights for each of the Principal Shareholders so long as such 42 Table of Contents shareholder owns at least 5% of the Original Amount, including for any increase to the size of our Board.
The Principal Shareholders may also assign such right to their affiliates. The Director Nomination Agreement also provides for certain consent rights for each of the Principal Shareholders so long as such shareholder owns at least 5% of the Original Amount, including for any changes to the size of our Board.
For such period of time as our Principal Shareholders beneficially own a majority of the voting power, they will have significant influence with respect to our business. • Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause such results to fall below any guidance we provide.
For such period of time as our Principal Shareholders beneficially own a majority of the voting power, they will have significant influence. • Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause such results to fall below any guidance, targets or goals we provide.
Any changes that limit or reduce general PACE rates could have a material adverse effect on our business. • Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to payment obligations or penalties.
Any changes that limit or reduce general PACE rates could have a material adverse effect on our business. • Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could subject us to repayment obligations or penalties.
Allegations of violation, or actual violations of the legal requirements implicated by our business may have material adverse consequences on our business. • Ignite Aggregator LP (an investment vehicle owned by certain funds advised by Apax Partners LLP) and funds affiliated with Welsh, Carson, Anderson & Stowe (together, our “Principal Shareholders”) control us, and their interests may conflict with ours or yours in the future.
Allegations of violation, or actual violations of the legal requirements implicated by our business may have material adverse consequences on our business. • Ignite Aggregator LP (an investment vehicle owned by certain funds advised by Apax Partners LLP) and funds affiliated with Welsh, Carson, Anderson & Stowe (together, our “Principal Shareholders”) control us.
To increase our revenue, our business strategy is to expand the number of centers and participants in our network. In order to support such growth, we must recruit and retain a sufficient number of new participants.
To increase our revenue, our business strategy includes expanding the number of centers and participants in our network. In order to support such growth, we must recruit and retain a sufficient number of new participants.
We cannot predict with certainty what impact any federal and state healthcare legislation or regulation will have on us, but such changes could impose new and/or more stringent regulatory requirements on our activities or result in reduced capitated payments, any of which could adversely affect our business, financial condition, and results of operations.
We cannot predict with certainty the impact that any particular federal and state healthcare legislation or regulation will have on us, but such changes could impose new and/or more stringent regulatory requirements on our activities or result in reduced payment rates, any of which could adversely affect our business, financial condition, and results of operations.
Department of Justice, the OIG, and CMS. On February 1, 2023, CMS published the Medicare Advantage RADV Program Final Rule, which took effect on April 3, 2023.
DOJ, the OIG, and CMS. On February 1, 2023, CMS published the Medicare Advantage RADV Program Final Rule, which took effect on April 3, 2023.
For the fiscal year ended June 30, 2023 and 2022, 23.6% and 25.8% of our total revenues were derived from contracts with government agencies in the State of Colorado.
For the fiscal year ended June 30, 2024 and 2023, 23.7% and 23.6% of our total revenues were derived from contracts with government agencies in the State of Colorado.
Moreover, amendments to the federal Anti-Kickback Statute in the ACA make claims tainted by Anti-Kickback Statute violations subject to liability under the FCA, including qui tam or whistleblower suits. In recent years, the number of suits brought in the medical industry by private individuals has increased dramatically.
Moreover, following amendments to the federal Anti-Kickback Statute under the ACA, claims that are implicated by Anti-Kickback Statute violations are also subject to liability under the FCA, including qui tam or whistleblower suits. In recent years, the number of suits brought in the medical industry by private individuals has increased dramatically.
Even though we are applying, and expect to apply, best practices learned from our recent audits to all our centers, including those centers we acquire, there is no guarantee that future audits will not find deficiencies similar to, or different from, the ones found in connection with the our recent audits.
Even though we believe we are applying best practices learned from our recent audits to all our centers, there is no guarantee that future audits will not find deficiencies similar to, or different from, the ones found in connection with the recent audits.
In addition, the California Privacy Rights Act of 2020, or CPRA, which went into effect January 1, 2023, expands the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and establishing a new regulatory agency to implement and enforce the law.
In addition, the California Privacy Rights Act of 2020, or CPRA, expands the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and establishing a new regulatory agency to implement and enforce the law.
As of January 30, 2023, the minimum False Claims Act penalty increased from $12,537 to $13,508 per claim. The maximum penalty has increased from $25,076 to $27,018 per claim. There is a high potential for substantial penalties in connection with any alleged FCA violations. Elements of the risk adjustment mechanism continue to be challenged, reevaluated, and revised by the U.S.
As of February 12, 2024, the minimum False Claims Act penalty increased from $13,508 to $13,946 per claim. The maximum penalty has increased from $27,018 to $27,894 per claim. There is a high potential for substantial penalties in connection with any alleged FCA violations. Elements of the risk adjustment mechanism continue to be challenged, reevaluated, and revised by the U.S.
We continue to fully cooperate with the DOJ and produce the requested information and documentation. We are currently unable to predict the outcome of this investigation. 23 Table of Contents Furthermore, our business exposes us to potential medical malpractice, professional negligence or other related actions or claims that are inherent in the provision of healthcare services.
We continue to fully cooperate with the DOJ. We are currently unable to predict the outcome of this investigation. Furthermore, our business exposes us to potential medical malpractice, professional negligence or other related actions or claims that are inherent in the provision of healthcare services.
If any of these suppliers do not meet our needs for the products they supply, including as a result of price increases, a product recall, product shortage or other supply chain issues, or a dispute, and we are not able to find adequate alternative sources, it could have a material adverse impact on our business, results of operations, financial condition and cash flows.
If any of these suppliers do not meet our needs for the products they supply, including as a result of price increases, a product recall, product shortage or other supply chain issues, or a dispute, and we are not able to find adequate alternative sources, our business, results of operations, financial condition and cash flows could be materially adversely impacted.

… 272 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed3 unchanged
Biggest changeWe also own and lease properties for operational PACE centers in Denver, Colorado; Pueblo, Colorado; Loveland, Colorado; Albuquerque, New Mexico; San Bernardino, California; Sacramento, California; Philadelphia, Pennsylvania; Roanoke, Virginia; Richmond, Virginia; Newport News, Virginia; and Charlottesville, Virginia. We do not have any PACE centers or properties located outside of the United States.
Biggest changeWe also own and lease properties for operational PACE centers in Denver, Colorado; Loveland, Colorado; Pueblo, Colorado; Albuquerque, New Mexico; Los Angeles, California; Sacramento, California; San Bernardino, California; Philadelphia, Pennsylvania; Charlottesville, Virginia; Newport News, Virginia; Richmond, Virginia; Roanoke, Virginia; Orlando, Florida; and Tampa, Florida . We do not have any PACE centers or properties located outside of the United States.
Our leases typically have terms of nine years, and generally provide for renewal or extension options for an average total potential term of approximately 25 years. Our lease obligations often include annual fixed rent escalators ranging between 2.0% and 3.0%.
Our leases typically have terms of nine years, and generally provide for renewal or extension options for an average total potential term of approximately 23 years. Our lease obligations often include annual fixed rent escalators ranging between 2.0% and 3.0%.
Item 2. PROPERTIES As of June 30, 2023, we operated an aggregate of 17 centers, of which 10 were owned and seven were leased, representing approximately 410,000 and 140,000 gross square feet, respectively. Our centers are located in 11 markets and five states.
Item 2. PROPERTIES As of June 30, 2024, we operated an aggregate of 20 centers, of which ten were owned and ten were leased, representing approximately 410,000 and 240,000 gross square feet, respectively. Our centers are located in 14 markets and six states.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

9 edited+2 added−1 removed5 unchanged
Biggest changeThe 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.
Biggest changeThe 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. In February 2022, the Company received a civil investigative demand from the DOJ under the Federal False Claims Act on similar subject matter.
On April 20, 2022, the Board of Directors received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, Brian Hall, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters.
On April 20, 2022, the Board of Directors of the Company received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, Brian Hall, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters.
The demand requests information and documents regarding audits, billing, orders tracking, and quality and timeliness of patient services in connection with the Company’s PACE programs in the states where the Company operates (California, Colorado, New Mexico, Pennsylvania, and Virginia). In December 2022, the Company received a supplemental civil investigative demand requesting supplemental information on the same matters.
The 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 of California, Colorado, New Mexico, Pennsylvania, and Virginia. In December 2022, the Company received a supplemental civil investigative demand requesting supplemental information on the same matters.
Refer to Note 9 “Commitments and Contingencies” to the Consolidated Financial Statements included in this Annual Report for more information. Item 4. MINE SAFETY DISCLOSURES Not applicable. 51 Table of Contents PART II
Refer to Note 9 “Commitments and Contingencies” to the Consolidated Financial Statements included in this Annual Report for more information. Item 4. MINE SAFETY DISCLOSURES Not applicable. 48 PART II
Stockholder Lawsuits 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 (the “Securities Action”).
We are currently unable to predict the outcome of these investigations. 47 Stockholder Lawsuits 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 (the “Securities Action”).
On September 13, 2022, the Company and the officer and director defendants and Apax Partners, L.P. and Welsh, Carson, Anderson & Stowe filed a motion to dismiss the amended complaint for failure to state a claim upon which relief can be granted.
On September 13, 2022, the Company and the officer and director defendants and Apax Partners, L.P. and Welsh, Carson, Anderson & Stowe filed a motion to dismiss the amended complaint for failure to state a claim upon which relief can be granted. On December 22, 2023, the District Court granted in part and denied in part the motion to dismiss.
LEGAL PROCEEDINGS From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. 50 Table of Contents Civil Investigative Demands In July 2021, the Company received a civil investigative demand from the Attorney General for the State of Colorado under the Colorado Medicaid False Claims Act.
Item 3. LEGAL PROCEEDINGS From time to time, we may be involved in various legal proceedings and be subject to claims. Civil Investigative Demands In July 2021, the Company received a civil investigative demand from the Attorney General for the State of Colorado under the Colorado Medicaid False Claims Act.
Other Matters In the third fiscal quarter of 2023, the Company agreed to settle a wage and hour class action lawsuit in the State of California for a cash payment of $1.2 million. The agreement is subject to court approval.
Other Matters In the third fiscal quarter of 2023, the Company agreed to settle a wage and hour class action lawsuit in the State of California for a cash payment of $1.2 million. Subsequently, the Company was notified of certain additional individual claims and agreed to include such claims within the class.
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.
The Company continues to fully cooperate with the DOJ.
Removed
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.
Added
In October 2023, the Company agreed to increase the settlement amount to a total of $1.3 million, reflecting the additional individual claims. The Court entered the final approval of the settlement on April 2, 2024 and the payout occurred on June 7, 2024.
Added
The matter will remain open for 180 days to allow the class members to settle their checks, after which time the case is expected to officially close.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+2 added−0 removed4 unchanged
Biggest changeRecent Sales of Unregistered Securities There were no unregistered sales of equity securities during the year ended June 30, 2023, except as previously reported. Issuer Purchases of Equity Securities None.
Biggest changeRecent Sales of Unregistered Securities There were no unregistered sales of equity securities during the year ended June 30, 2024.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Securities Market Information Our common stock is listed on the Nasdaq Global Select Market under the symbol “INNV.” Holders of Record As of September 11, 2023, there were approximately seven stockholders of record for our common stock.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Securities Market Information Our common stock is listed on the Nasdaq Global Select Market under the symbol “INNV.” Holders of Record As of September 9, 2024, there were approximately ten stockholders of record for our common stock.
Added
Issuer Purchases of Equity Securities Stock repurchases during the three months ended June 30, 2024 were as follows: Period Total Number of Shares Purchased (a) Average Price Paid per Share (b) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a) April 1 – 30, 2024 - - - - May 1 – 31, 2024 - - - - June 1 – 30, 2024 45,023 $5.00 45,023 $4,775,900 Total 45,023 45,023 ___________________________________ (a) On June 10, 2024, the Company’s Board of Directors announced the approval of a share repurchase program authorizing the repurchase of up to $5 million of the Company’s common stock, with no expiration date.
Added
For further information regarding stock repurchase activity, see Note 16 Share Repurchase Program to the consolidated financial statements in this Annual Report. (b) Average price paid per share does not include costs associated with the repurchases. Item 6. [Reserved] 49

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

100 edited+54 added−32 removed56 unchanged
Biggest changeExpenses Recorded for the Fiscal Years Ended June 30, 2019 2020 2021 2022 2023 in thousands Claims incurred year: FY 2019 $ 171,128 FY 2020 $ 211,381 FY 2021 $ 234,070 FY 2022 $ 299,432 FY 2023 $ 291,988 Total $ 171,128 $ 211,381 $ 234,070 $ 299,432 $ 291,988 Pharmacy expense 82,541 External provider costs $ 374,529 67 Table of Contents Cumulative Actual Incurred Claims for the Fiscal Year Ended June 30, 2019 2020 2021 2022 2023 in thousands Claims incurred year: FY 2019 $ 173,047 $ 173,061 $ 172,855 $ 172,802 $ 172,555 FY 2020 210,512 205,633 205,550 205,301 FY 2021 239,207 238,488 204,792 FY 2022 291,315 333,752 FY 2023 285,118 Total $ 173,047 $ 383,573 $ 617,695 $ 908,155 $ 1,201,518 Cumulative Actual Paid Claims for the Fiscal Year Ended June 30, 2019 2020 2021 2022 2023 in thousands Claims incurred year: FY 2019 $ 144,943 $ 173,048 $ 172,855 $ 172,803 $ 172,555 FY 2020 179,616 205,601 205,550 205,301 FY 2021 205,356 238,476 204,792 FY 2022 252,665 333,748 FY 2023 241,770 Total $ 144,943 $ 352,664 $ 583,812 $ 869,494 $ 1,158,166 Other claims-related liabilities (353) Reported and estimated claims $ 42,999 Recent Accounting Pronouncements See Note 2 to our consolidated financial statements “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” for more information.
Biggest changeExpenses Recorded for the Fiscal Years Ended June 30, 2020 2021 2022 2023 2024 in thousands Claims incurred year: FY 2020 $ 211,381 FY 2021 $ 234,070 FY 2022 $ 299,432 FY 2023 $ 291,988 FY 2024 $ 315,148 Total $ 211,381 $ 234,070 $ 299,432 $ 291,988 $ 315,148 Pharmacy expense 87,862 External provider costs $ 403,010 65 Cumulative Actual Incurred Claims for the Fiscal Year Ended June 30, 2020 2021 2022 2023 2024 in thousands Claims incurred year: FY 2020 $ 210,512 $ 205,633 $ 205,550 $ 205,301 $ 205,244 FY 2021 239,207 238,488 204,792 204,557 FY 2022 291,315 333,752 333,376 FY 2023 285,118 283,542 FY 2024 301,757 Total $ 210,512 $ 444,840 $ 735,353 $ 1,028,963 $ 1,328,476 Cumulative Actual Paid Claims for the Fiscal Year Ended June 30, 2020 2021 2022 2023 2024 in thousands Claims incurred year: FY 2020 $ 179,616 $ 205,601 $ 205,550 $ 205,301 $ 205,244 FY 2021 205,355 238,476 204,792 204,557 FY 2022 252,665 333,747 333,376 FY 2023 241,770 283,538 FY 2024 246,145 Total $ 179,616 $ 410,956 $ 696,691 $ 985,610 $ 1,272,860 Other claims-related liabilities (212) Reported and estimated claims $ 55,404 Recent Accounting Pronouncements See Note 2 to our consolidated financial statements “Summary of Significant Accounting Policies— Recently Adopted Accounting Pronouncements ” and “ Recent Accounting Pronouncements Not Yet Adopted” for more information.
Our participants are managed on a capitated, or at-risk, basis, where InnovAge is financially responsible for all of participant medical costs. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care.
Our participants are managed on a capitated, or at-risk basis, where InnovAge is financially responsible for all participant medical costs. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care.
The estimated reserve for unpaid claims liability is included in the liability for reported and estimated claims in the consolidated balance sheets and requires estimates including actual member utilization of healthcare services, unit cost trends, participant acuity, changes in net census, known outbreaks of disease, including COVID-19 or increased incidence of illness such as influenza and other factors.
The estimated reserve for unpaid claims liability is included in the liability for reported and estimated claims in the consolidated balance sheets and requires estimates including actual member utilization of healthcare services, unit cost trends, participant acuity, changes in net census, known outbreaks of disease or increased incidence of illness such as influenza or COVID-19 and other factors.
For as long as we are an “emerging growth company” or a “smaller reporting company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” or “smaller reporting companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, only being required to present two years of audited financial statements, plus unaudited condensed consolidated financial statements for applicable interim periods and the related discussion in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, exemptions from the requirements of holding non-binding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.
For as long as we are an “emerging growth company” or a “smaller reporting company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” or “smaller reporting companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, only being required to present two years of audited financial statements, plus unaudited 63 condensed consolidated financial statements for applicable interim periods and the related discussion in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, exemptions from the requirements of holding non-binding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.
We define Center-level Contribution Margin as total revenues less external provider costs and cost of care, excluding depreciation and amortization, which includes all medical and pharmacy costs. For purposes of evaluating Center-level Contribution Margin on a center-by-center basis, we do not allocate our sales and marketing expense or corporate, general and administrative expenses across our centers.
We define Center-level Contribution Margin as total revenues less external provider costs and cost of care, excluding depreciation and amortization, which includes all medical and pharmacy costs. For purposes of evaluating 59 Center-level Contribution Margin on a center-by-center basis, we do not allocate our sales and marketing expense or corporate, general and administrative expenses across our centers.
We believe that Adjusted EBITDA and Adjusted EBITDA margin are appropriate measures of operating performance because the metrics eliminate the impact of revenue and expenses that do not relate to our ongoing business performance and certain noncash expenses, allowing us to more effectively evaluate our core operating performance and trends from period to period.
We believe that Adjusted EBITDA and Adjusted EBITDA margin are appropriate measures of operating performance because the metrics eliminate the impact of expenses that do not relate to our ongoing business performance and certain noncash expenses, allowing us to more effectively evaluate our core operating performance and trends from period to period.
We believe this is a useful metric as it more precisely tracks the number of participants we serve throughout the year. Center-level Contribution Margin The Company’s management uses Center-level Contribution Margin as the measure for assessing performance of its segments.
We believe this is a useful metric as it more precisely tracks the number of participants we serve throughout the year. Center-level Contribution Margin The Company’s management uses Center-level Contribution Margin as the measure for assessing performance of its operating segments.
Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of operating performance monitored by management that are not defined under GAAP and that do not represent, and should not be considered as, an alternative to net income (loss) and net income (loss) margin, respectively, as determined by GAAP.
Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of operating performance monitored by management that are not defined under GAAP and that do not represent, and should not be considered as, an alternative to net loss and net loss margin, respectively, as determined by GAAP.
These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, including net income (loss) and net income (loss) margin.
These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, including net loss and net loss margin.
For more information about our debt, see Note 7 “Long-term Debt” to our audited consolidated financial statements. Our material cash requirements from known contractual and other obligations primarily relate to long-term debt and lease obligations.
For more information about our debt, see Note 7 “Long-term Debt” to our audited consolidated financial statements. 62 Our material cash requirements from known contractual and other obligations primarily relate to long-term debt and lease obligations.
We believe our model aligns with how healthcare is evolving, namely (i) the shift toward value-based care, in which coordinated, outcomes-driven, quality care is delivered while reducing unnecessary spend, (ii) eliminating excessive administrative costs by contracting directly with the government, (iii) focusing on the participant experience and (iv) addressing social determinants of health.
We believe our model aligns with how healthcare is evolving, namely (i) the shift toward value-based care, in which coordinated, outcomes-driven, quality care is delivered while reducing unnecessary spend, (ii) eliminating excessive administrative costs by contracting directly with the government, (iii) focusing on the patient experience and (iv) addressing social determinants of health.
Our recorded medical claims expense estimate is approximately within +/- 5-10% of actual medical claims expense incurred, or less than 1% of our total operating expense. The following tables provide information about incurred and paid claims reporting and development as of June 30, 2023 (except as otherwise noted).
Our recorded medical claims expense estimate is approximately within +/- 5-10% of actual medical claims expense incurred, or less than 1% of our total operating expense. The following tables provide information about incurred and paid claims reporting and development as of June 30, 2024 (except as otherwise noted).
Per-participant revenue true-ups represent the difference between our estimate of per-participant capitation revenue to be received and actual revenue received by CMS, which is based on CMS’s determination of a participant’s RAF score as measured twice per year and is based on the evolving acuity of a participant.
Per-participant revenue true-ups represent the difference between our estimate of per-participant capitation revenue to be received and actual revenue received from CMS, which is based on CMS’s determination of a participant’s RAF score as measured twice per year and is based on the evolving acuity of a participant.
Our consolidated financial statements could be materially impacted if actual risk scores are different from the estimated risk scores. If our accrual estimates for risk scores at June 30, 2023 were to differ by 5%, the impact on revenues would be approximately $0.5 million.
Our consolidated financial statements could be materially impacted if actual risk scores are different from the estimated risk scores. If our accrual estimates for risk scores at June 30, 2024 were to differ by 5%, the impact on revenues would be approximately $0.5 million .
The concentration of capitation revenue from our various payors was: 2023 2022 Medicaid 54 % 54 % Medicare 46 % 46 % Private pay and other *% *% Total 100 % 100 % * denotes less than 1% Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program.
The concentration of capitation revenue from our various payors was: 2024 2023 Medicaid 54 % 54 % Medicare 46 % 46 % Private pay and other *% *% Total 100 % 100 % * denotes less than 1% Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program.
In addition, general and administrative expenses include all corporate technology and occupancy costs associated with our corporate office.
In addition, general and administrative expenses include all corporate 54 technology and occupancy costs associated with our corporate office.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. 65 Table of Contents Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
As of June 30, 2023, we also had $2.3 million principal amount outstanding under our convertible term loan. Monthly principal and interest payments are approximately $0.02 million, and the loan bears interest at an annual rate of 6.68%. The remaining principal balance is due upon maturity, which is August 20, 2030.
As of June 30, 2024, we also had $2.2 million principal amount outstanding under our convertible term loan. Monthly principal and interest payments are approximately $0.02 million, and the loan bears interest at an annual rate of 6.68%. The remaining principal balance is due upon maturity, which is August 20, 2030.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management.
Our historical results are not necessarily indicative of the results that may occur in the future and actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Forward-Looking Statements” included in this Annual Report on Form 10-K.
Our historical results are not necessarily indicative of the results that may occur in the future and actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Forward-Looking Statements” included in this Annual Report.
Our presentation of Adjusted EBITDA should not be construed to imply 62 Table of Contents that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA. Our use of the term Adjusted EBITDA varies from others in our industry.
Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA. Our use of the term Adjusted EBITDA varies from others in our industry.
For more information relating to Center-level Contribution Margin, see Note 13 “Segment Reporting” to our consolidated financial statements.
For more information relating to Center-level Contribution Margin, see Note 14 “Segment Reporting” to our consolidated financial statements.
We periodically assess our estimates with an independent actuarial expert to ensure our estimates represent the best, most reasonable estimate given the data available to us at the time the estimates are made. We have included incurred but not reported claims of approximately $43.0 million and $38.5 million on our balance sheet as of June 30, 2023 and 2022, respectively.
We periodically assess our estimates with an independent actuarial expert to ensure our estimates represent the best, most reasonable estimate given the data available to us at the time the estimates are made. We have included incurred but not reported claims of approximately $55.4 million and $43.0 million on our balance sheet as of June 30, 2024 and 2023, respectively.
This is driven by two factors: (i) we manage a higher acuity population, with an average RAF score of 2.46 based on InnovAge data as of June 30, 54 Table of Contents 2023, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2020; and (ii) we manage Medicaid spend in addition to Medicare.
This is driven by two factors: (i) we believe we manage a higher acuity population, with an average RAF score of 2.46 based on InnovAge data as of June 30, 2024, compared to an average RAF score of 1.08 for Medicare fee-for-service non-dual enrollees, as calculated in an analysis by Avalere Health in June 2020 of a cohort of individuals enrolled in Medicare Fee-for-Service in 2019; and (ii) we have Medicaid spend in addition to Medicare.
For a discussion 56 Table of Contents of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K. Operating Expenses External Provider Costs. External provider costs consist primarily of the costs for medical care provided by non-InnovAge providers.
For a discussion of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report. Operating Expenses External Provider Costs. External provider costs consist primarily of the costs for medical care provided by non-InnovAge providers.
Net Income (Loss) During the years ended June 30, 2023 and 2022, we reported net loss of $43.6 million and $8.0 million, respectively, consisting of (i) loss from operations of $49.4 million and $4.4 million, respectively, (ii) other expense of $1.4 million and $2.8 million, respectively, and (iii) provision for income taxes of $7.2 million and $0.7 million, respectively, each as described above. 60 Table of Contents Key Business Metrics and Non-GAAP Measures In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Net Loss During the years ended June 30, 2024 and 2023, we reported net loss of $23.2 million and $43.6 million, respectively, consisting of (i) operating loss of $23.2 million and $49.4 million, respectively, (ii) other income of $1.4 million and other expense of $1.4 million, respectively, and (iii) provision for income taxes of $1.4 million and benefit for income taxes of $7.2 million, respectively, each as described above. 58 Key Business Metrics and Non-GAAP Measures In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics and non-GAAP measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
The Company recognizes interest and penalty expense associated with uncertain tax positions as a component of provision for income taxes. During the years ended June 30, 2023 and 2022, we reported provision for income taxes of $(7.2) million and $0.7 million, respectively.
The Company recognizes interest and penalty expense associated with uncertain tax positions as a component of provision (benefit) for income taxes. During the years ended June 30, 2024 and 2023, we reported provision (benefit) for income taxes of $1.4 million and $(7.2) million, respectively.
The decrease of $7.9 million is primarily due to (i) pretax book loss recognized during the year ended June 30, 2023, as compared to the pretax book loss recognized during the year ended June 30, 2022 and (ii) the change in our valuation allowance. Net Loss Attributable to Noncontrolling Interests.
The decrease of $8.6 million is primarily due to (i) pretax book loss recognized during the year ended June 30, 2024, as compared to the pretax book loss recognized during the year ended June 30, 2023 and (ii) the change in our valuation allowance. Net Loss Attributable to Noncontrolling Interests.
For a discussion of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K. Other Service Revenue. Other service revenue primarily consists of revenues derived from fee-for-service arrangements, state food grants, rent revenues and management fees.
For a discussion of our revenue recognition policies, please see Critical Accounting Estimates below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report. Other Service Revenue. Other service revenue primarily consists of revenues derived from state food grants and rent revenues.
(b) Reflects a $1.2 million reserve for a California wage and hour class action settlement for the year ended June 30, 2023 and charges/(credits) related to litigation by stockholders, litigation related to de novo center development, and civil investigative demands. See Item 3, “Legal Proceedings” included in this Annual Report on Form 10-K.
(b) Reflects a $1.2 million reserve for a California wage and hour class action settlement for the year ended June 30, 2023, and each of the years ended June 30, 2023 and 2024 included charges/(credits) related to litigation by stockholders, litigation related to de novo center, and civil investigative demands. See Item 3, “Legal Proceedings” included in this Annual Report.
Outstanding principal amounts under the 2021 Credit Agreement accrue interest at a variable interest rate. As of June 30, 2023 and 2022, the interest rate on the Term Loan Facility was 6.95% and 3.83%, respectively.
Outstanding principal amounts under the 2021 Credit Agreement accrue interest at a variable interest rate. As of June 30, 2024 and 2023, the interest rate on the Term Loan Facility was 7.18% and 6.95%, respectively.
We believe that our cash and cash equivalents and our cash flows from operations, available funds and access to financing sources, including our 2021 Credit Agreement (as defined in Note 7, “Long-term Debt”) and Revolving Credit Facility (as discussed and defined below), will be sufficient to fund our operating and capital needs for the next 12 months and beyond.
We believe that our cash and cash equivalents and our cash flows from operations, available funds and access to financing sources, including our Revolving Credit Facility (as discussed and defined below), will be sufficient to fund our operating and capital needs for the next 12 months and beyond.
Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program, and Medicare rates can fluctuate throughout the contract based on the acuity of each individual participant. In certain contracts, PMPM rates also include “risk adjustments” based on various factors.
Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program, and Medicare rates can fluctuate throughout the contract based on the acuity of each individual participant. In certain contracts, PMPM rates also include “risk adjustments” based on various factors. For additional information see Note 3 “Revenue Recognition”.
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 June 30, 2023, we had no borrowings outstanding, $2.8 million of letters of credit issued, and $97.2 million of remaining capacity under the Revolving Credit Facility.
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 June 30, 2024, we had no borrowings outstanding, $3.9 million of letters of credit issued, and $96.1 million of remaining capacity under the Revolving Credit Facility.
Investing Activities. Investing activities were made up of approximately $23.4 million in purchases of property and equipment and $46.2 million for purchases of short-term investments, consisting primarily of managed income funds invested in investment grade short-term fixed and floating rate debt securities aimed at creating income while maintaining low volatility on principal.
In 2023, net cash used in investing activities was primarily due to $23.4 million in purchases of property and equipment and $46.2 million for purchases of short-term investments, consisting primarily of managed income funds invested in investment grade short-term fixed and floating rate debt securities aimed at creating income while maintaining low volatility on principal.
These employee-related expenses capture all costs for both our field-based and corporate sales and marketing teams. Sales and marketing expenses also include local and centralized advertising costs, as well as the infrastructure required to support our marketing efforts. We expect these costs to increase in absolute dollars over time as we continue to grow our participant census.
Sales and marketing expenses also include local and centralized advertising costs, as well as the infrastructure required to support our marketing efforts. We expect these costs to increase in absolute dollars over time as we continue to grow our participant census.
Revenue Recognition We recognize revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”).
Revenue recognition We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).
The change in net cash provided by (used in) operating activities was primarily due to the net effect of (i) a net loss of $43.6 million for the year ended June 30, 2023 compared to a net loss of $8.0 million during the prior year, as described further above, (ii) an increase of $28.1 million in deferred revenue during fiscal year 2023 due to timing of payments received, (iii) a decrease of $17.7 million in accounts receivable, net of allowance primarily due to timing for the receipt of payments in 2023, and (iv) a net decrease in working capital primarily attributable to payments for operating leases and reported and estimated claims.
The change in net cash provided by (used in) operating activities was primarily due to the net effect of (i) a net loss of $23.2 million for the year ended June 30, 2024 compared to a net loss of $43.6 million during the prior year, as described further above, (ii) a decrease of $28.1 million in deferred revenue during fiscal year 2024 due to timing of payments received during the prior year, and (iii) an increase of $38.6 million in accounts receivable, net of allowance primarily due to timing for the receipt of payments in 2024.
Interest expense, net, consists primarily of interest payments on our outstanding borrowings, net of interest income earned on our cash and cash equivalents and restricted cash. Interest expense, net was $1.5 million for the year ended June 30, 2023, a decrease of $1.0 million, or 39.7%, compared to $2.5 million for the year ended June 30, 2022.
Interest expense, net, consists primarily of interest payments on our outstanding borrowings, net of interest income earned on our cash and cash equivalents and restricted cash. Interest expense, net was $4.0 million for the year ended June 30, 2024, an increase of $2.5 million, or 164.3%, compared to $1.5 million for the year ended June 30, 2023.
We estimate and recognize an adjustment monthly to Part D capitation revenues related to these risk corridor provisions based upon pharmacy claims experience to date, as if the annual risk contract were to terminate at the end of the reporting period. Goodwill and other intangible assets Intangible assets consist of customer relationships acquired through business acquisitions.
We estimate and recognize an adjustment monthly to Part D capitation revenues related to these risk corridor provisions based upon pharmacy claims experience to date, as if the annual risk contract were to terminate at the end of the reporting period. 64 Goodwill Goodwill represents the excess of consideration paid over the fair value of net assets acquired through business acquisitions.
(e) Reflects non-recurring expenses relating to the implementation of a new EMR vendor. Liquidity and capital resources General To date, we have financed our operations principally through cash flows from operations and through borrowings under our credit facilities, from the sale of common stock in our IPO that occurred in March 2021.
Liquidity and capital resources General To date, we have financed our operations principally through cash flows from operations and through borrowings under our credit facilities, from the sale of common stock in our IPO that occurred in March 2021.
Overview General InnovAge Holding Corp. (“InnovAge”), formerly TCO Group Holdings, Inc., became a public company in March 2021. The Company served approximately 6,400 PACE participants as of June 30, 2023, making it the largest PACE provider in the U.S. based upon participants served, and operates 17 PACE centers across Colorado, California, New Mexico, Pennsylvania and Virginia.
Overview General InnovAge Holding Corp. (“InnovAge”) became a public company in March 2021. The Company served approximately 7,020 PACE participants as of June 30, 2024, making it the largest PACE provider in the U.S. based upon participants served, and operates 20 PACE centers across Colorado, California, Florida, New Mexico, Pennsylvania and Virginia.
Those segments consist of Homecare and Senior Housing. Neither of those segments has ever met any of the quantitative thresholds for determining reportable segments. (2) Overhead consists of the Sales and marketing and Corporate, general and administrative financial statement line items.
This segment has never met any of the quantitative thresholds for determining reportable segments. (2) Overhead consists of the Sales and marketing and Corporate, general and administrative financial statement line items.
For more information relating to the components of our results of operations, see Results of Operations below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K for more detailed information regarding our critical accounting policies. 57 Table of Contents Results of Operations The following table sets forth our results of operations for the periods presented.
For more information relating to the components of our results of operations, see Results of Operations below and Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report for more detailed information regarding our significant accounting policies.
Our participant-centered approach is led by our Interdisciplinary Care Teams (“IDTs”), who design, manage and coordinate each participant’s personalized care plan. We directly manage and are responsible for all healthcare needs and associated costs for our participants, including housing costs, where applicable.
Our participant-centered approach is led by our Interdisciplinary Care Teams (“IDTs”), who oversee all aspects of each participant’s unique care plan and function as the core group of care providers to our participants. We directly manage and are responsible for all healthcare needs and associated costs for our participants, including housing costs, where applicable.
We expect our expenses to increase in absolute dollars for the foreseeable future to support our growth and due to additional costs we are incurring in connection with current and future audits to our centers, remediation plans and current and potential legal and regulatory proceedings.
We expect our expenses to increase in absolute dollars for the foreseeable future to support our growth due, partially, to additional costs we incur in connection with audits to our centers, remediation plans and current and potential legal and regulatory proceedings. We plan to invest in future growth judiciously and maintain focus on managing our results of operations.
(c) Reflects charges related to M&A transaction and integrations, and de novo center developments. (d) Reflects charges related to business optimization initiatives. Such charges related to one-time investments in projects designed to enhance our technology and compliance systems, improve and support the efficiency and effectiveness of our operations, and third party support to address efforts to remediate deficiencies in audits.
Such charges related to one-time investments in projects designed to enhance our technology and compliance systems, improve and support the efficiency and effectiveness of our operations, and third party support to address efforts to remediate deficiencies in audits.
For year ended June 30, 2023 includes (i) $1.8 million related to consultants and contractors performing audit and other related services at sanctioned centers, (ii) $5.7 million of costs associated with third party consultants as we implement our core provider initiatives, assess our risk-bearing payor capabilities, and strengthen our enterprise capabilities, (iii) $0.6 million in the consolidation of the Germantown, Pennsylvania center, (iv) $1.1 million related to organizational restructure, and (iv) $1.4 million related to other non-recurring projects aimed at reducing costs and improving efficiencies.
For the year ended June 30, 2023, costs included (i) $1.8 million related to consultants and contractors performing audit and other related services at sanctioned centers, (ii) $5.7 million of costs associated with third party consultants to strengthen enterprise capabilities, (iii) $0.6 million related to the consolidation of the Germantown, Pennsylvania center, (iv) $1.1 million related to organizational restructure, and (v) $1.4 million related to other non-recurring projects aimed at reducing costs and improving efficiencies. 61 (e) Reflects non-recurring expenses relating to the implementation of a new EMR vendor.
This decrease was driven by a 6.6% decrease in member months (as defined below under “Key Business Metrics and non-GAAP Measures – Total member months”) partially offset by a 5.5% increase in capitation rates.
This increase was driven by a $30.8 million, or 4.5% increase in member months (as defined below under “Key Business Metrics and non-GAAP Measures – Total member months”) coupled with a $44.9 million, or 6.3%, increase in capitation rates.
Goodwill represents the excess of consideration paid over the fair value of net assets acquired through business acquisitions. Goodwill is not amortized but is tested for impairment at least annually. We test goodwill for impairment annually on April 1 or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability.
Goodwill is not amortized but is tested for impairment at least annually. We test goodwill for impairment annually on April 1 or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability.
In fiscal year 2023, we began working on expanding payer capabilities so that our revenue more accurately reflects the acuity of the populations we serve. • Our ability to grow enrollment and capacity within existing centers. We believe all seniors should have access to the type of all-inclusive care offered by the PACE model.
In fiscal year 2023, we began working on expanding payer capabilities which we continued to strengthen in fiscal 2024 so that our revenue more accurately reflects the acuity of the populations we serve. • Our ability to grow enrollment and capacity within existing centers.
The members of InnovAge Senior Housing Thornton, LLC (“SH1”) and InnovAge Sacramento have elected to be taxed as partnerships, and no provision for income taxes for SH1 or InnovAge Sacramento is included in these consolidated financial statements A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.
The members of InnovAge Senior Housing Thornton, LLC (“SH1”) and InnovAge Sacramento have elected to be taxed as partnerships, and no provision (benefit) for income taxes for SH1 or InnovAge Sacramento is included in these consolidated financial statements.
A reporting unit is defined as an operating segment (i.e. before aggregation or combination), or one level below an operating segment (i.e. a component). 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 years ended June 30, 2023 and 2022.
A reporting unit is defined as an operating segment (i.e. before aggregation or combination), or one level below an operating segment (i.e. a component). For purposes of the annual goodwill impairment assessment, the Company has identified two reporting units, East and West.
The risk pool of our population became more acute in fiscal year 2023 as we were not able to replenish our population mix with newer, lower-acuity participants as a result of State sanctions, and as a result, our external provider costs and cost of care, excluding depreciation and amortization, represented approximately 85% of our revenue in the year ended June 30, 2023.
The risk pool of our population became more acute in fiscal year 2023 as we were not able to replenish our population mix with newer, lower-acuity participants as a result of State sanctions.
As we open new centers, we expect cost of care, excluding depreciation and amortization, to increase in absolute dollars due to higher census and facility related costs. Sales and Marketing. Sales and marketing expenses consist of employee-related expenses, including salaries, commissions, and employee benefits costs, for all employees engaged in marketing, sales, community outreach and sales support.
As we open new centers, we expect cost of care, excluding depreciation and amortization, to increase in absolute dollars due to higher census and facility related costs. Sales and Marketing.
Year Ended June 30, 2023 2022 dollars in thousands Key Business Metrics: Centers (a) 17 18 Census (a)(b) 6,400 6,650 Total Member Months (b) 77,370 82,820 Non-GAAP Measures: Center-level Contribution Margin (c) $ 101,288 $ 135,372 Center-level Contribution Margin as a % of revenue (c) 14.7 % 19.4 % Adjusted EBITDA (c) $ (1,261) $ 34,253 Adjusted EBITDA Margin (c) (0.2) % 4.9 % ___________________________________ (a) Includes InnovAge Sacramento, which the Company owns and controls through a joint venture and is consolidated in our financial statements.
Year Ended June 30, 2024 2023 dollars in thousands Key Business Metrics: Centers (a) 20 17 Census (a)(b) 7,020 6,400 Total Member Months (b) 80,840 77,370 Non-GAAP Measures: Center-level Contribution Margin (c) $ 132,064 $ 101,288 Center-level Contribution Margin as a % of revenue (c) 17.3 % 14.7 % Adjusted EBITDA (c) $ 16,474 $ (3,425) Adjusted EBITDA Margin (c) 2.2 % (0.5) % ___________________________________ (a) Includes InnovAge Sacramento and InnovAge Orlando, which the Company owns and controls through joint ventures and are consolidated in our financial statements.
Center-level Contribution Margin was $101.3 million and $135.4 million for the years ended June 30, 2023 and 2022, respectively. The decrease in Center-level Contribution 61 Table of Contents Margin for fiscal year 2023 was primarily due to a year-over-year increase in cost of care of 17.8% and a 1.5% decrease in total revenue during the same period.
Center-level Contribution Margin was $132.1 million and $101.3 million for the years ended June 30, 2024 and 2023, respectively. The increase in Center-level Contribution Margin for fiscal year 2024 was primarily due to a year-over-year increase of 11.0% in total revenue and 7.7% in center level expense during the same period.
We achieved a 78% participant satisfaction rating as of March 1, 2023 and average participant tenure was 3.7 years as of June 30, 2023, measured as tenure from enrollment to disenrollment, among our centers that have been operated by us for at least five years.
We achieved an average NPS score of 46 for fiscal year 2024 and average participant tenure of 3.6 years as of June 30, 2024, measured as tenure from enrollment to disenrollment, among our centers that have been operated by us for at least five years.
See Note 2 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain substantially all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, other than with respect to share repurchases, and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.
Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as net income (loss) adjusted for interest expense, depreciation and amortization, and provision (benefit) for income tax as well as addbacks for non-recurring expenses or exceptional items, including relating to management equity compensation, executive severance and recruitment, litigation costs and settlement, M&A and de novo center development, business optimization, and electronic medical record (“EMR”) implementation.
Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as net loss adjusted for interest expense, net, other investment income, depreciation and amortization, and provision (benefit) for income tax as well as addbacks for non-recurring expenses or exceptional items, including charges relating to management equity compensation, litigation costs and settlement, M&A diligence, transaction and integration, business optimization, EMR implementation and gain on cost and equity method investments.
Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue. For the years ended June 30, 2023 and 2022, our net loss was $43.6 million and $8.0 million, respectively, representing a year-over-year decline of 445%, and Adjusted EBITDA was $(1.3) million and $34.3 million, respectively, representing a year-over-year decline of 104%.
For the years ended June 30, 2024 and 2023, our net loss was $23.2 million and $43.6 million, respectively, representing a year-over-year improvement of 47%, and Adjusted EBITDA was $16.5 million and $(3.4) million, respectively, representing a year-over-year increase of 585%. Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue.
For the year ended June 30, 2023, our Adjusted EBITDA margin was (0.2%), as compared to our Adjusted EBITDA margin for the year ended June 30, 2022 of 4.9%.
For the year ended June 30, 2024, our net loss margin was 3.0%, compared to our net loss margin of 6.3% for the year ended June 30, 2023. For the year ended June 30, 2024, our Adjusted EBITDA margin was 2.2%, compared to our Adjusted EBITDA margin for the year ended June 30, 2023 of (0.5)%.
The increase in cost per participant was driven by (i) a $21.6 million increase in salaries, wages and benefits associated with increased headcount and higher wage rates due to the ongoing competitive labor market, (ii) $2.5 million in third party audit and compliance support, (iii) $3.9 million in increased fleet expense and contract transportation as a result of higher average daily attendance, an increase in external appointments, and higher fuel costs, (iv) $1.9 million in increased building maintenance and security, (v) $1.3 million in supplies, travel and mileage, and (vi) $1.0 million in de novo rent expense.
The increase in cost per participant was driven by (i) a $12.8 million increase in salaries, wages and benefits associated with increased headcount to support growth and higher wage rates, (ii) a $2.3 million increase in contract provider expense in California, (iii) $1.9 million in increased fleet expense and contract transportation as a result of higher average daily attendance, an increase in external appointments, and higher fuel costs, (iv) $1.2 million in increased building maintenance and security, (v) $1.8 million in software license fees, and (vi) $1.8 million in de novo occupancy and administrative costs inclusive of the Concerto acquisition in December 2023.
Cost of care, excluding depreciation and amortization expense was $212.3 million for the year ended June 30, 2023, an increase of $32.0 million, or 17.8%, compared to $180.2 million for the year ended June 30, 2022, primarily due to an increase of $43.9 million, or 26.1%, in cost per participant partially offset by a decrease of $11.9 million, or 6.6%, in member months.
Cost of care, excluding depreciation and amortization expense was $228.8 million for the year ended June 30, 2024, an increase of $16.5 million, or 7.8%, compared to $212.3 million for the year ended June 30, 2023, primarily due to an increase of $7.0 million, or 3.1%, in cost per participant coupled with an increase of $9.5 million, or 4.5%, in member months.
The increase in cost per participant is primarily driven by a $13.7 million increase associated with increased assisted living and nursing facility utilization and unit cost partially offset by a $3.2 million reduction in inpatient cost per admit associated with fewer COVID admissions. Cost of care, excluding depreciation and amortization.
The increase in cost per participant was primarily driven by a $9.6 million increase associated with increased assisted living utilization and unit cost and a $3.6 million increase associated with higher professional services utilization. This was partially offset by a $5.1 million reduction in permanent nursing facility utilization. Cost of care, excluding depreciation and amortization.
Reported and estimated claims Reported and estimated claims expenses are costs for third-party healthcare service providers that provide medical care to our participants for which we are contractually obligated to pay (through our full-risk capitation arrangements).
Although we believe these estimates are reasonable, actual results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Reported and estimated claims Reported and estimated claims expenses are costs for third-party healthcare service providers that provide medical care to our participants for which we are contractually obligated to pay (through our full-risk capitation arrangements).
Our investment in managed income funds regularly pay dividends which are reinvested into the funds. Financing activities. The increase in net cash used in financing activities was primarily due to an increase in principal payments on finance leases.
Our investment in managed income funds regularly pay dividends which are reinvested into the funds. Financing activities. The decrease in net cash used in financing activities was primarily due to a contribution from a joint venture partner in 2024.
During the year ended June 30, 2023, the Company consolidated its Germantown LIFE center with its Allegheny and Henry Avenue LIFE centers in Pennsylvania. Operations InnovAge’s programs are designed to allow frail seniors to live life on their terms by aging in place, in their own homes and communities, for as long as safely possible.
Operations InnovAge’s programs are designed to allow frail seniors to live life on their terms by aging in place, in their own homes and communities, for as long as safely possible.
Corporate, general and administrative expenses. Corporate, general and administrative expenses were $115.6 million for the year ended June 30, 2023, an increase of $14.0 million, or 13.8% compared to $101.7 million for the year ended June 30, 2022.
Corporate, general and administrative expenses. Corporate, general and administrative expenses were $111.3 million for the year ended June 30, 2024, a decrease of $4.3 million, or 3.7% compared to $115.6 million for the year ended June 30, 2023.
Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility into nor control over the timing of such payments. Components of Results of Operations Revenue Capitation Revenue .
Where there is a difference between our estimate and the final determination from CMS, we may record either an increase or decrease in true up revenue. Historically, these true-up payments typically occur between May and August, but the timing of these payments is determined by CMS, and we have neither visibility into nor control over the timing of such payments.
During the fiscal year ended June 30, 2023, the Company consolidated its Germantown LIFE center with its Allegheny and Henry Avenue LIFE centers in Pennsylvania. (b) Amounts are approximate. (c) Center-level Contribution Margin, Center-level Contribution Margin as a percentage of revenue, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures.
During the fiscal year ended June 30, 2024, the Company opened the Orlando and Tampa centers and acquired an operational center from Concerto in Los Angeles. (b) Amounts are approximate. (c) Center-level Contribution Margin, Center-level Contribution Margin as a percentage of revenue, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures.
Collectively, these obligations are expected to represent a significant liquidity requirement of our Company on both a short-term (next 12 months) and long-term (beyond 12 months) basis. For additional information regarding our lease obligations, debt and commitments, see Notes 6 “Leases,” 7 “Long-term Debt,” and 9 “Commitments and Contingencies,” respectively, to our audited consolidated financial statements.
For additional information regarding our lease obligations, debt and commitments, see Notes 6 “Leases,” 7 “Long-term Debt,” and 9 “Commitments and Contingencies,” respectively, to our audited consolidated financial statements.
A reconciliation of Center-level Contribution Margin to income (loss) before income taxes, the most directly comparable GAAP measure, for each of the periods is as follows: June 30, 2023 June 30, 2022 in thousands PACE All other (1) Totals PACE All other (1) Totals Center-Level Contribution Margin 100,948 340 101,288 135,451 (79) 135,372 Overhead costs (2) 135,264 — 135,264 125,948 (94) 125,854 Depreciation and amortization 14,959 460 15,419 13,491 433 13,924 Equity loss — — — — — — Other operating (income) expense — — — — — — Interest expense, net 1,342 180 1,522 2,335 191 2,526 Loss on extinguishment of debt — — — — — — Gain on equity method investment — — — — — — Other expense (income) (124) — (124) 305 — 305 Income (Loss) Before Income Taxes $ (50,493) $ (300) $ (50,793) $ (6,628) $ (609) $ (7,237) ___________________________________ (1) Center-level Contribution Margin from segments below the quantitative thresholds are attributable to two operating segments of the Company.
A reconciliation of Center-level Contribution Margin to loss before income taxes, the most directly comparable GAAP measure, for each of the periods is as follows: June 30, 2024 June 30, 2023 in thousands PACE All other (1) Totals PACE All other (1) Totals Center-Level Contribution Margin 131,667 397 132,064 100,948 340 101,288 Overhead costs (2) 136,284 10 136,294 135,264 — 135,264 Depreciation and amortization 18,477 473 18,950 14,959 460 15,419 Interest expense, net 3,845 178 4,023 1,342 180 1,522 Gain on cost and equity method investments (2,842) — (2,842) — — — Other income (2,542) — (2,542) (124) — (124) Loss Before Income Taxes $ (21,555) $ (264) $ (21,819) $ (50,493) $ (300) $ (50,793) ___________________________________ (1) Center-level Contribution Margin from a segment below the quantitative thresholds is attributable to the Senior Housing operating segment of the Company.
Year Ended June 30, 2023 2022 in thousands Revenues Capitation revenue $ 686,836 $ 696,998 Other service revenue 1,251 1,642 Total revenues 688,087 698,640 Expenses External provider costs 374,528 383,046 Cost of care, excluding depreciation and amortization 212,271 180,222 Sales and marketing 19,627 24,201 Corporate, general and administrative 115,637 101,653 Depreciation and amortization 15,419 13,924 Total expenses 737,482 703,046 Operating Loss (49,395) (4,406) Other Income (Expense) Interest expense, net (1,522) (2,526) Other income (expense) 124 (305) Total other expense (1,398) (2,831) Loss Before Income Taxes (50,793) (7,237) Provision (Benefit) for Income Taxes (7,241) 723 Net Loss (43,552) (7,960) Less: net loss attributable to noncontrolling interests (2,879) (1,439) Net Loss Attributable to InnovAge Holding Corp. $ (40,673) $ (6,521) Loss Before Income Taxes as a % of revenue (7.4) % (1.0) % Net Loss as a % of revenue (6.3) % (1.1) % Revenues Year Ended June 30, $ Change % Change 2023 2022 in thousands Capitation revenue $ 686,836 $ 696,998 $ (10,162) (1.5) % Other service revenue 1,251 1,642 (391) (23.8) % Total revenues $ 688,087 $ 698,640 $ (10,553) (1.5) % Capitation revenue.
Year Ended June 30, 2024 2023 in thousands Revenues Capitation revenue $ 762,570 $ 686,836 Other service revenue 1,285 1,251 Total revenues 763,855 688,087 Expenses External provider costs 403,010 374,528 Cost of care, excluding depreciation and amortization 228,781 212,271 Sales and marketing 24,957 19,627 Corporate, general and administrative 111,337 115,637 Depreciation and amortization 18,950 15,419 Total expenses 787,035 737,482 Operating Loss (23,180) (49,395) Other Income (Expense) Interest expense, net (4,023) (1,522) Gain on cost and equity method investments 2,842 — Other income 2,542 124 Total other income (expense) 1,361 (1,398) Loss Before Income Taxes (21,819) (50,793) Provision (Benefit) for Income Taxes 1,402 (7,241) Net Loss (23,221) (43,552) Less: net loss attributable to noncontrolling interests (1,883) (2,879) Net Loss Attributable to InnovAge Holding Corp. $ (21,338) $ (40,673) Loss Before Income Taxes as a % of revenue (2.9) % (7.4) % Net Loss as a % of revenue (3.0) % (6.3) % 55 Revenues Year Ended June 30, $ Change % Change 2024 2023 in thousands Capitation revenue $ 762,570 $ 686,836 $ 75,734 11.0 % Other service revenue 1,285 1,251 34 2.7 % Total revenues $ 763,855 $ 688,087 $ 75,768 11.0 % Capitation revenue.
Consolidated Statements of Cash Flows Our consolidated statements of cash flows for the year ended June 30, 2023 and 2022 are summarized as follows: Year Ended June 30, $ Change 2023 2022 in thousands Net cash provided by (used in) operating activities $ 20,236 $ 27,302 $ (7,066) Net cash used in investing activities (69,521) (40,238) (29,283) Net cash used in financing activities (7,896) (6,318) (1,578) Net change in cash, cash equivalents and restricted cash $ (57,181) $ (19,254) $ (37,927) Operating Activities.
Consolidated Statements of Cash Flows Our consolidated statements of cash flows for the year ended June 30, 2024 and 2023 are summarized as follows: Year Ended June 30, $ Change 2024 2023 in thousands Net cash provided by (used in) operating activities $ (36,898) $ 20,236 $ (57,134) Net cash used in investing activities (26,373) (69,521) 43,148 Net cash used in financing activities (7,034) (7,896) 862 Net change in cash, cash equivalents and restricted cash $ (70,305) $ (57,181) $ (13,124) Operating Activities.
Depreciation and amortization expense was $15.4 million for the year ended June 30, 2023, an increase of $1.5 million, or 10.7%, compared to $13.9 million for the year ended June 30, 2022.
Depreciation and amortization expense was $19.0 million for the year ended June 30, 2024, an increase of $3.5 million, or 22.9%, compared to $15.4 million for the year ended June 30, 2023. The increase in depreciation expense was a result of capital additions in the normal course of business.
The decrease was primarily due to interest income of $3.4 million from money market funds offsetting interest expense of $4.9 million during the year ended June 30, 2023. Interest income during the year ended June 30, 2022 was negligible. Provision for Income Taxes.
The increase was primarily due to interest expense of $7.5 million partially offset by interest income of $3.5 million from money market funds during the year ended June 30, 2024. Interest income during the year ended June 30, 2023 was $3.4 million from money market funds offsetting interest expense of $4.9 million. Gain on cost and equity method investments.
We focus on providing all-inclusive care to frail, high-cost, dual-eligible seniors. We directly contract with government payors, such as Medicare and Medicaid, through PACE and receive a capitated risk-adjusted payment to manage the totality of a participant’s medical care across all settings.
We directly contract with government payors, such as Medicare and Medicaid, through PACE and receive a capitated risk-adjusted payment to manage the totality of a participant’s medical care across all settings. InnovAge manages participants that are, on average, more complex and medically fragile than other Medicare-eligible patients, including those in Medicare Advantage (“MA”) programs.
A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods is as follows: Year Ended June 30, 2023 2022 in thousands Net Loss $ (43,552) $ (7,960) Interest expense, net 1,522 2,526 Depreciation and amortization 15,419 13,924 Provision (benefit) for income tax (7,241) 723 Stock-based compensation 4,993 3,739 Executive severance and recruitment (a) — 4,123 Litigation costs and settlement (b) 9,782 4,436 M&A and de novo center development (c) 1,134 1,764 Business optimization (d) 10,535 8,955 EMR implementation (e) 6,147 2,023 Adjusted EBITDA $ (1,261) $ 34,253 ___________________________________ (a) Reflects charges related to executive severance and recruiting.
A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods is as follows: Year Ended June 30, 2024 2023 in thousands Net Loss $ (23,221) $ (43,552) Interest expense, net 4,023 1,522 Other investment income (a) (2,385) (1,170) Depreciation and amortization 18,950 15,419 Provision (benefit) for income tax 1,402 (7,241) Stock-based compensation 6,832 4,993 Litigation costs and settlement (b) 4,878 9,782 M&A diligence, transaction and integration (c) 778 140 Business optimization (d) 4,399 10,535 EMR implementation (e) 3,660 6,147 Gain on cost and equity method investments (f) (2,842) — Adjusted EBITDA $ 16,474 $ (3,425) ___________________________________ (a) Reflects investment income related to short term investments included in our consolidated statement of operations.
Capitation revenue was $686.8 million for the year ended June 30, 2023, a decrease of $10.2 million, or 1.5%, compared to $697.0 million for the year ended June 30, 2022.
Capitation revenue was $762.6 million for the year ended June 30, 2024, an increase of $75.7 million, or 11.0%, compared to $686.8 million for the year ended June 30, 2023.

… 106 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed6 unchanged
Biggest changeWe had short-term investments $46.2 and $— as of June 30, 2023 and 2022, respectively, which are primarily invested in managed income funds managed by major financial institutions. The funds mainly invest in investment grade, U.S. denominated short-term fixed and floating rate debt securities. Securities are subject to market risk and sensitive to changes in interest rates.
Biggest changeWe had short-term investments $45.8 million and $46.2 million as of June 30, 2024 and 2023, respectively, which are primarily invested in managed income funds managed by major financial institutions. The funds mainly invest in investment grade, U.S. denominated short-term fixed and floating rate debt securities. Securities are subject to market risk and sensitive to changes in interest rates.
As of June 30, 2023, based on our secured net leverage ratio, the margins of our borrowings under the Term Loan Facility and Revolving Credit Facility (as defined in Note 7 to the audited consolidated financial statements) were (a) 0.75% for alternate base rate borrowings and (b) 1.75% for Term SOFR borrowings.
As of June 30, 2024, based on our secured net leverage ratio, the margins of our borrowings under the Term Loan Facility and Revolving Credit Facility (as defined in Note 7 to the audited consolidated financial statements) were (a) 0.75% for alternate base rate borrowings and (b) 1.75% for Term SOFR borrowings.
We amended our 2021 Credit Agreement during the fourth quarter ended June 30, 2023 to replace the London Interbank Offered Rate (“LIBOR”) reference rate with SOFR prior to the discontinuance of LIBOR.
We amended our 2021 Credit Agreement during the fourth quarter ended June 30, 2024 to replace the London Interbank Offered Rate (“LIBOR”) reference rate with SOFR prior to the discontinuance of LIBOR.
We do not believe that an increase or decrease 68 Table of Contents in interest rates of 100 basis points would have a material effect on our business, financial condition or results of operations.
We do not believe that an increase or decrease 66 in interest rates of 100 basis points would have a material effect on our business, financial condition or results of operations.
Our cash and cash equivalents and interest payments in respect of our debt are subject to market risk due to changes in interest rates. We had cash and cash equivalents of $127.2 million as of June 30, 2023, which are deposited with high credit quality financial institutions and are primarily in demand deposit accounts.
Our cash and cash equivalents and interest payments in respect of our debt are subject to market risk due to changes in interest rates. We had cash and cash equivalents of $56.9 million as of June 30, 2024, which are deposited with high credit quality financial institutions and are primarily in demand deposit accounts.
Interest rate risk As of June 30, 2023, we had total outstanding borrowings of (i) $67.5 million principal amount under the Term Loan Facility (as defined in Note 7 to the audited consolidated financial statements) and (ii) $2.3 million principal amount under the convertible term loan.
Interest rate risk As of June 30, 2024, we had total outstanding borrowings of (i) $63.8 million principal amount under the Term Loan Facility (as defined in Note 7 to the audited consolidated financial statements) and (ii) $2.2 million principal amount under the convertible term loan.
As of June 30, 2022, we had total outstanding debt of $71.3 million in principal amount under the Term Loan Facility and $2.3 under the Convertible Term Loan. As of June 30, 2023 and 2022, the interest rate on the Term Loan Facility was 6.95% and 3.83%, respectively.
As of June 30, 2023, we had total outstanding debt of $67.5 million in principal amount under the Term Loan Facility and $2.3 under the Convertible Term Loan. As of June 30, 2024 and 2023, the interest rate on the Term Loan Facility was 7.18% and 6.95%, respectively.

Other INNV 10-K year-over-year comparisons