UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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FORM
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TABLE OF CONTENTS
2
InnovAge Holding Corp. and Subsidiaries
Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 2022
Cautionary Note on Forward-Looking Statements
Throughout this Quarterly Report on Form 10-Q, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal” or similar terminology. Forward-looking statements may be identified by the fact that they do not relate strictly to historical or current facts and may include statements about our expectations with respect to current audits and legal proceedings and actions, relationships and discussions with regulatory agencies, our expectations with respect to correcting deficiencies raised in audits and other processes, and our expectations to increase the number of participants we serve, to grow enrollment and capacity within existing centers, to build de novo centers, and other similar statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Part I, Item 2, and “Risk Factors,” included in Part II, Item 1A, but may be found in other locations as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:
● | the results of periodic inspections, reviews and audits under the federal and state government programs, including the ongoing audits of our Albuquerque, New Mexico center and San Bernadino, California center, the sanctions currently in place on our centers in Colorado and in our Sacramento center in California and our ability to sufficiently cure any deficiencies identified by the respective federal and state government programs; |
● | the results of regulatory processes and voluntary actions relating to planned de novo centers; |
● | the impact on our business of security breaches, loss of data or other disruptions causing the compromise of sensitive information or preventing us from accessing critical information; |
● | our ability to develop and maintain proper and effective internal control over financial reporting; |
● | the impact on our business of disruptions in our disaster recovery systems or management continuity planning; |
● | the impact of any restrictions on our use of or ability to license data or our failure to license data and integrate third-party technologies; |
● | our ability to attract and retain highly qualified personnel; |
● | our management team’s limited experience managing a public company and recent Chief Executive Officer succession; |
● | the impact on our business of the termination of our leases, increases in rent or inability to renew or extend leases; |
● | the impact of failures by our suppliers, material price increases on supplies, lack of reimbursement for drugs we purchase or limitations on our ability to access new technology or products; |
● | our ability to maintain our corporate culture; |
● | the impact of competition for physicians and nurses, shortages of qualified personnel and related increases in our labor costs; |
● | our ability to attract and retain the services of key primary care physicians; |
● | the risk that our submissions to health plans may contain inaccurate or unsupportable information regarding risk adjustment scores of members; |
● | our ability to accurately estimate incurred but not reported medical expense; |
● | the impact of negative publicity regarding the managed healthcare industry; |
● | the impact of state and federal efforts to reduce Medicaid spending; |
● | the impact on our centers of adverse weather conditions and other factors beyond our control; |
3
● | general macro-economic and geopolitical events, including the heightened inflation, increase in interest rates and the war in Ukraine; and |
● | other factors disclosed in the section entitled “Risk Factors” in our Annual Report for the year ended June 30, 2021 filed with the Securities and Exchange Commission (the “SEC”) on September 22, 2021 as well as in this Quarterly Report on Form 10-Q. |
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other public communications and filings with the SEC. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Unless otherwise specified or unless the context requires otherwise, all references in this Quarterly Report on Form 10-Q to “InnovAge,” “the Company,” “we,” “us,” and “our,” or similar references, refer to InnovAge Holding Corp. and our consolidated subsidiaries.
4
PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
| March 31, |
| June 30, | |||
2022 | 2021 | |||||
Assets | ||||||
Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Restricted cash |
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Accounts receivable, net of allowance ($ |
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Prepaid expenses and other |
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Income tax receivable |
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Total current assets |
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Noncurrent Assets |
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Property and equipment, net |
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Investments |
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Deposits and other |
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Goodwill |
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Intangible assets, net |
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Total noncurrent assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable and accrued expenses | $ | | $ | | ||
Reported and estimated claims |
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Due to Medicaid and Medicare | | | ||||
Current portion of long-term debt |
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Current portion of capital lease obligations |
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Total current liabilities |
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Noncurrent Liabilities |
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Deferred tax liability, net |
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Capital lease obligations |
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Other noncurrent liabilities |
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Long-term debt, net of debt issuance costs |
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Total liabilities |
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Commitments and Contingencies (See Note 9) |
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Redeemable Noncontrolling Interests (See Note 4) | | | ||||
Stockholders’ Equity |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total InnovAge Holding Corp. |
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Noncontrolling interests |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except number of shares and per share data)
(Unaudited)
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||
2022 |
| 2021 | 2022 |
| 2021 | ||||||||
Revenues |
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Capitation revenue | $ | | $ | | $ | | $ | | |||||
Other service revenue |
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Total revenues |
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Expenses |
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External provider costs |
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Cost of care, excluding depreciation and amortization |
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Sales and marketing |
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Corporate, general and administrative |
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Depreciation and amortization |
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Equity loss |
| — |
| — |
| — |
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Other operating income |
| — |
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| — |
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Total expenses |
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Operating Income (Loss) |
| ( |
| ( |
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| ( | |||||
Other Income (Expense) |
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Interest expense, net |
| ( |
| ( |
| ( |
| ( | |||||
Loss on extinguishment of debt |
| — | ( |
| — | ( | |||||||
Gain on equity method investment | — | | — | | |||||||||
Other income (expense) |
| |
| ( |
| ( |
| ( | |||||
Total other expense |
| ( |
| ( |
| ( |
| ( | |||||
Income (Loss) Before Income Taxes |
| ( |
| ( |
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| ( | |||||
Provision (Benefit) for Income Taxes |
| ( |
| ( |
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Net Income (Loss) |
| ( |
| ( |
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| ( | |||||
Less: net loss attributable to noncontrolling interests |
| ( |
| ( |
| ( |
| ( | |||||
Net Income (Loss) Attributable to InnovAge Holding Corp. | $ | ( | $ | ( | $ | | $ | ( | |||||
Weighted-average number of common shares outstanding - basic |
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Weighted-average number of common shares outstanding - diluted |
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Net income (loss) per share - basic | $ | ( | $ | ( | $ | | $ | ( | |||||
Net income (loss) per share - diluted | $ | ( | $ | ( | $ | | $ | ( |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except per share data)
(Unaudited)
For the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
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| Total |
| Redeemable |
| |||||||||||||||||
Additional | Retained | Permanent | Noncontrolling | |||||||||||||||||||||||||
Capital Stock | Paid-in | Earnings | Treasury Stock | Noncontrolling | Stockholders' | Interests | ||||||||||||||||||||||
Shares | Amount | Capital | (Deficit) | Shares | Amount | Interests | Equity | (Temporary Equity) | Net Income (Loss) | |||||||||||||||||||
Balances, December 31, 2021 |
| |
| |
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| - |
| - |
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Stock-based compensation | | - | | - | - | - | - | | - | |||||||||||||||||||
Net income (loss) | - | - | - | ( | - | - | ( | ( | ( | ( | ||||||||||||||||||
Adjustment to redemption value |
| - |
| - |
| - |
| |
| - |
| - |
| - |
| |
| ( | ||||||||||
Balances, March 31, 2022 |
| | $ | | $ | | $ | |
| - | $ | - | $ | | $ | | $ | |
For the Nine Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
Total |
| Redeemable | ||||||||||||||||||||||||||
Additional | Retained | Permanent | Noncontrolling | |||||||||||||||||||||||||
Capital Stock | Paid-in | Earnings | Treasury Stock | Noncontrolling | Stockholders' | Interests | ||||||||||||||||||||||
Shares | Amount | Capital | (Deficit) | Shares | Amount | Interests | Equity | (Temporary Equity) | Net Income (Loss) | |||||||||||||||||||
Balances, June 30, 2021 |
| |
| |
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| - |
| - |
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Stock-based compensation | | - | | - | - | - | - | | - | |||||||||||||||||||
Net income (loss) | - | - | - | | ( | | ( | $ | | |||||||||||||||||||
Adjustment to redemption value |
| - |
| - |
| - |
| |
| - |
| - |
| - |
| |
| ( | ||||||||||
Balances, March 31, 2022 |
| | $ | | $ | | $ | |
| - | $ | - | $ | | $ | | $ | |
7
| For the Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||
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| Total |
| Redeemable | ||||||||||||||||||||
Additional | Permanent | Noncontrolling | ||||||||||||||||||||||||||
Capital Stock | Paid-in | Retained | Treasury Stock | Noncontrolling | Stockholders' |
| Interests | Net Income | ||||||||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Interests |
| Equity |
| (Temporary Equity) | (Loss) | ||||||||||
Balances, December 31, 2020 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | $ | ( | $ | - | $ | |||||||||
Treasury stock retirement |
| ( |
| ( |
| ( |
| — |
| ( |
| |
| — |
| — | - | |||||||||||
Stock-based compensation |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| | - | |||||||||||
Reclassification of warrant liability | — | — | | — | — | — | — | | - | |||||||||||||||||||
Initial public offering of common stock, net of offering costs of $ | | | | — | — | — | — | | - | |||||||||||||||||||
Consolidation of equity method investment |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | |||||||||||
Adjustment to redemption value | — | — | — | ( | — | — | — | ( |
| | ||||||||||||||||||
Net income (loss) |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( |
| ( | ( | $ | ( | |||||||||
Balances, March 31, 2021 |
| | $ | | $ | | $ | |
| — | $ | — | $ | | $ | | $ | |
| For the Nine Months Ended March 31, 2021 | |||||||||||||||||||||||||||
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| Total |
| Redeemable | ||||||||||||||||||||
Additional | Permanent | Noncontrolling | ||||||||||||||||||||||||||
Capital Stock | Paid-in | Retained | Treasury Stock | Noncontrolling | Stockholders' |
| Interests | Net Income | ||||||||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Interests |
| Equity |
| (Temporary Equity) | (Loss) | ||||||||||
Balances, June 30, 2020 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | $ | | $ | - | $ | |||||||||
Treasury stock transaction |
| — |
| — |
| — |
| — |
| |
| ( |
| — |
| ( | - | |||||||||||
Treasury stock retirement | ( | ( | ( | — | ( | | — | — | - | |||||||||||||||||||
Stock option cancellation |
| — |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | - | |||||||||||
Time based awards- option cancelation |
| — |
| — |
| ( |
| — |
| — |
| — |
| — |
| ( | - | |||||||||||
Stock-based compensation |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| | - | |||||||||||
Reclassification of warrant liability | — | — | | — | — | — | — | | - | |||||||||||||||||||
Capital contribution | — | — | | — | — | — | — | | - | |||||||||||||||||||
Initial public offering of common stock, net of offering costs of $ | | | | — | — | — | — | | - | |||||||||||||||||||
Consolidation of equity method investment |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | |||||||||||
Adjustment to redemption value | — | — | — | ( | — | — | — | ( |
| | ||||||||||||||||||
Net income (loss) |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( |
| ( | ( | $ | ( | |||||||||
Balances, March 31, 2021 |
| | $ | | $ | | $ | |
| — | $ | — | $ | | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
INNOVAGE HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Nine Months Ended March 31, | |||||||
2022 | 2021 | ||||||
Operating Activities | |||||||
Net income (loss) | $ | | $ | ( | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
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Loss on disposal of assets |
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Provision for uncollectible accounts |
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Depreciation and amortization |
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Gain on equity method investment | — | ( | |||||
Loss on extinguishment of long-term debt |
| — |
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Amortization of deferred financing costs |
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Stock-based compensation |
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Deferred income taxes |
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| ( | |||
Change in fair value of warrants |
| — |
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Change in fair value of contingent consideration | — | | |||||
Changes in operating assets and liabilities, net of acquisitions |
|
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Accounts receivable, net |
| ( |
| ( | |||
Prepaid expenses and other |
| ( |
| | |||
Income tax receivable |
| ( |
| | |||
Deposits and other |
| ( |
| ( | |||
Accounts payable and accrued expenses |
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Reported and estimated claims |
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Due to Medicaid and Medicare |
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Net cash provided by (used in) operating activities |
| |
| ( | |||
Investing Activities |
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Purchases of property and equipment |
| ( |
| ( | |||
Purchase of intangible assets |
| ( |
| ( | |||
Purchase of cost method investment |
| ( |
| — | |||
Net cash used in investing activities | $ | ( | $ | ( | |||
Financing Activities |
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Distributions to owners | $ | — | $ | ( | |||
Owner contributions |
| — |
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Payments on capital lease obligations |
| ( |
| ( | |||
Proceeds from long-term debt | — | | |||||
Principal payments on long-term debt |
| ( |
| ( | |||
Payment of financing costs and debt premiums |
| — |
| ( | |||
Proceeds from initial public offering of common stock |
| — |
| | |||
Treasury stock purchases |
| — |
| ( | |||
Payments under acquisition agreements |
| — |
| ( | |||
Payments related to option cancellation | — | ( | |||||
Net cash provided by (used in) financing activities |
| ( |