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InnovAge Announces Financial Results For The Fiscal Third Quarter Ended March 31, 2023

DENVER, Colo., May 09, 2023 (GLOBE NEWSWIRE) -- InnovAge Holding Corp. (“InnovAge” or the “Company”) (Nasdaq: INNV), an industry leader in providing comprehensive healthcare programs to frail dual-eligible seniors through the Program of All-inclusive Care for the Elderly (PACE), today announced financial results for its fiscal third quarter ended March 31, 2023.

“With our release from sanction in Sacramento on May 1st, we are excited to begin a new chapter,” said Patrick Blair, President, and CEO of InnovAge. “Our near-term performance improvement priorities will concentrate on aspiring to deliver best in class quality and participant satisfaction, which we believe will result in consistent, responsible, profitable growth.”

Financial Results

 Three Months Ended March 31, Nine Months Ended March 31,
  2023   2022   2023   2022 
in thousands, except percentages and per share amounts     
Total revenues$172,539  $177,359  $511,213  $525,780 
Center-level Contribution Margin(1) 28,785   28,003   72,782   111,741 
Net Income (Loss) (7,310)  (3,158)  (31,557)  5,572 
Net Income (Loss) margin(4.2)% (1.8)% (6.2)%  1.1%
        
Net Income (Loss) Attributable to InnovAge Holding Corp. (6,630)  (2,821)  (29,496)  6,188 
Net income (Loss) per share - basic and diluted$(0.05) $(0.02) $(0.22) $0.05 
        
Adjusted EBITDA(1)$3,789  $1,931  $(1,977) $34,895 
Adjusted EBITDA margin(1) 2.2%  1.1% (0.4)%  6.6%

Fiscal Third Quarter 2023 Financial Performance

  • Total revenue of $172.5 million, decreased approximately 2.7% compared to $177.4 million in the third quarter of fiscal 2022
  • Center-level Contribution Margin(1) of $28.8 million, increased 2.8% compared to $28.0 million in the third quarter of fiscal 2022
  • Center-level Contribution Margin(1) as a percent of revenue of 16.7%, increased 0.9 percentage points compared to 15.8% in the third quarter of fiscal 2022
  • Net loss of $7.3 million, compared to net loss of $3.2 million in the third quarter of fiscal 2022
  • Net loss margin of 4.2%, an increase of 2.4 percentage points compared to a net loss margin of 1.8% in the third quarter of fiscal year 2022
  • Net loss attributable to InnovAge Holding Corp. of $6.6 million, or a loss of $0.05 per share, compared to net loss of $2.8 million, or a loss of $0.02 per share in the third quarter of fiscal 2022
  • Adjusted EBITDA(1) of $3.8 million, an increase of $1.9 million compared to $1.9 million in the third quarter of fiscal year 2022
  • Adjusted EBITDA(1) margin of 2.2%, an increase of 1.1 percentage points compared to 1.1% in the third quarter of fiscal 2022
  • Census of approximately 6,310 participants compared to 6,800 participants in the third quarter of fiscal year 2022
  • Ended the third quarter of fiscal year 2023 with $121.7 million in cash and cash equivalents and $89.1 million in debt on the balance sheet, representing debt under the Company’s senior secured term loan, convertible term loan and finance leases

(1) Management uses Center-level Contribution Margin as the measure for assessing performance of its segments. Center-level Contribution Margin is defined as total revenues less external provider costs and cost of care, excluding depreciation and amortization, which include all medical and pharmacy costs.  Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. For a definition and reconciliation of these non-GAAP measures to the most closely comparable GAAP measures for the periods indicated, see “Note Regarding Use of Non-GAAP Financial Measures” and “Reconciliation of GAAP and Non-GAAP Measures.”

Conference Call

The Company will host a conference call this afternoon at 5:00 PM Eastern Time.  A live audio webcast of the call will be available on the Company’s website, https://investor.innovage.com/. A replay of the call will be available via webcast for on-demand listening shortly after the completion of the call, at the same web link, and will remain available for a limited time.  To access the call by phone, please go to this link (registration link), for dialing instructions and a unique access pin.  We encourage participants to dial into the call fifteen minutes ahead of the scheduled start time.

About InnovAge

InnovAge is a market leader in managing the care of high-cost, dual-eligible seniors. Our mission is to enable seniors to age independently in their own homes for as long as safely possible. Our patient-centered care model is designed to improve the quality of care our participants receive, while reducing over-utilization of high-cost care settings. InnovAge believes its healthcare model is one in which all constituencies — participants, their families, providers and government payors — “win.” As of March 31, 2023, InnovAge served approximately 6,310 participants across 17 centers in five states. https://www.innovage.com/.

Investor Contact:

Ryan Kubota
rkubota@innovage.com 

Media Contact:

Lara Hazenfield
lhazenfield@innovage.com 

Forward-Looking Statements - Safe Harbor

This press release may contain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “believe,” “project,” “estimate,” “expect,” “may,” “should,” “will” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements may be identified by the fact that they do not relate strictly to historical or current facts. Examples of forward-looking statements include, among others, statements we may make regarding our expectations with respect to current audits, legal proceedings and government investigations and actions; relationships and discussions with regulatory agencies; our expectations with respect to correcting deficiencies raised in audits and other processes; our ability to effectively implement remediation measures, including creating operational excellence as a provider, expanding our payer capabilities and strengthening enterprise functions; our expectations to increase the number of participants we serve, to grow enrollment and capacity within existing centers, to build de novo centers, or execute acquisitions; quarterly or annual guidance; financial outlook, including future revenues and future earnings; reimbursement and regulatory developments; market developments; new products; integration activities; and the effects of any of the foregoing on our future results of operations or financial conditions.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on currently available information and our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. You should not place undue reliance on our forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: (i) the results of periodic inspections, reviews, audits, investigations under the federal and state government programs; (ii) our ability to sufficiently cure any deficiencies identified by federal or state government programs; (iii) the adverse impact of inspections, reviews, audits, investigations, legal proceedings, enforcement actions and litigation, including the current civil investigative demands initiated by federal and state agencies, as well as the litigation and other proceedings initiated by, or on behalf, of our stockholders; (iv) the risk that the cost of providing services will exceed our compensation under PACE; (v) the dependence of our revenues upon a limited number of government payors, particularly Medicare and Medicaid; (vi) changes in the rules governing the Medicare, Medicaid or PACE programs; (vii) the risk that our 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 subjecting us to payment obligations and penalties; (viii) viability of our business strategy and our ability to realize expected results; (ix) the impact on our business of non-renewal or termination of capitation agreements with government payors; (x) the impact of state and federal efforts to reduce healthcare spending; (xi) the impact on our business from an economic downturn; (xii) the effects of a pandemic, epidemic or outbreak of an infectious disease, including the ongoing effects of COVID-19; (xiii) our dependence on our senior management team and other key employees; (xiv) the effects of sustained inflation and increased costs of labor on our business; (xv) the impact of failures by our suppliers, sustained material price increases on supplies or limitations on our ability to access new technology or medical products; (xvi) the effect of our relatively limited operating history as a for-profit company on investors’ ability to evaluate our current business and future prospects; (xvii) our ability to enroll or attract new participants and grow our revenue; (xviii) the concentration of our presence in Colorado; (xix) our ability to establish a presence in new geographic markets, especially as a result of the actions taken by certain states and us in light of our ongoing audit processes; (xx) 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; and (xxi) our existing indebtedness and access to capital markets. For a detailed discussion of the risks and uncertainties that could affect our actual results, please refer to the risk factors identified in our SEC reports, including, but not limited to our most recent Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q, in each case, as filed with the SEC.

Any forward-looking statement made by the Company in this press release is based only on information currently available to us and speaks only as of the date on which it is made. Except as required by law, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Note Regarding Use of Non-GAAP Financial Measures

In addition to reporting financial information in accordance with generally accepted accounting principles (“GAAP”), the Company is also reporting Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures. 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. 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, 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 help investors and analysts in comparing our results across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. 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. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. 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. 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 charges relating to management equity compensation, class action litigation, M&A and de novo center development, business optimization, electronic medical record (“EMR”) implementation, and facility expansion, relocation and closure. Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue less any exceptional, one time revenue items. For a full reconciliation of Adjusted EBITDA to the most closely comparable GAAP financial measure, please see the attachment to this earnings release.

Schedule 1

InnovAge
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) (UNAUDITED)

 March 31,
2023
 June 30,
2022
Assets   
Current Assets   
Cash and cash equivalents$121,706  $184,429
Short-term investments 45,847   
Restricted cash 16   17
Accounts receivable, net of allowance ($3,936 – March 31, 2023 and $3,403 – June 30, 2022) 34,197   35,907
Prepaid expenses 13,924   13,842
Income tax receivable 254   6,761
    Total current assets 215,944   240,956
Noncurrent Assets   
Property and equipment, net 192,911   176,260
Operating lease assets 21,906   
Investments 5,493   5,493
Deposits and other 3,573   2,812
Goodwill 124,217   124,217
Other intangible assets, net 5,363   5,858
    Total noncurrent assets 353,463   314,640
        Total assets$569,407  $555,596
Liabilities and Stockholders' Equity   
Current Liabilities   
Accounts payable and accrued expenses$48,198  $50,562
Reported and estimated claims 39,095   38,454
Due to Medicaid and Medicare 11,001   9,130
Income tax payable 1,220   
Current portion of long-term debt 3,795   3,793
Current portion of finance lease obligations 4,946   3,368
Current portion of operating lease obligations 3,402   
Deferred revenue 26,032   
    Total current liabilities 137,689   105,307
Noncurrent Liabilities   
Deferred tax liability, net 5,714   17,761
Finance lease obligations 13,381   9,440
Operating lease obligations 20,110   
Other noncurrent liabilities 1,183   1,134
Long-term debt, net of debt issuance costs 65,687   68,210
    Total liabilities 243,764   201,852
Commitments and Contingencies   
Redeemable Noncontrolling Interests 13,461   15,278
Stockholders’ Equity   
Common stock, $0.001 par value; 500,000,000 authorized as of March 31, 2023 and June 30, 2022; 135,602,464 and 135,532,811 issued shares as of March 31, 2023 and June 30, 2022, respectively 136   136
Additional paid-in capital 330,955   327,499
Retained earnings (deficit) (24,767)  4,729
    Total InnovAge Holding Corp. 306,324   332,364
Noncontrolling interests 5,858   6,102
    Total stockholders’ equity 312,182   338,466
        Total liabilities and stockholders’ equity$569,407  $555,596
       

Schedule 2

InnovAge
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS) (UNAUDITED)

 Three Months Ended March 31, Nine Months Ended March 31,
  2023   2022   2023   2022 
Revenues       
Capitation revenue$172,196  $176,988  $510,268  $524,507 
Other service revenue 343   371   945   1,273 
Total revenues 172,539   177,359   511,213   525,780 
Expenses       
External provider costs 89,805   103,254   279,550   284,299 
Cost of care, excluding depreciation and amortization 53,949   46,102   158,881   129,740 
Center-level Contribution Margin 28,785   28,003   72,782   111,741 
Sales and marketing 5,314   6,144   13,502   19,117 
Corporate, general and administrative 27,648   24,682   86,646   74,248 
Depreciation and amortization 3,992   3,850   11,087   10,435 
    Total expenses 180,708   184,032   549,666   517,839 
Operating Income (Loss) (8,169)  (6,673)  (38,453)  7,941 
        
Other Income (Expense)       
Interest expense, net         (405)  (709)  (1,231)  (1,930)
Other expense         (101)  108   380   (358)
    Total other expense         (506)  (601)  (851)  (2,288)
Income (Loss) Before Income Taxes         (8,675)  (7,274)  (39,304)  5,653 
Provision for Income Taxes         (1,365)  (4,116)  (7,747)  81 
Net Income (Loss)         (7,310)  (3,158)  (31,557)  5,572 
    Less: net loss attributable to noncontrolling interests         (680)  (337)  (2,061)  (616)
Net Income (Loss) Attributable to InnovAge Holding Corp.$        (6,630) $(2,821) $(29,496) $6,188 
        
Weighted-average number of common shares outstanding - basic 135,601,327   135,516,608   135,581,971   135,516,544 
Weighted-average number of common shares outstanding - diluted 135,601,327   135,516,608   135,581,971   135,530,793 
        
Net income (loss) per share - basic$(0.05) $(0.02) $(0.22) $0.05 
Net income (loss) per share - diluted$(0.05) $(0.02) $(0.22) $0.05 

Schedule 3

InnovAge
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)

 For the Nine Months Ended March 31,
  2023   2022 
Operating Activities   
Net income (loss)$(31,557) $5,572 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities   
(Gain) loss on disposal of assets 482   358 
Provision for uncollectible accounts 2,319   4,834 
Depreciation and amortization 11,087   10,435 
Operating lease rentals 3,500    
Amortization of deferred financing costs 322   322 
Stock-based compensation 3,456   2,586 
Deferred income taxes (12,046)  81 
Other (726)   
Changes in operating assets and liabilities   
Accounts receivable, net (609)  (4,157)
Prepaid expenses (81)  (4,323)
Income tax receivable 7,727   (60)
Deposits and other (836)  (1,501)
Accounts payable and accrued expenses 25,161   4,705 
Reported and estimated claims 641   2,778 
Due to Medicaid and Medicare 1,870   2,429 
Operating lease liabilities (3,625)   
    Net cash provided (used) by operating activities 7,085   24,059 
Investing Activities   
Purchases of property and equipment (19,329)  (20,141)
Purchases of short-term investments (45,000)   
Purchases of intangible assets    (1,437)
Purchase of cost method investment    (2,000)
    Net cash used in investing activities (64,329)  (23,578)
Financing Activities   
Payments for finance lease obligations (2,637)  (1,829)
Principal payments on long-term debt (2,843)  (2,841)
Net cash used in financing activities (5,480)  (4,670)
    
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS & RESTRICTED CASH (62,724)  (4,189)
CASH, CASH EQUIVALENTS & RESTRICTED CASH, BEGINNING OF PERIOD 184,446   203,700 
CASH, CASH EQUIVALENTS & RESTRICTED CASH, END OF PERIOD$121,722  $199,511 
    
Supplemental Cash Flows Information   
Interest paid$2,826  $1,452 
Income taxes paid$13  $84 
Property and equipment included in accounts payable$1,811  $4,577 
Property and equipment purchased under finance leases$8,157  $8,057 
        

Schedule 4

InnovAge
RECONCILIATION OF GAAP AND NON-GAAP MEASURES
(IN THOUSANDS) (UNAUDITED)

 Three months ended March 31, Nine months ended March 31,
  2023   2022   2023   2022 
      
Net income (loss)$(7,310) $(3,158) $(31,557) $5,572 
Interest expense, net 405   709   1,231   1,930 
Depreciation and amortization 3,992   3,850   11,087   10,435 
Provision (benefit) for income tax (1,365)  (4,116)  (7,747)  81 
Stock-based compensation 1,208   845   3,721   2,586 
Executive severance and recruitment(a)          4,123 
Litigation costs and settlement(b) 3,274   377   7,839   2,820 
M&A and de novo center development(c) 146   693   452   1,533 
Business optimization(d) 1,394   2,329   8,418   4,720 
EMR implementation(e) 2,045   402   4,579   1,095 
Adjusted EBITDA$3,789  $1,931  $(1,977) $34,895 
        
Net income (loss) margin(4.2)% (1.8)% (6.2)%  1.1%
Adjusted EBITDA margin 2.2%  1.1% (0.4)%  6.6%

_______________________

(a)Reflects charges related to executive severance and recruiting.
(b)Reflects a $1.2 million reserve for a wage and hour class action settlement for the three and nine months ended March 31, 2023 and charges/(credits) related to litigation by stockholders, litigation related to de novo center development, and civil investigative demands. Refer to Note 9, "Commitments and Contingencies" to our condensed consolidated financial statements for more information regarding litigation by stockholders and civil investigative demands. Costs reflected consist of litigation costs considered one-time in nature and outside of the ordinary course of business based on the following considerations which we assess regularly: (i) the frequency of similar cases that have been brought to date, or are expected to be brought within two years, (ii) complexity of the case, (iii) nature of the remedies sought, (iv) litigation posture of the Company, (v) counterparty involved, and (vi) the Company's overall litigation strategy.
(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. For the three months ended March 31, 2023 this includes (i) $0.3 million related to consultants and contractors performing audit and other related services at sanctioned centers, (ii) $0.2 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, and (iv) $0.3 million related to other non-recurring projects aimed at reducing costs and improving efficiencies. For the nine months ended March 31, 2023 this includes (i) $1.5 million related to consultants and contractors performing audit and other related services at sanctioned centers, (ii) $5.3 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 center and (iv) $1.0 million related to other non-recurring projects aimed at reducing costs and improving efficiencies.
(e)Reflects non-recurring expenses relating to the implementation of a new EMR vendor.


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