InnovAge Holding Corp

Previous wording

InnovAge Holding Corp. (“InnovAge”) became a public company in March 2021. As of December 31, 2023, the Company served approximately 6,780 PACE participants, and operated 18 PACE centers across California, Colorado, New Mexico, Pennsylvania, and Virginia.

Current wording

InnovAge Holding Corp. (“InnovAge”) became a public company in March 2021. As of March 31, 2024, the Company served approximately 6,820 PACE participants, and operated 19 PACE centers across California, Colorado, Florida, New Mexico, Pennsylvania, and Virginia.

Previous wording

On January 1, 2024, we opened a PACE center in Tampa, Florida, which has opened enrollment to various surrounding counties, and continue our efforts to obtain the licensure required to open a PACE center in Orlando, Florida.

Current wording

On January 1, 2024, we opened a PACE center in Tampa, Florida, which has opened enrollment to various surrounding counties, and on April 1, 2024, we opened our PACE center in Orlando, Florida.

Previous wording

Macroeconomic conditions. During fiscal year 2024, the U.S. continued to wrestle with inflation and increased wages due to labor shortages and increased competition among healthcare professionals. In fiscal year 2022 and 2023, in response to high levels of inflation, we implemented various mitigation strategies to reduce costs of operation, including, consolidating services, price negotiations with providers and vendors and limiting corporate staffing, effecting a reduction in workforce in December 2022. For example, in fiscal year 2023, we launched and conducted several initiatives intended to lower certain of our costs, including limiting corporate staffing, effecting a reduction in workforce in December 2022, and optimizing working capital. The Company has continued these mitigation strategies during the six months ended December 31, 2023. For example, in October 2023, we conducted an additional planned reduction in workforce involving approximately 1.6% of our workforce. In connection with the planned reduction, we incurred approximately $0.3 million of charges associated with employee severance and benefits costs during the three months ended December 31, 2023. The effects of inflation, after accounting for these mitigation strategies, were immaterial to our financial results for the three and six months ended December 31, 2023. We expect to continue to experience elevated operating expenses for the remainder of fiscal 2024 for similar reasons. Although we expect to continue mitigation efforts, there can be no assurance that our strategies will be sufficient.

Current wording

Macroeconomic conditions. During fiscal year 2024, the U.S. continued to wrestle with inflation and increased wages due to labor shortages and increased competition among healthcare professionals. In fiscal years 2022 and 2023, in response to high levels of inflation, we implemented various mitigation strategies to reduce costs of operation, including, consolidating services, price negotiations with providers and vendors and limiting corporate staffing, effecting a reduction in workforce in December 2022. In fiscal year 2023, we launched and conducted several initiatives intended to lower certain of our costs, including limiting corporate staffing, effecting a reduction in workforce in December 2022, and optimizing working capital. The Company has continued these mitigation strategies during the nine months ended March 31, 2024. In October 2023, we conducted an additional planned reduction in workforce involving approximately 1.6% of our workforce. In connection with the planned reduction, we incurred approximately $0.3 million of charges associated with employee severance and benefits costs during the nine months ended March 31, 2024. The effects of inflation, after accounting for these mitigation strategies, were immaterial to our financial results for the three and nine months ended March 31, 2024. We expect to continue to experience elevated operating expenses for the remainder of fiscal 2024 for similar reasons. Although we expect to continue mitigation efforts, there can be no assurance that our strategies will be sufficient.

Previous wording

Increased cost of care. Cost of care and related cost per participant increased for the six months ended December 31, 2023 compared to 2022, partially as a result of increased salaries, wages and benefits associated with increased headcount and higher wage rates and increased fleet and contract transportation costs due to an increase in center attendance and external appointments as well as increased costs related to growing census. Additionally, external provider costs have increased in the six month period ended December 31, 2023 compared to 2022 associated with annual increases in assisted living and nursing facility unit cost and general medical inflation. We will continue to evaluate increased costs and methods to mitigate or offset such increases.

Current wording

Increased cost of care. Cost of care and related cost per participant increased for the nine months ended March 31, 2024 compared to 2023, partially as a result of increased salaries, wages and benefits associated with increased headcount and higher wage rates and increased fleet and contract transportation costs due to an increase in external appointments related to growing census. Additionally, external provider costs have increased in the nine month period ended March 31, 2024 compared to 2023 associated with annual increases in assisted living and nursing facility unit cost and general medical inflation. In an effort to mitigate the effects of these rising costs, we have implemented certain clinical value initiatives designed to manage participant expenses and reduce low-value utilization of services, and we have implemented an infrastructure to ensure accurate reimbursement of services. We continue to evaluate increased costs and methods to mitigate or offset such increases.

Previous wording

Census and capitation revenue. On May 11, 2023 the President allowed the national emergency and public health emergency declarations related to the COVID-19 pandemic to expire. While states have resumed processing new Medicaid applications and redeterminations of beneficiary eligibility, the healthcare industry has experienced increased delays in the processing of such applications. The Company completes annual Medicaid redeterminations, which enables the Company to monitor ongoing eligibility status, assist Participant’s through the redetermination process, address potential issues with eligibility in real time, and track future renewal dates. However, as a result of the aforementioned delays, the Company has experienced an increase in gaps of eligibility with redetermination applications. While the participants continue to receive care and remain enrolled with the Company during this time, the effect of such delays temporarily halts Medicaid revenue related to any closed application and simultaneously increases our risk of revenue recovery. In an effort to mitigate these risks, the Company continues to utilize State approved third-party eligibility partners to expedite applications, escalate delayed cases to State administrators, and pursue safe discharges for individuals who are truly ineligible. Being eight months into the public health emergency unwind period, there has not been a material effect on the Company’s financial statements or operations. The Company is seeing trends of aging report accounts and financial losses normalizing to pre-public health emergency levels. We expect these trends to continue for the remainder of fiscal year 2024.

Current wording

Census and capitation revenue. On May 11, 2023 the President allowed the national emergency and public health emergency declarations related to the COVID-19 pandemic to expire. While states have resumed processing new Medicaid applications and redeterminations of beneficiary eligibility, the healthcare industry, including the Company, has experienced increased delays in the processing of such applications. As a result of such delays, the Company has experienced an increase in gaps of eligibility with redetermination applications. While the participants continue to receive care and remain enrolled with the Company during this time, the effect of such delays temporarily halts Medicaid revenue related to any closed application and simultaneously increases our risk of revenue recovery. In an effort to mitigate these risks, the Company utilizes State approved third-party eligibility partners to expedite applications, escalate delayed cases to State administrators, and pursue safe discharges for individuals who are truly ineligible. There has not been a material effect on the Company’s financial statements or operations due to this situation. The Company is seeing trends of aging report accounts and financial losses normalizing to pre-public health emergency levels.

Previous wording

Labor market. The healthcare sector is currently experiencing a complex set of challenges in hiring additional professionals. We believe these challenges are a result of a combination of factors beyond the direct impact of the COVID-19 pandemic. Specifically, the demand for healthcare services has been steadily increasing due to an aging population and a greater focus on health and wellness in society. In addition, there are systemic challenges related to workforce training and the pipeline of qualified professionals, which have not kept pace with this growing demand. Furthermore, high inflation experienced during fiscal year 2023 and which has continued through fiscal year 2024 has increased the cost of living, and subsequently, wage pressure for healthcare professionals, with a shift towards an employee-centric market with an emphasis on competitive compensation, flexibility and professional growth opportunities, which has contributed to an increasingly competitive labor market. In an effort to mitigate the effects of these challenges, we have adopted strategies to offer competitive compensation packages. Partially as a result of increased competition and other market trends, in conjunction with increased staffing related to compliance and remediation efforts in our centers, there has been an increase in the cost of care for the six months ended December 31, 2023 compared to the comparable period last year, as discussed in "Results of Operations" below.

Current wording

Labor market. The healthcare sector continues to experience a complex set of challenges in hiring additional professionals. We believe these challenges are a result of a combination of factors beyond the direct impact of the COVID-19 pandemic. Specifically, the demand for healthcare services has been steadily increasing due to an aging population and a greater focus on health and wellness in society. In addition, there are systemic challenges related to workforce training and the pipeline of qualified professionals, which have not kept pace with this growing demand. Furthermore, high inflation experienced during fiscal year 2023 and which has continued through fiscal year 2024 has increased the cost of living, and subsequently, wage pressure for healthcare professionals, with a shift towards an employee-centric market with an emphasis on competitive compensation, flexibility and professional growth opportunities, which has contributed to an increasingly competitive labor market. In an effort to mitigate the effects of these challenges, we have adopted strategies to offer competitive compensation packages. Partially as a result of increased competition and other market trends, in conjunction with increased staffing related to compliance and remediation efforts in our centers, there has been an increase in the cost of care for the nine months ended March 31, 2024 compared to the comparable period last year, as discussed in "Results of Operations" below.

Previous wording

Additionally, on October 13, 2023, California passed into law California Senate Bill No. 525 ("SB 525"), which raises the minimum wage for many California healthcare workers, effective as of June 1, 2024. Although PACE centers are not covered by SB 525, many of our contractors and other third-party providers are impacted by SB 525, and they may renegotiate agreements with our centers to cover their increased labor costs. Additionally, competition with other healthcare providers who are required to increase wages under SB 525 could materially increase our labor costs. We will continue to evaluate the impact of this legislation on our business.

Current wording

Additionally, on October 13, 2023, California passed into law California Senate Bill No. 525 ("SB 525"), which raises the minimum wage for many California healthcare workers, effective as of June 1, 2024. Although PACE centers are not covered by SB 525, many of our contractors and other third-party providers are impacted by SB 525, and due to this and other macroeconomic factors, our California centers have started receiving provider requests to increase rates to cover their increased costs. SB 525 has also had the effect of increasing provider rates from our California housing providers. Competition with other healthcare providers who are required to increase wages under SB 525 could materially increase our labor costs. We will continue to evaluate the impact of this legislation on our business. For the nine months ended March 31, 2024, we did not suffer a material impact to our financial statements or operations related to this trend.

Previous wording

Finally, on October 27, 2023, following a demand from a labor union for the Company to recognize it as the collective bargaining representative of the nurses and certified nurse assistants in our Pennsylvania centers, we filed a petition with the National Labor Relations Board to conduct two elections. The National Labor Relations Board conducted the elections on December 6, 2023, at which the nurses and certified nurse assistants in our Pennsylvania centers voted to unionize. These employees represent approximately 1% of our total workforce. Collective bargaining has not yet commenced. While we cannot predict the terms or timing of any resulting collective bargaining agreement, we currently do not expect the impact from any such future negotiated collective bargaining agreements and costs for unionized employees to have a material effect on our costs of labor or operations. However, we cannot predict whether other employees will follow a similar course of action.

Current wording

Finally, on October 27, 2023, following a demand from a labor union for the Company to recognize it as the collective bargaining representative of the nurses in our Pennsylvania centers, we filed a petition with the National Labor Relations Board to conduct two elections. The National Labor Relations Board conducted the elections on December 6, 2023, at which the nurses in our Pennsylvania centers voted to unionize. These employees represent approximately 1% of our total workforce. Collective bargaining commenced in late March. While we cannot predict the terms or timing of any resulting collective bargaining agreement, we currently do not expect the impact from any such future negotiated collective bargaining agreements and costs for unionized employees to have a material effect on our costs of labor or operations. However, we cannot predict whether other employees will follow a similar course of action.

Previous wording

•Our participants. 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. InnovAge manages participants that are, on average, more complex and medically fragile than other Medicare-eligible patients, including those in Medicare Advantage (“MA”) programs. As a result, we receive larger payments for our participants compared to MA participants. This is driven by two factors: (i) we manage a higher acuity population, with an average risk adjustment factor (“RAF”) score of 2.42 based on InnovAge data as of December 31, 2023; and (ii) we manage Medicaid spend in addition to Medicare. 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. For dual-eligible participants, we receive per member, per month (“PMPM”) payments directly from Medicare and Medicaid, which provides recurring revenue streams and significant visibility into our revenue. The Medicare portion of our capitated payment is risk-based, taking into account the underlying medical conditions and frailty of each participant. We continue to work on expanding payer capabilities so that our revenue more accurately reflects the acuity of the populations we serve.

Current wording

Medicare-eligible patients, including those in Medicare Advantage (“MA”) programs. As a result, we receive larger payments for our participants compared to MA participants. This is driven by two factors: (i) we manage a higher acuity population, with an average risk adjustment factor (“RAF”) score of 2.47 based on InnovAge data as of March 31, 2024; and (ii) we manage Medicaid spend in addition to Medicare. 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. For dual-eligible participants, we receive per member, per month (“PMPM”) payments directly from Medicare and Medicaid, which provides recurring revenue streams and significant visibility into our revenue. The Medicare portion of our capitated payment is risk-based, taking into account the underlying medical conditions and frailty of each participant. We continue to work on expanding payer capabilities so that our revenue more accurately reflects the acuity of the populations we serve.

Previous wording

•Our ability to maintain high participant satisfaction and retention. We achieved a 86% participant satisfaction rating as of September 30, 2023, measured as composite of participant satisfaction across ten categories, and average participant tenure was 3.2 years as of December 31, 2023, measured as tenure from enrollment to disenrollment, among our centers that have been operated by us for at least five years. Furthermore, we experience low levels of voluntary disenrollment, averaging 5.9% annually over the last three fiscal years. Approximately 71% of our historical disenrollments have been involuntary, due primarily to participant death or otherwise due to participants moving out of our service areas.

Current wording

•Our ability to maintain high participant satisfaction and retention. We achieved an 86% participant satisfaction rating as of September 30, 2023, measured as composite of participant satisfaction across ten categories, and average participant tenure was 3.1 years as of March 31, 2024, measured as tenure from enrollment to disenrollment, among our centers that have been operated by us for at least five years. Furthermore, we experience low levels of controllable disenrollment, averaging 6.0% annually over the last three fiscal years.

Previous wording

•Effectively managing the cost of care for our participants. We receive capitated payments to manage the totality of a participant’s medical care across all settings. Our participants are among the most frail and medically complex individuals in the U.S. healthcare system, and average acuity rises with the passage of time. 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 84% of our revenue in the six months ended December 31, 2023. While we are liable for potentially large medical claims, our care model focuses on delivering high-quality medical care in cost efficient, community-based settings as a means of avoiding costly inpatient and outpatient services. However, our participants retain the freedom to seek care at sites of their choice, including hospitals and emergency rooms; we do not restrict participant access to care.

Current wording

•Effectively managing the cost of care for our participants. We receive capitated payments to manage the totality of a participant’s medical care across all settings. 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 a result of this dynamic, together with the factors disclosed above (increased salaries, wages and benefits, increased fleet and contract transportation costs, annual increases in assisted living and nursing facility unit cost and general medical inflation) our external provider costs and cost of care, excluding depreciation and amortization, represented approximately 83% of our revenue in the nine months ended March 31, 2024. While we are liable for potentially large medical claims, our care model focuses on delivering high-quality medical care in cost efficient, community-based settings as a means of avoiding costly inpatient and outpatient services. However, our participants retain the freedom to seek care at sites of their choice, including hospitals and emergency rooms; we do not restrict participant access to care.

Previous wording

•Center-level Contribution Margin. As we serve more participants in existing centers, we leverage our fixed cost base at those centers and the value of a center to our business increases over time. The enrollment sanctions in Sacramento, California and Colorado limited our ability to grow our participant census and impacted Center-level Contribution Margin in fiscal 2022 and the first half of fiscal 2023. We were fully released from those sanctions in Colorado in January 2023 and in California in May 2023. The Company continues post-sanction monitoring, and is currently able to enroll new participants at all of its centers. For the six months ended December 31, 2023, census has grown 1.2% compared to the six months ended December 31, 2022.

Current wording

•Center-level Contribution Margin. As we serve more participants in existing centers, we leverage our fixed cost base at those centers and the value of a center to our business increases over time. For the nine months ended March 31, 2024, census has grown 8.1% compared to the nine months ended March 31, 2023.

Previous wording

•Our ability to expand via de novo centers within existing and new markets. Several factors can affect our ability to open de novo centers, including sanctions issued by regulators, such as the ones imposed on our Sacramento, California and Colorado centers in 2021. As a result of such sanctions, we were precluded from, or voluntarily suspended efforts to, open de novo centers.

Current wording

•Our ability to expand via de novo centers within existing and new markets. Several factors can affect our ability to open de novo centers, including sanctions issued by regulators.

Previous wording

All new PACE centers are subject to annual federal and state audits for the first three years after opening. In October 2023, CMS and the California Department of Health Care Services (“DHCS) conducted a joint routine audit of our Sacramento center. On December 27, 2023, we received the final audit report from CMS for which we submitted a routine corrective action plan (CAP) that follows every audit. On January 22, 2024, CMS approved that CAP. On January 23, 2024, DHCS notified us of their preliminary audit findings at our Sacramento center and that, based on concerns that it had been alerted to, it will be conducting a medical review of our San Bernardino center. In response to both of these matters, DHCS notified us that it is suspending its attestations in support of the planned de novo center in Downey and the recently acquired planned de novo center in Bakersfield. On February 1, 2024, we received the final audit results from DHCS notifying us of identified deficiencies at our Sacramento center, some of which fall under the same categories as those that formed the basis of the enrollment freeze in 2021. While these de novo centers are precluded from opening at this time, DHCS notified us that it would consider restoring the State Attestations upon our successful remediation of the deficiencies raised in our Sacramento center and its completion of the medical review (and any potential resultant remediation that may be required) in our San Bernardino center. We believe we have in place the policies, processes and systems to correct the identified deficiencies as we did in connection with the 2021 enrollment freeze.

Current wording

All new PACE centers are subject to annual federal and state audits for the first three years after opening. In October 2023, CMS and the California Department of Health Care Services (“DHCS") conducted a joint routine audit of our Sacramento center. On January 23, 2024, DHCS notified us of their preliminary audit findings at our Sacramento center and that, based on concerns that it had been alerted to, it would be conducting a medical review of our San Bernardino center. In response to both of these matters, DHCS notified us that it was suspending its attestations in support of the planned de novo center in Downey and the recently acquired planned de novo center in Bakersfield. On February 1, 2024, we received the final audit results from DHCS notifying us of identified deficiencies at our Sacramento center, some of which fall under the same categories as those that formed the basis of the enrollment freeze in 2021. On March 4, 2024, we submitted a CAP to DHCS. On March 19, 2024, CMS released us from the approved CAP and officially closed its portion of the Sacramento audit on April 4, 2024. DHCS's process is ongoing. While the planned California de novo centers are precluded from opening at this time, DHCS notified us that it would consider restoring the State Attestations upon our successful remediation of the deficiencies raised in our Sacramento center and its completion of the medical review (and any potential resultant remediation that may be required)

Previous wording

•Execute tuck-in acquisitions. From fiscal year 2019 through fiscal year 2021, we acquired and integrated three PACE organizations, expanding our InnovAge Platform to one new state and four new markets through those acquisitions. Additionally, in the second fiscal quarter of 2024, we completed an acquisition of two PACE programs in California from ConcertoCare, which included one operating center in the Crenshaw neighborhood of Los Angeles and a second program in the process of its application for licensure in Bakersfield, California. We remain disciplined in our approach to acquisitions and in the past have executed multiple types of transactions, including turnarounds and non-profit conversions. When integrating acquired programs, we work closely with key constituencies, including local governments, health systems and senior housing providers, to enable continuity of high-quality care for participants.

Current wording

•Execute tuck-in acquisitions. From fiscal year 2019 through fiscal year 2021, we acquired and integrated three PACE organizations, expanding our InnovAge Platform to one new state and four new markets through those acquisitions. Additionally, in the second fiscal quarter of 2024, we completed an acquisition of two PACE programs in California from ConcertoCare, which included one operating center in the Crenshaw neighborhood of Los Angeles and a second program that is a planned de novo in Bakersfield, California. We remain disciplined in our approach to acquisitions and in the past have executed multiple types of transactions, including turnarounds and non-profit conversions. When integrating acquired programs, we work closely with key constituencies, including local governments, health systems and senior housing providers, to enable continuity of high-quality care for participants.

Previous wording

•Seasonality of our business. Our operational and financial results, including medical costs and per-participant revenue true-ups, experience some variability depending upon the time of year in which they are measured. Medical costs vary most significantly as a result of (i) the weather, with certain illnesses, such as the influenza virus, being more prevalent during colder months of the year, which generally increases per-participant costs, specifically in 2024, we expect to see some increase in inpatient and short stay nursing home utilization as well as increased acuity of our participant mix; and (ii) the number of business days in a period, with shorter periods generally having lower medical costs, all else equal. 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. Where there is a difference between our estimate and the final determination from CMS, we may receive incremental true-up revenue or be required to repay certain amounts. 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.

Current wording

•Seasonality of our business. Our operational and financial results, including medical costs and per-participant revenue true-ups, experience some variability depending upon the time of year in which they are measured. Medical costs vary most significantly as a result of (i) the weather, with certain illnesses, such as the influenza virus, being more prevalent during colder months of the year, which generally increases per-participant costs, and (ii) the number of business days in a period, with shorter periods generally having lower medical costs, all else equal. 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. Where there is a difference between our estimate and the final determination from CMS, we may receive incremental true-up revenue or be required to repay certain amounts. 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. The variability of participant enrollments during the open enrollment period has also been impacted by additional offerings by MA and other competitors. We believe that, as a result of these additional offerings, we experienced higher than expected disenrollments during the third quarter of fiscal 2024.

Previous wording

Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program. The PACE state contracts between us and the respective state Medicaid administering agency are amended annually each June 30 in all states other than California and Pennsylvania, which contract on a calendar-year basis. We are currently operating in good standing under each of our PACE state contracts. 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 our 2023 10-K.

Current wording

Medicaid and Medicare capitation revenues are based on PMPM capitation rates under the PACE program. The PACE state contracts between us and the respective state Medicaid administering agency are renewed annually each June 30 in all states other than California and Pennsylvania, which contract on a calendar-year basis. We are currently operating in good standing under each of our PACE state contracts. For a discussion of our revenue recognition policies, please see Critical

Previous wording

Other Service Revenue. Other service revenue primarily consists of revenues derived from fee-for-service arrangements, state food grants, rent revenues and management fees. Prior to June 30, 2022, we generated fee-for-service revenue from providing home-care services to non-PACE patients in their homes, for which we billed the patient or their insurance plan on a fee-for-service basis. We no longer offer in-home care services to non-PACE participants. 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 our 2023 10-K.

Current wording

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 our 2023 10-K.

Previous wording

Capitation revenue. Capitation revenue was $188.6 million for the three months ended December 31, 2023 an increase of $21.4 million, or 12.8%, compared to $167.1 million for the three months ended December 31, 2022. This increase was driven by a $15.8 million, or 9.1%, increase in capitation rates coupled with $5.6 million, or 3.4%, increase in member months. The increase in capitation rates was primarily driven by (i) a 7.0% annual increase in Medicaid capitation rates as determined by the States and (ii) an 11.8% increase in Medicare capitation rates as a result of increased risk score and county rates coupled with a one-time true up outside of the regular payment cycle. The increase in member months is primarily due to the release from sanctions at our Colorado and Sacramento centers.

Current wording

Capitation revenue. Capitation revenue was $192.8 million for the three months ended March 31, 2024, an increase of $20.6 million, or 11.9%, compared to $172.2 million for the three months ended March 31, 2023. This increase was driven by an $8.8 million, or 4.8%, increase in capitation rates coupled with $11.8 million, or 6.8%, increase in member months. The increase in capitation rates was primarily driven by (i) a 6.7% annual increase in Medicaid capitation rates as determined by the States and (ii) a 2.7% increase in Medicare capitation rates as a result of increased risk score and county rates. The increase in member months is primarily due to the release from sanctions at our Colorado and Sacramento centers.

Previous wording

Capitation revenue was $370.7 million for the six months ended December 31, 2023, an increase of $32.7 million, or 9.7% compared to $338.1 million for the six months ended December 31, 2022. This increase was driven by a $28.7 million, or 8.4%, increase in capitation rates coupled with a $3.9 million, or 1.2%, increase in member months. The increase in capitation rates include a 6.9% annual increase in Medicaid rates and a 10.3% increase in Medicare rates.

Current wording

Capitation revenue was $563.5 million for the nine months ended March 31, 2024, an increase of $53.2 million, or 10.4% compared to $510.3 million for the nine months ended March 31, 2023. This increase was driven by a $37.8 million, or 7.2%, increase in capitation rates coupled with a $15.4 million, or 3.0%, increase in member months. The increase in capitation rates include a 6.8% annual increase in Medicaid rates and a 7.6% increase in Medicare rates.

Previous wording

External provider costs. External provider costs were $101.0 million for the three months ended December 31, 2023, an increase of $7.5 million, or 8.0%, compared to $93.5 million for the three months ended December 31, 2022. The increase was primarily driven by an increase of $4.3 million, or 4.4%, in cost per participant coupled with an increase of $3.2 million, or 3.4% in member months. The increase in cost per participant was primarily driven by an annual increase in pharmacy cost, an increase in assisted living utilization and unit cost, and an increase in outpatient services utilization. This was partially offset by a decrease in permanent nursing facility utilization.

Current wording

External provider costs. External provider costs were $100.0 million for the three months ended March 31, 2024, an increase of $10.2 million, or 11.3%, compared to $89.8 million for the three months ended March 31, 2023. The increase was primarily driven by an increase of $4.1 million, or 4.2%, in cost per participant coupled with an increase of $6.1 million, or 6.8% in member months. The increase in cost per participant was primarily driven by an annual increase in pharmacy cost, an increase in assisted living utilization and unit cost, and an increase in professional services utilization. This was partially offset by a decrease in permanent nursing facility utilization.

Previous wording

External provider costs were $200.3 million for the six months ended December 31, 2023, an increase of $10.6, or 5.6%, compared to $189.7 for the six months ended December 31, 2022. This increase was primarily driven by an increase of $8.4 million, or 4.4%, in cost per participant coupled with an increase of $2.2 million, or 1.2%, in member months. The increase in cost per participant was primarily driven by an annual increase in pharmacy cost, an increase in assisted living utilization and unit cost, and an increase in outpatient services utilization. This is partially offset by a decrease in permanent and short stay nursing facility utilization.

Current wording

External provider costs were $300.3 million for the nine months ended March 31, 2024, an increase of $20.8 million, or 7.4%, compared to $279.6 million for the nine months ended March 31, 2023. This increase was primarily driven by an increase of $12.3 million, or 4.3%, in cost per participant coupled with an increase of $8.4 million, or 3.0%, in member months. The increase in cost per participant was primarily driven by an annual increase in pharmacy cost, an increase in assisted living utilization and unit cost, and an increase in professional services utilization. This is partially offset by a decrease in permanent and short stay nursing facility utilization.

Previous wording

Cost of care (excluding depreciation and amortization). Cost of care (excluding depreciation and amortization) expense was $54.3 million for the three months ended December 31, 2023, an increase of $2.9 million, or 5.7%, compared to $51.4 million for the three months ended December 31, 2022, primarily due to an increase of $1.2 million, or 2.3%, in cost per participant coupled with an increase of $1.7 million, or 3.4%, in member months. The increase was primarily driven by (i) a $3.1 million increase in salaries, wages and benefits associated with increased headcount and higher wage rates, (ii) $0.9 million in increased building maintenance and security, and (iii) $0.4 million in increased fleet expense and contract transportation a result of an increase in center attendance and an increase in external appointments, partially offset by $1.0 million reduction in third party audit and compliance support.

Current wording

Cost of care (excluding depreciation and amortization). Cost of care (excluding depreciation and amortization) expense was $59.1 million for the three months ended March 31, 2024, an increase of $5.1 million, or 9.5%, compared to $53.9 million for the three months ended March 31, 2023, primarily due to an increase of $1.4 million, or 2.5%, in cost per participant coupled with an increase of $3.7 million, or 6.8%, in member months. The increase was primarily driven by (i) a $3.2 million increase in salaries, wages and benefits associated with increased headcount and higher wage rates, (ii) $0.9 million in increased software license fees, and (iii) $0.4 million in increased fleet expense and contract transportation a result of an increase in external appointments, (iv) $0.6 million in contract provider expense in California associated with growth, and (v) $0.8 million in de novo occupancy and administrative expense associated with opening centers in Florida and the Concerto acquisition, partially offset by $1.1 million reduction in third party audit and compliance support.

Previous wording

Cost of care (excluding depreciation and amortization) expense was $109.6 million for the six months ended December 31, 2023, an increase of $4.6 million, or 4.4%, compared to $104.9 million for the six months ended December 31, 2022, primarily due to an increase of $3.4 million, or 3.2%, in cost per participant coupled with an increase of $1.2 million, or 1.2%, in member months. The increase was primarily driven by (i) a $4.5 million increase in salaries, wages and benefits associated with increased headcount and wage rate, (ii) $1.5 million in increased building maintenance and security, and (iii) $1.8 million in increased fleet expense as a result of an increase in center attendance and an increase in external appointments, partially offset by $2.5 million reduction in third party audit and compliance support.

Current wording

Cost of care (excluding depreciation and amortization) expense was $168.6 million for the nine months ended March 31, 2024, an increase of $9.8 million, or 6.1%, compared to $158.9 million for the nine months ended March 31, 2023, primarily due to an increase of $5.0 million, or 3.0%, in cost per participant coupled with an increase of $4.8 million, or 3.0%, in member months. The increase was primarily driven by (i) a $7.8 million increase in salaries, wages and benefits associated with increased headcount and wage rate, (ii) $1.3 million in increased building maintenance and security, (iii) $2.2 million in increased fleet expense as a result of an increase in center attendance and an increase in external appointments, (iv) $1.4 million in contract provider expenses in California associated with growth, and (v) $0.9 million in software license fees, partially offset by $3.6 million reduction in third party audit and compliance support.

Previous wording

Sales and marketing. Sales and marketing expenses were $5.9 million for the three months ended December 31, 2023, an increase of $2.1 million, or 55.2%, compared to $3.8 million for the three months ended December 31, 2022, primarily due to increased marketing spend and headcount as a result of the sanction release in our Colorado and Sacramento centers.

Current wording

Sales and marketing. Sales and marketing expenses were $7.2 million for the three months ended March 31, 2024, an increase of $1.9 million, or 35.1%, compared to $5.3 million for the three months ended March 31, 2023, primarily due to increased marketing spend and headcount as a result of the sanction release in our Colorado and Sacramento centers.

Previous wording

Sales and marketing expense were $11.2 million for the six months ended December 31, 2023, an increase of $3.1 million, or 37.3%, compared to $8.2 million for the six months ended December 31, 2022, primarily due to increased marketing spend and headcount as a result of the sanction release in our Colorado and Sacramento centers.

Current wording

Sales and marketing expense were $18.4 million for the nine months ended March 31, 2024, an increase of $4.9 million, or 36.4%, compared to $13.5 million for the nine months ended March 31, 2023, primarily due to increased marketing spend and headcount as a result of the sanction release in our Colorado and Sacramento centers.

Previous wording

Corporate, general and administrative. Corporate, general and administrative expenses were $25.2 million for the three months ended December 31, 2023, a decrease of $3.6 million, or 12.4%, compared to $28.8 million for the three months ended December 31, 2022. The decrease was primarily due to (i) a $2.9 million reduction in third party legal expense, (ii) a $0.6 million reduction in insurance expense, (iii) a $1.3 million reduction in consulting expense associated with improving organizational capabilities including the transition to a new electronic medical record ("EMR") system, (iv) $1.0 million reduction in contract staff augmentation, and (iv) $0.9 million reduction in recruiting expense. These decreases in cost were partially offset by (i) $1.5 million increase in employee compensation and benefits as the result of an increase in headcount to support compliance and bolster organizational capabilities, (ii) $1.1 million in bad debt expense, and (iii) $0.3 million in license fees.

Current wording

Corporate, general and administrative. Corporate, general and administrative expenses were $27.5 million for the three months ended March 31, 2024, a decrease of $0.1 million, or 0.4%, compared to $27.6 million for the three months ended March 31, 2023. The decrease was primarily due to (i) $1.7 million reduction in third party legal expense, (ii) $0.4 million reduction in insurance expense, (iii) $0.8 million reduction in consulting expense associated with improving organizational capabilities including the transition to a new electronic medical record ("EMR") system, and (iv) $0.8 million reduction in software license and maintenance expense, inclusive of Epic license fees. These decreases in cost were partially offset by (i) $0.6 million increase in employee compensation and benefits as the result of an increase in headcount to support compliance and bolster organizational capabilities, (ii) $0.2 million in consulting costs associated with Sarbanes-Oxley Act of 2002 compliance and internal audit, (iii) $0.4 million in administrative and travel expense, and (iv) $2.3 million in bad debt expense.

Previous wording

Corporate, general and administrative expenses were $54.2 million for the six months ended December 31, 2023, a decrease of $4.8 million, or 8.1%, compared to $59.0 million for the six months ended December 31, 2022. This decrease was primarily due to (i) a $2.7 million reduction in third party legal expense, (ii) $1.2 million reduction in insurance expense, (iii) $2.9 million reduction in consulting expense associated with improving organizational capabilities including the transition to a new EMR, (iv) $1.2 million reduction in contract staff augmentation, and (v) $1.4 million reduction in recruiting expense. These decreases were partially offset by (i) a $2.1 million increase in employee compensation and benefits as the result of an increase in headcount, (ii) $0.6 million in bad debt expense, (iii) $0.5 million in consulting costs associated with Sarbanes-Oxley Act of 2002 compliance and internal audit. and (iv) $1.2 million in software license and maintenance expense, inclusive of Epic license fees.

Current wording

Corporate, general and administrative expenses were $81.7 million for the nine months ended March 31, 2024, a decrease of $4.9 million, or 5.7%, compared to $86.6 million for the nine months ended March 31, 2023. This decrease was primarily due to (i) $4.4 million reduction in third party legal expense, (ii) $1.6 million reduction in insurance expense, (iii) $3.7 million reduction in consulting expense associated with improving organizational capabilities including the transition to a new EMR, (iv) $1.3 million reduction in contract staff augmentation, and (v) $1.3 million reduction in recruiting expense. These decreases were partially offset by (i) $2.6 million increase in employee compensation and benefits as the result of an increase in headcount, (ii) $2.9 million in bad debt expense, (iii) $0.7 million in consulting costs associated with Sarbanes-Oxley Act of 2002 compliance and internal audit, (iv) $0.4 million in administrative and travel expense, and (iv) $0.5 million in software license and maintenance expense, inclusive of Epic license fees.

Previous wording

Interest expense, net. 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 $0.9 million for the three months ended December 31, 2023, an increase of $0.7 million, or 319.3%, compared to $0.2 million for the three months ended December 31, 2022. The increase was primarily due to interest income of $0.9 million from money market funds offsetting interest expense of $1.8 million for the three months ended December 31, 2023. Interest expense of $1.1 million was offset by interest income of $0.8 million during the three months ended December 31, 2022.

Current wording

Interest expense, net. 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 $1.0 million for the three months ended March 31, 2024, an increase of $0.6 million, or 152.3%, compared to $0.4 million for the three months ended March 31, 2023. The increase was primarily due to interest expense of $1.7 million, which was offset by interest income of $0.7 million from money market funds for the three months ended March 31, 2024. Interest expense of $1.4 million was offset by interest income of $1.0 million during the three months ended March 31, 2023.

Previous wording

Interest expense, net was $1.6 million for the six months ended December 31, 2023, an increase of $0.8 million, or 93.2%, compared to $0.8 million for the six months ended December 31, 2022. This increase is due to interest expense of $3.6 million offset by interest income of $2.0 million from money market accounts during the six months ended December 31, 2023. During the six months ended December 31, 2022, interest expense of $2.1 million was offset by interest income of $1.2 million.

Current wording

Interest expense, net was $2.6 million for the nine months ended March 31, 2024, an increase of $1.4 million, or 112.8%, compared to $1.2 million for the nine months ended March 31, 2023. This increase is due to interest expense of $5.3 million offset by interest income of $2.7 million from money market accounts during the nine months ended March 31, 2024. During the nine months ended March 31, 2023, interest expense of $3.5 million was offset by interest income of $2.3 million.

Previous wording

Other income. Other income consists primarily of the net proceeds received from the sale of or disposal of property and equipment and unrealized gains and losses related to short-term investments. Other income for the three months ended December 31, 2023 increased $0.4 million, or 96.8%, when compared to the three months ended December 31, 2022. The increase was primarily due to dividends received from our short-term investments of $0.6 million for the three months ended December 31, 2023 compared to dividends of $0.2 million for the three months ended December 31, 2022.

Current wording

Other income (expense). Other income (expense) consists primarily of the net proceeds received from the sale of or disposal of property and equipment and unrealized gains and losses related to short-term investments. Other income (expense) for the three months ended March 31, 2024 increased $0.6 million, or 619.8%, when compared to the three months ended March 31, 2023. The increase was primarily due to dividends received from our short-term investments of $0.6 million for the three months ended March 31, 2024 compared to dividends of $0.4 million, offset by a loss of $0.6 million related to the termination of the Germantown, Pennsylvania center lease upon consolidation of the center with other centers, for the three months ended March 31, 2023.

Previous wording

Other income was $1.5 million for the six months ended December 31, 2023, an increase of $1.0 million, or 216.0%, compared to $0.5 million for the six months ended December 31, 2022. This increase was primarily due to dividends received of $1.2 million during the six months ended December 31, 2023 compared to dividends of $0.2 million for the six months ended December 31, 2022.

Current wording

Other income (expense) was $2.0 million for the nine months ended March 31, 2024, an increase of $1.6 million, or 437.6%, compared to $0.4 million for the nine months ended March 31, 2023. This increase was primarily due to dividends received of $1.8 million during the nine months ended March 31, 2024 compared to dividends of $0.7 million, offset by a loss of $0.6 million due to the termination of the Germantown center lease, for the nine months ended March 31, 2023.

Previous wording

Other expense. Other expense was $1.9 million for the three and six months ended December 31, 2023, an increase of $1.9 million, or 100.0%, compared to zero for the three and six months ended December 31, 2022. Subsequent to December 31, 2023, we noted indicators of impairment in our minority equity investment of Jetdoc. We determined that indicators were present as of the reporting date, and recognized impairment losses of $1.9 million during the three and six months ended December 31, 2023. No observable price changes or impairments were recorded during the three and six months ended December 31, 2022.

Current wording

Loss on minority equity interest. Loss on minority equity interest was $0.1 million for the three months ended March 31, 2024, an increase of $0.1 million, or 100.0%, compared to zero for the three months ended March 31, 2023. We recognized impairment losses of $2.0 million in conjunction with our minority interest investment in Jetdoc, Inc. ("Jetdoc") during the nine months ended March 31, 2024. No observable price changes or impairments were recorded during the three and nine months ended March 31, 2023.

Previous wording

During the three months ended December 31, 2023 and 2022, we reported provision for income taxes of $0.1 million and benefit of $2.9 million, respectively. During the six months ended December 31, 2023 and 2022, we reported a provision for income taxes of $0.3 million and benefit of $(6.4) million, respectively. The decrease of $6.7 million is primarily due (i) our pretax book loss recognized during the six months ended December 31, 2023, as compared to pretax book loss recognized during the six months ended December 31, 2022 and (ii) the change in our valuation allowance.

Current wording

During the three months ended March 31, 2024 and 2023, we reported a benefit for income taxes of $0.2 million and $1.4 million, respectively. During the nine months ended March 31, 2024 and 2023, we reported a provision for income taxes of $0.1 million and benefit of $(7.7) million, respectively. The decrease of $7.8 million is primarily due (i) our pretax book loss recognized during the nine months ended March 31, 2024, as compared to pretax book loss recognized during the nine months ended March 31, 2023 and (ii) the change in our valuation allowance.

Previous wording

During the six months ended December 31, 2023 and 2022, we reported net loss of $14.8 million and $24.2 million, respectively, consisting of (i) loss from operations of $12.5 million and $30.3 million, respectively, (ii) other expense of $2.0 million and $0.3 million, respectively, and (iii) a provision for income taxes of $0.3 million and benefit of $6.4 million, respectively, each as described above.

Current wording

During the nine months ended March 31, 2024 and 2023, we reported net loss of $21.0 million and $31.6 million, respectively, consisting of (i) loss from operations of $18.3 million and $38.5 million, respectively, (ii) other expense of $2.6 million and $0.9 million, respectively, and (iii) a provision for income taxes of $0.1 million and benefit of $7.7 million, respectively, each as described above.

Previous wording

(a)During the second quarter ended December 31, 2023, the Company acquired two PACE programs in California from ConcertoCare, one of which is operational. With the addition of the operational ConcertoCare PACE program, the Company operated 18 PACE centers as of December 31, 2023. During the third quarter ended March 31, 2023, the Company consolidated its Germantown LIFE center with its Allegheny and Henry Avenue LIFE centers in Pennsylvania.

Current wording

(a)The Company operated 19 PACE centers as of March 31, 2024. During the third quarter ended March 31, 2024, the Company opened its Tampa PACE center. During the second quarter ended December 31, 2023, the Company acquired two PACE programs in California from ConcertoCare, one of which is operational. During the third quarter ended March 31, 2023, the Company consolidated its Germantown LIFE center with its Allegheny and Henry Avenue LIFE centers in Pennsylvania.

Previous wording

The Company's management uses Center-level Contribution Margin as the measure for assessing performance of its operating segments. 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 expenses or corporate, general and administrative expenses across our centers. Center-level Contribution Margin was $61.5 million and

Current wording

The Company's management uses Center-level Contribution Margin as the measure for assessing performance of its operating segments. 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 expenses or corporate, general and administrative expenses across our centers. Center-level Contribution Margin was $95.5 million and $72.8 million for the nine months ended March 31, 2024 and 2023, respectively. The increase in Center-level Contribution

Previous wording

$44.0 million for the six months ended December 31, 2023 and 2022, respectively. The increase in Center-level Contribution Margin for the six months ended December 31, 2023 was primarily due to a 9.7% increase in total revenue, offset by a 5.6% increase in external provider costs during the same period. For more information relating to Center-level Contribution Margin, see Note 14 “Segment Reporting” to our consolidated financial statements. 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:

Current wording

Margin for the nine months ended March 31, 2024 was primarily due to a 10.4% increase in total revenue, offset by a 7.4% increase in external provider costs during the same period. For more information relating to Center-level Contribution Margin, see Note 14 “Segment Reporting” to our condensed consolidated financial statements. 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:

Previous wording

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, litigation costs and settlements, M&A and de novo center development, business optimization, electronic medical record ("EMR") implementation and loss on minority equity interest investment. Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue. For the six months ended December 31, 2023 and 2022, net loss was $14.8 million and $24.2 million, respectively, representing a year-over-year decrease of 39.0%. Adjusted EBITDA was $10.0 million and ($5.8 million), for the six months ended December 31, 2023 and 2022, respectively, representing a year-over-year increase of 273.3%. For the six months ended December 31, 2023, net loss margin was 4.0%, as compared to net loss margin of 7.2% for the six months ended December 31, 2022. For the six months ended December 31, 2023, our Adjusted EBITDA margin was 2.7%, as compared to our Adjusted EBITDA margin for the six months ended December 31, 2022 of negative 1.7%. The increase in Adjusted EBITDA and Adjusted EBITDA margin is primarily from (i) increased capitation rates and (ii) lower corporate, general and administrative costs partially offset by, (i) increased center-level headcount and wage rates associated with a competitive labor market, and (ii) increased housing utilization and unit cost as mandated by the states.

Current wording

We define Adjusted EBITDA as net income (loss) adjusted for interest expense, net, 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 settlements, M&A and de novo center development, business optimization, electronic medical record ("EMR") implementation and loss on minority equity interest investment. Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue. For the nine months ended March 31, 2024 and 2023, net loss was $21.0 million and $31.6 million, respectively, representing a year-over-year decrease of 33.6%. Adjusted EBITDA was $13.6 million and ($2.0 million), for the nine months ended March 31, 2024 and 2023, respectively, representing a year-over-year increase of 788.1%. For the nine months ended March 31, 2024, net loss margin was 3.7%, as compared to net loss margin of 6.2% for the nine months ended March 31, 2023. For the nine months ended March 31, 2024, our Adjusted EBITDA margin was 2.4%, as compared to our Adjusted EBITDA margin for the nine months ended March 31, 2023 of negative 0.4%. The increase in Adjusted EBITDA and Adjusted EBITDA margin is primarily from (i) increased capitation rates and (ii) lower corporate, general and administrative costs partially offset by, (i) increased center-level headcount and wage rates associated with a competitive labor market, and (ii) increased housing utilization and unit cost as mandated by the states.

Previous wording

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 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 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. The use of the term Adjusted EBITDA varies from others in our industry.

Current wording

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. The use of the term Adjusted EBITDA varies from others in our industry.