InnovAge Holding Corp.

Previous wording

InnovAge Holding Corp. (“InnovAge”) became a public company in March 2021. As of September 30, 2024, the Company served approximately 7,210 PACE participants, and operated 20 PACE centers across California, Colorado, Florida, New Mexico, Pennsylvania, and Virginia.

Current wording

InnovAge Holding Corp. (“InnovAge”) became a public company in March 2021. As of December 31, 2024, the Company served approximately 7,480 PACE participants, and operated 20 PACE centers across California, Colorado, Florida, New Mexico, Pennsylvania, and Virginia.

Previous wording

Increased cost of care. In the first quarter of fiscal year 2025, operating expenses increased $16.8 million, or 8.7%, compared to the first quarter of fiscal year 2024 due to census growth and increased cost of care per participant primarily as a result of increased salaries, wages and benefits associated with increased headcount and higher wage rates. Additionally, total external provider costs increased in the three month period ended September 30, 2024 compared to 2023 due to census growth partially offset by a reduction in cost per participant as a result of efforts to mitigate the effects of rising costs. In fiscal year 2024 and the first quarter of fiscal year 2025, we continued to strengthen our payer capabilities and reduced external provider costs per participant, which we believe to be a result of our maturing clinical value initiatives, which we began implementing in fiscal year 2023, and our operational value initiatives, which we began implementing in fiscal year 2024. While we expect to continue to experience elevated operating expenses through fiscal year 2025 for the reasons stated above, we also expect that our clinical value initiatives and operational value initiatives will help offset increasing cost of care.

Current wording

Increased cost of care. In the second quarter of fiscal year 2025, operating expenses increased $30.9 million, or 16.2%, compared to the second quarter of fiscal year 2024 due to census growth and increased cost of care per participant primarily as a result of increased salaries, wages and benefits associated with increased headcount and higher wage rates. Additionally, total external provider costs increased in the six month period ended December 31, 2024 compared to 2023 due to census growth partially offset by a reduction in cost per participant as a result of efforts to mitigate the effects of rising costs. In fiscal year 2024 and through the first two quarters of fiscal year 2025, we continued to strengthen our payer capabilities and reduced external provider costs per participant, which we believe to be a result of our maturing clinical value initiatives, which we began implementing in fiscal year 2023, and our operational value initiatives, which we began implementing in fiscal year 2024. While we expect to continue to experience elevated operating expenses through fiscal year 2025 for the reasons stated above, we also expect that our clinical value initiatives and operational value initiatives will help offset increasing cost of care.

Previous wording

Census and capitation revenue. We experienced increased gaps of eligibility with redetermination applications during fiscal year 2024 as a result of regulatory agencies processing delays. These gaps of eligibility began to ease during the first quarter of fiscal year 2025 and we continue to partner with State administrators with the intent to further reduce delays through the remainder of the fiscal year. There has not been a material effect on the Company's financial statements or operations due to this situation. The Company expects to continue mitigating measures, which include utilizing 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, during fiscal year 2025, and will continue to assess the situation as it evolves.

Current wording

Census and capitation revenue. We experienced, and continue to experience, delays and increased gaps in eligibility both for new enrollments and Medicaid redetermination applications during fiscal years 2024 and 2025 as a result of processing delays and other enrollment and redetermination procedures that vary by State and county. Specifically, in the State of California, processing delays have resulted in our inability to collect a portion of accounts receivables from the State leading to higher allowances against accounts receivable and corresponding write-offs. We are working to increase the proportion of new enrollments submitted prior to the first enrollment deadline each month to minimize enrollment efforts required by the State. We expect to continue mitigating measures during the remainder of fiscal year 2025, which include utilizing State approved third-party eligibility partners to expedite applications and escalating delayed cases to State administrators. During fiscal year 2024 and the first two quarters of fiscal year 2025, these delays and eligibility gaps have not had a material effect on the Company's financial statements or operations. We will continue to assess the situation as it evolves.

Previous wording

In addition, an aging population combined with a shortage of clinicians, creates pressures and increased demand on the limited number of residential facilities. There is uncertainty regarding the access of our participants to residential facilities. The high demand for such facilities may lead such facilities prioritizing patients who are private payors to avoid the frequently changing Medicare and Medicaid program reimbursement rates and rules, annual caps and regulatory requirements.

Current wording

In addition, an aging population combined with a shortage of clinicians, creates pressures and increased demand on the limited number of residential facilities. There is uncertainty regarding the access of our participants to residential facilities.

Previous wording

Additionally, as a result of the adoption of California Senate Bill No. 525 ("SB 525"), which raises minimum wage for many California healthcare workers and will impact many of our contractors and other third-party providers, combined with other macroeconomic factors, our California centers have received provider requests to increase rates to cover their increased labor costs. As a result of competition generated by SB 525 and other California market conditions, we have increased our wages for healthcare workers and other comparable market positions in the California market. These increases did not have a material impact on our labor costs, financial statements or operations for fiscal year 2024 or the three months ended September 30, 2024. We will continue to evaluate the impact of this legislation on our business.

Current wording

Additionally, as a result of the adoption of California Senate Bill No. 525 ("SB 525"), which raises minimum wage for many California healthcare workers and will impact many of our contractors and other third-party providers, combined with other macroeconomic factors, our California centers have received provider requests to increase rates to cover their increased labor costs. As a result of competition generated by SB 525 and other California market conditions, we have received rate increases from third party vendors, including home health and care partner services, increasing our cost of care in California. We also increased our wages for impacted healthcare workers and other comparable market positions in the California market. These increases did not have a material impact on our cost of care or labor costs, financial statements or operations for fiscal year 2024 or the three and six months ended December 31, 2024. We will continue to evaluate the impact of this and other similar future legislation on our business. For additional information on the various risks posed by macroeconomic events, regulation, and employee matters, please see the section entitled “Risk Factors” included in Part I, Item 1A of our 2024 10-K.

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 believe we manage a higher acuity population, with an average risk adjustment factor (“RAF”) score of 2.57 based on InnovAge data as of September 30, 2024; and (ii) we have Medicaid spend in addition to Medicare. Our participants are managed on a capitated, or at-risk basis, where InnovAge is financially responsible for all participant medical costs. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care. 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 on the underlying medical conditions and frailty of each participant. We continue to strengthen our expanding payer capabilities so that our revenue more accurately reflects the acuity of the populations we serve.

Current 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 believe we manage a higher acuity population, with an average risk adjustment factor (“RAF”) score of 2.45 based on InnovAge data as of December 31, 2024; and (ii) we have Medicaid spend in addition to Medicare. Our participants are managed on a capitated, or at-risk basis, where InnovAge is financially responsible for all participant medical costs. Our comprehensive care model and globally capitated payments are designed to cover participants from enrollment until the end of life, including coverage for participants requiring hospice and palliative care. 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 on the underlying medical conditions and frailty of each participant. We continue to strengthen our expanding payer capabilities so that our revenue more accurately reflects the acuity of the populations we serve.

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. 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. 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 three months ended September 30, 2024.

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 is highly acute. Together with the factors disclosed above (increased salaries, wages and benefits,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 six months ended December 31, 2024.

Previous wording

•Execute tuck-in acquisitions and partnerships. Since fiscal year 2019, we have acquired and integrated four PACE organizations for a total of eight operational centers (excluding the PACE center in Bakersfield, California, which is not yet operational). These acquisitions represent expansion of our InnovAge Platform into one new state and five new markets. By bringing acquired organizations under the InnovAge Platform, we hope to further realize revenue growth and improve operational efficiency and care delivery post-integration. We also have pursued and intend to continue pursuing additional relationships with key stakeholders, existing organizations and other care providers in order to form partnerships in target geography, such as the joint venture we entered into at our Orlando PACE center with Orlando Health during the fourth quarter of fiscal year 2024.

Current wording

•Execute tuck-in acquisitions and partnerships. Since fiscal year 2019, we have acquired and integrated four PACE organizations for a total of eight operational centers (excluding the PACE center in Bakersfield, California, which is not yet operational). These acquisitions represent expansion of our InnovAge Platform into one new state and five new markets. By bringing acquired organizations under the InnovAge Platform, we hope to further realize revenue growth and improve operational efficiency and care delivery post-integration. We also have pursued and intend to continue pursuing additional relationships with key stakeholders, existing organizations and other care providers in order to form partnerships in target geography, such as the joint venture we entered into at our Orlando PACE center with Orlando Health during the fourth quarter of fiscal year 2024. On January 2, 2025, with the goal of supporting our growth and improving pharmacy cost-management, we completed the acquisition of certain pharmacy assets from Tabula Rasa HealthCare Group, Inc. (“TRHC”), a leading pharmacy care management company, for a total purchase price of $4.8 million. TRHC will provide management services to the pharmacy business pursuant to a Management Services Agreement with an initial term of five years.

Previous wording

Capitation revenue. Capitation revenue was $204.8 million for the three months ended September 30, 2024, an increase of $22.6 million, or 12.4%, compared to $182.2 million for the three months ended September 30, 2023. This increase was driven by a $5.4 million, or 2.7%, increase in capitation rates coupled with $17.2 million, or 9.4%, increase in member months. The increase in capitation rates was primarily driven by (i) a 4.3% annual increase in Medicaid capitation rates as determined by the States and (ii) a 0.8% increase in Medicare capitation rates as a result of increased risk score and county rates. The increase in member months is primarily due to growth in our California and Colorado centers and to a lesser extent due to the addition of de novo centers in Florida and the Concerto acquisition.

Current wording

Capitation revenue. Capitation revenue was $208.7 million for the three months ended December 31, 2024, an increase of $20.1 million, or 10.7%, compared to $188.6 million for the three months ended December 31, 2023. This increase was driven by a $0.7 million, or 0.3%, increase in capitation rates coupled with $19.4 million, or 10.3%, increase in member months for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023. The increase in capitation rates for the three months ended December 31, 2024 was primarily driven by (i) a 5.2% annual increase in Medicaid capitation rates as determined by the States partially offset by revenue reserve and (ii) a 1.6% decrease in Medicare capitation rates as a result of an out of cycle risk score true up payment received in the prior year. The increase in member months was primarily due to growth in our California and Colorado centers and to a lesser extent due to the addition of de novo centers in Florida and the Concerto acquisition.

Previous wording

External provider costs. External provider costs were $107.2 million for the three months ended September 30, 2024, an increase of $7.9 million, or 7.9%, compared to $99.4 million for the three months ended September 30, 2023. The increase was primarily driven by an increase of $9.4 million, or 9.4%, in member months partially offset by a decrease of $1.5 million, or 1.4% in cost per participant. The decrease in cost per participant was primarily driven by a decrease in permanent nursing facility utilization and a decrease in external hospice care associated with the transition of this function to internal clinical resources. This is partially offset by an annual increase in pharmacy cost, and an annual increase in assisted living and permanent nursing facility unit cost.

Current wording

External provider costs. External provider costs were $107.9 million for the three months ended December 31, 2024, an increase of $6.9 million, or 6.8%, compared to $101.0 million for the three months ended December 31, 2023. The increase was driven by an increase of $10.4 million, or 10.3%, in member months partially offset by a decrease of $3.5 million, or 3.1% in cost per participant for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023. The decrease in cost per participant for the three months ended December 31, 2024 was primarily driven by a decrease in inpatient, assisted living, permanent nursing facility, and short stay skilled nursing facility utilization coupled with a decrease in external hospice care associated with the transition of this function to internal clinical resources. This was partially offset by an increase in inpatient unit cost, an annual increase in pharmacy cost, and an annual increase in assisted living and permanent nursing facility unit cost.

Previous wording

Cost of care (excluding depreciation and amortization). Cost of care (excluding depreciation and amortization) expense was $63.4 million for the three months ended September 30, 2024, an increase of $8.1 million, or 14.7%, compared to $55.3 million for the three months ended September 30, 2023, primarily due to an increase of $2.9 million, or 4.8%, in cost per participant coupled with an increase of $5.2 million, or 9.4%, in member months. The increase was primarily driven by (i) a $5.6 million increase in salaries, wages and benefits associated with increased headcount and higher wage rates, (ii) $0.8 million in increased software license fees, (iii) $0.6 million in contract provider expense in California associated with growth, (iv) $0.5 million in contract provider recruiting 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 $0.8 million reduction in contract transportation associated with transition of services to internal transportation resources.

Current wording

Cost of care (excluding depreciation and amortization). Cost of care (excluding depreciation and amortization) expense was $64.1 million for the three months ended December 31, 2024, an increase of $9.7 million, or 17.9%, compared to $54.3 million for the three months ended December 31, 2023, due to an increase of $4.1 million, or 6.9%, in cost per participant coupled with an increase of $5.6 million, or 10.3%, in member months. The increase for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023 was primarily driven by (i) a $6.6 million increase in salaries, wages and benefits associated with increased headcount and higher wage rates, (ii) $0.9 million in contract provider expense in California associated with growth, (iii) $0.9 million in de novo occupancy and administrative expense associated with opening centers in Florida and the Concerto acquisition, and (iv) $0.8 million in increased software license fees.

Previous wording

Sales and marketing. Sales and marketing expenses were $6.5 million for the three months ended September 30, 2024, an increase of $1.1 million, or 20.7%, compared to $5.4 million for the three months ended September 30, 2023, primarily due to increased headcount to support growth.

Current wording

Sales and marketing. Sales and marketing expenses were $7.7 million for the three months ended December 31, 2024, an increase of $1.8 million, or 31.5%, compared to $5.9 million for the three months ended December 31, 2023, primarily due to increased headcount and marketing expense to support growth.

Previous wording

Corporate, general and administrative. Corporate, general and administrative expenses were $27.5 million for the three months ended September 30, 2024, a decrease of $1.4 million, or 4.9%, compared to $28.9 million for the three months ended September 30, 2023. The decrease was primarily due to (i) $0.5 million reduction in insurance expense, (ii) $2.7 million reduction in consulting expense associated with improving organizational capabilities including the transition to a new electronic medical record ("EMR") system, and (iii) $0.4 million reduction in consulting costs associated with Sarbanes-Oxley Act of 2002 compliance and internal audit. These decreases in cost were partially offset by a $2.4 million increase in employee compensation and benefits as the result of an increase in headcount to support compliance and bolster organizational capabilities.

Current wording

Corporate, general and administrative. Corporate, general and administrative expenses were $28.1 million for the three months ended December 31, 2024, an increase of $2.9 million, or 11.3%, compared to $25.2 million for the three months ended December 31, 2023. This increase for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023 was primarily due to (i) $1.9 million increase in employee compensation and benefits as the result of an increase in headcount and wage rates to support compliance and bolster organizational capabilities, (ii) $0.9 million in consulting expense primarily in support of the pharmacy acquisition, (iii) $0.7 million in fees associated with claims payment integrity audits, (iv) $0.4 million increase in software license fees, and (v) $0.5 million in recruiting fees. These increases in cost were partially offset by (i) $1.4 million reduction in consulting expense associated with improving organizational capabilities including the transition to a new electronic medical record ("EMR") system and (ii) $0.5 million reduction in insurance expense.

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 $1.2 million for the three months ended September 30, 2024, an increase of $0.6 million, or 88.0%, compared to $0.7 million for the three months ended September 30, 2023. The increase was primarily due to interest expense of $1.7 million, which was offset by interest income of $0.5 million from money market funds for the three months ended September 30, 2024. Interest expense of $1.7 million was offset by interest income of $1.1 million during the three months ended September 30, 2023.

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 $0.8 million for the three months ended December 31, 2024, a decrease of $0.2 million, or 18.7%, compared to $0.9 million for the three months ended December 31, 2023. The decrease for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023 was primarily due to interest expense of $1.6 million, which was partially offset by interest income of $0.9 million from money market funds for the three months ended December 31, 2024. Interest expense of $1.8 million was partially offset by interest income of $0.9 million during the three months ended December 31, 2023.

Previous wording

Other income. Other income consists primarily of the net proceeds received from the sale of or disposal of property and equipment, unrealized gains and losses and investment income related to short-term investments. Other income for the three months ended September 30, 2024 increased $0.2 million, or 29.5%, when compared to the three months ended September 30, 2023. The increase was primarily due to unrealized gains of $0.2 million for the three months ended September 30, 2024.

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 for the three months ended December 31, 2024 decreased $1.0 million, or 118.0%, compared to the three months ended December 31, 2023. The decrease was primarily due to unrealized gains of $0.1 million for the three months ended December 31, 2024 compared to unrealized gains of $0.2 million for the three months ended December 31, 2023.

Previous wording

The Company and its subsidiaries calculate federal and state income taxes currently payable and for deferred income taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to enacted tax laws and rates applicable to periods in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. The members of InnovAge Senior Housing Thornton, LLC ("SH1") and InnovAge Sacramento have elected to be taxed as partnerships, and no provision (benefit) for income taxes for SH1 or InnovAge Sacramento is included in the condensed consolidated financial statements. Further, the Company entered into a joint venture called InnovAge Florida PACE – Orlando on May 28, 2024 and its members elected to be taxed as a partnership. No provision (benefit) for income taxes for InnovAge Orlando is included in the condensed consolidated financial statements for activity occurring from joint venture formation date through the balance of the fiscal year.

Current wording

The Company and its subsidiaries calculate federal and state income taxes currently payable and for deferred income taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to enacted tax laws and rates applicable to periods in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. The members of InnovAge Senior Housing Thornton, LLC ("SH1") and InnovAge Sacramento have elected to be taxed as partnerships, and no provision (benefit) for income taxes for SH1 or InnovAge Sacramento is included in the condensed consolidated financial statements. Further, the Company entered into a joint venture called InnovAge Florida PACE –

Previous wording

During the three months ended September 30, 2024 and 2023, we reported an income tax expense of $0.4 million and $0.2 million, respectively. The increase of $0.2 million is primarily due to (i) our pretax book loss recognized during the three months ended September 30, 2024, as compared to pretax book loss recognized during the three months ended September 30, 2023, (ii) a discrete item to account for the impact of the decreasing Pennsylvania tax rate on our state deferred tax liabilities, and (iii) the change in our valuation allowance.

Current wording

During the three months ended December 31, 2024 and 2023, we reported an income tax expense of $0.03 million and $0.1 million, respectively. During the six months ended December 31, 2024 and 2023, we reported an income tax expense of $0.4 million and $0.3 million, respectively. The decrease of $0.1 million for the six months ended December 31, 2024 compared to the six months ended December 31, 2023, was primarily due to (i) our pretax book loss recognized during the six months ended December 31, 2024, as compared to pretax book loss recognized during the six months ended December 31, 2023, (ii) a discrete item to account for the impact of the decreasing Pennsylvania tax rate on our state deferred tax liabilities, and (iii) the change in our valuation allowance.

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 $34.5 million and $27.9 million for the three months ended September 30, 2024 and 2023, respectively. The increase in Center-level Contribution Margin for the three months ended September 30, 2024 was primarily due to a 12.4% increase in total revenue, offset by a 10.3% increase in external provider costs and cost of care, excluding depreciation and amortization, 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:

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 $71.6 million and $61.5 million for the six months ended December 31, 2024 and 2023, respectively. The increase in Center-level Contribution Margin for the six months ended December 31, 2024 compared to the six months ended December 31, 2023 was primarily due to a 11.5% increase in total revenue, offset by a 10.5% increase in external provider costs and cost of care, excluding depreciation and amortization, 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

(a)Overhead consists of the sales and marketing and corporate, general and administrative financial statement line items.

Current wording

(b)Overhead consists of the Sales and marketing and Corporate, general and administrative financial statement line items.

Previous wording

We define Adjusted EBITDA as net loss adjusted for interest expense, net, other investment income, depreciation and amortization, and provision (benefit) for income tax as well as addbacks for non-recurring expenses or exceptional items, including charges relating to management equity compensation, litigation costs and settlements, M&A diligence, transaction and integration, business optimization and EMR implementation. Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue. For the three months ended September 30, 2024 and 2023, net loss was $5.7 million and $11.0 million, respectively, representing a year-over-year decrease of (47.9)%. Adjusted EBITDA was $6.5 million and $1.3 million, for the three months ended September 30, 2024 and 2023, respectively, representing a year-over-year increase of 395.9%. For the three months ended September 30, 2024, net loss margin was 2.8%, as compared to net loss margin of 6.0% for the three months ended September 30, 2023. For the three months ended September 30, 2024, our Adjusted EBITDA margin was 3.2%, as compared to our Adjusted EBITDA margin for the three months ended September 30, 2023 of 0.7%. 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 loss adjusted for interest expense, net, other investment income, depreciation and amortization, and provision (benefit) for income tax as well as addbacks for non-recurring expenses or exceptional items, including charges relating to management equity compensation, litigation costs and settlements, M&A diligence, transaction and integration, business optimization, EMR implementation, impairment of ROU asset and construction in progress, and loss on minority equity interest. Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our total revenue. For the six months ended December 31, 2024 and 2023, net loss was $19.2 million and $14.8 million, respectively, representing a year-over-year decrease of 29.9%. Adjusted EBITDA was $12.3 million and $8.3 million, for the six months ended December 31, 2024 and 2023, respectively, representing a year-over-year increase of 49.1%. For the six months ended December 31, 2024, net loss margin was 4.6%, as compared to net loss margin of 4.0% for the six months ended December 31, 2023. For the six months ended December 31, 2024, our Adjusted EBITDA margin was 3.0%, as compared to our Adjusted EBITDA margin for the six months ended December 31, 2023 of 2.2%. The increase in Adjusted EBITDA and Adjusted EBITDA margin was primarily due to (i) increased capitation rates and (ii) lower per participant external provider costs, partially offset by (i) increased center-level headcount and wage rates associated with census growth and a competitive labor market and (ii) increased sales and marketing and corporate, general and administrative expense.

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 loss and net 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 loss and net 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. Effective for the year ended June 30, 2024 and going forward, the Company revised its calculation of Adjusted EBITDA to no longer exclude de novo center development costs and to reflect the impact of other investment income. The presentation for the three months ended September 30, 2023 has been recast to conform to the current presentation.

Current 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 loss and net 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 loss and net 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. Effective for the year ended June 30, 2024 and going forward, the Company revised its calculation of Adjusted EBITDA to no longer exclude de novo center development costs and to reflect the impact of other investment income. The presentation for the six months ended December 31, 2023 has been recast to conform to the current presentation.

Previous wording

(a)Reflects investment income related to short-term investments included in our consolidated statement of operations. Effective for the year ended June 30, 2024 and going forward, the Company has revised the calculation for Adjusted EBITDA to reflect the impact of investment income. The presentation for the three months ended September 30, 2023 has been recast to reflect the impact of other investment income.

Current wording

(a)Reflects investment income related to short-term investments included in our consolidated statement of operations. Effective for the year ended June 30, 2024 and going forward, the Company has revised the calculation for Adjusted EBITDA to reflect the impact of investment income. The presentation for the three and six months ended December 31, 2023 has been recast to reflect the impact of other investment income.

Previous wording

(c)Reflects charges related to M&A transaction and integrations. The presentation for the three months ended September 30, 2023 has been recast to no longer exclude de novo center development costs.

Current wording

(c)Reflects charges related to M&A transaction and integrations. The presentation for the three and six months ended December 31, 2023 has been recast to no longer exclude de novo center development costs.

Previous wording

(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 and improve and support the efficiency and effectiveness of our operations. For the three months ended September 30, 2024, this includes (i) $0.4 million of costs associated with organizational restructure and (ii) $0.2 million related to other non-recurring projects aimed at reducing costs and improving efficiencies. For the three months ended September 30, 2023, this includes (i) $1.8 million of costs associated with third party consultants as we implement our core provider initiatives, assess our risk-bearing capabilities, and strengthen our enterprise capabilities and (ii) $0.4 million related to other non-recurring projects aimed at reducing costs and improving efficiencies.

Current wording

For the three months ended December 31, 2024, this primarily includes costs related to other non-recurring projects aimed at reducing costs and improving efficiencies. For the six months ended December 31, 2024, this includes (i) $0.4 million of costs associated with organizational restructure and (ii) $0.3 million related to other non-recurring projects aimed at reducing costs and improving efficiencies. For the three months ended December 31, 2023, this includes (i) $0.4 million of costs associated with third party consultants as we implement our core provider initiatives, assess our risk-bearing capabilities, and strengthen our enterprise capabilities and (ii) $0.4 million related to other non-recurring projects aimed at reducing costs and improving efficiencies. For the six months ended December 31,2023, this includes (i) $2.2 million of costs associated with third party consultants as we implement our core provider initiatives, assess our risk-bearing capabilities, and strengthen our enterprise capabilities, (ii) $0.3 million of costs associated with organizational restructure, and (iii) $0.4 million related to other non-recurring projects aimed at reducing costs and improving efficiencies.

Previous wording

To date, we have financed our operations principally through cash flows from operations and through borrowings under our credit facilities, and from the sale of common stock in our IPO that occurred in March 2021. As of September 30, 2024, we had cash and cash equivalents of $39.0 million, a decrease of $17.9 million from June 30, 2024. The decrease in cash and cash equivalents was primarily due to timing of cash receipts for services provided and share repurchase activity. Our cash and cash equivalents primarily consist of highly liquid investments in demand deposit accounts and cash.

Current wording

To date, we have financed our operations principally through cash flows from operations and through borrowings under our credit facilities, and from the sale of common stock in our IPO that occurred in March 2021. As of December 31, 2024, we had cash and cash equivalents of $46.1 million, a decrease of $10.8 million from June 30, 2024. The decrease in cash and cash equivalents was primarily due to timing of cash receipts for services provided and share repurchase activity. Our cash and cash equivalents primarily consist of highly liquid investments in demand deposit accounts and cash.

Previous wording

As of September 30, 2024, we had $65.0 million of long-term debt outstanding. As of September 30, 2024, we had future minimum operating lease payments under non-cancellable leases through the year 2037 of $38.4 million. We also had non-cancellable finance lease agreements with third parties through the year 2028 with future minimum payments of $19.5 million. For additional information, see Note 7, “Leases”, Note 8, “Long-Term Debt”, and Note 9, “Commitments and Contingencies” in our condensed consolidated financial statements.

Current wording

As of December 31, 2024, we had $64.1 million of long-term debt outstanding. As of December 31, 2024, we had future minimum operating lease payments under non-cancellable leases through the year 2037 of $38.8 million. We also had non-cancellable finance lease agreements with third parties through the year 2028 with future minimum payments of $19.5 million. For additional information, see Note 7, “Leases”, Note 8, “Long-Term Debt”, and Note 9, “Commitments and Contingencies” in our condensed consolidated financial statements.

Previous wording

Our condensed consolidated statements of cash flows for the three months ended September 30, 2024 and 2023 are summarized as follows:

Current wording

Our condensed consolidated statements of cash flows for the six months ended December 31, 2024 and 2023 are summarized as follows:

Previous wording

Operating Activities. The change in net cash used in operating activities was primarily due to the net effect of (i) net loss of $5.7 million in the current year period compared to a net loss of $11.0 million in the prior year period, as described further above and (ii) a decrease in accounts receivable primarily attributable to the timing of receipt of payments for certain Medicaid receivables.

Current wording

Operating Activities. The change in net cash used in operating activities for the six months ended December 31, 2024 compared to the six months ended December 31, 2023 was primarily due to the net effect of (i) net loss of $19.2 million in the current year period compared to a net loss of $14.8 million in the prior year period, as described further above, and (ii) a decrease in accounts receivable primarily attributable to the timing of receipt of payments for certain Medicaid receivables.

Previous wording

Financing activities. The increase in net cash used in financing activities was primarily due to stock repurchase activity.

Current wording

Financing activities. The increase in net cash used in financing activities for the six months ended December 31, 2024 compared to the six months ended December 31, 2023 was primarily due to $5.9 million used for the repurchase of the Company's stock in the current year period.