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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-38924
UpHealth, Inc.
(Exact Name of Registrant as Specified in its Charter)
| | | | | | | | |
Delaware | 83-3838045 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
14000 S. Military Trail, | Suite 203 | 33484 |
Delray Beach, | Florida |
(Address of principal executive offices) | (Zip Code) |
(888) 424-3646
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.0001 per share | | UPH.BC | | New York Stock Exchange |
Redeemable Warrants, exercisable for one share of Common Stock at an exercise price of $115.00 per share | | UPH.WS.BC | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☒ | | Smaller reporting company | | ☒ |
| | | | Emerging growth company | | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 28, 2022, the registrant had 15,054,431 shares of common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
Part 1 - Financial Information
Item 1. Financial Statements
UPHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
ASSETS |
Current Assets: | | | |
Cash and cash equivalents | $ | 22,608 | | | $ | 58,192 | |
Restricted cash | — | | | 18,609 | |
Accounts receivable, net | 22,626 | | | 22,761 | |
Inventories | 2,762 | | | 2,928 | |
Due from related parties | 21 | | | 40 | |
Prepaid expenses and other current assets | 4,077 | | | 4,217 | |
Total current assets | 52,094 | | | 106,747 | |
Property and equipment, net | 20,075 | | | 56,072 | |
Intangible assets, net | 56,474 | | | 115,313 | |
Goodwill | 195,028 | | | 284,268 | |
Equity investment | 21,200 | | | — | |
Deferred tax assets | 83 | | | — | |
Other assets | 454 | | | 6,907 | |
Total assets | $ | 345,408 | | | $ | 569,307 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current Liabilities: | | | |
Accounts payable | $ | 16,393 | | | $ | 13,604 | |
Accrued expenses | 41,238 | | | 36,084 | |
Deferred revenues | 4,407 | | | 2,649 | |
Due to related party | 209 | | | 47 | |
Income taxes payable | 229 | | | 739 | |
Related-party debt, current | 403 | | | 657 | |
Debt, current | 10 | | | 22,093 | |
Forward share purchase liability | — | | | 18,051 | |
Other liabilities, current | 3,758 | | | 2,780 | |
Total current liabilities | 66,647 | | | 96,704 | |
Related-party debt, noncurrent | 343 | | | 331 | |
Debt, noncurrent | 143,303 | | | 98,417 | |
Deferred tax liabilities | — | | | 28,281 | |
Warrant liabilities, noncurrent | 61 | | | 252 | |
Derivative liability, noncurrent | 692 | | | 7,977 | |
Other liabilities, noncurrent | 2,880 | | | 3,502 | |
Total liabilities | 213,926 | | | 235,464 | |
Commitments and Contingencies (Note 11) | | | |
Stockholders’ Equity: | | | |
Common stock | 2 | | | 1 | |
Additional paid-in capital | 686,518 | | | 665,474 | |
Treasury stock, at cost | (17,000) | | | — | |
Accumulated deficit | (538,854) | | | (343,209) | |
Accumulated other comprehensive loss | — | | | (3,802) | |
Total UpHealth, Inc., stockholders’ equity | 130,666 | | | 318,464 | |
Noncontrolling interests | 816 | | | 15,379 | |
Total stockholders’ equity | 131,482 | | | 333,843 | |
Total liabilities and stockholders’ equity | $ | 345,408 | | | $ | 569,307 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
UPHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | | | | | | | |
Services | $ | 27,600 | | | $ | 21,977 | | | $ | 81,382 | | | $ | 45,563 | |
Licenses and subscriptions | 2,019 | | | 10,956 | | | 10,612 | | | 23,759 | |
Products | 9,047 | | | 12,259 | | | 26,312 | | | 20,568 | |
Total revenues | 38,666 | | | 45,192 | | | 118,306 | | | 89,890 | |
Costs of revenues: | | | | | | | |
Services | 13,440 | | | 12,434 | | | 42,647 | | | 26,497 | |
License and subscriptions | 463 | | | 6,350 | | | 913 | | | 13,020 | |
Products | 6,264 | | | 8,461 | | | 18,550 | | | 14,104 | |
Total costs of revenues | 20,167 | | | 27,245 | | | 62,110 | | | 53,621 | |
Gross profit | 18,499 | | | 17,947 | | | 56,196 | | | 36,269 | |
Operating expenses: | | | | | | | |
Sales and marketing | 4,771 | | | 3,090 | | | 10,983 | | | 5,670 | |
Research and development | 2,231 | | | 1,916 | | | 5,600 | | | 5,759 | |
General and administrative | 13,922 | | | 11,452 | | | 42,213 | | | 22,481 | |
Depreciation and amortization | 3,336 | | | 3,626 | | | 13,272 | | | 7,496 | |
Stock-based compensation | 2,126 | | | 410 | | | 4,588 | | | 410 | |
Lease abandonment expenses | — | | | 915 | | | 75 | | | 915 | |
Goodwill and intangible asset impairment | 106,096 | | | — | | | 112,270 | | | — | |
Acquisition, integration, and transformation costs | 6,049 | | | 1,227 | | | 15,182 | | | 36,566 | |
Total operating expenses | 138,531 | | | 22,636 | | | 204,183 | | | 79,297 | |
Loss from operations | (120,032) | | | (4,689) | | | (147,987) | | | (43,028) | |
Other income (expense): | | | | | | | |
Interest expense | (6,708) | | | (8,145) | | | (20,306) | | | (13,760) | |
Gain on consolidation of equity investment | — | | | — | | | — | | | 640 | |
Loss on deconsolidation of subsidiary | (37,708) | | | — | | | (37,708) | | | — | |
Gain on fair value of derivative liability | 223 | | | 49,885 | | | 6,893 | | | 49,885 | |
Gain on fair value of warrant liabilities | — | | | 373 | | | 190 | | | 1,447 | |
Gain (loss) on extinguishment of debt | (14,610) | | | — | | | (14,610) | | | 151 | |
Other income, net, including interest income | 32 | | | 259 | | | 30 | | | 40 | |
Total other income (expense) | (58,771) | | | 42,372 | | | (65,511) | | | 38,403 | |
Income (loss) before income tax benefit (expense) | (178,803) | | | 37,683 | | | (213,498) | | | (4,625) | |
Income tax benefit (expense) | 13,219 | | | (6,695) | | | 17,744 | | | 357 | |
Net income (loss) before loss from equity investment | (165,584) | | | 30,988 | | | (195,754) | | | (4,268) | |
Loss from equity investment | — | | | — | | | — | | | (561) | |
Net income (loss) | (165,584) | | | 30,988 | | | (195,754) | | | (4,829) | |
Less: net income (loss) attributable to noncontrolling interests | 178 | | | 231 | | | (109) | | | 147 | |
Net income (loss) attributable to UpHealth, Inc. | $ | (165,762) | | | $ | 30,757 | | | $ | (195,645) | | | $ | (4,976) | |
Net income (loss) per share attributable to UpHealth, Inc.: | | | | | | | |
Basic | $ | (11.17) | | | $ | 2.61 | | | $ | (13.41) | | | $ | (0.52) | |
Diluted | $ | (11.17) | | | $ | 2.60 | | | $ | (13.41) | | | $ | (0.52) | |
Weighted average shares outstanding: | | | | | | | |
Basic | 14,842 | | | 11,763 | | | 14,588 | | | 9,519 | |
Diluted | 14,842 | | | 11,807 | | | 14,588 | | | 9,519 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
UPHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | $ | (165,584) | | | $ | 30,988 | | | $ | (195,754) | | | $ | (4,829) | |
Foreign currency translation adjustments, net of tax | — | | | 19 | | | (3,857) | | | (3,459) | |
Comprehensive income (loss) | (165,584) | | | 31,007 | | | (199,611) | | | (8,288) | |
Comprehensive income (loss) attributable to noncontrolling interests | 178 | | | 231 | | | (109) | | | 147 | |
Comprehensive income (loss) attributable to UpHealth, Inc. | $ | (165,762) | | | $ | 30,776 | | | $ | (199,502) | | | $ | (8,435) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
UPHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Treasury Stock | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Shares | | Amount | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total UpHealth, Inc. Stockholders’ Equity | | Noncontrolling Interests | | Total Stockholders’ Equity |
Balance at December 31, 2021(1) | 14,428 | | | $ | 1 | | | $ | 665,474 | | | — | | | $ | — | | $ | (343,209) | | | $ | (3,802) | | | $ | 318,464 | | | $ | 15,379 | | | $ | 333,843 | |
Equity award activity, net of shares withheld for taxes(1) | 37 | | | — | | | (67) | | | — | | | — | | — | | | — | | | (67) | | | — | | | (67) | |
Stock-based compensation | — | | | — | | | 1,374 | | | — | | | — | | — | | | — | | | 1,374 | | | — | | | 1,374 | |
Net loss | — | | | — | | | — | | | — | | | — | | (17,445) | | | — | | | (17,445) | | | (260) | | | (17,705) | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | — | | | (1,377) | | | (1,377) | | | | | (1,377) | |
Balance at March 31, 2022(1) | 14,465 | | | 1 | | | 666,781 | | | — | | | — | | (360,654) | | | (5,179) | | | 300,949 | | | 15,119 | | | 316,068 | |
Equity award activity, net of shares withheld for taxes(1) | 390 | | | 1 | | | (1,160) | | | — | | | — | | — | | | — | | | (1,159) | | | — | | | (1,159) | |
Stock-based compensation | — | | | — | | | 1,088 | | | — | | | — | | — | | | — | | | 1,088 | | | — | | | 1,088 | |
Common stock repurchased in connection with forward share purchase agreement(1) | (170) | | | — | | | 17,000 | | | 170 | | | (17,000) | | — | | | — | | | — | | | — | | | — | |
Purchase of noncontrolling interest | — | | | — | | | — | | | — | | | — | | — | | | — | | | — | | | (139) | | | (139) | |
Distribution to noncontrolling interests | — | | | — | | | — | | | — | | | — | | — | | | — | | | — | | | (30) | | | (30) | |
Net loss | — | | | — | | | — | | | — | | | — | | (12,438) | | | — | | | (12,438) | | | (27) | | | (12,465) | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | — | | | (2,480) | | | (2,480) | | | — | | | (2,480) | |
Balance at June 30, 2022(1) | 14,685 | | | 2 | | | 683,709 | | | 170 | | | (17,000) | | (373,092) | | | (7,659) | | | 285,960 | | | 14,923 | | | 300,883 | |
Equity award activity, net of shares withheld for taxes(1) | 206 | | | — | | | (30) | | | — | | | — | | — | | | — | | | (30) | | | — | | | (30) | |
Issuance of common stock in connection with 2025 Notes(1) | 115 | | | — | | | 713 | | | — | | | — | | — | | | — | | | 713 | | | — | | | 713 | |
Stock-based compensation | — | | | — | | | 2,126 | | | — | | | — | | — | | | — | | | 2,126 | | | — | | | 2,126 | |
Deconsolidation of subsidiary | — | | | — | | | — | | | — | | | — | | — | | | 7,659 | | | 7,659 | | | (14,285) | | | (6,626) | |
Net loss | — | | | — | | | — | | | — | | | — | | (165,762) | | | — | | | (165,762) | | | 178 | | | (165,584) | |
Balance at September 30, 2022(1) | 15,006 | | | $ | 2 | | | $ | 686,518 | | | 170 | | | $ | (17,000) | | $ | (538,854) | | | $ | — | | | $ | 130,666 | | | $ | 816 | | | $ | 131,482 | |
| | | | | | | | | | | | | | | | | | |
(1)Amounts as of September 30, 2022 and before that date differ from those published in our prior condensed consolidated financial statements as they were retrospectively adjusted as a result of the Reverse Stock Split (as described below in Note 1, Organization and Business). Specifically, the number of common shares outstanding during periods before the Reverse Stock Split are divided by the exchange ratio of 10:1, such that each ten shares of common stock were combined and reconstituted into one share of common stock effective December 8, 2022.
UPHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Treasury Stock | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Shares | | Amount | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total UpHealth, Inc. Stockholders’ Equity | | Noncontrolling Interests | | Total Stockholders’ Equity |
Balance at December 31, 2020(1)(2) | 7,002 | | | $ | 1 | | | $ | 222,906 | | | — | | | $ | — | | $ | (2,186) | | | $ | — | | | $ | 220,721 | | | $ | — | | | $ | 220,721 | |
Issuance of common stock for formation(1)(2) | 875 | | | — | | | 87,409 | | | — | | | — | | — | | | — | | | 87,409 | | | 17,389 | | | 104,798 | |
Net loss | — | | | — | | | — | | | — | | | — | | (2,949) | | | — | | | (2,949) | | | (78) | | | (3,027) | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | — | | | (1,159) | | | (1,159) | | | — | | | (1,159) | |
Balance at March 31, 2021(1)(2) | 7,877 | | | 1 | | | 310,315 | | | — | | | — | | (5,135) | | | (1,159) | | | 304,022 | | | 17,311 | | | 321,333 | |
Issuance of common stock to consummate business combinations(1)(2) | 2,616 | | | — | | | 243,587 | | | — | | | — | | — | | | — | | | 243,587 | | | (2,239) | | | 241,348 | |
Merger recapitalization(1)(2) | 947 | | | — | | | 54,605 | | | — | | | — | | — | | | — | | | 54,605 | | | — | | | 54,605 | |
PIPE common stock issuance(2) | 300 | | | — | | | 27,079 | | | — | | | — | | — | | | — | | | 27,079 | | | — | | | 27,079 | |
Forward share repurchase agreement(2) | — | | | — | | | (17,000) | | | — | | | — | | — | | | — | | | (17,000) | | | — | | | (17,000) | |
Issuance of common stock for debt conversion(1)(2) | 20 | | | — | | | 1,879 | | | — | | | — | | — | | | — | | | 1,879 | | | — | | | 1,879 | |
Net loss | — | | | — | | | — | | | — | | | — | | (32,783) | | | — | | | (32,783) | | | (6) | | | (32,789) | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | — | | | (2,319) | | | (2,319) | | | — | | | (2,319) | |
Balance at June 30, 2021(2) | 11,760 | | | 1 | | | 620,465 | | | — | | | — | | (37,918) | | | (3,478) | | | 579,070 | | | 15,066 | | | 594,136 | |
Purchase consideration adjustment | — | | | — | | | 677 | | | — | | | — | | — | | | — | | | 677 | | | — | | | 677 | |
Exercise of stock option, net(2) | 20 | | | — | | | 319 | | | — | | | — | | — | | | — | | | 319 | | | — | | | 319 | |
Stock-based compensation | — | | | — | | | 410 | | | — | | | — | | — | | | — | | | 410 | | | — | | | 410 | |
Net income | — | | | — | | | — | | | — | | | — | | 30,757 | | | — | | | 30,757 | | | 231 | | | 30,988 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | — | | | 19 | | | 19 | | | — | | | 19 | |
Balance at September 30, 2021(2) | |