UpHealth, Inc. [UPH] Filings

10-Q 1 uph-20230930.htm 10-Q uph-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

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)

(Former name, former address and former fiscal year, if changed since last report): N/A

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

New York Stock Exchange

Redeemable Warrants, exercisable for one share of Common Stock at an exercise price of $115.00 per share

UPH.WS

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, a 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 November 17, 2023, the registrant had 17,775,498 shares of common stock, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS


			Page

Part I - Financial Information			4
Item 1. Financial Statements			4
Condensed Consolidated Balance Sheets			5
Condensed Consolidated Statements of Operations			6
Condensed Consolidated Statements of Comprehensive Loss			7
Condensed Consolidated Statements of Stockholders’ Equity			8
Condensed Consolidated Statements of Cash Flows			10
Notes to Condensed Consolidated Financial Statements			12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40
Item 3. Quantitative and Qualitative Disclosures About Market Risk			58
Item 4. Controls and Procedures			58

Part II - Other Information			59
Item 1. Legal Proceedings			59
Item 1A. Risk Factors			65
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities			69
Item 3. Defaults Upon Senior Securities			69
Item 4. Mine Safety Disclosures			69
Item 5. Other Information			69
Item 6. Exhibits			74
Signatures			76

Part 1 - Financial Information

Item 1. Financial Statements

UPHEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	September 30, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	3,342	$	15,557
Accounts receivable, net	16,527		21,851
Inventories	—		161
Due from related parties	—		14
Prepaid expenses and other current assets	2,140		2,991
Assets held for sale, current	—		2,748
Total current assets	22,009		43,322
Property and equipment, net	10,228		14,069
Operating lease right-of-use assets	1,653		7,213
Intangible assets, net	23,683		31,362
Goodwill	80,310		159,675
Equity investments	96,768		21,200
Other assets	493		438
Assets held for sale, noncurrent	—		62,525
Total assets	$	235,144	$	339,804
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	5,187	$	17,983
Accrued expenses	11,032		39,151
Deferred revenue	52		2,738
Due to related parties	2,544		229
Debt, current	143,889		—
Lease liabilities, current	3,664		5,475
Other liabilities, current	—		74
Liabilities held for sale, current	—		3,319
Total current liabilities	166,368		68,969
Related-party debt, noncurrent	—		281
Debt, noncurrent	—		145,962
Deferred tax liabilities	1,202		1,200
Lease liabilities, noncurrent	3,297		8,741
Other liabilities, noncurrent	147		727
Liabilities held for sale, noncurrent	—		7,787
Total liabilities	171,014		233,667
Commitments and Contingencies (Note 16)
Stockholders’ Equity:
Common stock	2		2
Additional paid-in capital	695,152		688,355
Treasury stock, at cost	(17,000)		(17,000)
Accumulated deficit	(614,024)		(566,209)
Total UpHealth, Inc., stockholders’ equity	64,130		105,148
Noncontrolling interests	—		989
Total stockholders’ equity	64,130		106,137
Total liabilities and stockholders’ equity	$	235,144	$	339,804

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,
	2023		2022		2023		2022
Revenues:
Services	$	30,825	$	27,600	$	92,853	$	81,382
Licenses and subscriptions	1,760		2,019		6,548		10,612
Products	96		9,047		13,248		26,312
Total revenues	32,681		38,666		112,649		118,306
Costs of revenues:
Services	14,493		14,913		43,191		46,903
License and subscriptions	425		463		1,147		913
Products	140		6,264		8,036		18,550
Total costs of revenues	15,058		21,640		52,374		66,366
Gross profit	17,623		17,026		60,275		51,940
Operating expenses:
Sales and marketing	2,745		4,648		9,785		11,621
Research and development	1,978		2,175		4,111		5,944
General and administrative	8,817		12,628		32,591		36,975
Depreciation and amortization	1,828		3,336		5,175		13,272
Stock-based compensation	598		2,126		2,645		4,588
Impairment of goodwill, intangible assets, and other long-lived assets	41,217		106,096		49,958		112,345
Acquisition, integration, and transformation costs	33,229		6,049		40,319		15,182
Total operating expenses	90,412		137,058		144,584		199,927
Loss from operations	(72,789)		(120,032)		(84,309)		(147,987)
Other income (expense):
Interest expense	(6,709)		(6,708)		(20,703)		(20,306)
Gain (loss) on deconsolidation of subsidiary	59,065		(37,708)		59,065		(37,708)
Gain (loss) on fair value of derivative liability	—		223		(3)		6,893
Loss on extinguishment of debt	—		(14,610)		—		(14,610)
Other income, net, including interest income	295		32		425		220
Total other income (expense)	52,651		(58,771)		38,784		(65,511)
Loss before income tax benefit (expense)	(20,138)		(178,803)		(45,525)		(213,498)
Income tax benefit (expense)	—		13,219		(867)		17,744
Net loss	(20,138)		(165,584)		(46,392)		(195,754)
Less: net income (loss) attributable to noncontrolling interests	467		178		1,423		(109)
Net loss attributable to UpHealth, Inc.	$	(20,605)	$	(165,762)	$	(47,815)	$	(195,645)
Net loss per share attributable to UpHealth, Inc.:
Basic and diluted	$	(1.12)	$	(11.17)	$	(2.74)	$	(13.41)
Weighted average shares outstanding:(1)
Basic and diluted	18,428		14,842		17,459		14,588

(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.

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,
	2023		2022		2023		2022
Net loss	$	(20,138)	$	(165,584)	$	(46,392)	$	(195,754)
Foreign currency translation adjustments, net of tax	—		—		—		(3,857)
Comprehensive loss	(20,138)		(165,584)		(46,392)		(199,611)
Comprehensive income (loss) attributable to noncontrolling interests	467		178		1,423		(109)
Comprehensive loss attributable to UpHealth, Inc.	$	(20,605)	$	(165,762)	$	(47,815)	$	(199,502)

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		Total UpHealth, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
Balance as of January 1, 2023	15,054	$	2	$	688,355	170	$	(17,000)	$	(566,209)	$	105,148	$	989	$	106,137
Equity award activity, net of shares withheld for taxes	80	—		(3)		—	—		—		(3)		—		(3)
Issuance of common stock in connection with 2023 private placement, net of issuance costs of $348	1,650	—		4,155		—	—		—		4,155		—		4,155
Stock-based compensation	—	—		989		—	—		—		989		—		989
Distribution to noncontrolling interests	—	—		—		—	—		—		—		(44)		(44)
Net loss	—	—		—		—	—		(8,083)		(8,083)		448		(7,635)
Balance as of March 31, 2023	16,784	2		693,496		170	(17,000)		(574,292)		102,206		1,393		103,599
Equity award activity, net of shares withheld for taxes	277	—		—		—	—		—		—		—		—
Exercise of pre-funded warrants	100	—		—		—	—		—		—		—		—
Stock-based compensation	—	—		1,058		—	—		—		1,058		—		1,058
Distribution to noncontrolling interests	—	—		—		—	—		—		—		(623)		(623)
Net loss	—	—		—		—	—		(19,127)		(19,127)		508		(18,619)
Balance at June 30, 2023	17,161	2		694,554		170	(17,000)		(593,419)		84,137		1,278		85,415
Equity award activity, net of shares withheld for taxes	45	—		—		—	—		—		—		—		—
Exercise of pre-funded warrants	549	—		—		—	—		—		—		—		—
Stock-based compensation	—	—		598		—	—		—		598		—		598
Distribution to noncontrolling interests	—	—		—		—	—		—		—		(288)		(288)
Deconsolidation of subsidiary	—			—		—	—		—		—		(1,457)		(1,457)
Net loss	—	—		—		—	—		(20,605)		(20,605)		467		(20,138)
Balance at September 30, 2023	17,755	$	2	$	695,152	170	$	(17,000)	$	(614,024)	$	64,130	$	—	$	64,130

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 as of January 1, 2022(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 as of 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

The accompanying notes are an integral part of these condensed consolidated financial statements.

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	Nine Months Ended September 30,
	2023		2022
Operating activities:
Net loss	$	(46,392)	$	(195,754)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	8,624		17,274
Amortization of debt issuance costs and discount on convertible debt	8,200		10,130
Stock-based compensation	2,645		4,588
Impairment of property and equipment, goodwill, intangible assets, and other long-lived assets	49,958		112,270
Provision for credit losses	(99)		—
Loss on extinguishment of debt	—		14,610
(Gain) loss on deconsolidation of subsidiary	(59,065)		37,708
Loss (gain) on fair value of warrant liabilities	8		(190)
Loss (gain) on fair value of derivative liability	3		(6,893)
Deferred income taxes	—		(17,485)
Amortization of operating lease right-of-use assets	1,932		—
Changes in operating assets and liabilities:
Accounts receivable	880		(5,200)
Inventories	144		(126)
Prepaid expenses and other current assets	(1,961)		(592)
Accounts payable and accrued expenses	18,583		10,475
Operating lease liabilities	(1,612)		—
Income taxes payable	(393)		(758)
Deferred revenue	961		2,382
Due from related parties	(209)		(39)
Other liabilities	(658)		49
Net cash used in operating activities	(18,451)		(17,551)
Investing activities:
Purchases of property and equipment	(3,307)		(5,238)
Due to related parties	—		(14)
Deconsolidation of cash (Note 1)	(35,606)		(8,743)
Proceeds from sale of business, net of expenses	54,835		—
Net cash provided by (used in) investing activities	15,922		(13,995)
Financing activities:
Proceeds from equity issuance	4,155		—
Repayments of debt	(10,273)		(48,234)
Proceeds of debt	—		67,500
Payment of debt issuance costs	—		(1,475)
Repayment of forward share purchase	—		(18,521)
Repayments of seller notes	—		(18,680)
Payments of finance and capital lease obligations	(2,510)		(2,544)
Payments for taxes related to net settlement of equity awards	(3)		(95)
Payments of amounts due to members	(100)		—
Distribution to noncontrolling interest	(955)		(139)
Net cash used in financing activities	(9,686)		(22,188)
Effect of exchange rate changes on cash and cash equivalents	—		(459)
Net decrease in cash and cash equivalents	(12,215)		(54,193)
Cash and cash equivalents, beginning of period	15,557		76,801
Cash and cash equivalents, end of period	$	3,342	$	22,608


Supplemental cash flow information:
Cash paid for interest	$	10,652	$	5,269
Cash paid for income taxes	$	457	$	521
Non-cash investing and financing activity:
Property and equipment reclassified from other assets	$	—	$	3,751
Property and equipment acquired through capital lease and vendor financing arrangements	$	1,075	$	3,005
Issuance of common stock for debt issuance costs	$	—	$	713

The accompanying notes are an integral part of these financial statements.

UPHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in dollars, unaudited)

1.Organization and Business

UpHealth, Inc. (“UpHealth,” “we,” “us,” “our,” “UpHealth,” or the “Company”) is the parent company of both UpHealth Holdings, Inc. (“UpHealth Holdings”) and Cloudbreak Health, LLC (“Cloudbreak”).

GigCapital2, Inc. (“GigCapital2”), the Company’s predecessor, was incorporated in Delaware on March 6, 2019. GigCapital2 was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company’s business combinations (the “Business Combinations”) were consummated on June 9, 2021, and in connection with the Business Combinations, GigCapital2 changed its corporate name to UpHealth, Inc.

Going Concern

Since 2021, UpHealth Holdings has been a party to a legal action in the state court in New York entitled Needham & Company LLC (“Needham”) v. UpHealth Holdings, Inc. and UpHealth Services, Inc. (the “Needham Action”), which arose out of UpHealth Services, Inc.’s engagement of Needham to provide placement and other financial advisory services. On September 14, 2023, the court in New York issued a Decision and Order granting summary judgment in favor of Needham and denying UpHealth Holdings’ and UpHealth Services, Inc.’s motion for summary judgment. The court in New York entered that Decision and Order on its docket on September 15, 2023. The Decision and Order concluded that Needham is entitled to fees in the amount of $31.3 million, plus interest. On September 18, 2023, the court in New York signed a judgment against UpHealth Holdings and UpHealth Services, Inc. in the amount of $31.3 million, plus prejudgment interest of $6.5 million, for a total judgment of $37.8 million, plus post-judgment interest of 9% per year.

Following the Decision and Order in the Needham Action, on September 19, 2023, UpHealth Holdings filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). In addition, on October 20, 2023, two of UpHealth Holdings’ wholly-owned subsidiaries, Thrasys, Inc. (“Thrasys”) and Behavioral Health Services, LLC (“BHS”), and each of the subsidiaries of Thrasys and BHS (such subsidiaries, collectively with UpHealth Holdings, Thrasys and BHS, being referred to individually herein and collectively as the “Debtors”), filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. The Chapter 11 cases of the Debtors are being jointly administered under the caption In re UpHealth Holdings, Inc., Case No. 23-11476 (U.S. Bankr. D. Del.), for procedural purposes only. Following the commencement of their Chapter 11 cases, the Debtors have filed a number of ordinary “first-” and “second-day” motions to continue ordinary course operations and allow for a smooth transition into Chapter 11. On October 24, November 1 and November 17, 2023, the U.S. Bankruptcy Court approved all of the “first-” and “second-day” motions, including but not limited to confirming the worldwide automatic injunction of all litigation and creditor action against the Debtors, allowing the use of cash and the continued use of the Debtors’ cash management system, allowing payment to employees and independent contractors and setting a deadline for creditors to file proofs of claim. Accordingly, the Debtors continue to operate their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the U.S. Bankruptcy Code and orders of the Bankruptcy Court.

Thrasys has also filed motions to effectuate a transition of the Integrated Care Management segment to its customers, as described in Note 17. Subsequent Events. In addition, a motion to pay retention bonuses to Thrasys employees involved in the transition of the Integrated Care Management segment through year end was approved by the U.S. Bankruptcy Court on November 17, 2023.

Notwithstanding the filing of the voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court, and the automatic stay pursuant to section 362(a) of the U.S. Bankruptcy Code, the Clerk of Court of the court in New York entered the judgment on the court’s docket on September 27, 2023. On November 13, 2023, UpHealth Holdings entered into a stipulation with Needham in the Bankruptcy Court providing that, to the extent it applies, the automatic stay pursuant to section 362(a) of the U.S. Bankruptcy Code shall be deemed modified for the sole and limited purpose of authorizing UpHealth Holdings and UpHealth Services, Inc. to appeal the New York court’s judgment (and for Needham to be able to participate in the appeal). We are awaiting the Bankruptcy Court’s entry of an order approving the stipulation. When it does so, we will appeal the judgment in the Needham Action.

Neither we nor any other direct or indirect subsidiary of us besides UpHealth Holdings, Thrasys, BHS and the subsidiaries of Thrasys and BHS have filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code, and we, Cloudbreak Health, LLC, and TTC Healthcare, Inc. (“TTC”) continue to operate outside of bankruptcy.

The filing of the Chapter 11 case by UpHealth Holdings constitutes an event of default that accelerated our obligations under the following debt instruments:

•Indenture, dated June 9, 2021, by and between UpHealth and Wilmington Trust, National Association, a national banking association (the “Indenture Trustee”), in its capacity as trustee thereunder (the “Unsecured Notes Indenture”), governing UpHealth’s 6.25% Convertible Senior Notes due 2026 (the “2026 Notes” and all beneficial holders thereof, the “2026 Noteholders”) which, subject to the event of default triggered by the Chapter 11 case, mature on June 15, 2026.

•Indenture, dated as of August 18, 2022, by and between UpHealth and the Indenture Trustee, in its capacity as trustee and as collateral agent thereunder (the “Senior Secured Notes Indenture” and together with the Unsecured Notes Indenture, the “Indentures”), governing UpHealth’s Variable Rate Convertible Senior Secured Notes due 2025 (the “2025 Notes” and all beneficial holders thereof, the “2025 Noteholders”) which, subject to the event of default triggered by the Chapter 11 case, mature on December 15, 2025.

The Indentures provide that upon the filing of the Chapter 11 case, the principal and interest due thereunder shall be immediately due and payable. As a result of such acceleration of our debt obligations in respect of the 2025 Notes and 2026 Notes, we believe there is substantial doubt about our ability to continue as a going concern, as described in this Quarterly Report on Form 10-Q (this “Quarterly Report”).

On November 16, 2023, we agreed to sell 100% of the outstanding equity interests of Cloudbreak, our wholly owned subsidiary, to Forest Buyer, LLC, a Delaware limited liability company (“Buyer”) and an affiliate of GTCR LLC, a leading private equity firm (“GTCR”), pursuant to a membership interests purchase agreement, dated November 16, 2023 (the “Purchase Agreement”), by and among the Company, Cloudbreak and Buyer (the “Sale” and all of the transactions contemplated by the Purchase Agreement, as supplemented by the terms and conditions of the Transaction Support Agreement (as defined below), including entry into the Escrow Agreement (as defined below), the Supplemental Indentures (as defined below) and any documents or instruments relating to the Fundamental Change Repurchase Offer (as defined below), collectively, the “Transactions”). We will utilize the proceeds from the Sale for payment in full or in part of the Company’s 2026 Notes and 2025 Notes, as well as other expenses related to the Transactions. The Transactions are expected to close (the “Closing”) in the first half of 2024, subject to obtaining customary regulatory and stockholder approval (such date, the “Closing Date”).

Pursuant to the terms of the Purchase Agreement, the “Cash Consideration” for the Sale means an amount equal to $180.0 million, with adjustments for debt as of immediately prior to the Closing and cash as of 11:59 p.m. (Delray Beach, Florida time) on the day immediately prior to the Closing Date (the “Calculation Time”), Cloudbreak’s net working capital as of the Calculation Time, and unpaid expenses related to the Transactions. The consideration delivered to the Company at the Closing shall equal $180.0 million, subject to adjustments for the estimated closing debt and cash and the estimated unpaid expenses related to the Transactions (the “Estimated Cash Consideration”), with all such Estimated Cash Consideration to be delivered by Buyer to an escrow agent (the “Escrow Agent”) for deposit into certain segregated escrow accounts to be established pursuant to the Escrow Agreement, as described below. Following the Closing, in connection with a customary adjustment to the Cash Consideration, which adjustment is expected, in the absence of any disagreement, to be determined within 120 days following the Closing Date, to the extent that the Cash Consideration exceeds the Estimated Cash Consideration, a payment shall be made for the purpose of repurchasing the 2026 Notes and/or the 2025 Notes of an amount equal to the amount by which the Cash Consideration exceeds the Estimated Cash Consideration (up to an excess equal to the amount of the Adjustment Escrow Amount (as defined below)). To the extent that following such customary adjustment to the Cash Consideration, the Estimated Cash Consideration is greater than the Cash Consideration, Buyer and the Company shall cause the Escrow Agent (including by delivering joint written instructions to the Escrow Agent) to make payment to Buyer (or its designees) of an amount equal to the lesser of (i) an amount equal to the amount by which the Estimated Cash Consideration exceeds the Cash Consideration, and (ii) the Adjustment Escrow Amount held in the Adjustment Escrow Account, including any dividends, interest, distributions and other income received in respect thereof, less any losses on investment thereof, less distributions thereof in accordance with the Purchase Agreement and the Escrow Agreement (as defined below) (the “Adjustment Escrow Funds”), in each case, from the Adjustment Escrow Account, and after any such payments are made to Buyer, the remaining Adjustment Escrow Funds (if any) shall be paid for the purpose of repurchasing the 2026 Notes and/or the 2025 Notes.

Pursuant to the terms of the Purchase Agreement, prior to the Closing, the Company, Buyer and the Escrow Agent will enter into one or more escrow agreements in a customary form to be agreed upon as provided under the Purchase Agreement by Buyer, the Company, the Required Noteholders (as defined below) and the Escrow Agent (the “Escrow Agreement”), pursuant to which, at the Closing, Buyer will remit to the Escrow Agent all of the Estimated Cash Consideration to be deposited as follows: (i) $3.0 million (the “Adjustment Escrow Amount”) shall be deposited in a segregated escrow account to satisfy any downward adjustment to the Cash Consideration (the “Adjustment Escrow Account”); (ii) $27.0 million (the “Tax Escrow Amount”), subject to reduction if the Company and Buyer mutually determine prior to the Closing that the maximum possible amount of taxes that would become due and payable by the Company as a result of the Transactions (the “Maximum Seller Tax Amount”) should be less than $27.0 million, in which case the Tax Escrow Amount shall be reduced to an amount equal to the agreed-upon Maximum Seller Tax Amount, shall be deposited in a segregated escrow account to enable the Company to pay any and all taxes that become due and payable by the Company as a result of the Transactions (the “Tax Escrow Account”); provided, that any amounts remaining in the Adjustment

Escrow Account after the post-Closing adjustment or in the Tax Escrow Account after the payment of all taxes shall (x) if the Fundamental Change Repurchase Date (as defined in the Senior Secured Notes Indenture) has not yet occurred, be paid to the Notes Escrow Account (as defined below) by wire transfer of immediately available funds for purposes of making an offer to repurchase the 2026 Notes and the 2025 Notes, or (y) if the Fundamental Change Repurchase Date has occurred, be released to the Company (and held in a deposit account subject to a control agreement in favor of the Consenting Noteholders) for the sole purpose of complying with mandatory repurchase requirements set forth in the Senior Secured Notes Supplemental Indenture with respect to any remaining 2025 Notes; and (iii) the remaining portion of the Estimated Cash Consideration (such amount, the “Notes Escrow Amount”), shall be deposited in a segregated escrow account (the “Notes Escrow Account”, and together with the Adjustment Escrow Account and the Tax Escrow Account, the “Escrow Accounts”), the purpose of which shall be to fund the offer, on behalf of the Company, (a) to repurchase all of the Company’s 2026 Notes issued under the Unsecured Notes Indenture, which repurchase shall use a portion of the Notes Escrow Account, together with any dividends, interest, distributions and other income received in respect thereof, less any losses on investment thereof, less distributions thereof in accordance with the Purchase Agreement and the Escrow Agreement (the “Notes Escrow Fund”), which portion as of the date of the Purchase Agreement and based on certain assumptions that are subject to change, is currently estimated to be equal to $115.0 million, and which payment is expected to occur on or around June 3, 2024, together with the payment of any other amounts to be made to the 2026 Noteholders concurrently with the payment of such portion of the Notes Escrow Funds as specified by the Unsecured Notes Indenture following a Fundamental Change (as such term is defined in the Unsecured Notes Indenture), which other amounts may be paid using amounts of the Notes Escrow Funds, and (b) in addition to the repurchase of up to all of the 2026 Notes, to repurchase in accordance with the terms of the Senior Secured Notes Indenture (as defined below) in the event of a Fundamental Change (as defined in the Senior Secured Notes Indenture) the maximum principal amount of the Company’s 2025 Notes issued under the Senior Secured Notes Indenture, which, as of the date of the Purchase Agreement and based on certain assumptions that are subject to change and presuming that all of the 2026 Noteholders accept the repurchase of the 2026 Notes as well as any other amounts of the Notes Escrow Funds paid in respect of the repurchase of the 2026 Notes, is estimated to be approximately $25.8 million, and the Company, in accordance with such terms of the Senior Secured Notes Indenture, shall make such payments of other amounts required to be made in connection with such repurchase, which other amounts may be paid using amounts of the Notes Escrow Funds, such that following the payment of the amounts to be paid for such initial repurchase of the 2025 Notes, which payment is expected to occur on or around June 3, 2024, a portion of the 2025 Notes shall remain outstanding (which, as of the date of the Purchase Agreement and based on certain assumptions that are subject to change, is estimated to be approximately $31.4 million in aggregate principal amount), the terms of which shall be governed by the 2025 Notes and the Senior Secured Notes Indenture and the Senior Secured Notes Supplemental Indenture (it being acknowledged and agreed that all of the 2025 Noteholders that have not signed the Transaction Support Agreement will be repurchased in full with respect to their 2025 Notes to the extent such noteholders so elect and all of the 2025 Noteholders that have signed the Transaction Support Agreement will be partially repurchased with respect to their 2025 Notes on a pro rata basis). In the event that any amounts remain outstanding of the Notes Escrow Funds, those amounts shall be used to offer to repurchase in part such anticipated outstanding amount of the 2025 Notes in accordance with the terms of the Senior Secured Notes Indenture in the event of a Fundamental Change (as such term is defined in the Senior Secured Notes Indenture). Furthermore, any repurchases of the 2025 Notes in accordance with the Purchase Agreement will be made at a premium of 5.0% to the principal amount of such 2025 Notes.

In connection and concurrently with the entry into the Purchase Agreement, the Company, Cloudbreak and Buyer entered into a transaction support agreement, dated as of November 16, 2023 (the “Transaction Support Agreement”), with certain beneficial holders of the 2025 Notes (being the holders of at least 69% of the 2025 Notes, the “Consenting Senior Secured Noteholders”) and certain beneficial holders of the 2026 Notes (being the holders of at least 88% of the 2026 Notes, the “Consenting Unsecured Noteholders”, and together with the Consenting Senior Secured Noteholders, the “Consenting Noteholders”), pursuant to which the parties have agreed, among other things, to support the Purchase Agreement and the Transactions and to enter into and effect the Escrow Agreements, Supplemental Indentures in connection with the Fundamental Change Repurchase Offer to be made by the Company and each other Definitive Document (as defined in the Transaction Support Agreement), in each case, subject to the terms and conditions set forth in the Transaction Support Agreement.

The Transaction Support Agreement provides that (i) the Company and Cloudbreak will abide by the proceeds waterfall set forth in the Purchase Agreement as described above, the Escrow Agreements and the Supplemental Indentures, including, for the avoidance of doubt, releasing the Notes Escrow Funds as set forth in the Escrow Agreement, commencing offers to repurchase the 2025 Notes and the 2026 Notes in accordance with the terms of the applicable Indenture as a result of any or all of the Transactions constituting a Fundamental Change (as such term is defined in each of the Indentures) under the applicable Indenture (each, a “Fundamental Change Repurchase Offer”) and delivering the applicable Fundamental Change Company Notices (as such terms are defined in each of the Indentures) pursuant to the applicable Indenture, in each case, at the times and pursuant to the terms specified in the Supplemental Indentures; (ii) the Buyer will abide by the proceeds waterfall set forth in the Purchase Agreement as described above, the Escrow Agreements and the Supplemental Indentures, including, for the avoidance of doubt, depositing and releasing the Escrow Funds as set forth in the Escrow Agreement; and (iii) the Consenting Noteholders will, so long as the Company complies with the applicable terms, conditions and procedures set forth in the Indentures, participate in and comply with the terms set forth in respect of any Fundamental Change Company Notice given under (and as defined in) the respective Indenture and applicable Supplemental Indenture in connection with each relevant Fundamental Change Repurchase Offer. The Company and each Consenting Noteholder, in their separate and individual capacities, represent in the Transaction Support Agreement that, as of the date thereof and to the best of

their knowledge, and assuming that all coupon payments on the 2025 Notes and the 2026 Notes due prior to June 3, 2024 are paid in full: if the Sale were to occur on March 15, 2024, (i) the outstanding amount due and payable in the aggregate to the 2025 Noteholders arising under or in connection with a Fundamental Change Repurchase Offer under the Senior Secured Notes Indenture to be consummated on June 3, 2024 would be $62.2 million, consisting of (a) $57.2 million in aggregate principal amount of the 2025 Notes (assuming 100% participation), (b) $2.9 million premium payable in respect of the 2025 Notes, and (c) $2.1 million in accrued and unpaid interest; and (ii) the outstanding amount due and payable in the aggregate to the 2026 Noteholders arising under or in connection with a Fundamental Change Repurchase Offer under the Unsecured Notes Indenture to be consummated on June 3, 2024 would be $119.6 million, consisting of (x) $115.0 million in aggregate principal amount of the 2026 Notes (assuming 100% participation) and (y) $4.6 million of accrued and unpaid interest.

In accordance with the terms of the Purchase Agreement and the Transaction Support Agreement, the Company and the Indenture Trustee will enter into a supplement to the Senior Secured Notes Indenture, to be agreed and effected no later than December 20, 2023 (the “Senior Secured Notes Supplemental Indenture”), that will, among other things (a) provide for the waiver, with respect to the Company and Cloudbreak, of the specified events of default under the Senior Secured Notes Indenture resulting from the commencement of the Chapter 11 cases (the “2025 Indenture Events of Default”); (b) rescind, with respect to the Company and Cloudbreak, the acceleration of the 2025 Notes resulting from the occurrence of the foregoing events of default (the “2025 Notes Acceleration”); (c) provide for certain changes to certain of the definitions in the Senior Secured Notes Indenture, including “Permitted Indebtedness”; (d) provide for certain modifications to covenants of the Company and certain changes with respects to events of default; (e) provide a carveout for the Sale from the terms of the Senior Secured Notes Indenture with respect to mergers and sale transactions; and (f) delete the rule prohibiting repurchases in connection with a Fundamental Change (as defined in the Senior Secured Notes Indenture) arising from the Sale at the time the 2025 Notes have been accelerated, and will modify the provisions in respect of repurchases of 2025 Notes as a result of a Fundamental Change for the Consenting Noteholders in respect of the Sale to account for a multi-step process for the repurchase of the 2025 Notes (i.e., to require a repurchase offer at Closing and in connection with subsequent paydowns with the proceeds of released funds from the Escrow Accounts), in each case, at a 5.0% premium to the principal amount of such 2025 Notes.

In addition, in accordance with the terms of the Purchase Agreement and the Transaction Support Agreement, the Company and the Indenture Trustee will enter into a supplement to the Unsecured Notes Indenture, to be agreed and effected no later than December 20, 2023 (the “Unsecured Notes Supplemental Indenture” and together with the Senior Secured Notes Supplemental Indenture, the “Supplemental Indentures”), that will, among other things (a) provide for the waiver, with respect to the Company and Cloudbreak, of the specified events of default under the Unsecured Notes Indenture resulting from the 2025 Notes Acceleration and the commencement of the Chapter 11 cases (the “2026 Indenture Events of Default” and together with the 2025 Indenture Events of Default, the “Specified Defaults”); (b) add each subsidiary of the Company, other than any subsidiary of the Company that is, as of the date of the Unsecured Notes Supplemental Indenture, a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 cases, as a guarantor of the obligations under the 2026 Notes pursuant to the Unsecured Notes Indenture; (c) cause the Company and each of its subsidiaries, other than any subsidiary of the Company that is, as of the date of the Unsecured Notes Supplemental Indenture, a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 cases, to grant a second-priority security interest on the same collateral that secures the 2025 Notes; (d) in connection with those items described in clauses (b) and (c) above, incorporate provisions similar to those in the Senior Secured Notes Indenture including with respect to covenants and events of default and as modified by the Senior Secured Notes Supplemental Indenture; and (e) provide a carveout for the Sale from the terms of the Unsecured Notes Indenture with respect to mergers and sale transactions.

Pursuant to the Transaction Support Agreement, each of the Company and Cloudbreak has agreed (severally and not jointly) to (a) grant liens in favor of the 2025 Noteholders and 2026 Noteholders with respect to the Escrow Accounts and the funds held therein, as applicable, subject to the terms of the Supplemental Indentures and any related intercreditor agreements; and (b) in connection with the Unsecured Notes Supplemental Indenture, grant a second priority lien on the assets of the Company and Cloudbreak and any subsidiaries of the Company and Cloudbreak that are not at such time a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 cases, provided, that any such liens on the issued and outstanding equity interests of Cloudbreak or the assets of Cloudbreak and its subsidiaries will be released at or prior to the Closing.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. However, given the events described above, in particular, the filing of the Chapter 11 cases by the Debtors which constituted an event of default under the Indentures that accelerated the obligations of the Company with respect to the 2025 Notes and 2026 Notes, we believe there is substantial doubt about our ability to continue as a going concern. However, upon the entry into the Supplemental Indentures pursuant to the terms of the Transaction Support Agreement, the Specified Defaults will each be waived and the 2025 Notes Acceleration will be rescinded.

Deconsolidation of UpHealth Holdings, Inc. and Subsidiaries

As a result of the bankruptcy proceedings described above and the designation of UpHealth Holdings, Thrasys, BHS and the subsidiaries of Thrasys and BHS, as “debtors-in-possession,” we determined that a reconsideration event occurred on September 19, 2023, which required us to reassess whether UpHealth Holdings was a Variable Interest Entity (“VIE”) and whether we continued to

have a controlling financial interest in UpHealth Holdings. Based on this assessment, we concluded that UpHealth Holdings was a VIE, and furthermore, that we no longer had the ability to direct any activities of UpHealth Holdings and no longer have a controlling financial interest. As a result, effective September 30, 2023, we deconsolidated UpHealth Holdings and recorded a $59.1 million gain on deconsolidation of equity investment in our unaudited condensed consolidated statements of operations, measured as the difference between the fair value of UpHealth Holdings of $75.6 million and the carrying amount of UpHealth Holdings’ assets and liabilities as of September 30, 2023. Management concluded that it would use the September 30, 2023 date for deconsolidation, as the last 12 days in the month were determined to not be material. The fair value of UpHealth Holdings, which is included in equity investment in our unaudited condensed consolidated balance sheets, was determined based upon generally accepted valuation approaches, including the income and market approaches.

Further, we assessed the prospective accounting for our equity investment in UpHealth Holdings. Since we no longer had the ability to exercise significant influence over operating and financial policies of UpHealth Holdings, we concluded the investment should be accounted for utilizing the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 321, Investments - Equity Securities (“ASC 321”) measurement alternative, whereby the investment was measured at cost and will continue to be evaluated for any indicators of impairment.

The financial position of UpHealth Holdings as of December 31, 2022 and financial results of UpHealth Holdings in the three and nine months ended September 30, 2023 are included in our unaudited condensed consolidated financial statements and the financial position of UpHealth Holdings as of September 30, 2023 is not included in our unaudited condensed consolidated financial statements.

The following table sets forth details of the unaudited condensed consolidated balance sheet of UpHealth Holdings and subsidiaries, which was deconsolidated effective September 30, 2023:


(In thousands)	As of September 30, 2023
Cash and cash equivalents	$	35,606
Accounts receivable, net	4,647
Inventories	17
Due from related parties	3,681
Prepaid expenses and other current assets	457
Property and equipment, net	694
Operating lease right-of-use assets	3,615
Goodwill	38,376
Other assets	499
Total assets	87,592
Accounts payable	1,986
Accrued expenses	57,626
Deferred revenue, current	3,646
Due to related party	12,439
Related-party debt	181
Lease liabilities, current	1,591
Other liabilities, current	641
Lease liabilities, noncurrent	2,903
Additional paid in capital	450,096
Accumulated deficit	(461,477)
Noncontrolling interests	1,457
Total liabilities and stockholder's equity	71,089
Carrying value of Holdings and subsidiaries at deconsolidation	16,503
Fair value of Holdings and subsidiaries at deconsolidation	75,568
Gain on deconsolidation of equity investment	$	59,065

Deconsolidation of Glocal

As a result of events which occurred in the three months ended September 30, 2022, we determined that a reconsideration event occurred in July 2022, which required us to reassess whether Glocal Healthcare Systems Private Limited (“Glocal”), which was included in our Virtual Care Infrastructure segment, was a VIE and whether we continued to have a controlling financial interest in

Glocal. Based on this assessment, we concluded that Glocal was a VIE, and furthermore, that we no longer had the ability to direct any activities of Glocal and no longer have a controlling financial interest. As a result, effective July 2022, we deconsolidated Glocal and recorded a $37.7 million loss on deconsolidation of equity investment in our unaudited condensed consolidated statements of operations, measured as the difference between the probability-weighted fair value of Glocal of $21.2 million and the carrying amount of Glocal’s assets and liabilities as of July 1, 2022. The probability-weighted fair value of Glocal, which is included in equity investment in our unaudited condensed consolidated balance sheets, incorporated scenarios where control of Glocal was gained and Glocal would continue as a going concern, control of Glocal was gained and Glocal would need to be liquidated, and control of Glocal was not gained and the equity investment in Glocal would be worthless. Further, we assessed the prospective accounting for our equity investment in Glocal. Since we no longer had the ability to exercise significant influence over operating and financial policies of Glocal, we concluded the investment should be accounted for utilizing the ASC 321 measurement alternative, whereby the investment was measured at cost and will continue to be evaluated for any indicators of impairment. In addition, we derecognized $14.3 million of noncontrolling interests related to Glocal. In the nine months ended September 30, 2023, there has been no change in the status of Glocal, and accordingly, we continue to account for it as an equity investment. If through legal processes we are able to obtain the ability to direct the activities of Glocal, and it is our intent to exercise all legal rights and remedies to achieve such a result, then we will further reassess the appropriate accounting treatment of our investment in Glocal.

The financial results of Glocal in the six months ended June 30, 2022 are included in our unaudited condensed consolidated financial statements, and the financial position of Glocal as of September 30, 2023 and December 31, 2022 and the financial results of Glocal in the three months ended September 30, 2022 and the three and nine months ended September 30, 2023 are not included in our unaudited condensed consolidated financial statements.

Reverse Stock Split

On December 5, 2022, our stockholders approved an amendment to our Second Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) to effect a reverse split of the outstanding shares of our common stock, par value $0.0001 per share, at a specific ratio within a range of 4:1 to 10:1, with the specific ratio to be fixed within this range by our board of directors in its sole discretion without further stockholder approval (the “Reverse Stock Split”). Our board of directors fixed the Reverse Stock Split ratio at 10:1, such that each ten shares of common stock were combined and reconstituted into one share of common stock effective December 8, 2022. Except as noted, all share, stock option, restricted stock unit (“RSU”), and per share information throughout this Quarterly Report has been retroactively adjusted to reflect this Reverse Stock Split.

Sale of Innovations Group

On February 26, 2023, we agreed to sell 100% of the outstanding capital stock of our wholly owned subsidiary, Innovations Group, Inc. (“Innovations Group”), to Belmar MidCo, Inc., a Delaware corporation and a wholly owned subsidiary of Belmar Holdings, Inc., a Delaware corporation, a portfolio company of Webster Capital IV, L.P., a Delaware limited partnership, pursuant to a stock purchase agreement (the “Stock Purchase Agreement”), dated February 26, 2023. The sale closed on May 11, 2023 for gross proceeds of $56.0 million, subject to working capital, closing debt, and other adjustments. See Note 3. Significant Transactions, for further information.

UpHealth Holdings, Inc. Debtor-In-Possession Condensed Consolidated Balance Sheet

The following table sets forth details of the unaudited condensed consolidated balance sheet of UpHealth Holdings, which was deconsolidated effective September 30, 2023. No condensed consolidated statement of operations (debtor-in-possession) or condensed consolidated statement of cash flows (debtor-in-possession) have been presented for UpHealth Holdings, as the deconsolidation occurred on September 30, 2023.


UPHEALTH HOLDINGS
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, unaudited)

	September 30, 2023
ASSETS
Cash and cash equivalents	$	34,268
Investment in subsidiaries	231,078
Total assets	265,346

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	200
Accrued expenses	37,830
Due to related party	7,813
Total liabilities	45,842
Additional paid in capital	450,096
Accumulated deficit	(230,592)
Total stockholders’ equity	219,504
Total liabilities and stockholders’ equity	$	265,346

2.Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Our unaudited condensed consolidated financial statements, including the condensed notes thereto, are unaudited and exclude some of the disclosures required in audited consolidated financial statements. Our unaudited condensed consolidated balance sheet as of December 31, 2022 has been derived from our audited consolidated financial statements as of that date, but do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

In the opinion of management, our accompanying unaudited condensed consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with U.S. GAAP. The results of operations in the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any future period. Our accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2022.

Our unaudited condensed consolidated financial statements include the accounts of UpHealth and its consolidated subsidiaries. As described in Note 1. Organization and Business, our Glocal subsidiary was deconsolidated effective July 1, 2022 and our UpHealth Holdings subsidiary was deconsolidated effective September 30, 2023.

All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts in the unaudited condensed consolidated financial statements and accompanying notes thereto.

Significant estimates and assumptions made by management include the determination of:

•The identification and reporting of VIEs. We consolidate VIEs when we have variable interests and are the primary beneficiary. We continually evaluate our involvement with VIEs to determine when these criteria are met.

•The valuation of equity investments, including our determination of the carrying value of Glocal and UpHealth Holdings;

•The valuation of assets acquired and liabilities assumed for business combinations, including intangible assets and goodwill;

•The estimated economic lives and recoverability of intangible assets;

•The valuations prepared in connection with the review of goodwill, intangible assets, and other long-lived assets for impairment:

•The timing and amount of revenues to be recognized, including standalone selling price (“SSP”) of performance obligations for revenue contracts with multiple performance obligations;

•The identification of and provision for uncollectible accounts receivable;

•The capitalization and useful life of internal-use software development costs;

•The valuation of derivatives and warrants; and

•The recognition, measurement, and valuation of current and deferred income taxes and uncertain tax positions.

Actual results could differ materially from those estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which forms the basis for making judgments about the carrying values of assets and liabilities.

Allowance for Expected Credit Losses

We closely monitor our accounts receivable balances and estimate the allowance for expected credit losses. The estimate is primarily based on historical collection experience and other factors, including those related to current market conditions and events. Credit losses associated with accounts receivable have not been material historically.

Equity Investment

As discussed in Deconsolidation of Equity Investment in Note 1. Organization and Business, as of September 30, 2023 and December 31, 2022, we held an interest in the privately-held equity securities of Glocal in which we did not have a controlling interest and were unable to exercise significant influence. Additionally, as of September 30, 2023, we held an interest in the privately-held equity securities of UpHealth Holdings in which we did not have a controlling interest and were unable to exercise significant influence. Based on the terms of these privately-held securities, we concluded the investments should be accounted for utilizing the ASC 321 measurement alternative, whereby the investments were measured at cost and will continue to be evaluated for any indicators of impairment.

Held for Sale

Assets and liabilities to be disposed of by sale (“disposal groups”) are reclassified into assets and liabilities held for sale on our consolidated balance sheets as of December 31, 2022. The reclassification occurs when an agreement to sell exists, or management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying value or fair value less costs to sell and are not depreciated or amortized. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. and reported in impairment of goodwill, intangible assets, and other long-lived assets in our unaudited condensed consolidated statements of operations.

New Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for convertible instruments by eliminating the conversion option separation model for convertible debt that can be settled in cash and by eliminating the measurement model for beneficial conversion features. Convertible instruments that continue to be subject to separation models are (1) those with conversion options that are required to be accounted for as bifurcated derivatives and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. This ASU also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This ASU will be effective for us on January 1, 2024. Early adoption is permitted, but no earlier than the fiscal year beginning on January 1, 2021, including interim periods within that fiscal year. We are currently evaluating the effect of the adoption of this ASU will have on our unaudited condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequently issued several supplemental/clarifying ASUs (collectively, “ASC 326”). This ASU requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, other long-term financings including available for sale and held-to-maturity debt securities, and loans. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amended the scope of ASC 326 and clarified that receivables arising from operating leases are not within the scope of the standard and should continue to be accounted for in accordance with Accounting Standards Codification Topic (“ASC”) 842. This ASU was effective for us on January 1, 2023, and the adoption did not have a material effect on our unaudited condensed consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified on our unaudited condensed consolidated statements of operations to conform to the current year presentation as shown below:


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
	As Reported		Reclassifications		As Adjusted		As Reported		Reclassifications		As Adjusted
Revenues:
Services	$	27,600	$	—	$	27,600	$	81,382	$	—	$	81,382
Licenses and subscriptions	2,019		—		2,019		10,612		—		10,612
Products	9,047		—		9,047		26,312		—		26,312
Total revenues	38,666		—		38,666		118,306		—		118,306
Costs of revenues:
Services	13,440		1,473		14,913		42,647		4,256		46,903
License and subscriptions	463		—		463		913		—		913
Products	6,264		—		6,264		18,550		—		18,550
Total costs of revenues	20,167		1,473		21,640		62,110		4,256		66,366
Gross profit	18,499		(1,473)		17,026		56,196		(4,256)		51,940
Operating expenses:
Sales and marketing	4,771		(123)		4,648		10,983		638		11,621
Research and development	2,231		(56)		2,175		5,600		344		5,944
General and administrative	13,922		(1,294)		12,628		42,213		(5,238)		36,975
Depreciation and amortization	3,336		—		3,336		13,272		—		13,272
Stock-based compensation	2,126		—		2,126		4,588		—		4,588
Impairment of goodwill, intangible assets, and other long-lived assets	106,096		—		106,096		112,345		—		112,345
Acquisition, integration, and transformation costs	6,049		—		6,049		15,182		—		15,182
Total operating expenses	138,531		(1,473)		137,058		204,183		(4,256)		199,927
Loss from operations	(120,032)		—		(120,032)		(147,987)		—		(147,987)
Other income (expense):
Interest expense	(6,708)		—		(6,708)		(20,306)		—		(20,306)
Loss on deconsolidation of subsidiary	(37,708)		—		(37,708)		(37,708)		—		(37,708)
Gain (loss) on fair value of derivative liability	223		—		223		6,893		—		6,893
Loss on extinguishment of debt	(14,610)		—		(14,610)		(14,610)		—		(14,610)
Other income, net, including interest income	32		—		32		220		—		220
Total other income (expense)	(58,771)		—		(58,771)		(65,511)		—		(65,511)
Loss before income tax benefit	(178,803)		—		(178,803)		(213,498)		—		(213,498)
Income tax benefit	13,219		—		13,219		17,744		—		17,744
Net loss	(165,584)		—		(165,584)		(195,754)		—		(195,754)
Less: net income (loss) attributable to noncontrolling interests	178		—		178		(109)		—		(109)
Net loss attributable to UpHealth, Inc.	$	(165,762)	$	—	$	(165,762)	$	(195,645)	$	—	$	(195,645)

Certain other prior period amounts have been reclassified on our unaudited condensed consolidated balance sheets to conform with our current period presentation.

3. Significant Transactions

Sale of Innovations Group

On February 26, 2023, we agreed to sell 100% of the outstanding capital stock of our wholly owned subsidiary, Innovations Group, to Belmar MidCo, Inc., a Delaware corporation and a wholly owned subsidiary of Belmar Holdings, Inc., a Delaware corporation, a portfolio company of Webster Capital IV, L.P., a Delaware limited partnership, pursuant to the Stock Purchase Agreement dated February 26, 2023. The sale closed on May 11, 2023 for gross proceeds of $56.0 million, subject to working capital, closing debt, and other adjustments. Accordingly, the financial results of Innovations Group for the period from January 1, 2023 through May 10, 2023, and the three and nine months ended September 30, 2022, and the financial position of Innovations Group as of December 31, 2022 are included in our unaudited condensed consolidated financial statements.

In connection with entering into this agreement, we concluded that the disposal group met the held for sale criteria and classified the assets and liabilities as held for sale as of December 31, 2022. Assets and liabilities that were classified as held for sale were $65.3 million and $11.1 million, respectively, as of December 31, 2022. There were no businesses classified as held for sale as of September 30, 2023.

In connection with the held for sale classification, upon the remeasurement of the disposal group to its fair value, less cost to sell, we recorded a loss of $0.5 million in the three months ended March 31, 2023 and a loss of $1.8 million in the three months ended December 31, 2022, which were recorded in impairment of goodwill, intangible assets, and other long-lived assets in the unaudited condensed consolidated statements of operations. In connection with the sale closing on May 11, 2023, based on net proceeds of $54.9 million, we recorded an additional loss of $1.4 million in the three months ended June 30, 2023, which was recorded in impairment of goodwill, intangible assets, and other long-lived assets in our unaudited condensed consolidated statements of operations.

4. Revenues

As discussed in Note 1. Organization and Business, we deconsolidated UpHealth Holdings as of September 30, 2023; accordingly, the financial position of UpHealth Holdings as of December 31, 2022 and financial results of UpHealth Holdings in the three and nine months ended September 30, 2023 are included in our unaudited condensed consolidated financial statements and the financial position of UpHealth Holdings as of September 30, 2023 is not included in our unaudited condensed consolidated financial statements. The filing of a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, as discussed in Note 1. Organization and Business, occurred on September 19, 2023. Management concluded that it would use the September 30, 2023 date for deconsolidation, as the last 12 days in the month were determined to not be material.

As also discussed in Note 1. Organization and Business, we deconsolidated Glocal as of July 1, 2022; accordingly, the financial results of Glocal in the six months ended June 30, 2022 are included in our unaudited condensed consolidated financial statements, and the financial position of Glocal as of September 30, 2023 and December 31, 2022 and the financial results of Glocal in the three months ended September 30, 2022 and the three and nine months ended September 30, 2023 are not included in our unaudited condensed consolidated financial statements.

Revenues by geography consisted of the following:


	Three months ended September 30,				Nine months ended September 30,
(In thousands)	2023		2022		2023		2022
Americas	$	32,681	$	38,666	$	112,649	$	111,402
Asia	—		—		—		6,904
Total revenues	$	32,681	$	38,666	$	112,649	$	118,306

Our revenues are entirely derived from the healthcare industry. Revenues recognized over-time were approximately 96% and 75% of the total revenues in the three months ended September 30, 2023 and 2022, respectively. Revenues recognized at a point-in-time were approximately 4% and 25% of the total revenues in the three months ended September 30, 2023 and 2022, respectively. Revenues recognized over-time were approximately 85% and 73% of the total revenues in the nine months ended September 30, 2023 and 2022, respectively. Revenues recognized at a point-in-time were approximately 15% and 27% of the total revenues in the nine months ended September 30, 2023 and 2022, respectively.

Contract Assets

There were no impairments of contract assets, consisting of unbilled receivables, in the three and nine months ended September 30, 2023 and 2022.

The change in contract assets was as follows:


	Nine Months Ended September 30,
(In thousands)	2023		2022
Unbilled receivables, beginning of period	$	694	$	784
Reclassifications to billed receivables	(694)		(784)
Revenues recognized in excess of period billings	603		896
Deconsolidation of subsidiary	(603)		—
Unbilled receivables, end of period

UpHealth, Inc. [UPH] Filings
UpHealth, Inc. [UPHLW] Filings
10-Q	[2023-11-21]
10-Q	[2023-08-10]
10-Q	[2023-05-11]
S-1	[2023-04-07]
10-K	[2023-03-31]
10-Q	[2022-12-29]
10-Q	[2022-08-15]
10-Q	[2022-05-23]
10-K	[2022-04-18]
10-Q	[2021-11-10]
S-1	[2021-08-27]
10-Q	[2021-08-12]
10-Q	[2021-05-17]
10-K	[2021-04-01]
S-1	[2021-02-16]
10-Q	[2020-11-13]
10-Q	[2020-08-07]
10-Q	[2020-05-11]
10-K	[2020-03-30]
10-Q	[2019-11-06]
10-Q	[2019-08-07]
S-1	[2019-05-09]

UpHealth, Inc. [UPH] Filings

UpHealth, Inc. [UPHLW] Filings