UpHealth, Inc. (“we,” “UpHealth,” or the “Company”) (NYSE: UPH),
today issued a corporate update in the form of a letter to
shareholders on behalf of CEO, Martin Beck, inclusive of financial
results for the third quarter ended September 30, 2023.
Dear Fellow Shareholders,
I wanted to take the opportunity in conjunction
with the release of our results for the third quarter of 2023 to
provide you all with details of our strong financial performance in
the third quarter and to summarize the various actions that we have
taken over the course of the past several weeks.
First, I would like to comment on this quarter’s
financial results, which demonstrate the continued strength of our
Telehealth and Behavioral Health businesses through September 30,
2023. For the third quarter of 2023, we reported total revenues of
$32.7 million, compared to $38.7 million in the third quarter of
2022. Revenues from our Virtual Care Infrastructure (“VCI”) segment
were $18.5 million (57% of total revenues), an increase of 23% over
revenues of $15.0 million in the third quarter of 2022, driven by
strong video minute growth and the addition of numerous new
hospital clients. Revenue from our Services segment were $10.9
million (33% of total revenues) in the third quarter of 2023, a
decrease of 45% compared to $19.9 million in the third quarter of
2022, primarily as a result of the divestiture of our Innovations
Group, Inc. (“IGI”) compounding pharmacy business on May 11, 2023
and the ramp down of our behavioral health operations in Missouri,
partially offset by 31% growth in revenues in our behavioral health
operations in Florida as a result of higher in-network and other
patient volumes. Revenues from our Integrated Care Management
(“ICM”) segment were $3.3 million (10% of total revenues) for the
third quarter of 2023, a decrease of 13% compared to $3.8 million
in the third quarter of 2022, primarily as a result of the loss of
a customer.
Our gross margin expanded to 54% in the third
quarter of 2023, up from 44% in the third quarter of 2022. Our VCI
segment reported a gross margin of 58% in the third quarter of
2023, an increase from 48% for the third quarter of 2022, as a
result of improved operating leverage in the business. Our Services
segment reported a gross margin of 51%, an increase from 35% in the
third quarter of 2022, primarily due to this quarter’s results
being comprised almost entirely of the Florida Behavioral Health
business and including only a minimal amount of activity from our
lower margin Behavioral Health business in Missouri and none of the
operations of our IGI compounding pharmacy business, which was
divested in the second quarter of this year.
Our adjusted EBITDA was $5.4 million in the
third quarter of 2023, representing an improvement of $6.7 million
over adjusted EBITDA of $(1.2) million in the third quarter of
2022, primarily driven by a continued focus on cost control
efforts, especially as it relates to corporate overhead.
Since 2021, UpHealth Holdings, Inc. (“UpHealth
Holdings”), a subsidiary of UpHealth, has been a party to a legal
action (the “Needham Action”) entitled Needham & Company LLC
(“Needham”) v. UpHealth Holdings, Inc. and UpHealth Services, Inc.
(“UpHealth Services”), which arose out of UpHealth Services’
engagement of Needham to provide placement and other financial
advisory services. In September 2023, the trial court
in New York issued a Decision and Order granting summary judgment
in favor of Needham and denying UpHealth Holdings’ and UpHealth
Services’ motion for summary judgment. The Decision and Order
concluded that Needham is entitled to fees 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. We are extremely disappointed by this Decision and Order and
plan to aggressively appeal. However, as a result of the summary
judgment, in the three and nine months ended September 30, 2023, we
recorded additional expense of $29.8 million, which was included in
acquisition, integration, and transformation costs in our unaudited
condensed consolidated statements of operations.
In response to the unexpected summary judgement
in favor of Needham, on September 19, 2023, UpHealth Holdings filed
for voluntary petition for relief under Chapter 11 of the U.S.
Bankruptcy Code in an effort to protect the considerable cash
balances on the balance sheet of UpHealth Holdings while we pursue
an appeal. Furthermore, on October 20, 2023, Thrasys, Inc.
(“Thrasys”) and Behavioral Health Services (“BHS”), both wholly
owned subsidiaries of UpHealth Holdings, and their subsidiaries
filed voluntary petitions for relief under Chapter 11 of the U.S.
Bankruptcy Code. I’d like to clarify that UpHealth and its direct
subsidiary Cloudbreak Health, LLC (“Cloudbreak”) and its indirect
subsidiary TTC Healthcare, Inc. (“TTC”), a subsidiary of UpHealth
Holdings, have NOT filed for Chapter 11 protection and remain
operating in the normal course. All of these actions are further
explained in detail within the context of this letter as I review
the sequencing of events and provide an update on both the motions
recently approved by the U.S. Bankruptcy Court for the District of
Delaware.
As a result of the bankruptcy proceedings
described above and the automatic designation of UpHealth Holdings
and its subsidiaries as a “debtor-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. We concluded that we would use the September
30, 2023, date for deconsolidation, as the last 12 days in the
month were determined to not be material. As a result of this
deconsolidation, 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.
As it relates to Thrasys, we have decided to
wind down and discontinue the operations of our ICM segment after
determining that the market demand and margins associated with its
heavily customized population health management software do not
justify a continuation of services. We have executed, subject to
U.S. Bankruptcy Court approval, perpetual, non-exclusive licenses
and service arrangements through the end of 2023 with all three ICM
customers, with the expectation these customers will hire the
majority of our ICM employees and assume key executory contracts
and the obligations of Thrasys under these contracts, with the
result that Thrasys will no longer bear those obligations or
utilize those contracts. We expect that the ICM segment will
operate on a breakeven cash flow basis through the end of the
fourth quarter when its operations will cease. Following the
cessation of operation, the ICM segment will continue to own all of
its intellectual property, subject to the non‑exclusive licenses
being granted to the three ICM customers.
Subsequent to quarter end, on November 16, 2023,
we announced we had entered into a definitive agreement to sell
Cloudbreak and its Martti translation offering to a newly formed
entity controlled by GTCR LLC for $180 million in cash and a
Transaction Support Agreement with the majority of our secured and
unsecured note holders. We will utilize the proceeds from the sale
for payment in full or in part of our 2026 Unsecured and 2025
Secured Notes, as well as other expenses related to the
transaction. The sale of Cloudbreak is expected to close during the
first half of 2024, following the receipt of customary regulatory
and stockholder approvals and closing conditions.
Upon the divestiture of Cloudbreak, UpHealth
will focus exclusively on expanding our high quality, profitable
Behavioral Health business located today in Florida consisting of
TTC. I am very familiar with this business as I was one
of its owners prior to the June 2021 transaction with UpHealth and
I am delighted to renew my leadership role there. I am excited
about the opportunities that exist for our Behavioral Health
business to continue to expand its mental health service offerings
and, with the more appropriate capital structure that will result
from the sale of Cloudbreak, to pursue further geographic
expansion.
On September 30, 2023, we reported $3.3 million
of cash and cash equivalents. Due to the deconsolidation of
UpHealth Holdings, this excludes approximately $35.6 million of
cash at UpHealth Holdings as of September 30, 2023. In addition,
this does not include approximately $7.0 million in cash in India
that is held in a bank account which the Emergency Arbitrator has
ordered cannot be accessed by Glocal Healthcare or UpHealth. Based
on information currently available, we are forecasting cash and
cash equivalent balances as of March 31, 2024 of $9.5 million at
UpHealth and TTC, and $22.9 million at UpHealth Holdings, Thrasys,
and BHS.
Before detailing the most recent events, I want
to take a moment and recognize all constituents of UpHealth and
those who continue on this journey with us. I, a fellow
shareholder, understand this has certainly not been an easy
journey. I can assure you that the UpHealth leadership
team is more dedicated and focused than ever on its newly defined
and simplified strategy to profitably scale TTC. Special thank you
to Andy Panos, the head of our Cloudbreak business, for driving
Cloudbreak’s strategic growth, while improving considerably the
bottom line of the business, and to Lisa Fluxman, the head of our
Behavioral Health business, for impeccable execution of the
strategic expansion from treating addiction to serving patients in
need of mental health treatment, while delivering a highly
profitable business quarter after quarter.
I look forward to updating you as we move
forward and execute on this strategy.
Chronological Events
A chronological overview of the most recent
events is as follows:
- The trial court in New York issued
a Decision and Order on September 14, 2023, granting summary
judgment in favor of Needham and against UpHealth Holdings and
UpHealth Services in a lawsuit unrelated to our operations. The
Decision and Order provides that Needham is entitled to fees in the
amount of $31.3 million plus interest.
- We reviewed the order and began
exploring all options, including a potential settlement with
Needham. We plan to vigorously appeal this decision.
- On September 19, 2023, UpHealth
Holdings, a subsidiary of UpHealth, filed a voluntary petition
under Chapter 11 of the U.S. Bankruptcy Code.
- The bankruptcy filing will enable UpHealth Holdings to work to
restructure its financials and continue to seek a fair resolution
to the September 14, 2023 decision by the trial court in New York
granting summary judgment in favor of Needham.
- UpHealth, its direct subsidiary,
Cloudbreak, and its indirect subsidiary, TTC, have NOT filed for
Chapter 11 Protection and continue to operate in the normal course
of business.
- Pursuant to the terms of the
Transaction Support Agreement, UpHealth and the majority of our
secured and unsecured note holders have agreed that UpHealth will
enter into Supplemental Indentures that will provide for waivers
with respect to UpHealth and Cloudbreak, of the events of default
under our indentures that resulted from UpHealth’s subsidiaries’
Chapter 11 filings.
- On October 11, 2023, organizational
changes were announced, summarized as follows:
- Martin Beck, previously CFO, was
appointed CEO,
- Jay Jennings, previously the CAO,
assumed the role of CFO, and
- 20 corporate roles were
eliminated.
- On October 20, 2023, Thrasys and
BHS, both subsidiaries of UpHealth Holdings, filed voluntary
petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.
As previously disclosed, we discontinued operations of BHS earlier
this year.
- On November 16, 2023, we announced
we had entered into a definitive agreement to sell our wholly owned
subsidiary, Cloudbreak, best known for its Martti translation
offering, to GTCR for $180 million in cash.
- We will utilize the proceeds from
the sale of Cloudbreak to repay in full or in part our 2026
Unsecured and 2025 Secured Notes, as well as other expenses related
to the transaction. The sale of Cloudbreak is expected to close
during the first half of 2024, following the receipt of customary
regulatory and stockholder approvals and closing conditions, and
will allow us to pursue a more simplified strategy that focuses on
TTC, a growing, cash flow positive, Behavioral Health
business.
Update on Voluntary Financial
Restructuring, First and Second Day Motions
Following the commencement of their Chapter 11
cases, UpHealth Holdings, Thrasys and BHS (each of the entities in
the proceeding, 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 for the District of Delaware 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. Thrasys has also
filed motions to effectuate a transition of the ICM business to its
customers. A motion to pay retention bonuses to Thrasys employees
involved in the transition of the ICM business through year end was
approved by the U.S. Bankruptcy Court for the District of Delaware
on November 17, 2023.
Third Quarter 2023 Results:
- Revenues were
$32.7 million, compared to revenues for the third quarter of 2022
of $38.7 million. Revenues by segment were as follows:
- VCI revenues were $18.5 million
(57% of total revenues), compared to revenues for the third quarter
of 2022 of $15.0 million. The increase of $3.5 million in revenue
from U.S. Telehealth compared to the third quarter of 2022 was
primarily due to overall business growth, including an increase in
minutes from both new and existing U.S. Telehealth customers.
- Services revenues were $10.9
million (33% of total revenues), compared to revenues for the third
quarter of 2022 of $19.9 million. The decrease was primarily due to
the strategic sale of IGI, which was completed in the second
quarter of 2023, and the decision to wind-down a company within our
Behavioral business, which contributed combined revenues of $11.6
million for the third quarter of 2022.
- ICM revenues were $3.3 million (10%
of total revenues), compared to revenues for the third quarter of
2022 of $3.8 million. The decrease was primarily due to the loss of
a customer in the third quarter of 2023.
- Gross margin
expanded to 54% from 44% for the third quarter of 2022. Gross
margins by segment were as follows:
- VCI gross margin was 58%, an
increase from 48% for the third quarter of 2022, due to overall
business growth, including an increase in minutes from both new and
existing U.S. Telehealth customers.
- Services gross margin was 51%, an
increase from 35% for the third quarter of 2022. The increase was
primarily due to an increase in revenues in our Behavioral Health
business, attributed to higher census and improved utilization,
partially offset by the strategic sale of IGI, which was completed
in the second quarter of 2023, and the decision to wind-down a
company within our Behavioral Health business.
- ICM gross margin was 38%, a
decrease compared to 75% for the third quarter of 2022. The
decrease was primarily due to the loss of a customer in the third
quarter of 2023.
- Loss from
operations was $72.8 million, compared to loss from operations in
the third quarter of 2022 of $120.0 million. Non-GAAP income from
operations, which excludes impairment of goodwill, intangible
assets, and other long-lived assets of $41.2 million and
acquisition, integration, and transformation costs of $33.2
million, was $1.7 million for the third quarter of 2023. Non-GAAP
loss from operations, which excludes impairment of goodwill,
intangible assets, and other long-lived assets of $106.1 million
and acquisition, integration, and transformation costs of $6.0
million, was $7.9 million for the third quarter of 2022.
- Net loss
attributable to UpHealth was $20.6 million, compared to a net loss
attributable to UpHealth for the third quarter of 2022 of $165.8
million. Non-GAAP net income attributable to UpHealth, which
excludes impairment of goodwill, intangible assets, and other
long-lived assets of $41.2 million and acquisition, integration,
and transformation costs of $33.2 million, was $53.8 million for
the third quarter of 2023. Non-GAAP net loss attributable to
UpHealth, which excludes impairment of goodwill, intangible assets,
and other long-lived assets of $106.1 million and acquisition,
integration, and transformation costs of $6.0 million, was $53.6
million for the third quarter of 2022.
- Net loss per share
attributable to UpHealth was $(1.12), compared to a net loss per
share attributable to UpHealth for the third quarter of 2022 of
$(11.17). Non-GAAP net income per share attributable to UpHealth,
which excludes impairment of goodwill, intangible assets, and other
long-lived assets of $41.2 million and acquisition, integration,
and transformation costs of $33.2 million, was $2.92 for the third
quarter of 2023. Non-GAAP net loss per share attributable to
UpHealth, which excludes impairment of goodwill, intangible assets,
and other long-lived assets of $106.1 million and acquisition,
integration, and transformation costs of $6.0 million, was $(3.61)
for the third quarter of 2022.
- Adjusted EBITDA was
$5.4 million, which represented an improvement of $6.7 million
compared to Adjusted EBITDA for the third quarter of 2022 of $(1.2)
million.
Year-To-Date Third Quarter
Results:
- Year-to-date
revenues were $112.6 million, compared to year-to-date revenues for
the third quarter of 2022 of $118.3 million. Revenues by segment
were as follows:
- VCI year-to-date revenues were
$52.8 million (39% of total year-to-date revenues), representing an
increase of 11% compared to year-to-date revenues for the third
quarter of 2022 of $47.4 million. The increase of $5.4 million in
revenue from U.S. Telehealth compared to the third quarter of 2022
was primarily due to continued growth in both customers and
fees.
- Services year-to-date revenues were
$47.2 million (51% of total year-to-date revenues), compared to
year-to-date revenues for the third quarter of 2022 of $56.7
million. The decrease was primarily due to the strategic sale of
IGI, which was completed in the second quarter of 2023, and the
decision to wind-down a company within our Behavioral business,
which contributed combined revenues of $15.3 million and $33.5
million for the year-to-date third quarters of 2023 and 2022,
respectively.
- ICM year-to-date revenues were
$12.6 million (10% of total year-to-date revenues), compared to
year-to-date revenues for the third quarter of 2022 of $14.2
million. The decrease was primarily due to a one-time license fee
recognized in the second quarter of 2022 and the loss of a customer
in the third quarter of 2023, partially offset by growth in
professional services revenue from existing customers during the
first half of the year.
- Year-to-date
gross margin expanded to 54% from 44% for the year-to-date third
quarter of 2022. Gross margins by segment were as follows:
- VCI gross margin was 56%, an
increase from 44% for the year-to-date third quarter of 2022, due
to overall business growth, including an increase in minutes from
both new and existing U.S. Telehealth customers.
- Services gross margin was 49%, an
increase from 34% for the year-to-date third quarter of 2022. The
decrease was primarily due to the strategic sale of IGI, which was
completed in the second quarter of 2023, and the decision to
wind-down a company within our Behavioral business, which
contributed combined gross margins of 34% and 27% for the
year-to-date third quarters of 2023 and 2022, respectively.
- ICM gross margin was 60%, a
decrease compared to 80% for the year-to-date third quarter of
2022. The decrease was primarily due to a one-time license fee
recognized in the second quarter of 2022 and the loss of a customer
in the third quarter of 2023, partially offset by growth in
professional services revenue from existing customers during the
first half of the year.
- Year-to-date loss
from operations improved 43% to $84.3 million, compared to loss
from operations in the year-to-date third quarter of 2022 of $148.0
million. Non-GAAP income from operations, which excludes impairment
of goodwill, intangible assets, and other long-lived assets of
$50.0 million and acquisition, integration, and transformation
costs of $40.3 million, was $6.0 million for the year-to-date third
quarter of 2023. Non-GAAP loss from operations, which excludes
impairment of goodwill, intangible assets, and other long-lived
assets of $112.3 million and acquisition, integration, and
transformation costs of $15.2 million, was $20.5 million for the
year-to-date third quarter of 2022.
- Year-to-date net
loss attributable to UpHealth was $47.8 million, a 76% improvement
compared to net loss attributable to UpHealth for the year-to-date
third quarter of 2022 of $195.6 million. Non-GAAP net income
attributable to UpHealth, which excludes impairment of goodwill,
intangible assets, and other long-lived assets of $50.0 million and
acquisition, integration, and transformation costs of $40.3
million, was $42.5 million for the year-to-date third quarter of
2023. Non-GAAP net loss attributable to UpHealth, which excludes
impairment of goodwill, intangible assets, and other long-lived
assets of $112.3 million and acquisition, integration, and
transformation costs of $15.2 million, was $68.1 million for the
year-to-date third quarter of 2022.
- Net loss per share
attributable to UpHealth was $(2.74), compared to a net loss per
share attributable to UpHealth for the year-to-date third quarter
of 2022 of $(13.41). Non-GAAP net income per share attributable to
UpHealth, which excludes impairment of goodwill, intangible assets,
and other long-lived assets of $50.0 million and acquisition,
integration, and transformation costs of $40.3 million, was $2.43
for the year-to-date third quarter of 2023. Non-GAAP net loss per
share attributable to UpHealth, which excludes impairment of
goodwill, intangible assets, and other long-lived assets of $112.3
million and acquisition, integration, and transformation costs of
$15.2 million, was $(4.67) the year-to-date second quarter of
2022.
- Year-to-date
Adjusted EBITDA was $17.2 million, which represented an improvement
of $15.8 million compared to Adjusted EBITDA for the year-to-date
second quarter of 2022 of $1.4 million.
Certain prior period amounts have been
reclassified to conform with our current period presentation.
Please refer to the discussion and tables under “Non-GAAP Financial
Information.”
About UpHealth, Inc.
UpHealth is a global digital health company that
delivers digital-first technology, infrastructure, and services to
dramatically improve how healthcare is delivered and managed.
UpHealth creates digitally enabled “care communities” that improve
access and achieve better patient outcomes at lower cost, through
digital health solutions and interoperability tools that serve
patients wherever they are, in their native language. UpHealth’s
clients include health plans, healthcare providers and
community-based organizations. For more information, please visit
https://uphealthinc.com.
Forward-Looking Statements
This press release contains forward-looking
statements within the meaning of U.S. federal securities laws. Such
forward-looking statements include, but are not limited to,
statements regarding obtaining customary regulatory and stockholder
approval, the closing, including its timing, of the sale of
Cloudbreak, the use of proceeds of the sale, the granting of
licenses to the customers of the ICM business and the assignment to
and assumption by those customers of certain key executory
contracts, the requirement for approval of such transactions
involving the ICM business by the Bankruptcy Court, the projected
operation and financial performance of UpHealth, including
following the sale of Cloudbreak and the granting of licenses by
and cessation of the ICM business, and anticipated cash flow of
UpHealth, its product offerings and developments and reception of
its product by customers, the arbitration and other legal disputes
involving Glocal, and UpHealth’s expectations, hopes, beliefs,
intentions, plans, prospects or strategies regarding the future
revenue and the business plans of UpHealth’s management team. Any
statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. In addition,
any statements that refer to projections, forecasts, or other
characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. The words
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intends,” “may,” “might,” “plan,” “possible,” “potential,”
“predict,” “project,” “should,” “would” and similar expressions may
identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking. The
forward-looking statements contained in this press release are
based on certain assumptions and analyses made by the management of
UpHealth considering their respective experience and perception of
historical trends, current conditions, and expected future
developments and their potential effects on UpHealth as well as
other factors they believe are appropriate in the circumstances.
There can be no assurance that future developments affecting
UpHealth will be those anticipated. These forward-looking
statements involve a number of risks, uncertainties (some of which
are beyond the control of the parties), or other assumptions that
may cause actual results or performance to be materially different
from those expressed or implied by these forward-looking
statements, including the closing conditions for the sale of
Cloudbreak not being satisfied, the ability of the parties to close
the sale on the expected closing date or at all, the ability of
UpHealth to service or otherwise pay its debt obligations,
including to holders of UpHealth’s convertible notes in the event
the closing does not occur, opposition in the Bankruptcy Court
process to the transactions with respect to the ICM business, the
mix of services utilized by UpHealth’s customers and such
customers’ needs for these services, market acceptance of new
service offerings, the ability of UpHealth to expand what it does
for existing customers as well as to add new customers, uncertainty
with respect to how the ICA or the Indian courts shall decide
various matters that are before them or that the Glocal Board will
act in compliance with their fiduciary duties to their
shareholders, that UpHealth will have sufficient capital to operate
as anticipated, and the impact that the novel coronavirus and the
illness, COVID-19, that it causes, as well as government responses
to deal with the spread of this illness and the reopening of
economies that have been closed as part of these responses, may
have on UpHealth’s operations, the demand for UpHealth’s products,
global supply chains and economic activity in general. Should one
or more of these risks or uncertainties materialize or should any
of the assumptions being made prove incorrect, actual results may
vary in material respects from those projected in these
forward-looking statements. UpHealth undertakes no obligation to
update or revise any forward-looking statements, whether because of
new information, future events, or otherwise, except as may be
required under applicable securities laws.
Additional Information and Where to Find It
In connection with the proposed sale of
Cloudbreak, the Company will file with the Securities and Exchange
Commission (the “SEC”) and furnish to the Company’s stockholders a
proxy statement. BEFORE MAKING ANY VOTING DECISION, THE COMPANY’S
STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT IN ITS ENTIRETY
WHEN IT BECOMES AVAILABLE AND ANY OTHER DOCUMENTS TO BE FILED WITH
THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION OR INCORPORATED
BY REFERENCE IN THE PROXY STATEMENT (IF ANY) BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND
THE PARTIES TO THE PROPOSED TRANSACTION. Investors and stockholders
may obtain a free copy of documents filed by the Company with the
SEC at the SEC’s website at http://www.sec.gov. In addition,
investors and stockholders may obtain a free copy of the Company’s
filings with the SEC from the Company’s website at
http://investors.uphealthinc.com.
Participants in the Solicitation
The Company and certain of its directors,
executive officers, and certain other members of management and
employees of the Company may be deemed to be participants in the
solicitation of proxies from stockholders of the Company in favor
of the proposed sale of Cloudbreak. Information about directors and
executive officers of the Company is set forth in the proxy
statement for the Company’s Annual Meeting, as filed with the SEC
on Schedule 14A on November 15, 2022. Additional information
regarding the interests of these individuals and other persons who
may be deemed to be participants in the solicitation will be
included in the proxy statement with respect to the proposed
transaction that the Company will file with the SEC and furnish to
the Company’s stockholders.
Investors Relations:Shannon Devine
(MZ North America) Managing Director
203-741-8811UPH@mzgroup.us
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 investment |
|
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 |
|
|
|
|
|
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 |
|
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: |
|
|
|
|
|
|
|
Basic and diluted |
|
18,428 |
|
|
|
14,842 |
|
|
|
17,459 |
|
|
|
14,588 |
|
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 |
|
(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 |
|
UPHEALTH, INC.NON-GAAP
FINANCIAL INFORMATION
Non-GAAP Financial Information
This press release includes financial measures that are not
calculated in accordance with accounting principles generally
accepted in the United States of America (GAAP). To supplement
UpHealth’s condensed consolidated financial statements presented in
accordance with GAAP, UpHealth presents investors with non-GAAP
financial measures, including Adjusted EBITDA.
- Adjusted EBITDA consists of net income (loss) attributable to
UpHealth, Inc., excluding depreciation and amortization;
stock-based compensation; impairment of goodwill, intangible
assets, and other long-lived assets; acquisition, integration, and
transformation costs; other income (expense); income tax benefit
(expense); net income (loss) attributable to noncontrolling
interests; and other non-recurring charges to GAAP net income
(loss) attributable to UpHealth, Inc. Other non-recurring charges
to GAAP net income (loss) attributable to UpHealth, Inc. may
include transaction expenses in connection with capital raising
transactions (whether debt, equity or equity-linked) and
acquisitions, whether or not consummated, purchase price
adjustments, the cumulative effect of a change in accounting
principles, or other expenses determined to be non-recurring.
UpHealth believes that the presentation of these non-GAAP
financial measures provides important supplemental information to
management and investors regarding financial and business trends
relating to UpHealth’s financial condition and results of
operations. Management believes that the items described above
provide an additional measure of UpHealth’s operating results and
facilitates comparisons of UpHealth’s core operating performance
against prior periods and business model objectives. This
information is provided to investors in order to facilitate
additional analyses of past, present, and future operating
performance and as a supplemental means to evaluate UpHealth’s
ongoing operations. UpHealth believes that these non-GAAP financial
measures are useful to investors in their assessment of UpHealth’s
operating performance.
Adjusted EBITDA is not calculated in accordance with GAAP, and
should be considered supplemental to, and not as a substitute for,
or superior to, financial measures calculated in accordance with
GAAP. You should not consider this measure in isolation or as a
substitute for analysis of UpHealth’s results as reported under
GAAP. UpHealth compensates for these limitations by prominently
disclosing GAAP financial measures and providing investors with
reconciliations from UpHealth’s GAAP operating results to the
non-GAAP financial measures for the relevant periods.
The accompanying tables provide more details on the GAAP
financial measures that are most directly comparable to the
non-GAAP financial measures described above and the related
reconciliations between these financial measures.
UPHEALTH, INC.RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES(1)(In
thousands) |
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Revenues |
$ |
32,681 |
|
|
$ |
38,666 |
|
|
$ |
112,649 |
|
|
$ |
118,306 |
|
|
|
|
|
|
|
|
|
Gross margin |
|
54 |
% |
|
|
44 |
% |
|
|
54 |
% |
|
|
44 |
% |
|
|
|
|
|
|
|
|
Net loss attributable to
UpHealth, Inc. |
$ |
(20,605 |
) |
|
$ |
(165,762 |
) |
|
$ |
(47,815 |
) |
|
$ |
(195,645 |
) |
Net income (loss) attributable to noncontrolling interests |
|
467 |
|
|
|
178 |
|
|
|
1,423 |
|
|
|
(109 |
) |
Net loss |
|
(20,138 |
) |
|
|
(165,584 |
) |
|
|
(46,392 |
) |
|
|
(195,754 |
) |
Other expense |
|
(52,651 |
) |
|
|
58,771 |
|
|
|
(38,784 |
) |
|
|
65,511 |
|
Income tax expense (benefit) |
|
— |
|
|
|
(13,219 |
) |
|
|
867 |
|
|
|
(17,744 |
) |
Loss from operations |
|
(72,789 |
) |
|
|
(120,032 |
) |
|
|
(84,309 |
) |
|
|
(147,987 |
) |
Depreciation and amortization |
|
3,163 |
|
|
|
4,514 |
|
|
|
8,625 |
|
|
|
17,274 |
|
Stock-based compensation |
|
598 |
|
|
|
2,126 |
|
|
|
2,645 |
|
|
|
4,588 |
|
Acquisition, integration, and transformation costs; impairment of
goodwill, intangible assets, and other long-lived assets; and
non-recurring expenses(2) |
|
74,446 |
|
|
|
112,145 |
|
|
|
90,277 |
|
|
|
127,527 |
|
Adjusted EBITDA (Non-GAAP) |
$ |
5,418 |
|
|
$ |
(1,247 |
) |
|
$ |
17,238 |
|
|
$ |
1,402 |
|
|
|
|
|
|
|
|
|
(1)See Non-GAAP Financial Information section for definitions of
the Company’s non-GAAP financial measures.(2)Amounts reflect
acquisition, integration, and transformation costs and impairment
of goodwill, intangible assets, and other long-lived assets from
the condensed consolidated statements of operations, as well as
other operating expenses considered to be non-recurring during the
period.
UPHEALTH, INC.SEGMENT INFORMATION AND
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
MEASURES(1)(In thousands) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Revenues: |
|
|
|
|
|
|
|
Virtual Care Infrastructure(2) |
$ |
18,506 |
|
|
$ |
14,978 |
|
|
$ |
52,802 |
|
|
$ |
47,423 |
|
Services(3) |
|
10,908 |
|
|
|
19,893 |
|
|
|
47,225 |
|
|
|
56,653 |
|
Integrated Care Management(4) |
|
3,267 |
|
|
|
3,795 |
|
|
|
12,622 |
|
|
|
14,230 |
|
Total |
$ |
32,681 |
|
|
$ |
38,666 |
|
|
$ |
112,649 |
|
|
$ |
118,306 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Gross Profit: |
|
|
|
|
|
|
|
Virtual Care Infrastructure(2) |
$ |
10,789 |
|
|
$ |
7,186 |
|
|
$ |
29,444 |
|
|
$ |
21,090 |
|
Services(3) |
|
5,593 |
|
|
|
6,986 |
|
|
|
23,232 |
|
|
|
19,465 |
|
Integrated Care Management(4) |
|
1,241 |
|
|
|
2,854 |
|
|
|
7,599 |
|
|
|
11,385 |
|
Total |
$ |
17,623 |
|
|
$ |
17,026 |
|
|
$ |
60,275 |
|
|
$ |
51,940 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Gross Margin %: |
|
|
|
|
|
|
|
Virtual Care Infrastructure(2) |
|
58 |
% |
|
|
48 |
% |
|
|
56 |
% |
|
|
44 |
% |
Services(3) |
|
51 |
% |
|
|
35 |
% |
|
|
49 |
% |
|
|
34 |
% |
Integrated Care Management(4) |
|
38 |
% |
|
|
75 |
% |
|
|
60 |
% |
|
|
80 |
% |
Total |
|
54 |
% |
|
|
44 |
% |
|
|
54 |
% |
|
|
44 |
% |
|
See Non-GAAP Financial Information section for definitions of the
Company’s non-GAAP financial measures. |
|
|
(1) |
Segment
Information |
|
The Company’s business is
organized into three operating business segments: |
|
Virtual Care Infrastructure; |
|
Services; and |
|
Integrated Care Management. |
|
The reportable segments are
consistent with how management views the Company’s services and
products and the financial information reviewed by the chief
operating decision makers. The Company manages its businesses as
components of an enterprise for which separate information is
available and is evaluated regularly by the chief operating
decision makers in deciding how to allocate resources and assess
performance. |
(2) |
In the Virtual Care
Infrastructure segment, which consists of the U.S. Telehealth
business, the Company provides its customers with a unified
telehealth solution and digital health tools, marketed under the
name MarttiTM, aimed at increasing access to healthcare and
resolving health disparities across the care continuum. As
discussed in Note 1, Organization and Business, to the Company’s
condensed consolidated financial statements, the Company
deconsolidated Glocal, which comprised the International Telehealth
business, during the three months ended September 30, 2022;
therefore, the financial results of Glocal for the nine and months
ended September 30, 2022 are included in our unaudited condensed
consolidated financial statements, and the financial results of
Glocal as of September 30, 2023 and for the three and nine months
then ended are not included in our unaudited condensed consolidated
financial statements. |
(3) |
In the Services segment, which
consists of the Behavioral business, the Company provides inpatient
and outpatient substance abuse and mental health treatment services
for individuals with drug and alcohol addiction and other
behavioral health issues. The Company offers a complete continuum
of care from detoxification services, residential care, partial
hospitalization programs, and intensive outpatient and outpatient
programs. During the three months ended June 30, 2023, we
substantially completed the wind-down of a company within our
Behavioral business. The Services segment also consisted of the
Pharmacy business, which sold custom compounded medications, until
the sale of the business on May 11, 2023. |
(4) |
In the Integrated Care Management
segment, the Company provides its customers with an advanced,
comprehensive, and extensible technology platform, marketed under
the umbrella “SyntraNetTM” to manage health, quality of care, and
costs, especially for individuals with complex medical, behavioral
health, and social needs. |
UpHealth (PK) (USOTC:UPHL)
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