UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Introduction
UpHealth, Inc. (“UpHealth,” “we,” “us,” “our,” “UpHealth,” or the “Company”) is the parent company of both UpHealth Holdings, Inc. and subsidiaries (“UpHealth Holdings”) and Cloudbreak Health, LLC and subsidiaries.
On February 26, 2023, UpHealth Holdings, Inc., a Delaware corporation (“UpHealth Holdings”) and a wholly-owned subsidiary of the Company, agreed to sell 100% of the outstanding capital stock of UpHealth Holdings’ wholly-owned subsidiary, Innovations Group, Inc., a Utah corporation (“IGI” and, together with each of IGI’s wholly-owned subsidiaries, the “Group Companies”), to Belmar MidCo, Inc., a Delaware corporation (“Buyer”) 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, by and among the Company, UpHealth Holdings, IGI and Buyer (all of the transactions contemplated by the Stock Purchase Agreement, the “Transactions”).
On May 11, 2023, the Company completed the closing of the Transactions (the “Closing”). The gross cash proceeds from the Transactions were approximately $56,000,000, before adjustments for the Group Companies’ net working capital, closing debt and accrued but unpaid expenses related to the Transactions, and less the Escrow Amount (as defined in the Stock Purchase Agreement). Following the Closing, in connection with a customary adjustment to the Purchase Price (as defined in the Stock Purchase Agreement), which adjustment is expected to occur no earlier than 60 days following the date of the Closing, the Purchase Price will be increased by the amount of unrestricted cash and cash equivalents of the Group Companies as of 11:59 p.m. Pacific Time on the day immediately prior to the date of the Closing, if any.
The unaudited pro forma condensed consolidated balance sheet as of March 31, 2023 gives effect to the Transactions as if they had occurred on that date. The unaudited pro forma condensed consolidated balance sheet is derived from the unaudited historical financial statements of UpHealth as of March 31, 2023. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2023 and the twelve months ended December 31, 2022 have been prepared to illustrate the effects of the Transactions as if they had occurred on January 1, 2022. The unaudited pro forma condensed consolidated statements of operations are derived from the unaudited historical financial statements of UpHealth for the three months ended March 31, 2023 and the audited historical financial statements of UpHealth for the year ended December 31, 2022.
The unaudited pro forma condensed consolidated financial information does not necessarily reflect what the Company’s financial condition or results of operations would have been had the Transactions occurred on the dates indicated. It also may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial condition and results of operations of the Company may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
UPHEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2023
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| UpHealth, Inc. | | Transaction Accounting Adjustments | | Notes | | Pro Forma |
| ASSETS | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | $ | 13,333 | | | $ | 42,598 | | | (a),(c) | | $ | 55,931 | |
| Accounts receivable, net | 24,432 | | | — | | | | | 24,432 | |
| Inventories | 134 | | | — | | | | | 134 | |
| Prepaid expenses and other current assets | 3,263 | | | — | | | | | 3,263 | |
| Assets held for sale, current | 3,178 | | | (3,178) | | | (b) | | — | |
| Total current assets | 44,340 | | | 39,420 | | | | | 83,760 | |
| Property, plant and equipment, net | 14,324 | | | — | | | | | 14,324 | |
| Operating lease right-of-use assets | 6,644 | | | — | | | | | 6,644 | |
| Intangible assets, net | 30,216 | | | — | | | | | 30,216 | |
| Goodwill | 159,675 | | | — | | | | | 159,675 | |
| Equity investment | 21,200 | | | — | | | | | 21,200 | |
| Other assets | 474 | | | — | | | | | 474 | |
| Assets held for sale, noncurrent | 61,924 | | | (61,924) | | | (b) | | — | |
| Total assets | $ | 338,797 | | | $ | (22,504) | | | | | $ | 316,293 | |
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | |
| Accounts payable | $ | 17,261 | | | $ | — | | | | | $ | 17,261 | |
| Accrued expenses | 41,099 | | | — | | | | | 41,099 | |
| Deferred revenue | 1,549 | | | — | | | | | 1,549 | |
| Due to related parties | 166 | | | — | | | | | 166 | |
| Income taxes payable | 367 | | | — | | | | | 367 | |
| Related-party debt | 200 | | | — | | | | | 200 | |
| Lease liabilities, current | 5,317 | | | — | | | | | 5,317 | |
| Other liabilities, current | 433 | | | — | | | | | 433 | |
| Liabilities held for sale, current | 2,975 | | | (2,975) | | | (b) | | — | |
| Total current liabilities | 69,367 | | | (2,975) | | | | | 66,392 | |
| Related party debt, noncurrent | 31 | | | — | | | | | 31 | |
| Debt, noncurrent | 148,621 | | | (10,650) | | | (c) | | 137,971 | |
| Deferred tax liabilities | 1,203 | | | — | | | | | 1,203 | |
| Warrant liabilities, noncurrent | 17 | | | — | | | | | 17 | |
| Derivative liabilities, noncurrent | 30 | | | — | | | | | 30 | |
| Lease liabilities, noncurrent | 8,050 | | | — | | | | | 8,050 | |
| Other liabilities, noncurrent | 201 | | | — | | | | | 201 | |
| Liabilities held for sale, noncurrent | 7,678 | | | (7,678) | | | (b) | | — | |
| Total liabilities | 235,198 | | | (21,303) | | | | | 213,895 | |
| | | | | | | |
| Stockholders’ equity: | | | | | | | |
| Common stock | 2 | | | — | | | | | 2 | |
| Additional paid-in capital | 693,496 | | | — | | | | | 693,496 | |
| Treasury stock, at cost | (17,000) | | | — | | | | | (17,000) | |
| Accumulated deficit | (574,292) | | | (1,201) | | | (d) | | (575,493) | |
| Total UpHealth, Inc., stockholders' equity | 102,206 | | | (1,201) | | | | | 101,005 | |
| Noncontrolling interest | 1,393 | | | — | | | | | 1,393 | |
| Total stockholders’ equity | 103,599 | | | (1,201) | | | | | 102,398 | |
| Total liabilities and stockholders’ equity | $ | 338,797 | | | $ | (22,504) | | | | | $ | 316,293 | |
UPHEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2023
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| UpHealth, Inc. | | Transaction Accounting Adjustments | | Notes | | Pro Forma |
| | | | | | | |
| | | | | | | |
| Revenues | $ | 42,145 | | | $ | (8,840) | | | (e) | | $ | 33,305 | |
| Cost of revenues | 19,469 | | | (4,658) | | | (e) | | 14,811 | |
| Gross profit | 22,676 | | | (4,182) | | | | | 18,494 | |
| Operating expenses: | | | | | | | |
| Sales and marketing | 4,619 | | | (649) | | | (f) | | 3,970 | |
| Research and development | 1,285 | | | — | | | (f) | | 1,285 | |
| General and administrative | 11,009 | | | (800) | | | (f) | | 10,209 | |
| Depreciation and amortization | 1,611 | | | — | | | (f) | | 1,611 | |
| Stock-based compensation | 989 | | | — | | | (f) | | 989 | |
| Goodwill and intangible asset impairment | 495 | | | (495) | | | (f) | | — | |
| Acquisition, integration, and transformation costs | 3,446 | | | — | | | (f) | | 3,446 | |
| Total operating expenses | 23,454 | | | (1,944) | | | | | 21,510 | |
| Loss from operations | (778) | | | (2,238) | | | | | (3,016) | |
| Other income (expense): | | | | | | | |
| Interest expense | (6,858) | | | ― | | | | (6,858) | |
| Gain on fair value of derivative liability | 26 | | | ― | | | | 26 | |
| Gain on fair value of warrant liabilities | (8) | | | ― | | | | (8) | |
| Other income, net, including interest income | (17) | | | (7) | | | (g) | | (24) | |
| Total other expense | (6,857) | | | (7) | | | | | (6,864) | |
| Net loss before income tax benefit | (7,635) | | | (2,245) | | | | | (9,880) | |
| Income tax benefit | — | | | — | | | | | — | |
| Net loss | (7,635) | | | (2,245) | | | | | (9,880) | |
| Less: net loss attributable to noncontrolling interest | 448 | | | — | | | | | 448 | |
| Net loss attributable to UpHealth, Inc. | $ | (8,083) | | | $ | (2,245) | | | | | $ | (10,328) | |
| | | | | | | |
| Net loss per common share attributable to UpHealth, Inc.: | | | | | | | |
| Basic and diluted | $ | (0.51) | | | $ | (0.14) | | | | | $ | (0.66) | |
| | | | | | | |
| Weighted average common shares outstanding: | | | | | | | |
| Basic and diluted | 15,730 | | | 15,730 | | | | | 15,730 | |
UPHEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| UpHealth, Inc. | | Transaction Accounting Adjustments | | Notes | | Pro Forma |
| | | | | | | |
| | | | | | | |
| Revenues | $ | 158,803 | | | $ | (32,308) | | | (e) | | $ | 126,495 | |
| Cost of revenues | 88,648 | | | (20,349) | | | (e) | | 68,299 | |
| Gross profit | 70,155 | | | (11,959) | | | | | 58,196 | |
| Operating expenses: | | | | | | | |
| Sales and marketing | 15,951 | | | (2,458) | | | (f) | | 13,493 | |
| Research and development | 7,888 | | | (49) | | | (f) | | 7,839 | |
| General and administrative | 48,755 | | | (4,129) | | | (f) | | 44,626 | |
| Depreciation and amortization | 16,140 | | | (202) | | | (f) | | 15,938 | |
| Stock-based compensation | 6,464 | | | (3,650) | | | (f) | | 2,814 | |
| Lease abandonment expenses | 75 | | | — | | | (f) | | 75 | |
| Goodwill and intangible asset impairment | 114,061 | | | (1,791) | | | (f) | | 112,270 | |
| Acquisition, integration, and transformation costs | 22,214 | | | (520) | | | (f) | | 21,694 | |
| Total operating expenses | 231,548 | | | (12,799) | | | | | 218,749 | |
| Loss from operations | (161,393) | | | 840 | | | | | (160,553) | |
| Other income (expense): | | | | | | | |
| Interest expense | (26,500) | | | — | | | | | (26,500) | |
| Loss on deconsolidation of subsidiary | (37,708) | | | — | | | | | (37,708) | |
| Gain on fair value of derivative liability | 7,529 | | | — | | | | | 7,529 | |
| Gain on fair value of warrant liabilities | 242 | | | — | | | | | 242 | |
| Loss on extinguishment of debt | (14,610) | | | — | | | | | (14,610) | |
| Other income, net, including interest income | 121 | | | 36 | | | (g) | | 157 | |
| Total other income (expense) | (70,926) | | | 36 | | | | | (70,890) | |
| Net loss before income tax benefit | (232,319) | | | 876 | | | | | (231,443) | |
| Income tax benefit | 9,384 | | | (1,100) | | | (h) | | 8,284 | |
| Net loss | (222,935) | | | (224) | | | | | (223,159) | |
| Less: net loss attributable to noncontrolling interest | 65 | | | — | | | | | 65 | |
| Net loss attributable to UpHealth, Inc. | $ | (223,000) | | | $ | (224) | | | | | $ | (223,224) | |
| | | | | | | |
| Net loss per common share attributable to UpHealth, Inc.: | | | | | | | |
| Basic and diluted | $ | (15.17) | | | $ | (0.02) | | | | | $ | (15.19) | |
| | | | | | | |
| Weighted average common shares outstanding: | | | | | | | |
| Basic and diluted | 14,699 | | | 14,699 | | | | | 14,699 | |
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(In thousands)
1.Basis of Presentation
See “Introduction” for more information regarding the basis of presentation for the unaudited pro forma condensed consolidated financial information.
2. Pro Forma Adjustments
The unaudited pro forma condensed consolidated financial information reflects the impact of the following pro forma transaction accounting adjustments:
(a) Receipt of Cash Consideration
This adjustment reflects the gross cash proceeds from the Transactions of approximately $56,000,000, before adjustments for the Group Companies’ net working capital, closing debt and accrued but unpaid expenses related to the Transactions, and less the Escrow Amount (as defined in the Stock Purchase Agreement). Following the Closing, in connection with a customary adjustment to the Purchase Price (as defined in the Stock Purchase Agreement), which adjustment is expected to occur no earlier than 60 days following the date of the Closing, the Purchase Price will be increased by the amount of unrestricted cash and cash equivalents of the Group Companies as of 11:59 p.m. Pacific Time on the day immediately prior to the date of the Closing, if any.
(b) Elimination of Group Companies’ Assets and Liabilities
These adjustments reflect the elimination of assets and liabilities attributable to the Group Companies.
(c) 2025 Convertible Notes Required Prepay
These adjustments reflect the required offering to prepay the 2025 convertible notes with 20% of the net proceeds from the sale of the Group Companies.
(d) Gain on Sale of Group Companies
This adjustment reflects the gain recognized upon the sale of the Group Companies.
(e) Elimination of Group Companies’ Revenues and Cost of Revenues
These adjustments reflect the elimination of revenues and cost of revenues of the Group Companies.
(f) Elimination of Group Companies’ Operating Expenses
These adjustments reflect the elimination of operating expenses at the Group Companies.
(g) Elimination of Group Companies’ Other Expenses
These adjustments reflect the elimination of other expenses at the Group Companies.
(h) Elimination of Group Companies’ Income Tax Benefit
These adjustments reflect the elimination of income tax benefit at the Group Companies.
3. Pro Forma Net Loss per Common Share
Pro forma net loss per common share for the three months ended March 31, 2023 and year ended December 31, 2022 have been calculated based on the estimated weighted average number of common shares outstanding on a pro forma basis, as described below. The pro forma weighted average number of common shares outstanding has been calculated as if the shares issued in the Transactions had been issued and outstanding on January 1, 2022.
UpHealth’s unaudited historical condensed consolidated statements of operations for the three months ended March 31, 2023 and audited historical consolidated statements of operations for the year ended December 31, 2022 were in a net loss position, and thus UpHealth’s stock awards and outstanding warrants were excluded from the computation of net loss per share because their effect
would have been anti-dilutive. There is no adjustment for the dilutive impact of stock awards and outstanding warrants in the pro forma condensed consolidated financial information due to the pro forma results being in a net loss position.
