| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information currently available to us and based on various other assumptions that we conclude to be reasonable under the circumstances. While management concludes that such estimates are reasonable when considered in conjunction with our consolidated balance sheets and statements of operations and comprehensive income (loss) taken as a whole, actual results could differ materially from those estimates. Segments We operate in two segments in accordance with ASC Topic 280, Segment Reporting (“ASC 280”). Operating segments are components of public entities that engage in business activities from which they may earn revenues and incur expenses, and separate financial information is available and evaluated regularly by our Chief Operating Decision Maker (“CODM”) group in deciding how to assess performance and allocate resources. The two reportable segments are Technology Enabled Solutions and Advisory Services. See Note 18. Segment Information . Foreign Operations The consolidated financial statements are presented in U.S. dollars, which is our reporting currency. We translate the results of operations of our subsidiaries with functional currencies other than the U.S. dollar using average exchange rates during each period and translate balance sheet accounts using exchange rates at the end of each period. We record currency translation adjustments as a component of equity within Accumulated other comprehensive income and transaction gains and losses in other expense, net in our consolidated statements of operations and comprehensive (loss) income. Foreign currency translation balances reported within Accumulated other comprehensive income are recognized in the consolidated statements of operations and comprehensive (loss) income when the operation is disposed of or substantially liquidated. Revenue Recognition We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). For further discussion of our accounting policies related to revenue see Note 3. Revenue from Contracts with Customers. Share-based Compensation Our accounting policy for share-based compensation is disclosed in Note 11. Share-based Compensation . Cash and Cash Equivalents We consider cash in banks and holdings of highly liquid investments with original maturities of three months or less, when purchased, to be cash and cash equivalents. At various times throughout 2021 and 2020 and as of December 31, 2021 and 2020, some accounts held at financial institutions were in excess of the federally insured limit of $250 thousand. We reduce our exposure to credit risk by maintaining our cash deposits with major financial institutions. We have not experienced any losses on these accounts and conclude the credit risk to be minimal. We also have an immaterial amount of cash held in the Philippines and the Netherlands to fund local operations. Restricted Cash As part of the acquisition of HealthScape Advisors, LLC (“HealthScape Advisors”) and Pareto Intelligence LLC (“Pareto Intelligence”) in 2018, the previous shareholders agreed to set aside funds for an incentive compensation plan for employees who remained post acquisition. The payments were paid yearly and the last payment was made in December 2021. The cash for this incentive compensation plan was held as restricted cash. Any such payments have appropriately been accounted for as post business combination expense to the employees within the plan. Additionally, as a condition of certain facility lease agreements, a certificate of deposit is required to collateralize our lease payments throughout the lease term. These balances have been excluded from our cash and cash equivalent balance and are classified as a restricted cash balance in our consolidated balance sheets. Allowance for Doubtful Accounts Accounts receivable are recorded at the invoiced amounts and do not bear interest. An allowance for doubtful accounts is recorded to provide for estimated losses resulting from uncollectible accounts and is based principally on specifically identified amounts where collection is determined to be doubtful. Management analyzes the collectability of trade accounts and other receivables and the adequacy of the allowance for doubtful accounts on a regular basis taking into consideration the aging of the account balances, historical bad debt experience, customer concentration, customer credit-worthiness, customer financial condition and credit report and the current economic environment. In addition, an allowance is established when it is probable that a specific receivable is not collectible, and the loss can be reasonably estimated. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is remote. If the financial condition of our clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance and related bad debt expense may be required. Inventories Inventory consists of finished goods and is stated at lower of cost or net realizable value. The cost of inventory is computed using the first in first out method. Inventory is monitored to ensure appropriate valuation. Adjustments of inventories to the lower of cost or net realizable value, if necessary, are based on turnover and assumptions about future demand and market conditions. If assumptions about future demand change and/or actual market conditions are less favorable than those projected by management, additional adjustments to inventory valuations may be required. As of December 31, 2021 and 2020, we had a reserve for obsolescence of $0.7 million and $0.1 million, respectively. The reserve is calculated based on several factors, including projections of products not expected to be sold prior to their expiration dates. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated over the estimated useful lives of the assets using the straight-line method, which best reflects the pattern of use. Maintenance and repair costs are expensed as incurred. We test for impairment whenever events or changes in circumstances that could impact recoverability occur. Intangible Assets Purchased intangible assets with finite lives are primarily amortized using the straight-line method over the estimated economic lives of the assets, which best reflects the pattern of use. Our finite-lived intangible assets are amortized over periods between five and twenty years. Trade names are amortized over estimated useful lives between five and twenty years; Customer relationships are amortized over an estimated useful life of eleven years; and Technology is amortized over an estimated useful life of ten years. We test for impairment whenever events or changes in circumstances that could impact recoverability occur. Software Development Costs Development costs associated with certain solutions offered exclusively through software as a service model are accounted for in accordance with ASC Topic 350-40, Internal-Use Software (“ASC 350-40”). Under ASC 350-40 qualifying software costs developed for internal use are capitalized when application development begins, it is probable that the project will be completed, and the software will be used as intended. We capitalize direct costs related to application development activities that are probable to result in additional functionality. Capitalized costs are amortized on a straight-line basis over 3 to 10 years, which best represents the pattern of the software’s use. We test for impairment whenever events or changes in circumstances that could impact recoverability occur. Cloud Computing Arrangements We capitalize implementation costs related to cloud computing (i.e. hosting) arrangements that are accounted for as a service contract. Such implementation costs incurred to develop or utilize internal-use software hosted by a third-party vendor are recorded as part of Prepaid expenses and other current assets on the consolidated balance sheets. Once the installed software is ready for its intended use, such costs are amortized on a straight-line basis, to Selling, general and administrative expenses on our consolidated statements of operations and comprehensive (loss) income over the minimum term of the contract plus contractually-provided renewal periods that are reasonably expected to be exercised. Long-Lived Assets We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Acquisitions We allocate the purchase consideration to the identifiable net assets acquired, including intangible assets and liabilities assumed, based on estimated fair values at the date of the acquisition. The excess of the fair value of the purchase consideration over the fair value of the identifiable assets and liabilities, if any, is recorded as goodwill. During the measurement period, which is up to one year from the acquisition date, we may adjust provisional amounts that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to the consolidated statements of operations and comprehensive (loss) income. Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies which techniques include the royalty method, the multi-period excess earnings method, the cost approach, the market approach, and the probability weighted assessment method as considered necessary. Significant assumptions used in those methodologies include, but are not limited to, growth rates, discount rates, customer attrition rates, expected levels of revenues, earnings, cash flows and tax rates. The use of different valuation methodologies and assumptions is highly subjective and inherently uncertain and, as a result, actual results may differ materially from estimates. Goodwill Goodwill represents the fair value of acquired businesses in excess of the fair value of the individually identified net assets acquired. Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist. Impairment exists when the carrying amount, including goodwill, of the reporting unit exceeds its fair value, resulting in an impairment charge for this excess (not to exceed the carrying amount of the goodwill). Our annual impairment testing date is October 1. We can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. For purposes of the goodwill impairment test, we have determined our business operates in four reporting units: Advanced Plan Administration, Supplemental Benefit Administration, Value Based Payment Assurance, and Advisory Services. Advanced Plan Administration, Supplemental Benefit Administration, and Value Based Payment Assurance reporting units form part of the Technology Enabled Solutions reporting segment. A qualitative assessment considers macroeconomic and other industry-specific factors, such as trends in short-term and long-term interest rates and the ability to access capital, and company specific factors such as trends in revenue generating activities, and merger or acquisition activity. If we elect to bypass qualitatively assessing goodwill, or it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, management estimates the fair values of each of our reporting units mentioned above and compares it to their carrying values. The estimated fair values of the reporting units are established using an income approach based on a discounted cash flow model that includes significant assumptions about the future operating results and cash flows of each reporting unit, and a market approach which compares each reporting unit to comparable companies in their respective industries. The impairment is recorded within Operating expenses in the statements of operations and comprehensive loss in the period the determination is made. There were no impairments recorded during the periods presented. Debt Issuance Cost Deferred financing costs relate to our debt instruments, the short-term and long-term portions are reflected as a deduction from the carrying amount of the related debt. The deferred financing costs are amortized using the straight-line method over the term of the related debt instrument which approximates the effective interest method. Deferred financing costs incurred with line-of-credit arrangements are recorded as assets on our consolidated balance sheets and amortized over the term of the arrangement. Debt may be considered extinguished when it has been modified and the terms of the new debt instruments and old debt instruments are “substantially different” (as defined in the debt modification guidance in ASC Topic 470‑50, Debt — Modifications and Extinguishments (“ASC 470-50”)). Deferred Initial Public Offering Costs We incurred certain costs in connection with our IPO. Deferred IPO costs of $5.8 million were charged to shareholders’ equity upon the completion of the IPO (see Note 1. Business and Basis of Presentation ). As of December 31, 2020, deferred IPO costs were $0.4 million and were included within Prepaid expenses and other current assets on the consolidated balance sheets. Customer Concentrations Revenue and Accounts receivable from our major customers are as follows: Revenues For the Years Ended Period from Inception to December 31, 2019 Period from January 1, 2019 to September 3, 2019 (in thousands) 2021 2020 (Successor) (Predecessor) Customer A $ 93,730 $ 80,901 $ 20,972 $ 27,814 % of total revenue 27.8 % 28.6 % 26.1 % 19.8 % Customer B $ 63,838 $ 50,485 $ 17,106 $ 30,650 % of total revenue 18.9 % 17.8 % 21.3 % 21.8 % Accounts Receivable (in thousands) December 31, 2021 December 31, 2020 Customer A $ 13,161 $ 7,582 % of total accounts receivable 21.0 % 15.0 % Customer B $ 15,174 $ 3,447 % of total accounts receivable 24.2 % 6.8 % Our customer base is highly concentrated. Revenue may significantly decline if we were to lose one or more of our major customers. However, our risk is reduced due to our significant customers having multiple product delivery solutions under separate contracts. Fair Value of Financial Instruments Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. There is a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: • Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace, such as quoted market prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. • Level 3 - Unobservable inputs which are supported by little or no market activity. Financial instruments (principally cash and cash equivalents, accounts receivable, accounts payable and accrued expenses) are carried at cost, which approximates fair value due to the short-term maturity of these instruments. Our long-term credit facility is carried at cost, which approximates fair value due to the variable interest rate associated with the revolving credit facility. Contingencies A liability is contingent if the amount is not presently known but may become known in the future as a result of the occurrence of some uncertain future event. We accrue a liability for an estimated loss if we determine that the potential loss is probable of occurring and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made. We expense legal costs, including those legal costs incurred in connection with a loss contingency, as incurred. Selling, General and Administrative (“SG&A”) SG&A expenses includes the total cost of payroll, related benefits and other personnel expense for employees who do not have a direct role with revenue generation activities, including those involved with developing new service offerings. SG&A expenses include all general operating costs including, but not limited to, rent and occupancy costs, telecommunications costs, information technology infrastructure costs, technology development costs, software licensing costs, advertising and marketing expenses and expenses related to the use of certain subcontractors and professional services firms. SG&A expenses do not include depreciation and amortization, which is stated separately in the consolidated statements of operations and comprehensive (loss) income. Leases We lease various property and equipment. Amortization of assets accounted for as capital leases is computed utilizing the straight-line method over the shorter of the remaining lease term or the estimated useful life. All other leases, primarily facility leases, are accounted for as operating leases. Rent expense for operating leases, which may have rent escalation provisions or rent holidays, is recorded on a straight-line basis over the non-cancelable lease period. The difference between rent expensed and rent paid is recorded as deferred rent. Lease incentives received from landlords are recorded as a deferred rent credit and amortized to rent expense over the term of the lease. Deferred rent is included in other long-term liabilities and accrued expenses on the consolidated balance sheets. Discontinued Operations We report financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component or a group of components represents a strategic shift that will have a major effect on our operations and financial results. In our consolidated statements of cash flows, the cash flow from discontinued operations are not separately classified. Unless indicated otherwise, the information in the Notes to the consolidated financial statements relates to continuing operations. See Note 17. Discontinued Operations . Income Taxes Income tax expense includes federal, state, and foreign taxes and is based on reported income before income taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilities are anticipated to be settled or realized. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from uncertain tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. Interest related to uncertain tax positions is recognized as part of the provision for income taxes and is accrued beginning in the period that such interest would be applicable under relevant tax law until such time that the related tax benefits are recognized. Contingent Consideration We recognized an earn-out liability in connection with the November 2018 acquisition of HealthScape Advisors and Pareto Intelligence, which represented contingent consideration. The initial fair value of the earn-out liability was determined by employing a Monte-Carlo simulation model. The underlying simulated variable was adjusted revenue discounted by the market price of risk embedded in the revenue metrics. The revenue volatility estimate was based on a study of historical asset volatility and implied volatility for a set of comparable public companies, adjusted by our operating leverage. The earn-out payments were calculated based on simulated revenue metrics and payment thresholds as set forth in the HealthScape Advisors and Pareto Intelligence purchase agreement. The calculated payments were further discounted back to present value using cost of debt reflecting our credit risk. The fair value of the earn-out liability at each reporting date subsequent to the acquisition was measured using a probability weighted approach. Any change in fair value was recognized in the consolidated statements of operations and comprehensive (loss) income. In connection with the Merger, we recognized a holdback liability, which represented contingent consideration. See Note 4. Acquisitions for additional information. The initial fair value of the holdback liabilities and at each subsequent reporting date was measured using a probability weighted approach. Any change in fair value was recognized in the consolidated statements of operations and comprehensive (loss) income. During the year ended December 31, 2021, we made a final payment of $13.1 million related to the holdback liability and a $7.5 million final payment related to the earn-out liability due to HealthScape Advisors. The following table provides a reconciliation of our Level 3 earn-out and holdback liabilities for the year ended December 31, 2021: (in thousands) Balance at December 31, 2020 $ 20,538 Payments against the earn-out liabilities (7,500) Payments against the holdback liabilities (13,134) Change in fair value of earn-out liabilities 96 Balance at December 31, 2021 $ — The following table provides a reconciliation of our Level 3 earn-out and holdback liabilities for the year ended December 31, 2020: (in thousands) Balance at December 31, 2019 $ 43,175 Payments against the earn-out liabilities (11,867) Change in fair value of the holdback liabilities 10,329 Change in fair value of the earn-out liabilities (21,099) Balance at December 31, 2020 $ 20,538 Net Income (Loss) Per Common Share Basic income (loss) per share is computed by dividing net income (loss) attributable to common shareholders (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted net income (loss) per common share attributable to common shareholders is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period adjusted for the dilutive effects of common stock equivalents. In periods when losses from continuing operations are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. For the Years Ended Period from Period from (in thousands, except share and per share data) 2021 2020 (Successor) (Predecessor) Net income (loss) attributable to common shareholders Net income (loss) from continuing operations $ (9,978) $ (6,498) $ (16,899) $ 4,345 Net income (loss) from discontinued operations — 36 73 (696) Net income (loss) attributable to common shareholders $ (9,978) $ (6,462) $ (16,826) $ 3,649 Weighted-average common shares outstanding: Basic 67,695,030 61,321,424 35,821,422 1,431,305 Diluted — — — 112,469 Dilutive impact of stock awards outstanding 67,695,030 67,695,030 61,321,424 35,821,422 1,543,774 Income (Loss) per share: Basic Continuing operations $ (0.15) $ (0.11) $ (0.47) $ 3.04 Discontinued operations — — — (0.49) Net income (loss) per common share $ (0.15) $ (0.11) $ (0.47) $ 2.55 Diluted Continuing operations $ (0.15) $ (0.11) $ (0.47) $ 2.81 Discontinued operations — — — (0.49) Net income (loss) per common share $ (0.15) $ (0.11) $ (0.47) $ 2.32 For the year ended December 31, 2021 and 2020, 5,790,440 and 5,621,364 of potentially dilutive share-based awards outstanding, respectively, were excluded from the computation of diluted net income (loss) related to common holders as their effect was anti-dilutive. There were no potentially dilutive share-based awards outstanding from the period from Inception to December 31, 2019 (Successor). See Note 11. Share-Based Compensation . Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”), which amended the accounting for income taxes. ASU 2019-12 eliminates certain exceptions to the guidance for income taxes related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences as well as simplifying aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. We early adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a material impact on our consolidated financial statements. Accounting Pronouncements Issued Not Yet Adopted In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The guidance specifies that lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases except those which meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or financing. Classification will be based on criteria that are similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates in fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. As of December 31, 2021, we have identified our arrangements that are within the scope of the new guidance and have evaluated our portfolio of leases, which is primarily comprised of operating real estate leases for our respective offices. We will elect the package of practical expedients under which we will not reassess prior conclusions about lease identification, lease classification, and initial direct costs of existing leases as of the date of the adoption and, upon adoption, will recognize the right-of-use lease assets and related lease liabilities as of the adoption date using the modified retrospective approach. Prior period information will not be restated. Upon transition to the guidance as of the date of adoption, we expect to recognize approximately $21.0 million of operating lease liabilities on the consolidated balance sheet, with a corresponding amount of right-of-use assets, net of amounts reclassified from other assets liabilities In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), subsequently clarified in January 2021 by ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The main provisions of this update provide optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 and ASU 2021-01 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022. We are currently evaluating the new guidance to determine the impact ASU 2020-04 and ASU 2021-01 will have on our consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) (“ASU 2021-08”). The new guidance creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. Under this exception, an acquirer applies Topic 606 to recognize and measure contract assets and contract liabilities on the acquisition date. Topic 805 generally requires the acquirer in a business combination to recognize and measure the assets it acquires and liabilities it assumes at fair value on the acquisition date. This generally will result in companies recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date. This new guidance is effective for emerging growth companies following private business adoption dates, for the fiscal years beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements. |
