uph-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________

FORM 10-Q

___________________________________

(Mark One)


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

For the quarterly period ended March 31, 2023


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

For the transition period from ________ to ________

Commission File Number: 001-38924

UpHealth, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware		83-3838045
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
14000 S. Military Trail,	Suite 203	33484
Delray Beach,	Florida
(Address of principal executive offices)		(Zip Code)

(888) 424-3646

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

UPH

New York Stock Exchange

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

UPH.WS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 10, 2023, the registrant had 16,784,476 shares of common stock, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS


			Page

Part I - Financial Information			4
Item 1. Financial Statements			4
Condensed Consolidated Balance Sheets			5
Condensed Consolidated Statements of Operations			6
Condensed Consolidated Statements of Comprehensive Loss			7
Condensed Consolidated Statements of Stockholders’ Equity			8
Condensed Consolidated Statements of Cash Flows			9
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41

Part II - Other Information			42
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 3. Defaults Upon Senior Securities			45
Item 4. Mine Safety Disclosures			45
Item 5. Other Information			45
Item 6. Exhibits			46
Signatures			49

Part 1 - Financial Information

Item 1. Financial Statements

UPHEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	March 31, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	13,333	$	15,557
Accounts receivable, net	24,432		21,851
Inventories	134		161
Due from related parties	—		14
Prepaid expenses and other current assets	3,263		2,991
Assets held for sale, current	3,178		2,748
Total current assets	44,340		43,322
Property and equipment, net	14,324		14,069
Operating lease right-of-use assets	6,644		7,213
Intangible assets, net	30,216		31,362
Goodwill	159,675		159,675
Equity investment	21,200		21,200
Other assets	474		438
Assets held for sale, noncurrent	61,924		62,525
Total assets	$	338,797	$	339,804
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	17,261	$	17,983
Accrued expenses	41,099		38,763
Deferred revenue	1,549		2,738
Due to related party	166		229
Income taxes payable	367		388
Related-party debt, current	200		—
Lease liabilities, current	5,317		5,475
Other liabilities, current	433		74
Liabilities held for sale, current	2,975		3,319
Total current liabilities	69,367		68,969
Related-party debt, noncurrent	31		281
Debt, noncurrent	148,621		145,962
Deferred tax liabilities	1,203		1,200
Derivative liability, noncurrent	30		56
Warrant liabilities, noncurrent	17		9
Lease liabilities, noncurrent	8,050		8,741
Other liabilities, noncurrent	201		662
Liabilities held for sale, noncurrent	7,678		7,787
Total liabilities	235,198		233,667
Commitments and Contingencies (Note 16)
Stockholders’ Equity:
Common stock	2		2
Additional paid-in capital	693,496		688,355
Treasury stock, at cost	(17,000)		(17,000)
Accumulated deficit	(574,292)		(566,209)
Total UpHealth, Inc., stockholders’ equity	102,206		105,148
Noncontrolling interests	1,393		989
Total stockholders’ equity	103,599		106,137
Total liabilities and stockholders’ equity	$	338,797	$	339,804

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

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	Three Months Ended March 31,
	2023		2022
Revenues:
Services	$	30,941	$	25,686
Licenses and subscriptions	1,936		1,781
Products	9,268		8,505
Total revenues	42,145		35,972
Costs of revenues:
Services	13,744		15,758
License and subscriptions	319		233
Products	5,406		5,990
Total costs of revenues	19,469		21,981
Gross profit	22,676		13,991
Operating expenses:
Sales and marketing	4,619		3,434
Research and development	1,285		1,758
General and administrative	11,009		11,467
Depreciation and amortization	1,611		5,236
Stock-based compensation	989		1,374
Lease abandonment expenses	—		75
Goodwill and intangible asset impairment	495		6,174
Acquisition, integration, and transformation costs	3,446		2,384
Total operating expenses	23,454		31,902
Loss from operations	(778)		(17,911)
Other expense:
Interest expense	(6,858)		(6,995)
Gain on fair value of derivative liability	26		4,829
Gain (loss) on fair value of warrant liabilities	(8)		95
Other expense, net, including interest income	(17)		(16)
Total other expense	(6,857)		(2,087)
Loss before income tax benefit	(7,635)		(19,998)
Income tax benefit	—		2,293
Net loss	(7,635)		(17,705)
Less: net income (loss) attributable to noncontrolling interests	448		(260)
Net loss attributable to UpHealth, Inc.	$	(8,083)	$	(17,445)
Net loss per share attributable to UpHealth, Inc.:
Basic and diluted	$	(0.51)	$	(1.21)
Weighted average shares outstanding:(1)
Basic and diluted	15,730		14,454

(1)Amounts as of March 31, 2022 and before that date differ from those published in our prior condensed consolidated financial statements as they were retrospectively adjusted as a result of the Reverse Stock Split (as described below in Note 1, Organization and Business). Specifically, the number of common shares outstanding during periods before the Reverse Stock Split are divided by the exchange ratio of 10:1, such that each ten shares of common stock were combined and reconstituted into one share of common stock effective December 8, 2022.

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

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, unaudited)


	Three Months Ended March 31,
	2023		2022
Net loss	$	(7,635)	$	(17,705)
Foreign currency translation adjustments, net of tax	—		(1,377)
Comprehensive loss	(7,635)		(19,082)
Comprehensive income (loss) attributable to noncontrolling interests	448		(260)
Comprehensive loss attributable to UpHealth, Inc.	$	(8,083)	$	(18,822)

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

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, unaudited)


	Common Stock					Treasury Stock
	Shares	Amount		Additional Paid-In Capital		Shares	Amount		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total UpHealth, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
Balance as of January 1, 2023	15,054	$	2	$	688,355	170	$	(17,000)	$	(566,209)	$	—	$	105,148	$	989	$	106,137
Equity award activity, net of shares withheld for taxes	80	—		(3)		—	—		—		—		(3)		—		(3)
Issuance of common stock in connection with 2023 private placement, net of issuance costs of $348	1,650	—		4,155		—	—		—		—		4,155		—		4,155
Stock-based compensation	—	—		989		—	—		—		—		989		—		989
Net income (loss)	—	—		—		—	—		(8,083)		—		(8,083)		448		(7,635)
Distribution to noncontrolling interests	—	—		—		—	—		—		—		—		(44)		(44)
Balance as of March 31, 2023	16,784	$	2	$	693,496	170	$	(17,000)	$	(574,292)	$	—	$	102,206	$	1,393	$	103,599


	Common Stock					Treasury Stock
	Shares	Amount		Additional Paid-In Capital		Shares	Amount		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total UpHealth, Inc. Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
Balance as of January 1, 2022(1)	14,428	$	1	$	665,474	—	$	—	$	(343,209)	$	(3,802)	$	318,464	$	15,379	$	333,843
Equity award activity, net of shares withheld for taxes(1)	37	—		(68)		—	—		—		—		(68)		—		(68)
Stock-based compensation	—	—		1,374		—	—		—		—		1,374		—		1,374
Net loss	—	—		—		—	—		(17,445)		—		(17,445)		(260)		(17,705)
Foreign currency translation adjustments	—	—		—		—	—		—		(1,377)		(1,377)		—		(1,377)
Balance as of March 31, 2022(1)	14,465	$	1	$	666,780	—	$	—	$	(360,654)	$	(5,179)	$	300,948	$	15,119	$	316,067

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

UPHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	Three Months Ended March 31,
	2023		2022
Operating activities:
Net loss	$	(7,635)	$	(17,705)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,412		6,605
Amortization of debt issuance costs and discount on convertible debt	2,659		3,485
Stock-based compensation	989		1,374
Impairment of property and equipment, intangible assets and goodwill	495		5,459
Provision for credit losses	(122)		(342)
Loss (gain) on fair value of warrant liabilities	8		(95)
Gain on fair value of derivative liability	(26)		(4,829)
Deferred income taxes	—		(2,262)
Amortization of operating lease right-of-use assets	559		—
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(2,456)		3,472
Inventories	26		(161)
Prepaid expenses and other current assets	(632)		(577)
Accounts payable and accrued expenses	1,611		3,067
Operating lease liabilities	(587)		—
Income taxes payable	(19)		317
Deferred revenue	(1,188)		(907)
Due to related parties	(49)		62
Other current liabilities	(84)		(34)
Net cash used in operating activities	(4,039)		(3,071)
Investing activities:
Purchases of property and equipment	(1,341)		(1,663)
Net cash used in investing activities	(1,341)		(1,663)
Financing activities:
Proceeds from 2023 private placement, net of issuance costs of $348	4,152		—
Repayments of debt	—		(151)
Payments of finance and capital lease obligations	(899)		(800)
Net tax withholdings from share-based compensation	(3)		(68)
Payments of amounts due to members	(50)		—
Distribution to noncontrolling interest	(44)		—
Net cash provided by (used in) provided by financing activities	3,156		(1,019)
Effect of exchange rate changes on cash and cash equivalents	—		(394)
Net decrease in cash and cash equivalents	(2,224)		(6,147)
Cash and cash equivalents, beginning of period	15,557		76,801
Cash and cash equivalents, end of period	$	13,333	$	70,654

Supplemental cash flow information:
Cash paid for interest	$	2,283	$	235
Cash paid for income taxes	$	19	$	521
Non-cash investing and financing activity:
Property and equipment reclassified from other assets	$	—	$	3,833
Property and equipment acquired through capital lease and vendor financing arrangements	$	179	$	1,628
FIN 48 liability reclassified from deferred tax liabilities	$	—	$	1,750
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	13,333	$	52,036
Restricted cash	—		18,618
Total cash and cash equivalents and restricted cash	$	13,333	$	70,654

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

UPHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in dollars, unaudited)

1.Organization and Business

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

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

Deconsolidation of Glocal

As a result of events which occurred during the three months ended September 30, 2022, we determined that a reconsideration event occurred in July 2022, which required us to reassess whether Glocal Healthcare Systems Private Limited (“Glocal”) was a Variable Interest Entity (“VIE”) and whether we continued to have a controlling financial interest in Glocal. Based on this assessment, we concluded that Glocal was a VIE, and furthermore, that we no longer have the ability to direct any activities of Glocal and no longer have a controlling financial interest. As a result, effective July 2022, we deconsolidated Glocal and recorded a $37.7 million loss on deconsolidation of equity investment in our unaudited condensed consolidated statements of operations, measured as the difference between the probability-weighted fair value of Glocal of $21.2 million and the carrying amount of Glocal’s assets and liabilities as of July 1, 2022. The probability-weighted fair value of Glocal, which is included in equity investment in our unaudited condensed consolidated balance sheets, incorporated scenarios where control of Glocal was gained and Glocal would continue as a going concern, control of Glocal was gained and Glocal would need to be liquidated, and control of Glocal was not gained and the equity investment in Glocal would be worthless. Further, we assessed the prospective accounting for our equity investment in Glocal. Since we no longer had the ability to exercise significant influence over operating and financial policies of Glocal, we concluded the investment should be accounted for utilizing the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 321, Investments - Equity Securities (“ASC 321”) measurement alternative, whereby the investment was measured at cost and will continue to be evaluated for any indicators of impairment. In addition, we derecognized $14.3 million of noncontrolling interests related to Glocal. If through legal processes we are able to obtain the ability to direct the activities of Glocal, and it is our intent to exercise all legal rights and remedies to achieve such a result, then we will further reassess the appropriate accounting treatment of our investment in Glocal.

The financial results of Glocal for the three months ended March 31, 2022 are included in our unaudited condensed consolidated financial statements, and the financial position of Glocal as of March 31, 2023 and December 31, 2022 and the financial results of Glocal for the three months ended March 31, 2023 are not included in our unaudited condensed consolidated financial statements. The only transactions between us and Glocal subsequent to July 1, 2022 was the transfer by us during the three months ended September 30, 2022 of $5.1 million to a designated “Share Account” maintained with a leading bank in India in the name of Glocal for which our Chief Financial Officer is the sole authorized signatory.

Reverse Stock Split

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

Sale of Innovations Group

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

2.Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

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

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

All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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

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

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

•The valuation of equity investments, including our determination of the fair value of Glocal;

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

•The estimated economic lives and recoverability of intangible assets;

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

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

•The identification of and provision for uncollectible accounts receivable;

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

•The valuation of derivatives and warrants; and

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

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

Allowance for Expected Credit Losses

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

Equity Investment

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

Held for Sale

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

New Accounting Pronouncements Not Yet Adopted

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

Recently Adopted Accounting Pronouncements

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation as shown below:


	Three Months Ended March 31, 2022
	As Reported		Reclassifications		As Adjusted
Revenues:
Services	$	25,686	$	—	$	25,686
Licenses and subscriptions	1,781		—		1,781
Products	8,505		—		8,505
Total revenues	35,972		—		35,972
Costs of revenues:
Services	14,445		1,313		15,758
License and subscriptions	233		—		233
Products	5,990		—		5,990
Total costs of revenues	20,668		1,313		21,981
Gross profit	15,304		(1,313)		13,991
Operating expenses:
Sales and marketing	2,726		708		3,434
Research and development	1,587		171		1,758
General and administrative	13,659		(2,192)		11,467
Depreciation and amortization	5,236		—		5,236
Stock-based compensation	1,374		—		1,374
Lease abandonment expenses	75		—		75
Goodwill and intangible asset impairment	6,174		—		6,174
Acquisition, integration, and transformation costs	2,384		—		2,384
Total operating expenses	33,215		(1,313)		31,902
Loss from operations	(17,911)		—		(17,911)
Other expense:
Interest expense	(6,995)		—		(6,995)
Gain on fair value of derivative liability	4,829		—		4,829
Gain on fair value of warrant liabilities	95		—		95
Other expense, net, including interest income	(16)		—		(16)
Total other expense	(2,087)		—		(2,087)
Loss before income tax benefit	(19,998)		—		(19,998)
Income tax benefit	2,293		—		2,293
Net loss	(17,705)		—		(17,705)
Less: net loss attributable to noncontrolling interests	(260)		—		(260)
Net loss attributable to UpHealth, Inc.	$	(17,445)	$	—	$	(17,445)

3. Assets and Liabilities Held for Sale

On February 26, 2023, we entered into an agreement to sell Innovations Group, one of our subsidiaries within our Services segment. The transaction closed on May 11, 2023. In connection with entering into this agreement, we concluded that the disposal group met the held for sale criteria and classified the assets and liabilities as held for sale as of March 31, 2023.

In connection with the held for sale classification, we recorded a total loss of $0.5 million in the three months ended March 31, 2023 and $1.8 million in the three months ended December 31, 2022 on the remeasurement of the disposal group to its fair value, less cost to sell, which was recorded in goodwill and intangible asset impairment in the condensed consolidated statements of operations.

Total assets and liabilities of the disposal group held for sale on the March 31, 2023 and December 31, 2022 condensed consolidated balance sheets consisted of the following:


	March 31, 2023		December 31, 2022
Accounts receivable, net	$	117	$	78
Inventories	2,425		2,058
Prepaid expenses and other current assets	636		612
Property and equipment, net	4,602		4,602
Operating lease right-of-use assets	1,193		1,298
Intangible assets, net	23,063		23,063
Goodwill	33,561		35,353
Less: Impairment	(495)		(1,791)
Total assets held for sale	$	65,102	$	65,273

Accounts payable	$	978	$	1,104
Accrued expenses	1,329		1,544
Deferred revenue	234		242
Lease liabilities, current	434		429
Deferred tax liabilities	6,918		6,918
Lease liabilities, noncurrent	760		869
Total liabilities held for sale	$	10,653	$	11,106

4. Revenues

As discussed in Note 1, Organization and Business, we deconsolidated Glocal during the three months ended September 30, 2022; accordingly, the financial results of Glocal for the three months ended March 31, 2022 are included in our unaudited condensed consolidated financial statements, and the financial results of Glocal for the three months ended March 31, 2023 are not included in our unaudited condensed consolidated financial statements.

Revenues by geography consisted of the following:


	Three months ended March 31,
(In thousands)	2023		2022
Americas	$	42,145	$	32,663
Asia	—		3,309
Total revenues	$	42,145	$	35,972

Our revenues are entirely derived from the healthcare industry. Revenues recognized over-time were approximately 75% and 71% of the total revenues during three months ended March 31, 2023 and 2022, respectively.

Contract Assets

There were no impairments of contract assets, consisting of unbilled receivables, during the three months ended March 31, 2023 and 2022.

The change in contract assets was as follows:


	Three Months Ended March 31,
(In thousands)	2023		2022
Unbilled receivables, beginning of period	$	694	$	784
Reclassifications to billed receivables	(694)		(232)
Revenues recognized in excess of period billings	668		285
Unbilled receivables, end of period	$	668	$	837

Contract Liabilities

The change in contract liabilities, consisting of deferred revenue, was as follows:


	Three Months Ended March 31,
(In thousands)	2023		2022
Deferred revenue, beginning of period	$	2,738	$	2,649
Revenues recognized from balances held at the beginning of the period	(1,442)		(1,581)
Revenues deferred from period collections on unfulfilled performance obligations	253		664
Deferred revenue, end of period	$	1,549	$	1,732

Revenues recognized ratably over time are generally billed in advance and includes software-as-a-service (“SaaS”) internet hosting, subscriptions, construction of digital hospitals and dispensaries, and related consulting, implementation, services support, and advisory services.

Revenues recognized as delivered over time include professional services billed on a time and materials basis, and fixed fee professional services and training classes that are primarily billed, delivered, and recognized within the same reporting period.

Approximately 3.4% of revenues recognized during the three months ended March 31, 2023, was from the deferred revenue balance existing as of December 31, 2022. Approximately 4% of revenues recognized during the three months ended March 31, 2022, was from the deferred revenue balance existing as of December 31, 2021.

Remaining Performance Obligations

Remaining performance obligations consisted of the following as of March 31, 2023:


(In thousands)	Remaining 2023		2024		Total
Subscriptions	$	2,919	$	1,104	$	4,023
Program management and professional services	2,092		—		2,092
Total	$	5,011	$	1,104	$	6,115

5. Supplemental Financial Statement Information

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

Property and equipment consisted of the following:


(In thousands)	March 31, 2023		December 31, 2022
Leasehold improvements	$	878	$	868
Electrical and other equipment	21		21
Computer equipment, furniture and fixtures	16,413		16,222
Vehicles	305		302
Capitalized software development costs	6,925		4,404
Capitalized software development costs in progress	849		2,590
	25,391		24,407
Accumulated depreciation and amortization	(11,067)		(10,338)
Total property and equipment, net	$	14,324	$	14,069

As discussed in Note 4, Assets and Liabilities Held for Sale, an additional $4.6 million of property and equipment are included in assets held for sale, noncurrent, in the condensed consolidated balance sheet as of both March 31, 2023 and December 31, 2022.

Depreciation expense was $1.3 million and $1.5 million for the three months ended March 31, 2023 and 2022, respectively.

Accrued expenses consisted of the following:


(In thousands)	March 31, 2023		December 31, 2022
Accrued professional fees	$	15,768	$	14,245
Accrued products and licenses	17,820		17,820
Accrued interest on debt	2,553		741
Accrued payroll and bonuses	4,715		5,163
Other accruals	243		794
Total accrued expenses	$	41,099	$	38,763

As discussed in Note 4, Assets and Liabilities Held for Sale, an additional $1.3 million and $1.5 million of accrued expenses are included in liabilities held for sale, current, in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

6. Intangible Assets

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

The changes in carrying amounts of intangible assets consisted of the following as of March 31, 2023:


(In thousands)	Trade Names		Technology and Intellectual Property		Customer Relationships		Total
December 31, 2022	$	11,995	$	5,850	$	13,517	$	31,362
Amortization	(358)		(379)		(409)		(1,146)
March 31, 2023	$	11,637	$	5,471	$	13,108	$	30,216

No impairment charge was recognized during the three months ended March 31, 2023. An impairment charge of $0.7 million was recognized during the three months ended March 31, 2022 in our Services segment.

As discussed in Note 3, Assets and Liabilities Held for Sale, an additional $23.1 million of intangible assets (which includes trade names of $9.1 million, technology and intellectual property of $5.7 million, customer relationships of $7.8 million, and lease assets of $0.5 million) are included in assets held for sale, noncurrent, in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022.

The estimated useful lives of trade names are 3-10 years, the estimated useful lives of technology and intellectual property are 5-7 years, and the estimated useful life of customer relationships is 10 years.

Amortization expense was $1.1 million and $5.1 million for the three months ended March 31, 2023 and 2022, respectively.

The estimated amortization expense related to definite-lived intangible assets for the five succeeding years is as follows:


(In thousands)	Trade Name Amortization		Technology and Intellectual Property Amortization		Customer Relationships Amortization		Total
Remaining 2023	$	1,058	$	1,149	$	1,212	$	3,419
2024	1,416		1,532		1,616		4,564
2025	1,416		1,532		1,616		4,564
2026	1,416		896		1,616		3,928
2027	1,416		362		1,616		3,394
Thereafter	4,915		—		5,432		10,347
	$	11,637	$	5,471	$	13,108	$	30,216

7. Goodwill

As discussed in Note 3, Assets and Liabilities Held for Sale, an additional $33.1 million and $33.6 million of goodwill is included in assets held for sale, noncurrent, in the condensed consolidated balance sheets as of March 31, 2023 and December 31,

2022, respectively. In the three months ended March 31, 2023, we recorded a $0.5 million impairment charge on the remeasurement of the Innovations Group disposal group to the expected proceeds, less cost to sell, which was included in assets held for sale, noncurrent, in our condensed consolidated balance sheets. See Note 3, Assets and Liabilities Held for Sale, for further information. In the three months ended March 31, 2022, as a result of measurement period adjustments, we increased goodwill in the amount of $5.5 million, which was immediately impaired.

The carrying amount of goodwill consisted of the following:


(In thousands)	March 31, 2023		December 31, 2022
Goodwill	$	159,675	$	159,675

8. Debt

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

Debt consisted of the following:


(In thousands)	March 31, 2023		December 31, 2022
2025 Notes	$	67,500	$	67,500
2026 Notes	115,000		115,000
Total debt	182,500		182,500
Less: unamortized original issue and debt discount	(33,879)		(36,538)
Total debt, net of unamortized original issue and debt discount	148,621		145,962
Less: current portion of debt	—		—
Noncurrent portion of debt	$	148,621	$	145,962

2026 Unsecured Convertible Notes and Indenture

On January 20, 2021, GigCapital2 entered into convertible note subscription agreements, each dated January 20, 2021 and amended on June 8, 2021, with certain institutional investors, pursuant to which GigCapital2 agreed to issue and sell unsecured convertible notes in a private placement to close immediately prior to the closing of the Business Combinations.

On June 15, 2021, in connection with the closing of the Business Combinations, we entered into an indenture (the “2026 Indenture”) with Wilmington Trust, National Association, a national banking association, (the “Indenture Trustee”) in its capacity as trustee thereunder, in respect of the $160.0 million in aggregate principal amount of unsecured convertible notes due in 2026 (the “2026 Notes”) that were issued to certain institutional investors. The 2026 Notes bear interest at a rate of 6.25% per annum, payable semi-annually, and were convertible following the reverse split of our shares into approximately 1,502,347 shares of common stock at a conversion price of $106.50 in accordance with the terms of the 2026 Indenture, and will mature on June 15, 2026. The total proceeds received from the 2026 Notes were $151.9 million, net of debt issuance costs of $8.1 million. In accounting for the 2026 Notes, we bifurcated and accounted for the conversion option as a derivative measured at fair value on the issuance date in accordance with ASC 815, Derivatives and Hedging. The difference between the proceeds allocated to the 2026 Notes at issuance and the fair value of the conversion option was allocated to the host debt contract. As of March 31, 2023 and December 31, 2022, the fair value of the derivative was $30 thousand and $0.1 million, respectively, all of which was included in derivative liability, noncurrent, in our unaudited condensed consolidated balance sheets.

Total interest expense for the three months ended March 31, 2023 was $4.3 million, of which $1.8 million related to contractual interest expense, $2.2 million related to derivative accretion, and $0.3 million related to debt issuance costs amortization. Total interest expense for the three months ended March 31, 2022 was $6.0 million, of which $2.5 million related to contractual interest expense, $3.1 million related to derivative accretion, and $0.4 million related to debt issuance costs amortization. Total other income for the three months ended March 31, 2023 and 2022 included a $26 thousand gain and a $4.8 million gain on the fair value of the derivative liability, respectively.

On August 12, 2022, concurrently and in connection with the issuance of our 2025 senior secured convertible notes and indenture (see below), Oppenheimer & Co. Inc. (“OpCo”) commenced a private offer to repurchase approximately $45.0 million in aggregate principal amount of our 2026 Notes (the “2026 Notes Repurchase”). In connection with the 2026 Notes Repurchase, OpCo entered into a note purchase agreement with each institutional investor pursuant to which OpCo agreed to purchase 2026 Notes from

each investor, concurrently with each investor’s purchase of 2025 Notes in the 2025 Notes Offering (see below). At the closing, each investor had the ability to sell $2.0 million in principal amount of 2026 Notes at 100% of par value for each $3.0 million in principal amount of 2025 Notes purchased in the 2025 Notes Offering. Concurrently and in connection with the closing on August 18, 2022, OpCo purchased from each investor the principal amount of the 2026 Notes set forth in each investor’s note purchase agreement, pursuant to and in accordance with the terms thereof. Following the reverse split of shares, the remaining 2026 Notes are convertible into approximately 1,079,812 shares of common stock at a conversion price of $106.50 in accordance with the terms of the Indenture.

2025 Senior Secured Convertible Notes and Indenture

On August 12, 2022, we entered into an indenture (the “2025 Indenture”) with the Indenture Trustee in its capacity as trustee thereunder, in respect of the $67.5 million in aggregate principal amount of a new series of variable rate convertible senior secured notes due December 15, 2025 (the “2025 Notes”) issued to holders of our 2026 Notes in a private placement transaction (“2025 Notes Offering”), raising approximately $22.5 million in gross cash proceeds, net of debt issuance costs of $2.2 million, after paying for a repurchase of $45.0 million of the 2026 Notes, which net proceeds were used in part to fully repay the Seller Notes (see below). The debt issuance costs consisted of cash paid in the amount of $1.5 million and the issuance of 115,000 shares of common stock, following the reverse stock split, with a value of $0.7 million. The 2025 Notes are convertible following the reverse split of our shares into 3,857,142 shares of our common stock at a conversion price, subject to the occurrence of certain corporate events, of $17.50 per share. The 2025 Notes are senior secured obligations of UpHealth, secured by substantially all of our assets and those of our domestic subsidiaries, and accrue interest at a rate equal to the daily secured overnight financing rate (“SOFR”) plus 9.0% per annum, with a minimum rate of 10.5% per annum, payable quarterly in arrears, for a quarterly rate of 12.21% for our December 15, 2022 interest payment date. The 2025 Notes will mature on December 15, 2025, unless earlier repurchased, redeemed or converted. Holders will have the right to convert their 2025 Notes at any time. Upon the occurrence of certain corporate events, holders of the 2025 Notes can require us to repurchase for cash all or part of their 2025 Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price that will be equal to 105% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest thereon, if any. In the event that we sell assets with net proceeds in excess of $15.0 million, then it will make an offer to all holders of the 2025 Notes to repurchase the 2025 Notes for an aggregate amount of cash equal to 20.0% of the net proceeds of such asset sale, at a repurchase price per 2025 Note equal to 100.0% of the principal amount thereof, plus accrued and unpaid interest, if any. We may not otherwise seek to redeem the 2025 Notes prior to June 16, 2024. We will settle conversions solely in shares of its common stock, except for payments of cash in lieu of fractional shares.

Total interest expense for the three months ended March 31, 2023 was $2.5 million, of which $2.3 million related to contractual interest expense and $0.2 million related to debt issuance costs amortization.

In March 2023, the Indenture Trustee, in its capacity as calculation agent, notified us of the quarterly rate reset of 14.03% for our June 15, 2023 interest payment date.

Related Party Debt

One of our subsidiaries has notes payable to related parties totaling $0.2 million and $0.3 million as of March 31, 2023 and December 31, 2022. The notes bear interest at rates of 3.50% per annum. The notes are payable in eight quarterly installments starting from October 1, 2022, or upon a liquidity event, as defined in the note agreement. The accrued interest payable was zero as of both March 31, 2023 and December 31, 2022. Interest expense was $3 thousand and $10 thousand for the three months ended March 31, 2023 and 2022, respectively.

Seller Notes

As part of the purchase price consideration for several of UpHealth Holdings’ merger entities, we entered into seller notes payable to their former shareholders, which accrue interest at specific rates, per the respective merger agreements. On June 9, 2021, in connection with the closing of the Business Combination, we paid $88.1 million of the seller notes. In August 2021, we paid an additional $11.1 million of the seller notes and deferred the maturity date to September 2022. In August 2022, we paid the remaining $18.7 million of seller notes plus accrued interest of $1.9 million. As of both March 31, 2023 and December 31, 2022, the seller notes totaled zero.

Accrued interest payable was zero as of both March 31, 2023 and December 31, 2022. Interest expense was zero and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.

9. Fair Value of Financial Instruments

We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate. As of March 31, 2023 and December 31, 2022, the fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their carrying values due to the short-term nature of these instruments. Additionally, the fair values of short-term and long-term debt instruments approximate their carrying values.

The fair value hierarchy is as follows:

Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 - Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:

•Quoted prices for similar assets/liabilities in active markets;

•Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

•Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

•Inputs that are derived principally from or corroborated by other observable market data.

Level 3 - Unobservable inputs that cannot be corroborated by observable market data.

The following tables present information about our financial assets and liabilities measured at fair value on are recurring basis:


	March 31, 2023
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents - money market funds	$	96	$	—	$	—	$	96
	$	96	$	—	$	—	$	96
Liabilities:
Derivative liability	$	—	$	—	$	30	$	30
Warrant liability	—		17		—		17
	$	—	$	17	$	30	$	47


	December 31, 2022
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents - money market funds	$	1,681	$	—	$	—	$	1,681
	$	1,681	$	—	$	—	$	1,681
Liabilities:
Derivative liability	$	—	$	—	$	56	$	56
Warrant liability	—		9		—		9
	$	—	$	9	$	56	$	65

Money Market Funds

As of March 31, 2023 and December 31, 2022, our cash equivalents consisted of money market funds which were classified as Level 1. We used observable prices in active markets in determining the classification of our money market funds as Level 1. There were no transfers between the hierarchy levels during the three months ended March 31, 2023 and the year ended December 31, 2022.

Cash equivalents as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023
(In thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents:
Money market funds	$	96	$	—	$	—	$	96
Total cash equivalents	$	96	$	—	$	—	$	96


	December 31, 2022
(In thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents:
Money market funds	$	1,681	$	—	$	—	$	1,681
Total cash equivalents	$	1,681	$	—	$	—	$	1,681

Derivative Liability

As of March 31, 2023 and December 31, 2022, the fair value of the derivative was $30 thousand and $0.1 million, respectively, which was included in derivative liability, noncurrent in our unaudited condensed consolidated balance sheets. Total other income for the three months ended March 31, 2023 and 2022 included a gain of $26 thousand and $4.8 million, respectively, on the fair value of the derivative liability.

The fair value of the derivative liability is considered a Level 3 valuation and is determined using a Binomial Lattice Option Pricing Model. The significant assumptions used in the model were:


	March 31, 2023	December 31, 2022
Stock price	$1.49	$1.63
Volatility	95.0%	95.0%
Risk free rate	3.79%	4.17%
Exercise price	$106.50	$106.50
Expected life (in years)	3.19	3.44
Conversion periods	2-4 years	2-4 years
Future share price	$0.10-$303.10	$0.10-$405.60

2021 Private Placement Warrants and 2021 PIPE Warrants

As of March 31, 2023, the fair value of the 2021 Private Placement Warrants (the “2021 Private Placement Warrants”) and the 2021 PIPE Warrants (the “2021 PIPE Warrants”) was determined to be $0.02 per warrant, totaling $11 thousand and $6 thousand respectively, and are included in warrant liabilities in our unaudited condensed consolidated balance sheets. As of December 31, 2022, the fair value of the 2021 Private Placement Warrants and the 2021 PIPE Warrants was determined to be $0.01 per warrant, totaling $6 thousand and $3 thousand respectively, and are included in warrant liabilities in our unaudited condensed consolidated balance sheets. During the three months ended March 31, 2023, we recorded a $5 thousand gain due to the fair value changes in the 2021 Private Placement Warrants and a $3 thousand due to fair value changes in the 2021 PIPE Warrants, both of which are included in gain in fair value of warrant liabilities in our unaudited condensed consolidated statements of operations. During the three months ended March 31, 2022, we recorded a $0.1 million gain due to the fair value changes in the 2021 Private Placement Warrants and a $33 thousand gain due to fair value changes in the 2021 PIPE Warrants, both of which are included in gain in fair value of warrant liabilities in our unaudited condensed consolidated statements of operations.

There were no transfers between fair value levels during the three months ended March 31, 2023 and year ended December 31, 2022.

10. Capital Structure

2023 Private Placement

On March 9, 2023, we entered into a Securities Purchase Agreement, with a single institutional investor, pursuant to which, in a private placement (the “2023 Private Placement”), we agreed to issue and sell (i) 1,650,000 shares of our common stock, par value $0.0001 per share; (ii) warrants that are exercisable six months from the date of issuance and will have a term of five years from the initial exercise date to purchase up to an additional 3,000,000 shares of our common stock (the “Series A Warrants”); (iii) warrants that are exercisable six months from the date of issuance and will have a term of two years from the initial exercise date to purchase up to an additional 3,000,000 shares of our common stock (the “Series B Warrants” and, collectively with Series A Warrants, the “Common Stock Purchase Warrants”); and (iv) pre-funded warrants (the “Pre-Funded Warrants,” and together with the Common Stock Purchase Warrants, the “Private Placement Warrants”) to purchase an additional 1,350,000 shares of our common stock (all of such shares issuable upon exercise of the Warrants, the “Warrant Shares”). On March 13, 2023, we announced that we completed the closing of the 2023 Private Placement. The purchase price of each share of common stock sold in the 2023 Private Placement was $1.50, the exercise price of each Common Stock Purchase Warrants (as defined above) is $2.04, and the exercise price of each Pre-

Funded Warrant is $0.0001 and the purchase price of each Pre-Funded Warrant was $1.4999. The aggregate gross proceeds to us from the 2023 Private Placement were approximately $4.5 million, before deducting $0.3 million of placement agent fees and other offering expenses. We intend to use the net proceeds from the offering for general corporate purposes, including working capital.

Common Stock Reserved for Future Issuance

The following table summarizes shares of common stock reserved for future issuance as of March 31, 2023 (recorded on a post-reverse split basis):


(In thousands)			Number of Shares
Restricted stock units outstanding			1,342
Stock options outstanding			138
Shares issuable upon conversion of 2025 Notes			3,857
Shares issuable upon conversion of 2026 Notes			1,080
Shares issuable upon conversion of 2021 Public Warrants			1,725
Shares issuable upon conversion of 2021 Private Warrants			57
Shares issuable upon conversion of 2021 PIPE Warrants			29
Shares issuable upon conversion of the 2023 Private Placement Series A Warrants			3,000
Shares issuable upon conversion of the 2023 Private Placement Series B Warrants			3,000
Shares issuable upon conversion of the 2023 Private Placement Pre-Funded Warrants			1,350
Shares available for future grant under 2021 EIP			1,032
			16,610

2015 Cloudbreak Incentive Plan

The following table summarizes stock option activity under the Cloudbreak Plan (recorded on a post-reverse split basis):


	Number of Shares	Weighted Average Exercise Price Per Share
Outstanding as of December 31, 2022	138	$	50.76
Options exercised	—	$	—
Outstanding as of March 31, 2023	138	$	50.76

2021 Equity Incentive Plan

The following table summarizes our RSU activity under the 2021 EIP (recorded on a post-reverse split basis):


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding as of December 31, 2022	878	$	6.61
RSUs granted	663	$	2.03
RSUs vested and released	(82)	$	16.09
RSUs forfeited	(117)	$	7.11
Outstanding as of March 31, 2023	1,342	$	3.73

11. Income Taxes

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

Consistent with our conclusion as of December 31, 2022, we continue to believe that it is not more likely than not that the deferred tax assets will be realized and we therefore maintained a full valuation allowance against the deferred tax assets as of March 31, 2023. As a result, the estimated annual effective tax rate for 2023 is expected to be 0% because our forecasted losses are expected to generate no income tax benefit. Furthermore, there were no discrete tax items for the quarter ended March 31, 2023.

The income tax benefit was zero and $2.3 million for the three months ended March 31, 2023 and 2022, respectively.

The Internal Revenue Service (“IRS”) audited Thrasys’ 2008 and 2009 tax returns for the proper year of inclusion of approximately $15.0 million long-term capital gain on the sale of certain intellectual property rights. Thrasys originally reported the gain on its 2010 S Corporation tax return, matching the year of inclusion for financial accounting purposes. The corporate level tax was paid to California and Thrasys passed the gain through to its shareholders. The IRS has asserted that Thrasys owes C Corporation tax of approximately $5.0 million for 2008, or in the alternative, Thrasys owes C Corporation tax of approximately $5.0 million for 2009 as a built-in gain. In addition, Thrasys could be assessed additional California franchise tax of approximately $1.3 million. Additionally, if additional income taxes are imposed, interest will be charged at approximately 4% per year, compounded annually, resulting in potential interest of approximately $3.0 million. The IRS has not asked that penalties be imposed.

The matter is currently pending before the U.S. Tax Court, Docket 11565-15. There are related tax cases for some of the shareholders for additional income taxes due if the gain is shifted to 2009. On December 4, 2018, the IRS filed a motion for summary judgment in Thrasys, Inc. v. Commissioner (T.C. Memo 2018-199); however, Thrasys prevailed, and the motion was denied. In January 2020, Thrasys filed a motion for summary judgment arguing that either the gain was properly reported in 2010 and all taxes have been paid or in the alternative it should have been taxable in 2009 with no built-in gains tax. In both cases, there would be no additional income tax due for 2008 or 2009. The IRS filed an objection to Thrasys’ motion. On March 3, 2021, the U.S. Tax Court, without consideration of the merits of the case, issued a very brief court order dismissing Thrasys’ motion. Had the motion been granted, the need for a trial would have been obviated. Thrasys intends to vigorously defend its position in the case and believes it will prevail if the case is taken to trial. We have accrued $0.2 million representing probable additional taxes and interest imposed, in other liabilities, current in the unaudited condensed consolidated balance sheets.

12. Earnings (Loss) Per Share

Basic earnings (loss) per share applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per share assumes the conversion of any convertible securities using the treasury stock method or the if-converted method.


	Three Months Ended March 31,
(In thousands, except per share data)	2023		2022
Numerator:
Net income (loss) attributable to UpHealth, Inc.	$	(8,083)	$	(17,445)
Denominator:
Weighted average shares outstanding(1)	15,730		14,454
Diluted effect of stock options	—		—
Diluted effect of RSUs	—		—
Weighted average shares outstanding assuming dilution	15,730		14,454
Net income (loss) per share attributable to UpHealth, Inc.:
Basic	$	(0.51)	$	(1.21)
Diluted	$	(0.51)	$	(1.21)

(1) The shares and earnings per share as of March 31, 2022 differ from those published in our prior condensed consolidated financial statements as they were retrospectively adjusted as a result of the Reverse Stock Split (as described in Note 1, Organization and Business).

For the three months ended March 31, 2023, the calculation of basic and dilutive earnings per share included the 1.35 million pre-funded warrants with an exercise price of $0.0001, as the shares are issuable for little consideration, and excluded outstanding warrants to purchase 1.8 million shares of common stock at $115.00 per share; 6.0 million Common Stock Purchase Warrants at $2.04 per share; 0.1 million of stock options; 1.3 million of RSUs; 2025 Notes convertible into 3.9 million shares of common stock at a conversion price, subject to the occurrence of certain corporate events, of $17.50 per share; and 2026 Notes, convertible into 1.1 million shares of common stock at $106.50 per share, because the effect would be anti-dilutive. For the three months ended March 31, 2022, the calculation of dilutive earnings per share excluded outstanding warrants to purchase 1.8 million shares of common stock at $115.00 per share; 23 thousand of stock options; 2026 Notes convertible into 1.5 million shares of common stock at $106.50 per

share; and 0.2 million shares of common stock under the terms of the forward share purchase agreement, because the effect would be anti-dilutive.

13. Related Party Transactions

See Note 8, Debt, for related party debt.

See Note 16, Commitments and Contingencies, for leases with related parties.

We make guaranteed payments to related parties. Guaranteed payments aggregated $0.4 million and $1.4 million for the three months ended March 31, 2023 and 2022, respectively. These amounts are presented in cost of revenues in our unaudited condensed consolidated statements of operations. We had unpaid guaranteed payments of $0.2 million and $0.5 million as of March 31, 2023 and December 31, 2022, respectively, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.

14. Segment Reporting

Our business is organized into three operating business segments and one non-operating business segment:

•Integrated Care Management—through our Thrasys subsidiary;

•Virtual Care Infrastructure—through our Cloudbreak and Glocal subsidiaries(1);

•Services—through our Innovations Group, BHS, and TTC subsidiaries; and

•Corporate—through UpHealth and our UpHealth Holdings subsidiary.

(1) As discussed in Note 1, Organization and Business, we deconsolidated Glocal during the three months ended September 30, 2022; accordingly, the financial results of Glocal for the three months ended March 31, 2022 are included in our unaudited condensed consolidated financial statements, and the financial results of Glocal as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 are not included in our unaudited condensed consolidated financial statements.

We evaluate performance based on several factors, of which Revenues, Gross Profit, and Total Assets are the primary financial measures:

Revenues by segment consisted of the following:


	Three Months Ended March 31,
In thousands	2023		2022
Integrated Care Management	$	3,873	$	2,612
Virtual Care Infrastructure(1)	17,458		15,630
Services	20,814		17,730
Total revenues	$	42,145	$	35,972

(1) As discussed in Note 1, Organization and Business, we deconsolidated Glocal during the three months ended September 30, 2022; accordingly, the financial results of Glocal for the three months ended March 31, 2022 are included in our unaudited condensed consolidated financial statements, and the financial results of Glocal for the three months ended March 31, 2023 are not included in our unaudited condensed consolidated financial statements.

Gross profit by segment consisted of the following:


	Three Months Ended March 31,
In thousands	2023		2022
Integrated Care Management	$	2,580	$	1,638
Virtual Care Infrastructure(1)	10,185		6,501
Services	9,911		5,852
Total gross profit	$	22,676	$	13,991

condensed consolidated financial statements, and the financial results of Glocal for the three months ended March 31, 2023 are not included in our unaudited condensed consolidated financial statements.

Total assets by segment consisted of the following:


In thousands	March 31, 2023		December 31, 2022
Integrated Care Management	$	45,132	44,776
Virtual Care Infrastructure(1)	140,311		140,776
Services	126,142		124,980
Corporate	27,212		29,272
Total assets	$	338,797	$	339,804

(1) As discussed in Note 1, Organization and Business, we deconsolidated Glocal during the three months ended September 30, 2022; accordingly, the financial position of Glocal as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 are not included in our unaudited condensed consolidated financial statements.

Total assets by geography consisted of the following:


In thousands	March 31, 2023		December 31, 2022
Americas	$	317,597	339,804
Asia(1)	21,200		—
Total assets	$	338,797	$	339,804

15. Leases

The components of lease expense consisted of the following for the three months ended March 31, 2023:


	Three Months Ended March 31, 2023
In thousands	Third Party		Related Party		Total
Finance lease costs:
Amortization of right-of-use assets	$	885	$	—	$	885
Interest on lease liabilities	88		—		88
Operating lease costs	716		98		814
Short-term lease costs	27		67		94
Variable lease costs	144		—		144
Sublease income	(129)		—		(129)
Total lease costs	$	1,731	$	165	$	1,896

Lease-related assets and liabilities recorded on the consolidated balance sheet are as follows:


	March 31, 2023						December 31, 2022
In thousands	Third Party		Related Party		Total		Third Party		Related Party		Total
Assets
Finance lease right-of-use assets (included in property and equipment, net)	$	5,546	$	—	$	5,546	$	5,916	$	—	$	5,916
Operating lease right-of-use assets	5,331		1,313		6,644		5,819		1,394		7,213
Total leased assets	$	10,877	$	1,313	$	12,190	$	11,735	$	1,394	$	13,129

Liabilities
Lease liabilities, current:
Finance lease liabilities	$	2,936	$	—	$	2,936	$	3,023	$	—	$	3,023
Operating lease liabilities	2,045		336		2,381		2,130		322		2,452
Lease liabilities, current	4,981		336		5,317		5,153		322		5,475

Lease liabilities, noncurrent:
Finance lease liabilities	2,813		—		2,813		2,976		—		2,976
Operating lease liabilities	4,235		1,002		5,237		4,672		1,093		5,765
Lease liabilities, noncurrent	7,048		1,002		8,050		7,648		1,093		8,741
Total leased liabilities	$	12,029	$	1,338	$	13,367	$	12,801	$	1,415	$	14,216

Accumulated amortization related to the finance lease assets was $4.8 million and $3.9 million as of March 31, 2023 and December 31, 2022, respectively.

The following table summarizes our lease term and discount rate assumptions as of March 31, 2023:


	March 31, 2023
	Third Party	Related Party	Total
Weighted-average remaining lease term (years):
Finance leases	1.94	—	1.94
Operating leases	3.47	3.67	3.50

Weighted-average discount rate:
Finance leases	6.3%	—	6.3%
Operating leases	6.8%	5.3%	6.5%

Undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year, as of March 31, 2023, have been reconciled to the total operating and finance lease liabilities recognized on the condensed consolidated balance sheets as of March 31, 2023 as follows:


	March 31, 2023
	Finance Leases						Operating Leases
In thousands	Third Party		Related Party		Total		Third Party		Related Party		Total
Remaining 2023	$	2,495	$	—	$	2,495	$	1,922	$	291	$	2,213
2024	2,526		—		2,526		1,930		421		2,351
2025	1,060		—		1,060		1,535		427		1,962
2026	—		—		—		1,029		323		1,352
2027	—		—		—		457		—		457
Thereafter	—		—		—		380		—		380
Total lease payments	6,081		—		6,081		7,253		1,462		8,715
Less: Interest	332		—		332		973		124		1,097
Present value of lease liabilities	$	5,749	$	—	$	5,749	$	6,280	$	1,338	$	7,618

Prior to the adoption of ASC 2016-02, Leases, the following was disclosed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022:

Total rent expense under related party and third-party agreements was approximately $0.2 million and $1.2 million, respectively, for the three months ended March 31, 2022.

Total sublease revenue under third-party agreements was approximately $0.2 million for the three months ended March 31, 2022.

During the three months ended March 31, 2022, we recorded additional lease abandonment expense totaling $0.1 million related to a termination fee we paid to exit an office lease.

16. Commitments and Contingencies

Commitments

Operating leases

See Note 15, Leases, for commitments related to our operating leases.

Contingencies

From time to time, we may be subjected to claims or lawsuits which arise in the ordinary course of business, including the previously disclosed tax matter (see Note 11, Income Taxes, for further information) and matters described below. Estimates for resolution of legal and other contingencies are accrued when losses are probable and reasonably estimable in accordance with ASC 450, Contingencies. Except as set forth below, in the opinion of management, after consulting with legal counsel, none of these other claims are currently expected to have a material adverse effect on our condensed consolidated results of operations, financial position or cash flows.

Advisory Services Agreement Dispute

We are in a services agreement dispute with a third-party advisory firm for fees due under the services agreement. The advisory firm claims $31.0 million, plus interest, is owed in fees. Based on consultation with legal counsel, we previously proposed a settlement in the amount of $8.0 million, which has been accrued for as of March 31, 2023 and December 31, 2022, and is included in accrued expenses in our unaudited condensed consolidated balance sheets. The amount of the ultimate loss may range from $8.0 million to $26.3 million.

Indemnification

Certain of our agreements require us to indemnify our customers from any claim or finding of intellectual property infringements, as well as from any losses incurred relating to breach of representations, failure to perform, or specific events as outlined within the particular contract. We have not received any claims or estimated the maximum potential amount of indemnification liability under these agreements and have recorded no liabilities for these agreements.

17. Subsequent Events

Management has determined that no material events or transactions have occurred subsequent to the balance sheet date, other than those events noted below, that require disclosure in our unaudited condensed consolidated financial statements.

Sale of Innovations Group

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated or the context otherwise requires, references in this report (this “Quarterly Report”) to “we,” “our,” “us,” “UpHealth” or the “Company” and other similar terms refer to UpHealth, Inc. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek,” “may,” “might,” “plan,” “possible,” “potential,” “should, “would” and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the “Risk Factors” section in Part II, Item 1A. of this Quarterly Report, the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 31, 2023 (our “Annual Report”) and in any more recent filings with the SEC. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

UpHealth, Inc. Business Overview

After undergoing a process launched in the second half of 2021 designed to help us determine how to tie the various components of the businesses brought together between November 2020 and June 2021 that we launched in the summer of 2021, in 2022, we turned to transforming our business strategy to create a company that can profitably fulfill our mission as an integrated whole. By considering our previous financial performance, we determined that it was necessary for us to pivot and to focus on fewer investments for growth. As a result, we sought to establish a company that will deliver high-quality, predictable revenue streams, conserve cash and readjust our operating expenses, and improve operational excellence. This led us to make the following decisions with regard to our reporting segments:

•As a result of the previously disclosed ongoing control issues and legal proceedings with Glocal, we deconsolidated Glocal in July 2022. These issues and disputes are described in our Current Reports on Form 8-K filed with the SEC on October 3, 2022 and November 14, 2022, and in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 filed with the SEC on December 29, 2022, as well as in Part II, Item 1, Legal Proceedings, of this Quarterly Report. Accordingly, the financial results of Glocal for the three months ended March 31, 2022 are included in the discussion of our financial results for the Virtual Care Infrastructure segment, but are excluded in the discussion for the three months ended March 31, 2023. As of March 31, 2023, the operations of Glocal remain deconsolidated from the rest of UpHealth as we continue to pursue all legal recourse against the founders of that business.

•On February 26, 2023, UpHealth Holdings agreed to sell 100% of the outstanding capital stock of Innovations Group to Belmar MidCo, Inc., a Delaware corporation (“Belmar”) 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, dated February 26, 2023, by and among UpHealth, UpHealth Holdings, Innovations Group, and Belmar. The sale closed on May 11, 2023 for gross proceeds of $56.0 million, subject to working capital, closing debt, and other adjustments. The financial results of Innovations Group, which is classified as held-for-sale, are included in the discussion of our financial results for the Services segment for the three months ended March 31, 2023 and 2022.

•At the start of 2023, we made the decision to integrate BHS into our legacy TTC operations and wind down our provider practice in Missouri. The financial results of BHS are included in the discussion of our financial results for the Services segment for the three months ended March 31, 2023 and 2022.

Following all of these changes, our reporting structure remains the same. We have three business segments: (a) Integrated Care Management, which has evolved from the legacy Thrasys business; (b) Virtual Care Infrastructure, which uses MarttiTM, a platform developed by the legacy Cloudbreak business; and (c) Services, which is focused on behavioral health services using a platform created by the legacy TTC business.

Going forward, we will offer patient-centric digital health technologies and technology-enabled services to manage health and behavioral health across our strategic businesses. We are focused on integrating the value streams represented across these three product and service lines, and focusing on building more data and analytics capabilities to complement our technology. Additionally, we are working on a partnership to incorporate artificial intelligence (“AI”) into our core product offerings.

Integrated Care Management Segment

Overview

Integrated Care Management is a healthcare technology business that serves organizations that pay for healthcare, including health plans and state, federal and municipal agencies that ensure the people they sponsor receive high-quality care, administered and delivered efficiently and effectively, all while driving health equity so that every individual, family, and community has access to the care they need.

The Integrated Care Management business is powered by the SyntraNetTM technology platform and applications. SyntraNetTM is a configurable integrated health management platform that enables clinical and community-based care teams to share information, coordinate care, manage utilization, and improve health outcomes and costs for individuals and populations— especially individuals with complex medical, behavioral health, and social needs.

SyntraNetTM creates virtual “care communities” – logical networks of organizations, care managers and service providers – that function as an integrated care team to deploy programs to improve health, quality, performance, efficiency, and costs.

Core features of the platform include the ability to:

• Create virtual, cross-sector care communities;

• Integrate and organize information from a wide range of health and social health data sources;

• Gain insight into health, risks, and opportunities with advanced analytics;

• Qualify and enroll groups into programs;

• Coordinate care teams across the continuum of care; and

• Analyze and report on various measures of success.

Our Integrated Care Management platform provides health plans and provider groups the ability to manage health with new value-based models of care. Our clients include the largest public health plan in the United States, entities that are part of the nation’s most comprehensive “whole person care” initiatives, and one of the fastest growing value-based pharmacy benefit managers.

Integrated Care sells its products primarily through its direct sales force, strategic collaborations and external producers in two key areas: payors including health plans and third-party administrators and public entities including state and local health care agencies. Revenues are derived from license fees, recurring subscription fees, and professional services for implementation.

Components of Results of Operations

Revenues

Integrated Care Management derives revenues broadly from the sales of (a) products—with associated license, subscription, and hosting fees and (b) services—largely to implement, configure, and extend the technology, and train and on-board users on the use of the platform and applications.

Licenses and Subscriptions Revenues. License revenues are typically associated with rights granted to customers to deploy the platform to a certain number of care communities of a certain size, usually measured as the total population of patients that can be included within a care community. License revenues are recognized based on the nature of the license provided, either fully on the date license rights are granted to the customer if there are no further performance obligations or ratably over the license term beginning on the effective date of each contract, the date the customer takes possession of the license rights.

Subscription fees are recurring fees charged for access to the platform and applications. Subscription fees are typically pegged to a measure of use, such as population size, number of providers, members enrolled in programs, or number of members managed by applications. Subscription fees can grow as customers subscribe to additional application features or launch additional programs. Revenues from subscription fees are recognized ratably over the subscription term.

Services. The majority of Integrated Care Management’s contracts to provide professional services are priced on a time and materials basis, whereby revenues are recognized as the services are rendered. In some cases, Integrated Care Management enters into professional

services contracts where professional services fees are defined for specific milestones, whereby revenues are recognized upon achievement of the milestones.

Cost of Revenues

Cost of revenues for Integrated Care Management include: costs related to hosting SyntraNetTM in a HIPAA-compliant cloud environment; costs of third-party product licenses embedded with SyntraNetTM; costs of a core professional services team; and an allocation of facilities, information technology, and depreciation costs. Added compliance requirements for security infrastructure is likely to add some additional costs for hosting services. Integrated Care Management also anticipates added costs for third-party licenses that will be added as the scope and footprint of the technology platform expands.

Hosting Infrastructure. Integrated Care Management’s technology and solutions are designed to be agnostic to any particular cloud services provider. Currently, customer environments are hosted through contracts with two cloud service providers.

Integrated Care Management anticipates capabilities of cloud service providers to grow, and costs to become increasingly competitive, and will continue to evaluate offerings in the marketplace to determine the optimum mix of security, reliability, scalability, and performance to meet customer needs. Hosting infrastructure costs for Integrated Care Management are related to the number and size of environments deployed for customers and also on the service level agreements (“SLAs”) negotiated with customers. As the average size of customers continues to grow, hosting infrastructure costs are expected to grow as a percentage of revenue.

Third-Party Product Licenses. SyntraNetTM embeds certain third-party technology components to support some of its technology capabilities. There are multiple vendors for these components, and Integrated Care Management is not dependent on any specific vendor.

Professional Services Team. Integrated Care Management’s professional services team works closely with the product team and is best understood as an “A-team” created to lead showcase implementations. The goal is to keep the professional services team small in order to focus it on deploying reference customers and facilitating the on-boarding and coaching of systems integration partners.

Operating Expenses

Sales and Marketing (“S&M”) Expenses. S&M expenses include an internal sales and marketing team and contracts with business development consultants to generate and qualify leads, and an allocation of facilities, information technology, and depreciation costs.

Research and Development (“R&D”) Expenses. Integrated Care Management continues to invest in R&D. The core R&D team consists of a small team of very experienced software developers. R&D expenses also includes an allocation of facilities, information technology, and depreciation costs.

General and Administrative (“G&A”) Expenses. G&A expenses include compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of revenues, S&M expenses, and R&D expenses.

Depreciation and Amortization Expenses. Depreciation expense relates to the depreciation of computer equipment, purchased software, furniture and fixtures, and office equipment, net of amounts allocated to cost of revenues. Amortization expense relates to the amortization of intangible assets from the acquisition of Thrasys.

Virtual Care Infrastructure Segment

Overview

Virtual Care Infrastructure is a technology and technology-enabled services business that connects healthcare systems with platforms, analytics and services that make clinical and administrative processes simpler and more efficient. Hospital systems, physicians, and patients depend on us to help them improve performance, reduce costs and advance care quality through technology-enabled services built directly into clinical workflows.

Virtual Care Infrastructure is a provider of unified telehealth solutions and digital health tools aimed at increasing access to healthcare and resolving health disparities across the care continuum. Virtual Care Infrastructure solely consists of the U.S. Telehealth business, which has one of the largest installed user bases in the nation, performing more than 300,000 encounters per month on over 40,000 video endpoints at over 2,800 healthcare venues in over 250 languages across the United States. Through its integrated telehealth and language access services, the Martti™ platform serves as the digital front door to in-hospital care. The MarttiTM platform provides digital health infrastructure enabling its partners to implement unique, private-label telehealth strategies customized to their specific needs and markets, with language access built-in.

In 2022, the U.S. Telehealth business expanded its operations by leveraging its existing platform to include other telemedicine use cases such as telestroke, teleneurology, and telepsychiatry. We also launched a home health virtual visit platform enabling healthcare system partners to see their patients remotely on any device, at any time, anywhere the patient may be, and in any language they may speak.

The U.S. Telehealth’s products and services are sold primarily through a direct sales force. The U.S. Telehealth’s products are also supported and distributed through an array of alliances and business partnerships with other technology vendors, who integrate and interface our products with their applications. The U.S. Telehealth's business offers an expanding suite of telehealth use cases, which are delivered under multi-year contracts that include fixed minimums with upside attributable to usage-based fees. Our client base includes hospitals and health systems, federally qualified healthcare clinics (“FQHCs”), urgent care centers, stand-alone clinics, and medical practices.

As discussed in Note 1, Organization and Business, in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report, we deconsolidated Glocal during the three months ended September 30, 2022. Accordingly, the financial results of Glocal for the three months ended March 31, 2022 are included in our unaudited condensed consolidated financial statements, and the financial position of Glocal as of March 31, 2023 and the financial results of Glocal for the three months then ended are not included in our unaudited condensed consolidated financial statements.

Components of Results of Operations

Revenues

Services. Services revenues are generated primarily from the sale of subscription-based fixed monthly minute and variable rate per unit of service medical language interpretation services. Our U.S. Telehealth business also records ancillary revenues from the rental of Martti™ devices and from the provision of information technology services that include connectivity and ongoing support of the Martti™ software platform. Generally, U.S. Telehealth’s medical language interpretation and information technology services are invoiced monthly. Fixed monthly minute medical language interpretation subscription and information technology services fees are invoiced in advance in the period preceding the service. Variable rate per unit medical language interpretation and information technology services fees (including overage fees related to minutes used by the customer in excess of the fixed monthly minute subscription) are invoiced monthly in arrears. Martti™ device leases are invoiced monthly in advance in the period preceding the usage. Invoiced amounts are typically due within 30 days of the invoice date. For the period from March 26, 2021 through June 30, 2022, services revenues also included revenues from Glocal, which were generated primarily from operating hospitals and clinics, including pharmacy and medicine sales, and transaction fees per telemedicine consultation.

Products. Products revenues consist of the sale of Martti™ devices to its customers. Sale of Martti™ devices are generally invoiced at contract execution (50%) and upon the delivery of the devices to the customer (50%). Invoiced amounts are typically due within 30 days of the invoice date. For the period from March 26, 2021 through June 30, 2022, products revenues also included revenues from Glocal, which were generated primarily from the sale of HelloLyf CX digital dispensaries and the construction of HelloLyf HX digital hospitals.

Cost of Revenues

Cost of revenues primarily consist of costs related to supporting and hosting U.S. Telehealth’s product offerings and delivering services, and include the cost of maintaining U.S. Telehealth’s data centers, customer support team, and U.S. Telehealth’s professional services staff, in addition to third-party service provider costs such as data center and networking expenses, amortization of capitalized software development costs, the cost of purchased equipment inventory sold to customers, and an allocation of facilities, information technology, and depreciation costs. For the period from March 26, 2021 through June 30, 2022, cost of revenues also included cost of revenues from Glocal, which primarily consisted of costs of building and operating hospitals, including costs for the purchase of medicines, professional/doctor fees, the cost to build HelloLyf CX digital dispensaries and HelloLyf HX digital hospitals, and an allocation of information technology and depreciation costs.

Operating Expenses

Sales and Marketing Expenses. S&M expenses consist of compensation and benefits, costs related to advertising, marketing programs, and events, and an allocation of facilities, information technology, and depreciation costs.

General and Administrative Expenses. G&A expenses consist of compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of revenues and S&M.

Services Segment

Overview

Our Services segment provides behavioral health and pharmacy services in the United States, which are critically important to managing whole person care and its associated costs. Our comprehensive behavioral health capabilities are powered by UpHealth BehavioralTM and provide evidence-based and tech-enabled behavioral health and substance abuse services via onsite care delivery and telehealth. Our Services platform is working to deliver an increasing volume of services, including telehealth services, to existing customers, as well as clients belonging to the Integrated Care Management and Virtual Care Infrastructure platforms.

UpHealth BehavioralTM provides comprehensive patient-centered care, addressing the physical, mental, and social well-being of our clients. We engage people in the most appropriate care settings, including clinical sites, out-patient and virtual. UpHealth BehavioralTM delivers behavioral health services; helps patients and providers navigate and address complex, chronic behavioral health needs; offers post-acute care planning services; and serves consumers and care providers through advanced, on-demand digital health technologies, such as telehealth. UpHealth BehavioralTM works directly with consumers, care delivery systems, providers, payors, and public-sector entities to provide high quality, accessible and equitable care with improved health outcomes and reduced total cost of care.

UpHealth BehavioralTM sells its products primarily through its direct sales force, and strategic collaborations in two key areas: payors including health plans, third-party administrators; and public entities including the U.S. Departments of Veterans Affairs and other federal, state, and local health care agencies.

Our Pharmacy business, Innovations Group, is powered by MedQuest Pharmacy, a full-service retail and compounding pharmacy licensed in all 50 U.S. states and the District of Columbia that dispenses prescribed medications shipped directly to patients. It is capable of serving as a retail or national fulfillment center. Other services and products are also available, such as lab and testing services, nutritional supplements, and education and training for medical practitioners.

On February 26, 2023, UpHealth Holdings agreed to sell 100% of the outstanding capital stock of Innovations Group. The sale closed on May 11, 2023. The financial results of Innovations Group, which is classified as held-for-sale, are included in the discussion of our financial results for the Services segment for the three months ended March 31, 2023 and 2022.

Additionally, at the start of 2023, we made the decision to integrate BHS into our legacy TTC operations and wind down our provider practice in Missouri. The financial results of BHS are included in the discussion of our financial results for the Services segment for the three months ended March 31, 2023 and 2022.

Components of Results of Operations

Revenues

Services. Services revenues at UpHealth BehavioralTM are generated primarily through services provided to clients in both inpatient and outpatient treatment settings. UpHealth BehavioralTM bills third-party payors weekly for the services provided in the prior week. Client-related revenues, such as inpatient and outpatient programs, are generally recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from clients, third-party payors, and others for services provided. UpHealth BehavioralTM receives the majority of payments from commercial payors at out-of-network rates. Client service revenues are recorded at established billing rates, less adjustments to estimate net realizable value. Provisions for estimated third party payor reimbursements are provided in the period related services are rendered and adjusted in future periods when actual reimbursements are received. A significant or sustained decrease in reimbursement rates could have a material adverse effect on operating results.

UpHealth BehavioralTM also provides diagnostic laboratory testing services for its clients, which are recognized over time as the performance obligation is satisfied at the estimated net realizable value amount from clients, third-party payors, and others for services provided. Diagnostic laboratory service revenues are recorded at established billing rates, less adjustments to estimate net realizable value. Provisions for estimated third party payor reimbursements are provided in the period related services are rendered and adjusted in future periods when actual reimbursements are received.

Services revenues at UpHealth BehavioralTM are also generated by providing psychiatric and mental health services and billing services. Although the underlying tasks will vary by service and by patient, medical professionals perform inquiries, obtain vital statistics, perform certain lab tests, administer therapy, and provide any additional goods and services as necessary depending on the information obtained. In addition, services revenues are generated from CME educational courses.

Products. Products revenues through our Pharmacy business are generated primarily from the sale of prescription medications directly to patients, as well as through the sale of supplemental products to providers. The majority of the customer revenues are billed and collected

before the medications and products are shipped from the facility. The Pharmacy business generates approximately 60% of its revenue from sales of compounded medications and approximately 40% of its revenue from sales of manufactured medications and supplements.

Products revenues are also generated by providing retail pharmacy services at UpHealth BehavioralTM.

Cost of Revenues

Cost of revenues at UpHealth BehavioralTM consist primarily of provider compensation expenses, the cost of pharmaceutical medications sold to patients, the cost of operating the facilities, professional/medical fees, and an allocation of facilities, information technology, and depreciation costs. Provider compensation expenses include consulting payments to healthcare providers, including medical doctors in psychiatry, psychologists, nurse practitioners, and clinical social workers. UpHealth BehavioralTM has adopted an incentive-based compensation plan with provider agreements that compensate the providers based upon a percentage of revenue generated and ultimately collected for services provided. UpHealth BehavioralTM primarily purchases pharmaceutical medications through a large industry distributor with many suppliers, but also purchases some directly from other suppliers.

Cost of revenues at the Pharmacy business primarily consist of costs of raw ingredients and materials to compound various drugs and supplements, the cost of manufactured product purchased directly from the distributors for resale, the cost of fulfillment and shipping services and an allocation of facilities, information technology, and depreciation costs. The Pharmacy business purchases these items through a large industry distributor with many suppliers and also sources products and supplies directly with manufacturers. The Pharmacy business is also able to leverage the size of its operations to purchase larger quantities of certain ingredients and materials at lower prices.

Operating Expenses

Sales and Marketing Expenses. S&M expenses consist of cost related to compensation and benefits, advertising and marketing programs, events, fees paid to third party marketing firms, and an allocation of facilities, information technology, and depreciation cost.

General and Administrative Expenses. G&A expenses include compensation and benefits expense, and other administrative costs, related to its executive, finance, human resources, legal, facilities, and information technology teams, net of allocations to cost of revenues and S&M expenses.

Depreciation and Amortization Expenses. Depreciation expense relates to the depreciation of computer equipment, purchased software, furniture and fixtures, office equipment, and leasehold improvements, net of amounts allocated to cost of revenues. Amortization expense relates to the amortization of intangible assets from the acquisitions of TTC, BHS, and Innovations Group.

UpHealth, Inc. Consolidated Results of Operations

Operating Results

As discussed in Note 1, Organization and Business, in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report, we deconsolidated Glocal during the three months ended September 30, 2022. Accordingly, the financial results of Glocal for the three months ended March 31, 2022 are included in the discussion of our financial results for the Virtual Care Infrastructure segment for the three months ended March 31, 2022, but are excluded in the discussion for the three months ended March 31, 2023.

The following table sets forth our consolidated results of operations:


(Unaudited, in thousands)	Three Months Ended March 31,
	2023		2022		$ Change		% Change
Revenues:
Services	$	30,941	$	25,686	$	5,255	20	%
Licenses and subscriptions	1,936		1,781		155		9	%
Products	9,268		8,505		763		9	%
Total revenues	42,145		35,972		6,173		17	%
Costs of revenues:
Services	13,744		15,758		(2,014)		(13)	%
License and subscriptions	319		233		86		37	%
Products	5,406		5,990		(584)		(10)	%
Total costs of revenues	19,469		21,981		(2,512)		(11)	%
Gross profit	22,676		13,991		8,685		62	%
Operating expenses:
Sales and marketing	4,619		3,434		1,185		35	%
Research and development	1,285		1,758		(473)		(27)	%
General and administrative	11,009		11,467		(458)		(4)	%
Depreciation and amortization	1,611		5,236		(3,625)		(69)	%
Stock-based compensation	989		1,374		(385)		(28)	%
Lease abandonment expenses	—		75		(75)		(100)	%
Goodwill and intangible asset impairment	495		6,174		(5,679)		(92)	%
Acquisition, integration, and transformation costs	3,446		2,384		1,062		45	%
Total operating expenses	23,454		31,902		(8,448)		(26)	%
Loss from operations	(778)		(17,911)		17,133		(96)	%
Other expense:
Interest expense	(6,858)		(6,995)		137		(2)	%
Gain on fair value of derivative liability	26		4,829		(4,803)		(99)	%
Gain (loss) on fair value of warrant liabilities	(8)		95		(103)		(108)	%
Other expense, net, including interest income	(17)		(16)		(1)		6	%
Total other expense	(6,857)		(2,087)		(4,770)		229	%
Loss before income tax benefit	(7,635)		(19,998)		12,363		(62)	%
Income tax benefit	—		2,293		(2,293)		(100)	%
Net loss	(7,635)		(17,705)		10,070		(57)	%
Less: net income (loss) attributable to noncontrolling interests	448		(260)		708		(272)	%
Net loss attributable to UpHealth, Inc.	$	(8,083)	$	(17,445)	$	9,362	(54)	%

The following table sets forth our consolidated results of operations as a percentage of total revenue:


	Three Months Ended March 31,
	2023		2022
Revenues:
Services	73	%	71	%
Licenses and subscriptions	5	%	5	%
Products	22	%	24	%
Total revenues	100	%	100	%
Costs of revenues:
Services	33	%	44	%
License and subscriptions	1	%	1	%
Products	13	%	17	%
Total costs of revenues	46	%	61	%
Gross profit	54	%	39	%
Operating expenses:
Sales and marketing	11	%	10	%
Research and development	3	%	5	%
General and administrative	26	%	32	%
Depreciation and amortization	4	%	15	%
Stock-based compensation	2	%	4	%
Lease abandonment expenses	—	%	—	%
Goodwill and intangible asset impairment	1	%	17	%
Acquisition, integration, and transformation costs	8	%	7	%
Total operating expenses	56	%	89	%
Loss from operations	(2)	%	(50)	%
Other expense:
Interest expense	(16)	%	(19)	%
Gain on fair value of derivative liability	—	%	13	%
Gain (loss) on fair value of warrant liabilities	—	%	—	%
Other expense, net, including interest income	—	%	—	%
Total other expense	(16)	%	(6)	%
Loss before income tax benefit	(18)	%	(56)	%
Income tax benefit	—	%	6	%
Net loss	(18)	%	(49)	%
Less: net income (loss) attributable to noncontrolling interests	1	%	(1)	%
Net loss attributable to UpHealth, Inc.	(19)	%	(48)	%

Due to the deconsolidation of Glocal during the third quarter of 2022, the numbers presented above are not directly comparable between periods.

Three months ended March 31, 2023 and 2022

Revenues

In the three months ended March 31, 2023, revenues were $42.1 million, representing an increase of $6.2 million, or 17%, compared to $36.0 million in the three months ended March 31, 2022.

Services revenues increased $5.3 million, primarily due to an increase in the Services segment of $2.2 million, the Virtual Care Infrastructure segment of $1.9 million, and the Integrated Care Management segment of $1.1 million. The increase in the Services segment was primarily due to a $3.0 million increase in revenues at UpHealth BehavioralTM attributed to higher census and imporved payor mix, partially offset by a $1.0 million decrease in revenues at BHS in connection with its wind down. The increase in the Virtual Care Infrastructure segment was primarily due to a $5.2 million increase in revenues resulting from an increase in minutes from both new and existing U.S. Telehealth customers, partially offset by no revenues being recognized for Glocal during the three months ended March 31, 2023 as a result of its deconsolidation in July 2022. The increase in the Integrated Care Management segment was primarily due to an increase in professional services revenue for existing customers.

Licenses and subscriptions revenues increased $0.2 million in the Integrated Care Management segment in the three months ended March 31, 2023.

Products revenues increased $0.8 million, due to an increase in the Services segment of $0.9 million, partially offset by a decrease in the Virtual Care Infrastructure segment of $0.1 million. The increase in the Services segment was primarily due to an increase in the volume and sales prices of prescriptions in the Pharmacy business.

We expect revenues to decrease in the year ending December 31, 2023, primarily as a result of a decrease in revenues in our Services segment due to a partial year of revenues to be recognized at Innovations Group as a result of its sale, which closed on May 11, 2023, partially offset by increased revenues at the other business units. We also expect a decline in revenues in our Integrated Care Management segment in the year ending December 31, 2023. We expect these decreases will be partially offset by increased revenues in the Virtual Care Infrastructure segment as we invest in advertising and marketing, add new customers, and continue to integrate and develop our technology platforms across each of our segments. These increases will be partially offset by no revenues being recognized for Glocal in the year ending December 31, 2023 as a result of its deconsolidation in July 2022.

Cost of Revenues

In the three months ended March 31, 2023, cost of revenues was $19.5 million, a decrease of $2.5 million, or 11%, compared to $22.0 million in the three months ended March 31, 2022.

Services cost of revenues decreased $2.0 million, primarily due to decreases in the Virtual Care Infrastructure segment of $1.8 million and the Services segment of $0.5 million, partially offset by increases in the Integrated Care Management segment of $0.2 million. The decrease in the Virtual Care Infrastructure segment was primarily due to no cost of revenues being recognized for Glocal during the three months ended March 31, 2023 as a result of its deconsolidation in July 2022, partially offset by a $0.8 million increase in cost of revenues associated with higher revenues and a shift in mix from audio to video minutes in the U.S. Telehealth business. The decrease in the Services segment was primarily due to a $0.9 million decrease in costs of revenues at BHS in connection with its wind down, partially offset by a $0.4 million increase in costs of revenues at UpHealth BehavioralTM due to higher census and improved mix of services.

License and subscriptions cost of revenues increased $0.1 million in the Integrated Care Management segment in the three months ended March 31, 2023.

Products cost of revenues decreased $0.6 million due to a decrease in the Services segment of $0.5 million and the Virtual Care Infrastructure segment of $0.1 million. The decrease in the Services segment was primarily due to a $0.4 million decrease in cost of revenues at BHS in connection with its wind down.

We expect cost of revenues to decrease in the year ending December 31, 2023, commensurate with the decrease in revenues. Cost of revenues from our Services segment is expected to decrease due to a partial year of cost of revenues to be recognized at Innovations Group as a result of its sale, which closed on May 11, 2023, partially offset by increased cost of revenues at the other business units. We also expect a decline in costs of revenues in our Integrated Care Management segment, commensurate with the expected decline in revenues. We expect these decreases will be partially offset by increased cost of revenues in the Virtual Care Infrastructure segment commensurate with the expected increase in revenues in the segment, partially offset by no cost of revenues being recognized for Glocal in the year ending December 31, 2023 as a result of its deconsolidation in July 2022. Our cost of revenues may fluctuate as a percentage of our total revenue (gross margin %) from period to period due to the changes in the percentage of revenue contributed by each of our segments.

Operating Expenses

Sales and Marketing. In the three months ended March 31, 2023, S&M expenses were $4.6 million, representing an increase of $1.2 million, or 35%, compared to $3.4 million in the three months ended March 31, 2022, primarily due to an increase in compensation, benefits, and contractor expenses.

We expect S&M expenses to increase in the year ending December 31, 2023 as we invest in advertising and marketing. Our S&M expenses may fluctuate as a percentage of our total revenues from period to period due to the timing and extent we promote our brands through a variety of marketing and public relations activities.

Research and Development. In the three months ended March 31, 2023, R&D expenses were $1.3 million, representing a decrease of $0.5 million, or 27%, compared to $1.8 million in the three months ended March 31, 2022 due to an increase in capitalized software development costs.

We expect our R&D expenses to decrease in the year ending December 31, 2023, as we decrease R&D efforts in certain segments, while also increasing our capitalization of software development costs. Our R&D expenses may fluctuate as a percentage of our total revenues

from period to period due to the timing and extent of our technology and development expenses, including the ability to capitalize software development costs.

General and Administrative. In the three months ended March 31, 2023, G&A expense were $11.0 million, representing a decrease of $0.5 million, or 4%, compared to $11.5 million in the three months ended March 31, 2022, primarily due to a decrease in compensation, benefits, and contractor expenses.

We expect G&A expenses to decrease in the year ending December 31, 2023 primarily as a result of a decrease in legal and other professional fees. Our G&A expenses may fluctuate as a percentage of our total revenues from period to period due to the timing and extent of our G&A expenses.

Depreciation and Amortization. In the three months ended March 31, 2023, depreciation and amortization expenses were $1.6 million, primarily consisting of $1.1 million of amortization of intangible assets and $0.5 million of depreciation related to property and equipment, net of allocations to cost of revenues. In the three months ended March 31, 2022 depreciation and amortization expenses were $5.2 million, primarily consisting of $5.1 million of amortization of intangible assets and $0.1 million of depreciation related to property and equipment, net of allocations to cost of revenues. The decrease in depreciation and amortization expenses was due to the deconsolidation of Glocal in the third quarter of 2022, the impairment of intangible assets in the Integrated Care Management segment in the third quarter of 2022, and no depreciation and amortization expense being recorded at Innovations Group during the three months ended March 31, 2023 due to its classification as held-for-sale, partially offset by increased amortization related to an increase in capitalized software development costs and increased depreciation related to additions to property and equipment.

We expect depreciation and amortization expenses to decrease in the year ending December 31, 2023 due to decreased amortization expense related to the decrease in intangible assets, partially offset by an increase in amortization related to capitalized software development costs and an increase in depreciation from purchases of property and equipment.

Stock-Based Compensation. In the three months ended March 31, 2023, stock-based compensation expenses were $1.0 million, representing a decrease of $0.4 million, or 28%, compared to $1.4 million in the three months ended March 31, 2022, related to grants under equity incentive plans. We expect stock-based compensation expenses to increase in the year ending December 31, 2023 as we continue to make grants under our equity incentive plan to new and existing employees.

Goodwill and Intangible Asset Impairment. An impairment charge of $0.5 million was recognized in the three months ended March 31, 2023, resulting from the remeasurement of the Innovations Group disposal group to the expected proceeds, less cost to sell. An impairment charge of $6.2 million was recognized in the three months ended March 31, 2022, primarily consisting of a $5.5 million measurement period adjustment at Glocal that was immediately impaired, and a $0.7 million trade name intangible asset impairment at TTC.

Acquisition, Integration and Transformation Costs. In the three months ended March 31, 2023, acquisition, integration and transformation costs were $3.4 million, primarily related to legal and litigation expenses associated with the prior acquisitions. In the three months ended March 31, 2022, acquisition, integration and transformation costs were $2.4 million, primarily consisting of one-time transaction expenses related to the acquisitions of Thrasys, BHS, TTC, Glocal, Innovations Group, and Cloudbreak and UpHealth Holdings’ merger with UpHealth.

Other Expense

In the three months ended March 31, 2023, other expense was $6.9 million, primarily consisting of $6.9 million of interest expense. In the three months ended March 31, 2022, other expense was $2.1 million, primarily consisting of $7.0 million of interest expense, partially offset by a $4.8 million gain on fair value of derivative liability and a $0.1 million gain on fair value of warrants.

Income Tax Benefit

In the three months ended March 31, 2023, the income tax benefit was zero. In the three months ended March 31, 2022, the income tax benefit was $2.3 million.

Income tax benefit reflects management’s best assessment of estimated current and future taxes to be paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in our financial statements. Consistent with our conclusion as of December 31, 2022, we continue to believe that it is not more likely than not that the deferred tax assets will be realized and we therefore maintained a full valuation allowance against the deferred tax assets as of March 31, 2023. As a result, the estimated annual effective tax rate for 2023 is expected to be 0% because our forecasted losses are expected to generate no income tax benefit. Furthermore, there were no discrete tax items for the quarter ended March 31, 2023.

Segment Information

We evaluate performance based on several factors, of which revenues and gross profit by operating segment are the primary financial measures.

Revenues

Revenues by segment consisted of the following:


	Three Months Ended March 31,
In thousands	2023		2022
Integrated Care Management	$	3,873	$	2,612
Virtual Care Infrastructure	17,458		15,630
Services	20,814		17,730
Total revenues	$	42,145	$	35,972

Three Months Ended March 31, 2023 and 2022. Revenues from the Virtual Care Infrastructure segment increased $1.8 million, consisting of $1.9 million in services revenues, partially offset by a $0.1 million decrease in products revenues. The increase in services revenues was primarily due to a $5.2 million increase in revenues resulting from an increase in minutes from both new and existing U.S. Telehealth customers, partially offset by no revenues being recognized for Glocal during the three months ended March 31, 2023 as a result of its deconsolidation in July 2022.

Revenues from the Services segment increased $3.1 million, consisting of a $2.2 million increase in services revenues and a $0.9 million increase in products revenues. The increase in services revenues was primarily due to a $3.0 million increase in revenues at UpHealth BehavioralTM due to higher census and payor mix, partially offset by a $1.0 million decrease in revenues at BHS in connection with its wind down. The increase in products revenues was primarily due to an increase in the volume and sales price of prescriptions.

Revenues from the Integrated Care Management segment increased $1.3 million, primarily due to growth in professional services revenue for existing customers.

Gross profit

Gross profit by segment consisted of the following:


	Three Months Ended March 31,
In thousands	2023		2022
Integrated Care Management	$	2,580	$	1,638
Virtual Care Infrastructure	10,185		6,501
Services	9,911		5,852
Total gross profit	$	22,676	$	13,991

Three Months Ended March 31, 2023 and 2022. Gross profit from the Virtual Care Infrastructure segment increased $3.7 million, primarily due to a $4.4 million increase in services gross profit as a result in the shift in mix from audio to video minutes in the U.S. Telehealth business, partially offset by no gross profit being recognized for Glocal during the three months ended March 31, 2023 as a result of its deconsolidation in July 2022.

Gross profit from the Services segment increased $4.1 million, consisting of a $2.7 million increase in services gross profit and a $1.4 million increase in products gross profit. The increase in services gross profit was primarily due to higher census and imrpoved mix of services, at UpHealth BehavioralTM. The increase in products gross profit was primarily due to higher sales prices of prescriptions in the Pharmacy business.

Gross profit from the Integrated Care Management segment increased $0.9 million, as a result of a $0.9 million increase in services gross profit from increased professional services performed at higher margins.

Liquidity and Capital Resources

As of March 31, 2023 and December 31, 2022, we had free cash on hand of $13.3 million and $15.6 million, respectively. Excluded from cash and cash equivalents as of March 31, 2023 and December 31, 2022, was $7.0 million in funds held in a designated “Share Account”

maintained with a leading bank in India in the name of Glocal for which our Chief Financial Officer is the sole authorized signatory. As of March 31, 2023 and December 31, 2022, we had no restricted cash included in our unaudted condensed consolidated balance sheets.

We believe our current cash and expected cash collections will be sufficient to fund our operations for at least twelve months after the filing date of this Quarterly Report.

Cash Flows

The following tables summarize cash flows for the three months ended March 31, 2023 and 2022 (unaudited):


	Three Months Ended March 31,
(In thousands)	2023		2022
Net cash used in operating activities	$	(4,039)	$	(3,071)
Net cash used in investing activities	(1,341)		(1,663)
Net cash provided by (used in) provided by financing activities	3,156		(1,019)
Effect of exchange rate changes on cash and cash equivalents	—		(394)
Net decrease in cash and cash equivalents	$	(2,224)	(6,147)

As UpHealth’s subsidiaries are included from their dates of acquisition, as described above, the numbers presented above are not directly comparable between periods.

In the three months ended March 31, 2023, cash used in operating activities was $4.0 million, primarily attributed to the net loss of $7.6 million and the changes in operating assets and liabilities, net of effects of acquisitions, of $3.4 million, partially offset by $7.0 million of net non-cash items (debt issuance cost amortization, depreciation, intangible amortization, stock-based compensation and impairments, partially offset by provision for bad debt expense). The changes in operating assets and liabilities, net of effects of acquisitions, was primarily due to an increase in accounts receivable of $2.5 million resulting from increased revenues in our Virtual Care Infrastructure segment, a decrease in deferred revenue of $1.2 million, and a decrease in operating lease liabilities of $0.6 million, partially offset by an increase in accounts payable and accrued expenses of $1.6 million due to delayed payments to vendors.

In the three months ended March 31, 2022, cash used in operating activities was $3.1 million, primarily attributed to the net loss of $17.7 million and gain on fair value of derivatives, gain on fair value of warrants, partially offset by partially offset by $9.4 million of non-cash items (impairments, depreciation, intangible amortization, debt issuance cost amortization and stock-based compensation) and the changes in operating assets and liabilities, net of effects of acquisitions, of $5.2 million. The changes in operating assets and liabilities, net of effects of acquisitions, was primarily due to a decrease in accounts receivable of $3.5 million due to net collections of receivables and an increase in accounts payable and accrued expenses of $3.1 million due to delayed payments to vendors.

In the three months ended March 31, 2023, cash used in investing activities was $1.3 million, primarily consisting of purchases of property and equipment and capitalized software development costs of $1.3 million. In the three months ended March 31, 2022, cash used in investing activities was $1.7 million, primarily consisting of purchases of property and equipment.

In the three months ended March 31, 2023, cash provided by financing activities was $3.2 million, primarily consisting of proceeds from equity issuance of $4.2 million, partially offset by payments of finance lease obligations of $0.9 million. In the three months ended March 31, 2022, cash used in financing activities was $1.0 million, primarily consisting of payments of capital lease obligations of $0.8 million and repayments of debt of $0.2 million.

Debt

See Note 8, Debt, in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report for our debt.

Contractual Obligations and Commitments

See Note 15, Leases, and Note 16, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report for information about our operating lease obligations and our non-cancellable contractual service and licensing obligations.

Off-Balance Sheet Arrangements

As of March 31, 2023, we have not entered into any off-balance sheet financing arrangements, established any additional special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report for the recently issued accounting standards that could have an effect on us.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenues and expenses that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future consolidated results of comprehensive income (loss) may be affected.

Among our significant accounting policies, which are described in Note 2, Summary of Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report, as well as Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements for the year ended December 31, 2022 included in our Annual Report, the following accounting policies and specific estimates involve a greater degree of judgment and complexity:

•Business combinations;

•Identification and reporting of variable interest entities (“VIEs”);

•Accounting for equity investments;

•Goodwill and intangible assets;

•Revenue recognition; and

•Income taxes.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

Evaluation of Our Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, our CEO and CFO concluded that our entity-level controls and business process controls were effective as of March 31, 2023; however, our CEO and CFO also concluded that the previously identified material weakness in our information technology general controls (“ITGCs”) in the areas of user access, segregation of duties, and change management related to certain information technology systems that support our financial reporting process were not remediated as of March 31, 2023, and that the material weakness remains for these ITGCs. Further remediation of the non-remediated portions of the material weakness in our ITGCs is ongoing and our objective is to complete such remediation efforts by June 2023.

There were no misstatements identified in the unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2023 as a result of this material weakness.

Changes in Internal Control Over Financial Reporting

Other than the remediation efforts related to our ITGCs described above, there was no change in our internal control over financial reporting that occurred in the three months ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

From time to time, we may be subjected to claims or lawsuits which arise in the ordinary course of business. Estimates for resolution of legal and other contingencies are accrued when losses are probable and reasonably estimable. In the opinion of management, after consulting with legal counsel, none of these other claims are currently expected to have a material adverse effect on our condensed consolidated results of operations, financial position or cash flows. Except as set forth below, our material legal proceedings are described in Note 16, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements in Part I of this Quarterly Report.

Dispute and Litigation Regarding Control of Glocal Board of Directors

Please refer to Part I, Item 3 of our Annual Report for information regarding the dispute and litigation regarding control of the Glocal board of directors. This process remains in the early stages, and the International Court of Arbitration of the International Chamber of Commerce is scheduling hearing dates for the arbitration that are expected to occur in the second half of 2023.

Item 1A. Risk Factors

As of the date of this Quarterly Report on Form 10-Q, we supplement the risk factors disclosed in our Annual Report with the following risk factors. Any of these risk factors disclosed in our Annual Report or herein could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

Risks Relating to UpHealth’s Business and Industry

In order to support the growth of our business, we may need to seek capital through new equity or debt financings, and such sources of additional capital may not be available to us on acceptable terms or at all.

We intend to continue to make significant investments to support our business growth, respond to business challenges or opportunities, develop new applications and services, enhance our existing solutions and services, enhance our operating infrastructure and potentially acquire complementary businesses and technologies. For the years three months ended March 31, 2023 and 2022, for all acquired or to be acquired subsidiaries, aggregate net cash used in operating activities was $4.0 million and $3.1 million, respectively.

Our future capital requirements may be significantly different from our current estimates and will depend on many factors, including our growth rate, both organically and through acquisitions, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new or enhanced services and the continuing market acceptance of digital health. Accordingly, we may need to engage in additional equity or debt financings or collaborative arrangements to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve additional restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, during times of economic instability, it has been difficult for many companies to obtain financing in the public markets or to obtain debt financing, and we may not be able to obtain additional financing on commercially reasonable terms, if at all. If we are unable to obtain adequate financing on terms satisfactory to us, it could have a material adverse effect on our business, financial condition and results of operations.

Our debt agreements contain restrictions that may limit our flexibility in operating and financing our business, and any default on our secured credit facility could result in foreclosure by our secured noteholders on our assets.

Our Indenture governing our 2025 Notes, Security Agreement and related documents contain, and instruments governing any future indebtedness of ours would likely contain, a number of covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

•create liens on certain assets;

•incur additional debt or issue new equity;

•consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

•sell certain assets.

Any of these restrictions could limit our ability to plan for or react to market conditions and could otherwise restrict corporate activities. Any failure to comply with these covenants could result in a default under our secured credit facility or instruments governing any future indebtedness of ours. Additionally, our credit facility for the 2025 Notes is secured by substantially all of our assets and those of our domestic subsidiaries. Upon a default, unless waived, the lenders under our secured credit facility could elect to terminate their commitments, cease making further loans, foreclose on our assets pledged to such lenders to secure our obligations under our Security Agreement and force us into bankruptcy or liquidation. In addition, a default under our secured credit facility could trigger a cross default under agreements governing any future indebtedness as well as the Indenture governing our 2026 Notes. Our results of operations may not be sufficient to service our indebtedness and to fund our other expenditures, and we may not be able to obtain financing to meet these requirements. If we experience a default under our secured credit facility, our unsecured credit facility or instruments governing our future indebtedness, our business, financial condition, and results of operations may be adversely impacted.

In addition, the 2025 Notes mature on December 15, 2025. There are no assurances that that we will have sufficient funds available to satisfy the 2025 Notes at maturity, or that the holders will elect to convert the 2025 Notes into shares of our common stock prior to or at the time of maturity.

As of March 31, 2023, we were in compliance with all covenants and restrictions associated with our debt agreements.

We qualify as an emerging growth company as defined under the JOBS Act as well as a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We qualify as an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of our IPO. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have not elected to opt out of such extended transition period and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. This may make comparison of our financial statements with another public company which is not an emerging growth company or is an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

Additionally, we qualify as a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250.0 million as of the end of that year’s second fiscal quarter, or (ii) our annual revenues exceeded $100.0 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700.0 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, and the price of our common stock may be adversely affected.

As a publicly traded company following the consummation of the Business Combinations, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing standards of the New York Stock Exchange (“NYSE”). We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.

As previously disclosed in our Annual Report on Form 10‑K for year ended December 31, 2021, our disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2021 due to certain material weaknesses described in Part I, Item 4, Controls and Procedures, of this Quarterly Report, as well as in Part II, Item 9A, Controls and Procedures, of our Annual Report. To address these material weaknesses that we identified as of December 31, 2021, we implemented measures designed to improve our internal controls over financial reporting during the year ended December 31, 2022. These measures included enhancing our internal and external technical accounting resources and engaging third party consultants for the formalization of our internal procedures, and implementing a new enterprise resource planning (“ERP”) system. As of December 31, 2022, all of the U.S. entities are live on the ERP system. We completed documentation and tests of design and tests of operational effectiveness of our entity-level controls, certain areas of our ITGCs, and controls over our business processes, and we remediated control gaps identified and performed tests of operating effectiveness on remediated items.

As a result of our remediation efforts, our management, under the supervision and with the participation of our CEO and our CFO and oversight of the Board of Directors, conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2022, based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, our management concluded that as of December 31, 2022, we no longer have the material weaknesses in internal controls over financial reporting described above for entity-level controls and business process controls, which we previously identified existed as of December 31, 2021 and our assessment has not changed as of March 31, 2023; however, our management also concluded that the previously identified material weakness in our ITGCs in the areas of user access, segregation of duties, and change management related to certain information technology systems that support our financial reporting process were not remediated as of March 31, 2023, and that the material weakness remains for these ITGCs. Further remediation of the non-remediated portions of the material weakness in our ITGCs is ongoing and our objective is to complete such remediation efforts by June 2023.

In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may experience additional material weaknesses in our controls. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, additional weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future.

Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.

General Risks Related to the Company

The Company may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

As a result of events which occurred during the three months ended September 30, 2022, as discussed under the heading “Dispute and Litigation Regarding Control of Glocal Board of Directors” in Item 3, Legal Proceedings, of Part I of our Annual Report, we determined that a reconsideration event occurred in July 2022, which required us to reassess whether Glocal was a VIE and whether we continued to have a controlling financial interest in Glocal. Based on this assessment, we concluded that Glocal was a VIE, and furthermore, that we no longer have the ability to direct any activities of Glocal and no longer have a controlling financial interest. As a result, effective July 2022, we deconsolidated Glocal and recorded a $37.7 million loss on deconsolidation of equity investment in our consolidated statements of operations, measured as the difference between the probability-weighted fair value of Glocal of $21.2 million and the carrying amount of Glocal’s assets and liabilities as of June 30, 2022. The probability-weighted fair value of Glocal is included in equity investment in our consolidated balance sheets. Further, we assessed the prospective accounting for our equity investment in Glocal. Since we no longer had the ability to exercise significant influence over operating and financial policies of Glocal, we concluded the investment should be accounted for utilizing the ASC 621 measurement alternative, whereby the investment was measured at cost and will continue to be evaluated for any indicators of impairment. In addition, we derecognized $14.3 million of noncontrolling interests related to Glocal. If through the legal processes discussed under the heading “Dispute and Litigation Regarding Control of Glocal Board of Directors” in Item 3, Legal Proceedings, of Part I of our Annual Report, we are able to obtain the ability to direct the activities of Glocal, and it is our intent to exercise all legal rights and remedies to achieve such a result, then we will further reassess the appropriate accounting treatment of our investment in Glocal.

The Company may be forced to write-down or write-off assets in the future, restructure its operations, or incur impairment or other charges that could result in losses. Even though these charges may be non-cash items and may not have an immediate impact on the Company’s liquidity, the fact that the Company reports charges of this nature could contribute to negative market perceptions about it or its securities. Furthermore, as a result of indicators of impairment identified during the three months ended September 30, 2022, we performed a goodwill impairment assessment as of September 30, 2022, which included both qualitative and quantitative assessments. Our assessment included a comparison of carrying value to an estimated fair value using a market approach based on our market capitalization. Based on this assessment, we concluded the fair value of two segments was below the carrying value primarily due to the recent change in our market valuation and financial performance and recorded a goodwill impairment in the amount of $89.1 million and an intangible asset impairment in the amount of $16.9 million. We also recorded a $0.5 million and a $1.8 million charge on the remeasurement of the disposal group held for sale in the three months ended March 31, 2023 and December 31, 2022, respectively, in connection with the pending sale of Innovations Group. Additionally, we recorded a $5.5 million measurement period adjustment at Glocal that was immediately impaired, and a $0.7 million trade name intangible asset impairment at TTC during the three months ended March 31, 2022. In addition, charges of this nature may cause the Company to be unable to obtain future financing on favorable terms or at all.

Resales of our shares of common stock could depress the market price of our common stock.

We have approximately 16,784,476 shares of common stock outstanding as of May 10, 2023. The shares held by the Company’s public stockholders are freely tradable. In addition, the Company registered shares of common stock issued as merger consideration (none of which remain subject to a contractual lockup period), registered for resale shares of common stock issued in the 2023 Private Placement, and will be registering shares for resales by its officers, directors and other affiliates, as well as shares underlying the warrants and Convertible Notes issued by the Company, which shares will become available for resale following the exercise or conversion of the warrants or Convertible Notes, respectively. Rule 144 also became available for the resale of shares of our common stock on June 14, 2022. Such sales of shares of common stock or the perception of such sales may depress the market price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Please refer to the Current Reports on Form 8-K that we have filed with the SEC for information regarding our private placement that closed on March 13, 2023.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

The vesting schedule for 430,000 RSUs previously granted to Samuel J. Meckey, our Chief Executive Officer, on January 9, 2023 will be changed as follows: subject to Mr. Meckey’s continued service to the Company, 25% of the RSUs shall vest on June 22, 2023 (the “Initial Vesting Date”), and the remaining 75% of the RSUs shall vest in equal quarterly installments on each subsequent August 22, November 22, and March 7 over the three years following the Initial Vesting Date, such that the RSUs will be 100% vested on June 22, 2027.

Item 6. Exhibits


Exhibit No.						Description


3.1**						Second Amended and Restated Certificate of Incorporation of UpHealth, Inc., as amended by the Certificate of Amendment effective December 8, 2022 (incorporated by reference to Exhibit 3.1 to UpHealth, Inc.’s Annual Report on Form 10-K filed with the SEC on March 31, 2023).

3.2**						Second Amended and Restated Bylaws of UpHealth, Inc., effective August 22, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2022).

4.1**						Form of Series A Warrant (incorporated by reference to Exhibit 4.1 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on March 9, 2023).

4.2**						Form of Series B Warrant (incorporated by reference to Exhibit 4.2 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on March 9, 2023).

4.3**						Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.3 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on March 9, 2023).

10.1#**						Inducement Equity Incentive Plan (incorporated by reference to Exhibit 4.4 to UpHealth, Inc.’s Registration Statement on Form S-8 filed with the SEC on May 8 , 2023).

10.2#*						Form of Restricted Stock Units Agreement.

10.3#*						Form of Notice of Grant of Restricted Stock Units.

10.4#**						Amendment to Employment Agreement, dated January 12, 2023, by and between UpHealth, Inc. and Samuel J. Meckey (incorporated by reference to Exhibit 10.1 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on January 13, 2023).

10.5†**						Stock Purchase Agreement, dated February 26, 2023, by and among UpHealth, Inc., UpHealth Holdings, Inc., Innovations Group, Inc. and Belmar MidCo, Inc. (incorporated by reference to Exhibit 2.1 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on February 27, 2023).

10.6**						Release Agreement, dated February 26, 2023, by and among UpHealth, Inc., UpHealth Holdings, Inc. and Innovations Group, Inc. (incorporated by reference to Exhibit 10.1 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on February 27, 2023).

10.7**						Form of Securities Purchase Agreement, dated as of March 9, 2023, by and between UpHealth, Inc. and the Purchaser (incorporated by reference to Exhibit 10.1 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on March 13, 2023).

10.8**						Form of Registration Rights Agreement, dated as of March 9, 2023, by and between UpHealth, Inc. and the Purchaser (incorporated by reference to Exhibit 10.2 to UpHealth, Inc.’s Current Report on Form 8-K filed with the SEC on March 9, 2023).

31.1*						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*						Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*						Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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*			Filed herewith.

†			Certain exhibits and schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish a copy of the omitted exhibits and schedules to the SEC on a supplemental basis upon its request.

#			Indicates a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 11, 2023.



UPHEALTH, INC.

By:						/s/ Samuel J. Meckey
Name:						Samuel J. Meckey
Title:						Chief Executive Officer (Principal Executive Officer)

By:						/s/ Martin S. A. Beck
Name:						Martin S. A. Beck
Title:						Chief Financial Officer (Principal Financial and Accounting Officer)