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Leases

9 Months Ended

Sep. 30, 2023

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

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

The components of lease expense consisted of the following during the three and nine months ended September 30, 2023:


	Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
In thousands	Third Party		Related Party		Total		Third Party		Related Party		Total
Finance lease costs:
Amortization of right-of-use assets	$	814	$	—	$	814	$	2,546	$	—	$	2,546
Interest on lease liabilities	75		—		75		244		—		244
Operating lease costs	487		98		585		1,796		294		2,090
Short-term lease costs	40		—		40		106		67		173
Variable lease costs	144		—		144		597		—		597
Sublease income	(111)		—		(111)		(353)		—		(353)
Total lease costs	$	1,449	$	98	$	1,547	$	4,936	$	361	$	5,297

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


	September 30, 2023		December 31, 2022
In thousands	Third Party		Third Party		Related Party		Total
Assets
Finance lease right-of-use assets (included in property and equipment, net)	$	4,696	$	5,916	$	—	$	5,916
Operating lease right-of-use assets	1,653		5,819		1,394		7,213
Total leased assets	$	6,349	$	11,735	$	1,394	$	13,129

Liabilities
Lease liabilities, current:
Finance lease liabilities	$	3,044	$	3,023	$	—	$	3,023
Operating lease liabilities	620		2,130		322		2,452
Lease liabilities, current	$	3,664	$	5,153	$	322	$	5,475

Lease liabilities, noncurrent:
Finance lease liabilities	$	1,821	$	2,976	$	—	$	2,976
Operating lease liabilities	1,476		4,672		1,093		5,765
Lease liabilities, noncurrent	3,297		7,648		1,093		8,741
Total leased liabilities	$	6,961	$	12,801	$	1,415	$	14,216

Accumulated amortization related to the finance lease assets was $9.2 million and $3.9 million as of September 30, 2023 and December 31, 2022, respectively.

Other information consisted of the following:


	September 30, 2023						December 31, 2022
In thousands	Third Party		Related Party		Total		Third Party		Related Party		Total
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases	$	552	$	95	$	647	$	3,632	$	371	$	4,003
Operating cash flows from finance leases	$	73	$	—	$	73	$	310	$	—	$	310
Financing cash flows from finance leases	$	2,510	$	—	$	2,510	$	3,106	$	—	$	3,106

Right-of-use assets obtained in exchange for new lease liabilities:
Finance leases	$	706	$	—	$	706	$	4,110	$	—	$	4,110
Operating leases	$	—	$	—	$	—	$	10,843	$	1,706	$	12,549

The following table summarizes our lease term and discount rate assumptions as of September 30, 2023:


			September 30, 2023
			Third Party
Weighted-average remaining lease term (years):
Finance leases			1.78
Operating leases			3.19

Weighted-average discount rate:
Finance leases			7.2%
Operating leases			6.9%

Undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating and finance leases with terms of more than one year, as of September 30, 2023, have been reconciled to the total operating and finance lease liabilities recognized on the unaudited condensed consolidated balance sheets as of September 30, 2023 as follows:


	September 30, 2023
	Finance Leases		Operating Leases
In thousands	Third Party		Third Party
Remaining 2023	$	878	$	187
2024	2,896		732
2025	1,202		705
2026	206		594
2027	—		100
Thereafter	—		—
Total lease payments	5,182		2,318
Less: Interest	317		222
Present value of lease liabilities	$	4,865	$	2,096

In the nine months ended September 30, 2023, we recorded an impairment charge of $0.4 million in our Integrated Care Management segment in connection with the write-down of an office lease which is included in impairment of goodwill, intangible assets, and other long-lived assets in our unaudited condensed consolidated statements of operations.

Prior to the adoption of ASU 2016-02, Leases, the following was disclosed in our Quarterly Report on Form 10-Q in the three and nine months ended September 30, 2022:

Total rent expense under related party and third-party agreements consisted of the following:


In thousands	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Related party	$	202	$	602
Third-party	1,125		3,101
Sublease income	(146)		(392)
Total rent expense, net of sublease income	$	1,181	$	3,311

In the nine months ended September 30, 2022, we recorded additional lease abandonment expense totaling $0.1 million related to a termination fee we paid to exit an office which is included in impairment of goodwill, intangible assets, and other long-lived assets in our unaudited condensed consolidated statements of operations.

Leases