Commitments and Contingencies

9 Months Ended

Sep. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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

As discussed in Note 1. Organization and Business, since 2021, UpHealth Holdings has been a party to the Needham Action in the state court in New York entitled Needham & Company LLC v. UpHealth Holdings, Inc. and UpHealth Services, Inc., which arose out of UpHealth Services, Inc.’s engagement of Needham to provide placement and other financial advisory services. On September 14, 2023, the trial in New York issued a Decision and Order granting summary judgment in favor of Needham and denying UpHealth Holdings’ and UpHealth Services, Inc.’s motion for summary judgment. That court in New York entered that Decision on its docket on September 15, 2023. The Decision and Order concluded that Needham is entitled to fees in the amount of $31.3 million, plus interest. On September 18, 2023, the court in New York signed a judgment against UpHealth Holdings and UpHealth Services, Inc. in the amount of $31.3 million, plus prejudgment interest of $6.5 million, for a total judgment of $37.8 million, plus post-judgment interest of 9% per year. Notwithstanding the filing of the voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court, and the automatic stay pursuant to section 362(a) of the U.S. Bankruptcy Code, the Clerk of Court entered that judgment on the docket on September 27, 2023. On November 13, 2023, UpHealth Holdings entered into a stipulation with Needham in the Bankruptcy Court providing that, to the extent it applies, the automatic stay pursuant to section 362(a) of the Bankruptcy Code shall be deemed modified for the sole and limited purpose of authorizing UpHealth Holdings and UpHealth Services, Inc. to appeal the New York court’s judgment (and for Needham to be able to participate in the appeal). We are awaiting the Bankruptcy Court’s entry of an order approving the stipulation. When it does so, we will appeal the judgment in the Needham Action.

Included in accrued expenses in our unaudited condensed consolidated balance sheet of December 31, 2022 was a liability totaling $8.0 million related to this matter. As a result of the summary judgment, in the three and nine months ended September 30, 2023, we recorded additional expense of $29.8 million, which was included in acquisition, integration, and transformation costs in our unaudited condensed consolidated statements of operations, which increased our total liability to $37.8 million as of September 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 September 30, 2023 is not included in our unaudited condensed consolidated financial statements.

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.