COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Leases

We lease office space, warehouse and distribution space, and equipment under non-cancelable operating and capital leases expiring at various dates through 2029. Lease terms generally range from two to seven years with one to two renewal options for extended terms which are taken into consideration when evaluating the overall term of the lease. In most cases, we are required to make additional payments under facility operating leases for taxes, insurance, and other operating expenses incurred during the operating lease period. Certain of these leases contain rent concessions and payment escalations, in which case rent expense, including the impact of the concessions and/or escalations, is recognized on a straight-line basis over the term of the lease.

Rent expense under all operating leases was approximately $2.1 million for each of the three months ended September 30, 2021, and 2020, respectively. Rent expense under all operating leases was approximately $6.3 million and $6.0 million, for the nine months ended September 30, 2021, and 2020, respectively.

Employment Agreements

We have employment agreements with various executives. The agreements have open-ended terms providing that employment shall continue until terminated by either party in accordance with the agreement. In addition to salary, bonuses, and benefits, the agreements also provide for termination benefits if the agreements are terminated by us for reasons other than cause or by the executives for good reason.

Inventory Purchases

As of September 30, 2021 and December 31, 2020, we have contractual commitments to purchase inventory from certain manufacturers totaling $3.3 million and $6.5 million, respectively.

Legal Proceedings

We are involved in various lawsuits, claims, inquiries, and other regulatory and compliance matters, most of which are routine to the nature of our business. When it is probable that a loss will be incurred and where a range of the loss can be reasonably estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. The ultimate resolution of these claims could affect future results of operations should our exposure be materially different from our estimates or should liabilities be incurred that were not previously accrued. Potential insurance reimbursements are not offset against potential liabilities.

Because of the uncertainties associated with claims resolution and litigation, future losses to resolve these matters could be higher than the liabilities we have accrued; however, we are unable to reasonably estimate a range of potential losses. If new information were to become available that allowed us to reasonably estimate a range of potential losses in an amount higher or lower than what we have accrued, we would adjust our accrued liabilities accordingly. Based upon current information, we concluded that the impact of the resolution of these matters would not be, individually or in the aggregate, material to our financial position, results of operations or cash flows. Additional lawsuits, claims, inquiries, and other regulatory and compliance matters could arise in the future. The range of losses for resolving any future matters would be assessed as they arise.

On July 11, 2017, Ronnie Kahululani Solis (“Solis”) filed suit in the Los Angeles Superior Court against one of our former subsidiaries, Gorman Health Group, LLC (“Gorman”), which merged into Convey Health Solutions, Inc. effective September 1, 2020, for damages for negligence and negligence per se arising out of an incident that occurred on March 3, 2017. Solis alleged damages in excess of $6.0 million stemming from an accident involving a vehicle and a motorcycle. The vehicle was being operated by a Gorman employee in the scope of his employment. The Company is covered by insurance up to $6.0 million. In July 2021, the parties reached an agreement to settle the claim for $1.2 million and in August 2021, the settlement was paid by the insurance company.

Sales Tax Accrual

On June 21, 2018, the U.S. Supreme Court issued an opinion in South Dakota v. Wayfair. The State of South Dakota alleged that U.S. constitutional law should be revised to permit South Dakota to require remote sellers to collect and remit sales tax in South Dakota in accordance with South Dakota’s sales tax statute. Under the U.S. Supreme Court’s ruling, the longstanding Quill Corp v. North Dakota sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain circumstances. Consequently, we began collecting sales tax in 21 states that we deemed in accordance with the new statute. Pursuant to South Dakota’s statute, we are not required to pay sales tax retroactively.

ASC Topic 450, Contingencies, (“ASC 450”) requires an estimated loss to be accrued by a charge to income if it is probable that a liability has been incurred at the date of the financial statements and the amount of the liability can be reasonably estimated. We recognized liabilities for contingencies related to state sales and use tax deemed probable and estimable totaling $11.0 million and $7.5 million at September 30, 2021, and December 31, 2020, respectively. These are included in accrued liabilities in our condensed consolidated balance sheets.