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Business Combinations and Disposition
12 Months Ended
Dec. 31, 2022
Business Combinations [Abstract]  
Business Combinations and Disposition

3. Business Combinations and Disposition

Business Combinations

vitaCare Prescription Services, Inc.

On April 14, 2022, we acquired all of the equity interests of vitaCare from TherapeuticsMD, Inc. (the "Seller"), the sole stockholder of vitaCare, for an initial cash payment of approximately $150.0 million and additional payment or adjustment for contingent consideration payable of up to $7.0 million in cash and contingent consideration receivable based upon vitaCare's achievement of certain specified revenue described further below. We incurred a total of $1.6 million of transaction costs associated with this acquisition during 2022 that consisted primarily of professional fees. vitaCare is a prescription technology and service platform that simplifies the prescription fulfillment process for consumers taking brand

medications by helping them gain access to therapies and stay on those therapies for as long as medically appropriate. The purpose of the acquisition was to strengthen and expand our services under our pharma manufacturer solutions platform.

We accounted for the vitaCare acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations, and recognized tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. The estimated fair values of the acquired intangible assets were determined primarily by using a discounted cash flow method which is a non-recurring fair value measurement based on Level 3 inputs. The goodwill recognized in connection with this acquisition primarily related to the expected long-term synergies and other benefits from the acquisition, including the acquired assembled workforce, and is expected to be tax deductible.

We also established a management incentive plan under which certain continuing vitaCare employees were eligible to receive up to $10.0 million of additional cash compensation upon achievement of certain performance milestones through 2023. This management incentive plan was accounted for separately from the business combination and excluded from the purchase consideration. As of December 31, 2022, the performance milestones were not probable of being met; however eligible employees may continue to receive up to the $10.0 million of cash compensation upon achievement of the performance milestones in 2023.

The components of the purchase consideration for vitaCare are as follows:

 

(in thousands)

 

 

Cash

$

149,877

 

Fair value of contingent consideration payable

 

1,684

 

Fair value of contingent consideration receivable

 

(19,741

)

Total purchase consideration

$

131,820

 

The allocation of the purchase consideration for vitaCare is as follows:

 

(in thousands)

 

 

Accounts receivable

$

433

 

Prepaid expenses and other current assets

 

50

 

Property and equipment

 

255

 

Intangible assets

 

52,000

 

Accounts payable

 

(752

)

Accrued expenses and other current liabilities

 

(780

)

Goodwill

 

80,614

 

Total purchase consideration

$

131,820

 

The amounts assigned to the acquired intangible assets and their estimated useful lives are as follows:

 

(dollars in thousands)

Fair
Value

 

 

Weighted Average Useful Life
(in years)

 

Developed technology

$

30,000

 

 

 

5.0

 

Customer relationships

 

21,000

 

 

 

11.0

 

Trademark

 

1,000

 

 

 

3.0

 

 

$

52,000

 

 

 

7.4

 

Contingent consideration payable - The contingent consideration payable of up to $7.0 million in cash was based upon vitaCare's achievement of certain specified revenue results through 2023 as stipulated by the purchase agreement. The estimated fair value of the contingent consideration payable was based on the present value of the expected future payments to be made to the Seller (Level 3 inputs) using an option pricing model. As of December 31, 2022, no future contingent payments were expected to be made to the Seller as vitaCare's achievement of the specified revenue results through 2023 were no longer probable of being met. Accordingly, we recognized the change in fair value of the contingent consideration payable of $1.7 million as a reduction in general and administrative expenses during 2022.

Contingent consideration receivable - vitaCare entered into a commercial agreement with the Seller in connection with the acquisition (the "commercial agreement") to provide certain pharmacy services to the Seller over an initial 5-year term following the acquisition with annual minimum guaranteed payments over the 5-year term totaling $66.3 million. The estimated fair value of the contingent consideration receivable at the acquisition date was based on the present value of the expected future annual minimum guaranteed payments in excess of the estimated fair value of pharmacy services expected to be provided to the Seller for each year over the initial 5-year term and contained significant unobservable inputs (Level 3 inputs). Key inputs used in this estimate included projected revenue and a discount rate which incorporated the

risk of achievement associated with the forecasts and the credit risk of the Seller. Significant changes in the projected revenue or discount rate would result in a significantly higher or lower fair value measurement.

In December 2022, the Seller completed a transaction (the "transformation transaction") with a third-party to (i) grant an exclusive license to the third-party to commercialize certain of the Seller's pharmaceutical drugs in return for, amongst other things, royalty-based payments based on the level of sales achieved and (ii) sold certain other assets to the third-party. We agreed to eliminate the annual minimum guaranteed payments associated with the commercial agreement which was assigned to the third-party such that the transformation transaction could be completed. Concurrently, we amended an existing pharma manufacturer solutions arrangement with the third-party. We determined the amended pharma manufacturer solutions arrangement with the third-party was at fair value and the fair value of the contingent consideration receivable at the date of the transformation transaction was effectively zero as the contingency was resolved and no future contingent payments will be received. Accordingly, we recognized the change in fair value of the contingent consideration receivable of $19.7 million as an increase in general and administrative expenses during 2022.

Pro forma unaudited consolidated results of operations - The following table reflects the pro forma unaudited consolidated results of operations for the periods presented as if the acquisition of vitaCare had occurred on January 1, 2021. The pro forma unaudited consolidated results of operations give effect to certain adjustments including: (i) transaction and severance costs incurred in connection with the acquisition; (ii) amortization expense related to the acquired intangible assets; and (iii) elimination of vitaCare's allocated interest expense related to the Seller's financing agreement whereby vitaCare was released from as guarantor upon the consummation of the acquisition. The pro forma unaudited consolidated results of operations are not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated as of the date indicated, nor are they necessarily indicative of future operating results.

 

 

Year Ended December 31,

 

(in thousands)

2022

 

 

2021

 

Pro forma revenue

$

767,125

 

 

$

746,299

 

Pro forma net loss

$

(40,901

)

 

$

(59,400

)

vitaCare's revenue for the year ended December 31, 2022 of $5.6 million was included in the consolidated statement of operations. Disclosure of the standalone earnings or loss of vitaCare is not practicable as expenses associated with significant back-office, product development and technology and go-to-market processes of vitaCare have been substantially integrated into our consolidated operations.

flipMD, Inc.

On February 18, 2022, we acquired all of the equity interests of flipMD, Inc. ("flipMD") for $7.0 million in cash. flipMD is a marketplace connecting practicing physicians with organizations seeking on-demand medical expertise and expands both our engagement with healthcare providers and services currently available under our existing pharma manufacturer solutions platform.

Other Business Combinations

In 2021, we acquired RxSaver, Inc. (“RxSaver”) and HealthiNation Inc. (“HealthiNation”) for $50.7 million and $76.6 million in cash, respectively. In 2020, we acquired Scriptcycle, LLC, (“Scriptcycle”) for an aggregate purchase consideration of $58.3 million. RxSaver and Scriptcycle expand our business capabilities with respect to our prescription transactions offering. HealthiNation expands our services under our pharma manufacturer solutions platform. Goodwill associated with these acquisitions primarily related to the expected long-term synergies and other benefits, including the acquired assembled workforce, and are deductible for tax purposes except for HealthiNation which is not tax deductible. The $185.6 million aggregate purchase consideration related to these acquisitions was principally allocated to goodwill of $84.0 million (comprised of $25.9 million, $33.2 million and $24.9 million from RxSaver, HealthiNation, and Scriptcycle, respectively) and other intangible assets of $93.5 million (comprised of $25.2 million, $40.0 million and $28.3 million, respectively, from the respective businesses described above). Other intangible assets principally related to customer relationships of $74.0 million (comprised of $20.7 million, $28.0 million and $25.3 million, respectively, from the respective businesses described above) with estimated useful lives ranging between eleven and thirteen years.

The Scriptcycle acquisition also contained provisions for our payment of contingent consideration of up to $2.9 million in the event certain financial results were achieved, which was met and paid in full during 2021.

In 2021, we also acquired RxNXT LLC for $14.5 million in cash which expands our business capabilities with respect to our prescription transactions offering.

Unaudited supplemental pro forma financial information and the revenue and earnings in the year of acquisition for these acquisitions has not been presented because the effects are not material to our consolidated financial statements.

Disposition

Certain Assets of GoodRx Care, LLC (FKA HeyDoctor, LLC)

On December 9, 2022, we completed the sale of certain technology assets of GoodRx Care, LLC, our telehealth platform, for $19.5 million in cash, of which $2.9 million is held in the buyer's escrow account related to the resolution of standard representations and warranties and is included in prepaid and other current assets on the consolidated balance sheet as of December 31, 2022. The sale represents the sale of a business and, as we have one reporting unit, goodwill was allocated to the disposal group. The carrying value of the disposal group as of the sale date was approximately $8.1 million, comprised principally of $4.6 million of capitalized software and $3.1 million of allocated goodwill. We recognized a $11.4 million pre-tax gain on the sale which was included in general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2022. As we expect to continue to provide our consumers access to telehealth services via our GoodRx Care platform after the date of sale, the sale does not represent a strategic shift that has, or is expected to have, a major effect on our operations and financial results.