Acquisitions

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Assets acquired and liabilities assumed in a business combination are recorded at their estimated fair value on the date of the acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill on the balance sheet if the purchase price exceeds the estimated net fair value or as a bargain purchase gain on the income statement if the purchase price is less than the estimated net fair value. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed.

Cloudmed

On June 21, 2022, the Company completed the acquisition of Cloudmed for a purchase price of $3.3 billion. The following table summarizes the fair value of the total consideration paid:


	Fair Value
Stock consideration transferred to the Sellers (1)	$	2,389.5
Cash consideration (2)	879.8
Replacement awards issued to Cloudmed equity award holders (3)	11.3
Total consideration	3,280.6

(1) The stock consideration fair value includes a preliminary discount for lack of marketability factor related to an 18-month lock-up period during which the Sellers may not sell their Company common stock.

(2) Cash consideration includes the repayment of Cloudmed’s pre-existing credit facility that was paid off at closing and was not assumed by the Company.

(3) Represents the pre-acquisition service portion of the fair value of 1,536,220 replacement restricted stock units (“RSUs”) issued to Cloudmed equity award holders at closing.

The Company funded the cash consideration component and the Company’s associated transaction expenses with a combination of cash on hand and the incurrence of additional indebtedness (see Note 8, Debt).

The purchase price has been provisionally allocated to assets acquired and liabilities assumed based on their fair value as of the acquisition date. The fair value estimate of assets acquired and liabilities assumed is pending the completion of various elements, including gathering further information about the identification and completeness of all assets and liabilities acquired, the finalization of an independent appraisal and valuation of the fair value of the assets acquired and liabilities assumed, and final review by the Company’s management. Some of the more significant amounts that are not yet finalized relate to the fair value of intangible assets (including goodwill), contract assets, contract liabilities, and income and non-income related taxes. Accordingly, management considers the balances shown in the following table to be preliminary, and there could be adjustments to the consolidated financial statements, including changes in our amortization expense related to the valuation of intangible assets acquired and their respective useful lives, among other adjustments.

The preliminary fair value of assets acquired and liabilities assumed is:



	Purchase Price Allocation
Total purchase consideration	$	3,280.6

Allocation of consideration to assets acquired and liabilities assumed:
Cash and cash equivalents	$	32.1
Accounts receivable	61.8
Current portion of contract assets	68.5

Property, equipment and software	5.0
Operating lease right-of-use assets	25.3
Non-current portion of contract assets	23.9
Intangible assets	1,370.1
Goodwill	1,994.7
Other assets	6.4
Accounts payable	(31.9)

Customer liabilities	(3.3)
Accrued compensation and benefits	(91.8)


Operating lease liabilities	(25.4)
Deferred income tax liabilities	(142.0)
Other liabilities	(12.8)
Net assets acquired	$	3,280.6

The intangible assets identified in conjunction with the Cloudmed Acquisition and their preliminary fair values are as follows:


	Useful Life	Gross Carrying Value
Customer Relationships	18 years	$	318.0
Technology	7 years	$	1,052.0
Favorable leasehold interests	Life of lease	$	0.1

The goodwill recognized is primarily attributable to growth and cost reduction synergies that are expected to be achieved from the integration of Cloudmed. None of the goodwill is expected to be deductible for income tax purposes.

Included in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 are net sales of $120.2 million and $133.5 million, respectively, and net income before taxes of $1.3 million and $0.9 million, respectively, related to the operations of Cloudmed since the acquisition date of June 21, 2022.

Measurement period adjustments

The Company had various measurement period adjustments due to additional information received since the Cloudmed Acquisition, none of which were material.

Prior Acquisitions

During 2021, the Company acquired the following business:


Company Name	Description of the Business	Description of the Acquisition
iVinci Partners, LLC d/b/a VisitPay (“VisitPay”)	Provider of digital payment solutions	Purchased all outstanding equity interests

In 2020, the Company purchased certain assets relating to the RevWorks services business from Cerner Corporation. In accordance with the purchase agreement, the Company paid the first deferred payment of $12.5 million in the third quarter of 2021. The remaining deferred payment of $12.5 million was payable on the second anniversary of the closing date (August 2022) and is included in other accrued expenses on the Consolidated Balance Sheet as of September 30, 2022 as it had not been paid as of such date.

The two deferred payments related to the RevWorks acquisition were contractual obligations of the Company; however, they are refundable to the Company if certain RevWorks customer revenue targets defined in the purchase agreement for the first two years following the acquisition are not achieved. At the time of the acquisition, the Company recorded an asset for the fair value of the contingently refundable consideration of $22.3 million. As of September 30, 2022, the entire amount of the contingently refundable consideration of $25.0 million is included in prepaid expenses and other current assets on the Consolidated Balance Sheet. The parties are currently engaging in arbitration to finalize the remaining deferred payment and contingently refundable consideration amounts.

Pro Forma Results

The following table summarizes, on a pro forma basis, the combined results of the Company as though the Cloudmed Acquisition had occurred as of January 1, 2021 and the VisitPay acquisition had occurred as of January 1, 2020. These pro forma results are not necessarily indicative of the actual consolidated results had the acquisitions occurred as of those dates or of the future consolidated operating results for any period. Pro forma results are:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Net services revenue	$	496.0	$	464.6	$	1,476.9	$	1,321.5
Net loss	$	(22.9)	$	(20.3)	$	(21.5)	$	(112.4)

Adjustments were made to earnings to adjust depreciation and amortization to reflect the fair value of identified assets acquired, to adjust share-based compensation expense for awards granted in connection with the acquisitions, to record the effects of extinguishing the debt of the acquired companies and replacing it with the debt of the Company, to adjust timing of acquisition related costs incurred by the Company, and to record the income tax effect of these adjustments.