Annual report [Section 13 and 15(d), not S-K Item 405]

Acquisitions and Divestitures

v3.25.0.1
Acquisitions and Divestitures
 12 Months Ended
Dec. 31, 2024
Discontinued Operations and Disposal Groups [Abstract]  
Acquisitions and Divestitures Acquisitions and Divestitures
2023 Acquisitions
On May 22, 2023, the Company entered into an Asset and Franchise Purchase Agreement under which the Company repurchased from the sellers three operating franchised clinics in California (the “2023 CA Clinics Purchase”). As of the acquisition date, the Company operates the franchises as company-managed clinics. The total purchase price for the transaction was $1,188,764 to the seller less $28,997 of net deferred revenue, resulting in total purchase consideration of $1,159,767.
Based on the terms of the purchase agreement, the 2023 CA Clinics Purchase has been treated as an asset purchase under GAAP as there were no outputs or processes to generate outputs acquired as part of these transactions. Under an asset purchase, assets are recognized based on their cost to the acquiring entity. Cost is allocated to the individual assets acquired or liabilities assumed based on their relative fair values and does not give rise to goodwill.
The allocation of the total purchase price of the 2023 CA Clinics Purchase was as follows:
Property and equipment $ 313,995 
Operating lease right-of-use asset 317,662 
Intangible assets 1,004,513 
Total assets acquired 1,636,170 
Deferred revenue (158,365)
Operating lease liability - current portion (118,081)
Operating lease liability - net of current portion (199,957)
Net purchase consideration $ 1,159,767 
Intangible assets in the table above primarily consist of reacquired franchise rights of $0.7 million amortized over their estimated useful lives of six to seven years, customer relationships of $0.1 million amortized over an estimated useful life of two years and assembled workforce of $0.2 million amortized over an estimated useful life of two years.
Corporate Clinic Segment Divestiture
In 2023, the Company initiated plans to refranchise the majority of its company-owned or managed clinics with plans to retain a small portion of high-performing clinics. During the third quarter of 2024, the Company expanded the refranchising plan to include additional clinic markets of company-owned or managed clinics, marketing the clinics in clusters grouped by proximity to larger private equity firms. Because the Company has formalized a plan to sell its entire corporate clinic reportable segment, the Company has concluded that the overall refranchising plan represents a strategic shift that will have a major effect on the Company’s operations and financial results.
As of December 31, 2024, the corporate clinics classified as held for sale or already sold under the refranchising plan represent, in the aggregate, a strategic shift that will have a major effect on the Company’s operations and financial results. Accordingly, the results of the corporate clinic segment and its assets and liabilities are reported separately as discontinued operations in the consolidated income statements and consolidated balance sheets. As permitted, the Company elected not to adjust the consolidated statements of cash flows for the years ended December 31, 2024 and 2023 to exclude cash flows attributable to discontinued operations. Accordingly, the Company disclosed the depreciation and amortization, capital expenditures and significant operating and investing non-cash items related to the corporate clinic segment below.
The key components of Net (loss) income from discontinued operations that were included in the Company’s consolidated income statements are as follows:
Year Ended December 31,
2024 2023
Revenues:
Revenues from company-owned or managed clinics $ 70,249,169  $ 70,718,879 
Total revenues 70,249,169  70,718,879 
Cost of revenues:
IT cost of revenues 48,010  65,912 
Total cost of revenues 48,010  65,912 
Selling and marketing expenses 7,900,884  7,852,327 
Depreciation and amortization 3,358,684  7,304,056 
General and administrative expenses 55,279,799  55,234,472 
Total selling, general and administrative expenses 66,539,367  70,390,855 
Net loss on disposition or impairment from discontinued operations 10,439,967  2,653,497 
Loss from discontinued operations (6,778,175) (2,391,385)
Other expense (income), net 2,114  (3,776,135)
(Loss) income before income tax expense (6,780,289) 1,384,750 
Income tax expense from discontinued operations 212,642  367,542 
Net (loss) income from discontinued operations $ (6,992,931) $ 1,017,208 
The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company’s consolidated balance sheets:
December 31,
2024		 December 31,
2023
ASSETS
Accounts receivable $ 2,484,248  $ 1,138,335 
Prepaid expenses and other current assets 549,605  595,497 
Assets held for sale 36,071,975  17,915,055 
Property and equipment, net 208,074  — 
Deferred tax assets (attributable to VIEs) 1,087,204  — 
Deposits and other assets 425,938  — 
Total current assets, discontinued operations 40,827,044  19,648,887 
Property and equipment, net 7,238,430 
Operating lease right-of-use asset 11,946,953 
Intangible assets, net 5,020,926 
Goodwill 7,352,879 
Deferred tax assets (attributable to VIEs) 1,088,801 
Deposits and other assets 494,095 
Total noncurrent assets, discontinued operations
 33,142,084 
Total assets, discontinued operations $ 40,827,044  $ 52,790,971 
LIABILITIES
Accounts payable $ 67,107  $ 371,272 
Accrued expenses 5,066,941  805,187 
Payroll liabilities ($0.9 million and $0.7 million attributable to VIEs as of December 31, 2024 and 2023)
 2,333,335  2,626,882 
Operating lease liability, current portion 153,517  3,343,727 
Finance lease liability, current portion 38,015  25,491 
Deferred revenue from company clinics ($0.0 million and $1.6 million attributable to VIEs as of December 31, 2024 and 2023)
 —  4,463,747 
Other current liabilities (attributable to VIEs) 1,079,441  — 
Liabilities to be disposed of ($5.2 million and $3.6 million attributable to VIEs as of December 31, 2024 and 2023)
 28,975,844  13,831,863 
Total current liabilities, discontinued operations 37,714,200  25,468,169 
Operating lease liability, net of current portion 10,466,689 
Finance lease liability, net of current portion 38,016 
Other liabilities, noncurrent (attributable to VIEs) 1,235,241 
Total noncurrent liabilities, discontinued operations 11,739,946 
Total liabilities, discontinued operations $ 37,714,200  $ 37,208,115 
The key components of cash flows from discontinued operations are as follows:
Year Ended December 31,
2024 2023
Depreciation and amortization 3,358,684  7,304,056 
Capital expenditures
Acquisition of CA clinics —  1,188,765 
Purchase of property and equipment 664,423  3,857,005 
Significant operating and investing non-cash items
Net loss on disposition or impairment 10,439,967  2,653,497 
The clustered clinics are in varying stages of sales negotiations with approximately all of the Company’s corporate clinic portfolio expected to be recognized as a completed sale within one year with an estimated fair value of $18.1 million at December 31, 2024. Effective with the designation as held for sale, the Company discontinued recording depreciation on property and equipment, net, amortization of intangible assets, net and amortization of ROU assets for the clinics as required by GAAP. The Company reported the related assets and liabilities of the clinics as held for sale as discontinued operations in its December 31, 2024 and 2023 consolidated balance sheets.
Long-lived assets that meet the criteria for the held for sale designation are reported at the lower of their carrying value or fair value less estimated cost to sell. As a result of its evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the clinics estimated fair values, the Company recorded an estimated loss on disposal of $7.2 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively, in Loss from discontinued operations before income tax expense in its consolidated income statements and a valuation allowance included in discontinued operations current assets in its consolidated balance sheets.
During the year ended December 31, 2024, in connection with the sale of company-owned or managed clinics classified as held for sale as of December 31, 2023 for a combined sales price of $0.6 million, the Company sold $1.3 million assets held for sale, net of a $0.1 million valuation allowance and $0.8 million of liabilities to be disposed of in the consolidated balance sheets as of December 31, 2023. As a result of the sales, the Company recorded a gain of $0.1 million included in (Loss) income from discontinued operations before income tax expense on the consolidated income statement for the year ended December 31, 2024.

The principal components of the held for sale assets and liabilities to be disposed of as of December 31, 2024 and December 31, 2023 were as follows:

December 31, 2024 December 31, 2023
Assets
Property and equipment, net
$ 8,497,499  $ 4,887,220 
Operating lease right-of-use asset 19,954,069  9,193,496 
Intangible assets, net 6,906,807  3,351,430 
Goodwill 8,459,238  1,140,529 
Valuation allowance (7,745,638) (657,620)
Total assets held for sale $ 36,071,975  $ 17,915,055 
Liabilities
Operating lease liability, current and non-current $ 20,873,455  $ 10,209,382 
Deferred revenue from company clinics 8,102,389  3,622,481 
Total liabilities to be disposed of $ 28,975,844  $ 13,831,863 
The pre-tax income of the clinics designated as held for sale as of December 31, 2024 is $7.5 million and $7.3 million for the years ended December 31, 2024 and 2023, respectively, the results of which exclude the allocation of overhead.