Quarterly report [Sections 13 or 15(d)]

Divestitures

v3.25.1
Divestitures
 3 Months Ended
Mar. 31, 2025
Discontinued Operations and Disposal Groups [Abstract]  
Divestitures Divestitures
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 condensed consolidated income statements and condensed consolidated balance sheets. As permitted, the Company elected not to adjust the condensed consolidated statements of cash flows for the three months ended March 31, 2025, and March 31, 2024, 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 income from discontinued operations that were included in the Company’s consolidated income statements are as follows:
Three Months Ended March 31,
2025 2024
Revenues:
Revenues from company-owned or managed clinics $ 16,906,350  $ 17,537,451 
Total revenues 16,906,350  17,537,451 
Cost of revenues:
IT cost of revenues 6,172  11,564 
Total cost of revenues 6,172  11,564 
Selling and marketing expenses 1,892,746  1,648,531 
Depreciation and amortization 26,386  1,074,272 
General and administrative expenses 12,270,222  12,924,385 
Total selling, general and administrative expenses 14,189,354  15,647,188 
Net loss on disposition or impairment from discontinued operations 1,299,723  361,828 
Income from discontinued operations 1,411,101  1,516,871 
Other expense, net 238  628 
Income before income tax expense 1,410,863  1,516,243 
Income tax expense from discontinued operations 103,412  170,345 
Net income from discontinued operations $ 1,307,451  $ 1,345,898 
The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company’s consolidated balance sheets:
March 31,
2025		 December 31,
2024
ASSETS
Accounts receivable $ 638,408  $ 2,484,248 
Prepaid expenses and other current assets 556,281  549,605 
Assets held for sale 34,267,130  36,071,975 
Property and equipment, net 215,779  208,074 
Deferred tax assets (attributable to VIEs) 1,087,204  1,087,204 
Deposits and other assets 413,591  425,938 
Total assets, discontinued operations $ 37,178,393  $ 40,827,044 
LIABILITIES
Accounts payable $ 314,350  $ 67,107 
Accrued expenses 1,578,151  5,066,941 
Payroll liabilities ($0.5 million and $0.9 million attributable to VIEs, respectively)
 2,620,280  2,333,335 
Operating lease liability, current portion 116,128  153,517 
Finance lease liability, current portion —  38,015 
Other current liabilities (attributable to VIEs) 1,079,441  1,079,441 
Liabilities to be disposed of ($5.2 million and $5.2 million attributable to VIEs, respectively
 27,044,529  28,975,844 
Total liabilities, discontinued operations $ 32,752,879  $ 37,714,200 
The key components of cash flows from discontinued operations are as follows:
Three Months Ended March 31,
2025 2024
Depreciation and amortization 26,386  1,074,272 
Capital expenditures
Purchase of property and equipment 66,656  182,249 
Significant operating and investing non-cash items
Net loss on disposition or impairment 1,299,723  361,828 
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 $13.5 million at March 31, 2025. 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, condensed 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 $1.1 million and $0.2 million for the three months ended March 31, 2025 and 2024, respectively, in Loss from discontinued operations before income tax expense in its consolidated income statements. A valuation allowance of $8.9 million and $7.7 million was included in discontinued operations current assets in its consolidated balance sheets as of March 31, 2025 and December 31, 2024, respectively.
During the three months ended March 31, 2025, in connection with the sale of company-owned or managed clinics classified as held for sale as of December 31, 2024 for a combined sales price of $0.1 million, the Company sold $0.5 million assets held for
sale and $0.5 million of liabilities to be disposed of in the consolidated balance sheets as of December 31, 2024. As a result of the sales, the Company recorded a gain of $0.1 million included in Income from discontinued operations before income tax expense on the consolidated income statement for the three months ended March 31, 2025.
The principal components of the held for sale assets and liabilities to be disposed of as of March 31, 2025, and December 31, 2024 were as follows:
March 31, 2025 December 31, 2024
Assets
Property and equipment, net
$ 8,469,656  $ 8,497,499 
Operating lease right-of-use asset 19,353,656  19,954,069 
Intangible assets, net 6,879,518  6,906,807 
Goodwill 8,459,238  8,459,238 
Valuation allowance (8,894,938) (7,745,638)
Total assets held for sale $ 34,267,130  $ 36,071,975 
Liabilities
Operating lease liability, current and non-current $ 18,903,191  $ 20,873,455 
Deferred revenue from company clinics 8,141,338  8,102,389 
Total liabilities to be disposed of $ 27,044,529  $ 28,975,844 
The pre-tax income of the clinics designated as held for sale was $2.5 million and $2.1 million for the three months ended March 31, 2025 and 2024, respectively, the results of which exclude the allocation of overhead.