UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2024
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40537
BRIGHT HEALTH GROUP,NEUEHEALTH, INC.
(Exact Name of Registrant as Specified in its Charter)
| | | | | |
| Delaware | 47-4991296 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
8000 Norman Center Drive,9250 NW 36th St, Suite 1200420, MinneapolisDoral, MNFL
| 5543733178 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (612) 238-1321
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, $0.0001 par value | | BHGNEUE | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ox No xo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | x | Smaller reporting company | ox |
| Emerging growth company | o | | | o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of AugustMay 2, 2021,2024, the registrant had 630,222,819 8,224,541 shares of common stock, $0.0001 par value per share, outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended or the Securities Act,(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended or the Exchange Act.(the “Exchange Act”). Statements made in this Quarterly Report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements, and should be evaluated as such. Forward-looking statements include any statement or information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies.strategies, and our operational and financial outlook, estimates, projections, and guidance. These statements often include words such as “anticipate,” “expect,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “projections,” “should,” “might,” “may,” “will”“will,” “ensure” and other similar expressions. These forward-looking statements include any statements regarding our plans and expectations with respect to Bright Health Group, Inc. Such forward-looking statements are subject to various risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Factors that might materially affect such forward-looking statements include: our ability to raise capital and continue as a going concern; our ability to comply with the terms of our credit facility; our ability to receive the remaining proceeds from the sale of our Medicare Advantage (“MA”) business in California in a timely manner; our ability to obtain any short or long-term debt or equity financing needed to operate our business; our ability to quickly and efficiently complete the wind down of our Individual and Family Plan (“IFP”) businesses and MA businesses outside of California, including by satisfying liabilities of those businesses when due and payable; potential disruptions to our business due to any restructuring and any resulting headcount reduction; our ability to accurately estimate and effectively manage the costs relating to changes in our business offerings and models; a delay or inability to withdraw regulated capital from our subsidiaries; a lack of acceptance or slow adoption of our business model; our ability to retain existing consumers and expand consumer enrollment; our and our Care Partner’s abilities to obtain and accurately assess, code, and report risk adjustment factor scores; the ability of our payor partners to contract with care providers and arrange forpay amounts due to us in a timely manner, or at all; the provisionsolvency of quality care;our partners; our ability to accurately estimate our medical expenses, effectively manage our costsobtain claims information timely and claims liabilities or appropriately price our products and charge premiums;accurately; the impact of the COVID-19any pandemic or epidemic on our business and results of operations; the risks associated with our reliance on third-party providers to operate our business; the impact of modifications or changes to the U.S. health insurance markets; our ability to manage theany growth of our business; our ability to operate, update or implement our technology platform and other information technology systems; our ability to retain key executives; our ability to successfully pursue acquisitions, and integrate acquired businesses;businesses and divest businesses as needed; the occurrence of severe weather events, catastrophic health events, natural or man-made disasters, and social and political conditions or civil unrest; our ability to prevent and contain data security incidents and the impact of data security incidents on our members, patients, employees and financial results; our ability to comply with requirements to maintain effective internal controls; our ability to adapt to the risks associated with our Accountable Care Organizations (“ACO”) Realizing Equity, Access, and Community Health (“REACH”) businesses, including any unanticipated market or regulatory developments; and the other factors set forth under the heading “Risk Factors” in Bright Health Group’s prospectus dated June 23, 2021 (File No.333-256286), asour Annual Report on Form 10-K for the year ended December 31, 2023, that was filed with the United States SecuritiesSEC on March 28, 2024 (“2023 Form 10-K”) and Exchange Commission pursuant to Rule 424(b)(4) underour other filings with the Securities Act of 1933, as amended.SEC.
The preceding list is not intended to be an exhaustive list of all of the factors that might affect our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Other sections of this Quarterly Report may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
You should not rely upon forward-looking statements as predictions of future events. AlthoughOur forward-looking statements speak only as of the date of this Quarterly Report and, although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in thesuch forward-looking statements will be achieved or occur.occur at all. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in our expectations.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Bright Health Group,
NeueHealth, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited) | | | | | | | | | | | |
| March 31,
2024 | | December 31,
2023 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 112,762 | | $ | 87,299 |
| Short-term investments | — | | 6,265 |
| Accounts receivable, net of allowance of $10,358 and $14,023, respectively | 39,938 | | 39,084 |
| ACO REACH performance year receivable | 646,627 | | 115,878 |
| Current assets of discontinued operations (Note 15) | 149,352 | | 822,570 |
| Prepaids and other current assets | 25,786 | | 17,831 |
| Total current assets | 974,465 | | 1,088,927 |
| Other assets: | | | |
| Property, equipment and capitalized software, net | 12,650 | | 14,499 |
| Intangible assets, net | 90,345 | | 93,238 |
| Other non-current assets | 27,668 | | 28,816 |
| Total other assets | 130,663 | | 136,553 |
| Total assets | $ | 1,105,128 | | $ | 1,225,480 |
| Liabilities, Redeemable Noncontrolling Interest, Redeemable Preferred Stock and Shareholders’ Equity (Deficit) | | | |
| Current liabilities: | | | |
| Medical costs payable | $ | 157,601 | | $ | 157,903 |
| Accounts payable | 6,263 | | 11,841 |
| Short-term borrowings | — | | 303,947 |
| ACO REACH performance year obligation | 529,657 | | — |
| Current liabilities of discontinued operations (Note 15) | 345,048 | | 699,758 |
| Risk share payable to deconsolidated entity | 123,981 | | 123,981 |
| Warrant liability | 11,899 | | 13,971 |
| Other current liabilities | 85,101 | | 79,856 |
| Total current liabilities | 1,259,550 | | 1,391,257 |
| Long-term borrowings | 66,400 | | 66,400 |
| Other liabilities | 21,212 | | 22,441 |
| Total liabilities | 1,347,162 | | 1,480,098 |
| Commitments and contingencies (Note 10) | | | |
| Redeemable noncontrolling interests | 98,761 | | 88,908 |
| Redeemable Series A preferred stock, $0.0001 par value; 750,000 shares authorized in 2024 and 2023; 750,000 shares issued and outstanding in 2024 and 2023 | 747,481 | | 747,481 |
| Redeemable Series B preferred stock, $0.0001 par value; 175,000 shares authorized in 2024 and 2023; 175,000 shares issued and outstanding in 2024 and 2023 | 172,936 | | 172,936 |
| Shareholders’ equity (deficit): | | | |
| Common stock, $0.0001 par value; 3,000,000,000 shares authorized in 2024 and 2023; 8,224,541 and 8,053,576 shares issued and outstanding in 2024 and 2023, respectively | 1 | | 1 |
| Additional paid-in capital | 3,074,654 | | 3,056,027 |
| Accumulated deficit | (4,323,763) | | (4,307,849) |
| Accumulated other comprehensive loss | (104) | | (122) |
| Treasury Stock, at cost, 31,526 shares at March 31, 2024, and December 31, 2023, respectively | (12,000) | | (12,000) |
| Total shareholders’ equity (deficit) | (1,261,212) | | (1,263,943) |
| Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit) | $ | 1,105,128 | | $ | 1,225,480 |
| | | | | | | | | | | |
| | | |
| June 30,
2021 | | December 31,
2020 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 1,506,319 | | $ | 488,371 |
| Short-term investments | 283,337 | | 499,928 |
| Accounts receivable, net of allowance of $4,535 and $2,602, respectively | 93,086 | | 60,522 |
| Prepaids and other current assets | 208,693 | | 130,986 |
| Total current assets | 2,091,435 | | 1,179,807 |
| Other assets: | | | |
| Long-term investments | 633,029 | | 175,176 |
| Property, equipment and capitalized software, net | 19,101 | | 12,264 |
| Goodwill | 565,020 | | 263,035 |
| Intangible assets, net | 262,420 | | 152,211 |
| Other non-current assets | 28,773 | | 28,309 |
| Total other assets | 1,508,343 | | 630,995 |
| Total assets | $ | 3,599,778 | | $ | 1,810,802 |
| Liabilities, Redeemable Noncontrolling Interest, Redeemable Preferred Stock and Shareholders’ Equity (Deficit) | | | |
| Current liabilities: | | | |
| Medical costs payable | $ | 565,620 | | $ | 249,777 |
| Accounts payable | 86,527 | | 57,252 |
| Unearned revenue | 38,060 | | 34,628 |
| Risk adjustment payable | 507,853 | | 187,777 |
| Other current liabilities | 166,227 | | 35,847 |
| Total current liabilities | 1,364,287 | | 565,281 |
| Other liabilities | 44,453 | | 28,578 |
| Total liabilities | 1,408,740 | | 593,859 |
| Commitments and contingencies (Note 10) | 0 | | 0 |
| Redeemable noncontrolling interests | 41,012 | | 39,600 |
| Redeemable preferred stock, $0.0001 par value; 100,000,000 and 166,307,087 shares authorized in 2021 and 2020, respectively; 0 and 164,244,893 shares issued and outstanding in 2021 and 2020, respectively | 0 | | 1,681,015 |
| Shareholders’ equity (deficit): | | | |
| Common stock, $0.0001 par value; 3,000,000,000 and 658,993,725 shares authorized in 2021 and 2020, respectively; 625,691,448 and 137,662,698 shares issued and outstanding in 2021 and 2020, respectively | 63 | | 14 |
| Additional paid-in capital | 2,735,099 | | 9,877 |
| Accumulated deficit | (585,669) | | (515,989) |
| Accumulated other comprehensive income | 533 | | 2,426 |
| Total shareholders’ equity (deficit) | 2,150,026 | | (503,672) |
| Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit) | $ | 3,599,778 | | $ | 1,810,802 |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group,NeueHealth, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss)
(in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Revenue: | | | | | | | |
| Premium revenue | $ | 1,042,086 | | $ | 290,972 | | $ | 1,902,717 | | $ | 481,709 |
| Service revenue | 12,085 | | 3,604 | | 20,523 | | 8,424 |
| Investment income | 59,669 | | 2,280 | | 65,158 | | 5,289 |
| Total revenue | 1,113,840 | | 296,856 | | 1,988,398 | | 495,422 |
| Operating expenses: | | | | | | | |
| Medical costs | 904,630 | | 233,180 | | 1,589,200 | | 363,795 |
| Operating costs | 261,060 | | 88,827 | | 469,300 | | 163,271 |
| Depreciation and amortization | 7,195 | | 2,085 | | 11,776 | | 2,872 |
| Total operating expenses | 1,172,885 | | 324,092 | | 2,070,276 | | 529,938 |
| Operating loss | (59,045) | | (27,236) | | (81,878) | | (34,516) |
| Interest expense | 4,142 | | 0 | | 4,688 | | 0 |
| Loss before income taxes | (63,187) | | (27,236) | | (86,566) | | (34,516) |
| Income tax (benefit) expense | (19,464) | | (9,162) | | (18,298) | | (9,162) |
| Net loss | (43,723) | | (18,074) | | (68,268) | | (25,354) |
| Net earnings attributable to noncontrolling interests | (795) | | 0 | | (1,412) | | 0 |
| Net loss attributable to Bright Health Group, Inc. common shareholders | $ | (44,518) | | $ | (18,074) | | $ | (69,680) | | $ | (25,354) |
| Basic and diluted loss per share attributable to Bright Health Group, Inc. common shareholders | $ | (0.28) | | $ | (0.13) | | $ | (0.46) | | $ | (0.19) |
| Basic and diluted weighted-average common shares outstanding | 160,942 | | 135,801 | | 150,616 | | 135,719 |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| Revenue: | | | |
| Capitated revenue | $ | 61,466 | | $ | 49,548 |
| ACO REACH revenue | 171,811 | | 239,807 |
| Service revenue | 11,615 | | 11,187 |
| Investment income | 203 | | 8 |
| Total revenue | 245,095 | | 300,550 |
| Operating expenses: | | | |
| Medical costs | 196,874 | | 260,120 |
| Operating costs | 66,822 | | 79,518 |
| Bad debt expense | (3) | | — |
| Restructuring charges | (58) | | 301 |
| Depreciation and amortization | 4,562 | | 5,483 |
| Total operating expenses | 268,197 | | 345,422 |
| Operating loss | (23,102) | | (44,872) |
| Interest expense | 2,930 | | 7,787 |
| Warrant income | (2,072) | | — |
| Gain on troubled debt restructuring | (30,311) | | — |
| Income (loss) from continuing operations before income taxes | 6,351 | | (52,659) |
| Income tax expense | 663 | | 1,259 |
| Net income (loss) from continuing operations | 5,688 | | (53,918) |
| Loss from discontinued operations, net of tax (Note 15) | (9,865) | | (115,543) |
| Net Loss | (4,177) | | (169,461) |
| Net income from continuing operations attributable to noncontrolling interests | (11,737) | | (5,550) |
| Series A preferred stock dividend accrued | (10,294) | | (9,714) |
| Series B preferred stock dividend accrued | (2,310) | | (2,180) |
| Net loss attributable to NeueHealth, Inc. common shareholders | $ | (28,518) | | $ | (186,905) |
| | | |
| Basic and diluted loss per share attributable to NeueHealth, Inc. common shareholders | | | |
| Continuing operations | $ | (2.31) | | $ | (9.04) |
| Discontinued operations | (1.22) | | (14.64) |
| Basic and diluted loss per share | (3.53) | | (23.68) |
| | | |
| Basic and diluted weighted-average common shares outstanding* | 8,079 | | 7,894 |
*Shares have been retroactively adjusted to reflect the decreased number of shares resulting from a 1 for 80 reverse stock split effective May 22, 2023.
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group,NeueHealth, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net loss | $ | (43,723) | | $ | (18,074) | | $ | (68,268) | | $ | (25,354) |
| Other comprehensive (loss) income: | | | | | | | |
| Unrealized investment holding gains (losses) arising during the year, net of tax of $0 and $0, respectively | (684) | | 2,394 | | (1,665) | | 3,285 |
| Less: reclassification adjustments for investment gains (losses), net of tax of $0 and $0, respectively | 167 | | 10 | | 228 | | (50) |
| Other comprehensive (loss) income | (851) | | 2,384 | | (1,893) | | 3,335 |
| Comprehensive loss | (44,574) | | (15,690) | | (70,161) | | (22,019) |
| Comprehensive loss attributable to noncontrolling interests | (795) | | 0 | | (1,412) | | 0 |
| Comprehensive loss attributable to Bright Health Group, Inc. common shareholders | $ | (45,369) | | $ | (15,690) | | $ | (71,573) | | $ | (22,019) |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| Net loss | $ | (4,177) | | $ | (169,461) |
| Other comprehensive income: | | | |
| Unrealized investment holding gains arising during the year, net of tax of $0 and $0, respectively | 20 | | 1,303 |
| Less: reclassification adjustments for investment (losses) gains, net of tax of $0 and $0, respectively | 2 | | (890) |
| Other comprehensive income | 18 | | 2,193 |
| Comprehensive loss | (4,159) | | (167,268) |
| Comprehensive loss attributable to noncontrolling interests | (11,737) | | (5,550) |
| Comprehensive loss attributable to NeueHealth, Inc. common shareholders | $ | (15,896) | | $ | (172,818) |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group,NeueHealth, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders’ Equity (Deficit)
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Preferred Stock | | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| 2021 | Shares | | Amount | | | Shares | | Amount | | | | |
| Balance at January 1, 2021 | 164,245 | | | 1,681,015 | | | | 137,663 | | | $ | 14 | | | $ | 9,877 | | | $ | (515,989) | | | $ | 2,426 | | | $ | (503,672) | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | (25,162) | | | — | | | (25,162) | |
| Issuance of preferred stock | 1,420 | | | 55,137 | | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of common stock | — | | | — | | | | 4,661 | | | — | | | 4,893 | | | — | | | — | | | 4,893 | |
| Share-based compensation | — | | | — | | | | — | | | — | | | 5,176 | | | — | | | — | | | 5,176 | |
| Other comprehensive loss | — | | | — | | | | — | | | — | | | — | | | — | | | (1,042) | | | (1,042) | |
| Balance at March 31, 2021 | 165,665 | | | $ | 1,736,152 | | | | 142,324 | | | $ | 14 | | | $ | 19,946 | | | $ | (541,151) | | | $ | 1,384 | | | $ | (519,807) | |
| | | | | | | | | | | | | | | | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | (44,518) | | | — | | | (44,518) | |
| Issuance of preferred stock | 2,067 | | | 79,807 | | | | — | | | — | | | — | | | — | | | — | | | — | |
| Conversion of preferred stock to common stock | (167,732) | | | (1,815,959) | | | | 427,897 | | | 43 | | | 1,815,916 | | | — | | | — | | | 1,815,959 | |
| Issuance of common stock | — | | | — | | | | 4,120 | | | 1 | | | 4,722 | | | — | | | — | | | 4,723 | |
| Sale of common stock from IPO, net of offering costs | — | | | — | | | | 51,350 | | | 5 | | | 880,637 | | | — | | | — | | | 880,642 | |
| Share-based compensation | — | | | — | | | | — | | | — | | | 13,878 | | | — | | | — | | | 13,878 | |
| Other comprehensive loss | — | | | — | | | | — | | | — | | | — | | | — | | | (851) | | | (851) | |
| Balance at June 30, 2021 | 0 | | | 0 | | | | 625,691 | | | $ | 63 | | | $ | 2,735,099 | | | $ | (585,669) | | | $ | 533 | | | $ | 2,150,026 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | Total |
| 2024 | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at January 1, 2024 | 925 | | | $ | 920,417 | | | 8,054 | | | $ | 1 | | | $ | 3,056,027 | | | $ | (4,307,849) | | | $ | (122) | | | $ | (12,000) | | | $ | (1,263,943) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (15,914) | | | — | | | — | | | (15,914) | |
| Issuance of common stock | — | | | — | | | 171 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Share-based compensation | — | | | — | | | — | | | — | | | 18,627 | | | — | | | — | | | — | | | 18,627 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | 18 | | | — | | | 18 | |
| Balance at March 31, 2024 | 925 | | | $ | 920,417 | | | 8,225 | | | $ | 1 | | | $ | 3,074,654 | | | $ | (4,323,763) | | | $ | (104) | | | $ | (12,000) | | | $ | (1,261,212) | |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group,NeueHealth, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders’ Equity (Deficit)
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Preferred Stock | | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| 2020 | Shares | | Amount | | | Shares | | Amount | | | | |
| Balance at January 1, 2020 | 119,222 | | | 871,990 | | | | 135,509 | | | $ | 14 | | | $ | 3,184 | | | $ | (267,547) | | | $ | 982 | | | $ | (263,367) | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | (7,280) | | | — | | | (7,280) | |
| Issuance of preferred stock | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of common stock | — | | | — | | | | 183 | | | — | | | 13 | | | — | | | — | | | 13 | |
| Share-based compensation | — | | | — | | | | — | | | — | | | 943 | | | — | | | — | | | 943 | |
| Other comprehensive income | — | | | — | | | | — | | | — | | | — | | | — | | | 951 | | | 951 | |
| Balance at March 31, 2020 | 119,222 | | | 871,990 | | | | 135,692 | | | $ | 14 | | | $ | 4,140 | | | $ | (274,827) | | | $ | 1,933 | | | $ | (268,740) | |
| | | | | | | | | | | | | | | | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | (18,074) | | | — | | | (18,074) | |
| Issuance of preferred stock | 19,661 | | | 291,200 | | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of common stock | — | | | — | | | | 246 | | | — | | | 118 | | | — | | | — | | | 118 | |
| Share-based compensation | — | | | — | | | | — | | | — | | | 1,250 | | | — | | | — | | | 1,250 | |
| Other comprehensive income | — | | | — | | | | — | | | — | | | — | | | — | | | 2,384 | | | 2,384 | |
| Balance at June 30, 2020 | 138,883 | | | 1,163,190 | | | | 135,938 | | | $ | 14 | | | $ | 5,508 | | | $ | (292,901) | | | $ | 4,317 | | | $ | (283,062) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | Total |
| 2023 | Shares | | Amount | | Shares* | | Amount | | | | | |
| Balance at January 1, 2023 | 925 | | | $ | 920,417 | | | 7,878 | | | $ | 1 | | | $ | 2,972,333 | | | $ | (3,156,395) | | | $ | (4,429) | | | $ | (12,000) | | | $ | (200,490) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (175,011) | | | — | | | — | | | (175,011) | |
| Issuance of common stock | — | | | — | | | 74 | | | — | | | 1 | | | — | | | — | | | — | | | 1 | |
| Share-based compensation | — | | | — | | | — | | | — | | | 33,320 | | | — | | | — | | | — | | | 33,320 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | 2,193 | | | — | | | 2,193 | |
| Balance at March 31, 2023 | 925 | | | $ | 920,417 | | | 7,952 | | | $ | 1 | | | $ | 3,005,654 | | | $ | (3,331,406) | | | $ | (2,236) | | | $ | (12,000) | | | $ | (339,987) | |
*Shares have been retroactively adjusted to reflect the decreased number of shares resulting from a 1 for 80 reverse stock split
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group,NeueHealth, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)thousands)
(Unaudited)
| | Six Months Ended June 30, |
| 2021 | | 2020 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | |
| Net loss | |
| Net loss | |
| Net loss | Net loss | $ | (69,680) | | $ | (25,354) | $ | (4,177) | | $ | (169,461) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Depreciation and amortization | Depreciation and amortization | 11,776 | | 2,872 |
| Depreciation and amortization | |
| Depreciation and amortization | | 4,562 | | 9,891 |
| Share-based compensation | Share-based compensation | 19,054 | | 2,193 | Share-based compensation | 18,627 | | 33,320 |
| Deferred income taxes | Deferred income taxes | (18,018) | | 0 | Deferred income taxes | — | | 436 |
| Unrealized gain on equity securities | (62,754) | | 0 |
| Warrant expense | | Warrant expense | (2,072) | | — |
| Gain on troubled debt restructuring | | Gain on troubled debt restructuring | (30,311) | | — |
| Net accretion of investments | | Net accretion of investments | (34) | | (4,581) |
| Loss on disposal of property, equipment, and capitalized software | | Loss on disposal of property, equipment, and capitalized software | 245 | | 1,299 |
| Other, net | Other, net | 8,681 | | 486 | Other, net | 2 | | 475 |
| Changes in assets and liabilities, net of acquired assets and liabilities: | Changes in assets and liabilities, net of acquired assets and liabilities: | | | |
| Accounts receivable | Accounts receivable | (14,427) | | 23,681 |
| Accounts receivable | |
| Accounts receivable | | (850) | | (43,409) |
| ACO REACH performance year receivable | | ACO REACH performance year receivable | (530,749) | | (783,703) |
| Other assets | Other assets | (39,883) | | (3,844) | Other assets | (3,507) | | 22,448 |
| Medical cost payable | Medical cost payable | 223,125 | | 21,739 | Medical cost payable | (13,263) | | (423,459) |
| Risk adjustment payable | Risk adjustment payable | 318,758 | | 108,787 | Risk adjustment payable | (11,224) | | 4,153 |
| Accounts payable and other liabilities | Accounts payable and other liabilities | 120,847 | | (46,376) | Accounts payable and other liabilities | (5,612) | | (119,416) |
| Unearned revenue | Unearned revenue | (333) | | 2,860 | Unearned revenue | (11) | | 137,563 |
| Net cash provided by operating activities | 497,146 | | 87,044 |
| ACO Reach performance year obligation | | ACO Reach performance year obligation | 529,657 | | 719,420 |
| Net cash used in operating activities | | Net cash used in operating activities | (48,717) | | (615,024) |
| Cash flows from investing activities: | Cash flows from investing activities: | | | |
| Purchases of investments | Purchases of investments | (596,811) | | (486,873) |
| Proceeds from sales, paydown, and maturities of investments | 449,636 | | 209,155 |
| Purchases of investments | |
| Purchases of investments | | — | | (2,880) |
| Proceeds from sales, paydowns, and maturities of investments | | Proceeds from sales, paydowns, and maturities of investments | 2,321 | | 690,161 |
| Purchases of property and equipment | Purchases of property and equipment | (10,554) | | (319) | Purchases of property and equipment | (64) | | (1,863) |
| Business acquisition, net of cash acquired | (210,492) | | (174,090) |
| Net cash used in investing activities | (368,221) | | (452,127) |
| Proceeds from sale of business, net | | Proceeds from sale of business, net | 196,130 | | 1,370 |
| Net cash provided by investing activities | | Net cash provided by investing activities | 198,387 | | 686,788 |
| Cash flows from financing activities: | Cash flows from financing activities: | | | |
| Proceeds from issuance of preferred stock | 0 | | 211,200 |
| Proceeds from issuance of common stock | Proceeds from issuance of common stock | 9,616 | | 131 |
| Proceeds from short-term borrowings | 200,000 | | 0 |
| Proceeds from issuance of common stock | |
| Proceeds from issuance of common stock | | — | | 1 |
| Repayments of short-term borrowings | Repayments of short-term borrowings | (200,000) | | 0 | Repayments of short-term borrowings | (273,636) | | — |
| Payments for debt issuance costs | (3,391) | | 0 |
| Proceeds from IPO | 887,328 | | 0 |
| Payments for IPO offering costs | (4,530) | | 0 |
| Net cash provided by financing activities | 889,023 | | 211,331 |
| Net increase (decrease) in cash and cash equivalents | 1,017,948 | | (153,752) |
| Cash and cash equivalents – beginning of year | 488,371 | | 522,910 |
| Cash and cash equivalents – end of period | $ | 1,506,319 | | $ | 369,158 |
| Distributions to noncontrolling interest holders | | Distributions to noncontrolling interest holders | (1,884) | | (1,805) |
| Net cash used in financing activities | | Net cash used in financing activities | (275,520) | | (1,804) |
| Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (125,850) | | 69,960 |
| Cash and cash equivalents of continuing and discontinued operations – beginning of year | | Cash and cash equivalents of continuing and discontinued operations – beginning of year | 375,280 | | 1,932,290 |
| Cash and cash equivalents of continuing and discontinued operations – end of period | | Cash and cash equivalents of continuing and discontinued operations – end of period | $ | 249,430 | | $ | 2,002,250 |
| Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | | |
| Changes in unrealized (loss) gain on available-for-sale securities in OCI | Changes in unrealized (loss) gain on available-for-sale securities in OCI | $ | (1,893) | | $ | 3,335 |
| Changes in unrealized (loss) gain on available-for-sale securities in OCI | |
| Changes in unrealized (loss) gain on available-for-sale securities in OCI | | 18 | | 2,193 |
| Cash paid for interest | Cash paid for interest | 3,195 | | 0 | Cash paid for interest | 3,587 | | 7,157 |
| Supplemental schedule of non-cash activities: | | | |
| Redeemable convertible preferred stock issued for acquisitions | $ | 134,944 | | $ | 80,000 |
| Conversion of redeemable convertible preferred stock to common stock upon initial public offering | $ | 1,815,916 | | $ | 0 |
| Offering costs included in accounts payable and accrued expenses | $ | 2,156 | | $ | 0 |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group,NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization: Bright Health Group,NeueHealth, Inc. and subsidiaries (collectively, “Bright Health,“NeueHealth,” “we,” “our,” “us,” or the “Company”) was founded in 2015 to transform healthcare. Our missionNeueHealth is a value-driven, consumer-centric healthcare company committed to making high-quality, coordinated healthcare accessible and affordable to all populations. We believe we can reduce the friction and current lack of Making Healthcare Right.Together. is built upon the belief thatcoordination in today’s healthcare system by connecting anduniquely aligning the local resources ininterests of payors and providers to enable a seamless, consumer-centric healthcare delivery with the financing of care, we can drive a superior consumer experience reduce systemic waste, lower costs, and optimize clinical outcomes.that drives value for all.
Stock Split:We have two market facing segments: NeueCare and NeueSolutions. NeueCare is our value-driven care delivery business that manages risk in partnership with external payors and serves all populations across On June 2, 2021, we effectedThe Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (“ACA”) Marketplace, Medicare, and Medicaid. NeueSolutions is our provider enablement business that includes a stock splitsuite of the Company’s common stock on a 1-for-3 basis (the “Stock Split”). In connection with the Stock Split, the conversion rate for the Company’s preferred stock was proportionately adjusted suchtechnology, services, and clinical care solutions that the common stock issuable upon conversion of such preferred stock was increasedempower providers to thrive in proportion to the Stock Split. Accordingly, all common stock share and per share amounts for all periods presented in these financial statements have been retroactively adjusted to reflect this Stock Split.
Initial Public Offering: On June 28, 2021, we completed our initial public offering (“IPO”) in which we issued and sold 51,350,000 shares of common stock, par value $0.0001 per share, at an offering price of $18.00 per share. We received net proceeds of $887.3 million from the sale of our common stock, after deducting underwriting discounts and commissions of $37.0 million. We used a portion of the net proceeds from our IPO to repay in full our outstanding borrowings under our revolving credit facility, as well as to fund the acquisition of Centrum Medical Holdings, LLC (Centrum). Refer to Note 2, Business Combinations, and Note 7, Short-Term Borrowings for more information.
The Company’s Common Stock is traded on the New York Stock Exchange (the “NYSE”) under the symbol “BHG”.
We incurred $6.7 million of deferred offering costs consisting primarily of accounting, legal and other fees related to our IPO, which were recorded against IPO proceeds within additional paid-in capital upon closing of our IPO.
Conversion of Preferred Stock into Common Stock: OnJune 28, 2021, the Company issued 427,897,381 shares of common stock upon conversion (the “Conversion”) of all outstanding shares of its Series A Convertible Preferred Stock, par value $0.0001 per share, Series B Convertible Preferred Stock, par value $0.0001 per share, Series C Convertible Preferred Stock, par value $0.0001 per share, Series D Convertible Preferred Stock, par value $0.0001 per share, and Series E Convertible Preferred Stock, par value $0.0001 per share (collectively, the “Preferred Stock”), pursuant to its eighth amended and restated certificate of incorporation. Conversion of the preferred stock into shares of common stock occurred automatically immediately prior to the closing of our IPO.performance-based arrangements.
Basis of Presentation: The condensed consolidated financial statements include the accounts of Bright Health Group,NeueHealth, Inc. and all subsidiaries and controlled companies. All intercompany balances and transactions are eliminated upon consolidation. The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP)(“GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. We have omitted certain footnote disclosures that would substantially duplicate the disclosures in our audited consolidated financial statements, unless the information contained in those disclosures materially changed or is required by GAAP. As such, the condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 20202023 included in our Form 10-K for the prospectus dated June 23, 2021 (File No.333-256286) (the “Prospectus”year ended December 31, 2023 (“2023 Form 10-K”), as filed with the United States Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.. The accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for fair presentation of the interim financial statements.
Sale of California Medicare Advantage Business:On June 30, 2023, the Company entered into a definitive agreement with Molina to sell its California Medicare Advantage business to Molina Healthcare, Inc. (“Molina”), which consisted of Universal Care, Inc. d/b/a Brand New Day, a California corporation (“BND”) and Central Health Plan of California, Inc., a California corporation (“CHP”) (the “Molina Purchase Agreement”). Effective as of January 1, 2024, the Molina Purchase Agreement transaction was consummated for an aggregate purchase price of $500.0 million subject to certain contingencies and Tangible Net Equity (“TNE”) adjustments. Upon completion of the sale, the Bright HealthCare reporting unit of our discontinued operations was no longer included in our operations. Refer to Note 15 Discontinued Operations for discussion of the transaction.
Debt Payoff: On December 27, 2023, we entered into an agreement regarding our revolving credit agreement with JPMorgan Chase Bank, N.A. (the “Agent”) and a syndicate of banks (the “2021 Credit Agreement”) providing that, upon closing of the sale of our California Medicare Advantage business, and payments for debt and interest of $274.6 million to the Agent and $24.1 million to the issuers of letters of credit outstanding under the 2021 Credit Agreement, all liabilities of the Company under the 2021 Credit Agreement would be terminated (other than those under the outstanding letters of credit that remained outstanding thereafter) (collectively, the “Termination”). These amounts were paid on January 2, 2024, and on that date the Termination occurred.
We evaluated this amendment to the 2021 Credit Agreement in accordance with ASC 470-60 Troubled Debt Restructuring and ASC 470-50 Debt - Modification and Extinguishments. The evaluation for troubled debt restructuring includes assessing both qualitative and quantitative factors such as whether the creditor granted a concession and if the Company is experiencing financial difficulties. Our quantitative analysis consisted of comparing the cash paid as part of the Payoff Condition to the total amount of outstanding indebtedness immediately prior to the payoff. Given the Company is experiencing financial difficulties and the lenders granted a concession by accepting total payments of $298.6 million for the remaining balance of the principal and interest due, we accounted for the transaction as a troubled debt restructuring and recognized a total gain of $30.3 million from the debt settlement.
Use of Estimates: The preparation of our condensed consolidated financial statements in conformance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Our most significant estimates include medical costs payable, risk adjustment revenue and associated payables and receivables, valuation and impairment of goodwill and other intangible assets, valuation and impairment of investments and estimates of share-based compensation. Actual results could differ from these estimates.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
statements and accompanying notes. Our most significant estimates include medical costs payable, provider risk share arrangements, third-party payor risk share arrangements, and valuation and impairment of intangible assets. Actual results could differ from these estimates.
Going Concern: The condensed consolidated financial statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has a history of operating losses, and we generated a net loss of $4.2 million for the quarter ended March 31, 2024, and a net loss of $1.3 billion for the year ended December 31, 2023. Additionally, the Company experienced negative operating cash flows primarily related to our discontinued Bright Health Group,HealthCare – Commercial segment for the quarter ended March 31, 2024 and in the preceding year ended December 31, 2023. Certain of the Company’s insurance subsidiaries have material obligations remaining related to the commercial insurance risk adjustment program. The subsidiaries entered into repayment agreements with the Centers for Medicare & Medicaid Services’ (“CMS”) with respect to the unpaid obligations in September 2023. The amount owed under the repayment agreements is due March 15, 2025 and bears interest at a rate of 11.5% per annum. In the first quarter of 2024, the Company paid down $11.2 million of risk adjustment principal, leaving $279.9 million as the remaining risk adjustment liability as of March 31, 2024.
We consummated the sale of our California Medicare Advantage business in January 2024, resulting in net proceeds of $31.6 million after debt and interest repayment of $274.6 million, cash collateralization of existing letters of credit of $24.1 million, contingent consideration of $110.0 million, estimated net equity adjustment of $57.3 million, and other transaction related fees. Further, as described in Note 5, Borrowings and Common Stock Warrants, in April 2024 the Company entered into an amendment to our existing 2023 Credit Agreement, which allows the Company to borrow an additional $30.0 million under the agreement. As of the date of this Quarterly Report on Form 10-Q’s filing, an additional $20.0 million has been borrowed under this amendment, with $10.0 million left available to be borrowed.
Cash and investment balances held at regulated insurance entities are subject to regulatory restrictions and can only be accessed through dividends declared to the non-regulated parent company or through reimbursements from administrative services agreements with the parent company. The regulated legal entities are required to hold certain minimum levels of risk-based capital and surplus to meet regulatory requirements. As noted further in Note 15, Discontinued Operations, we are out of compliance with the minimum levels for certain of our regulated insurance legal entities. In certain of our other regulated insurance legal entities, we hold surplus levels of risk-based capital, and as we complete the wind-down exercise related to these entities over the next two years, we expect to recapture through dividends and final liquidation actions the remaining cash positions of these entities. In February and March of 2024, we obtained approval in three states to execute a total of $28.2 million of dividends, of which $13.2 million was paid to the parent in March 2024 and $15.0 million was paid to the parent in April 2024 and immediately contributed to its insurance subsidiaries in deficit positions.
We believe that the existing cash, investments, and available liquidity will not be sufficient to satisfy our anticipated cash requirements for the next twelve months following the date the condensed consolidated financial statements contained in this Form 10-Q are issued, for items such as IFP risk adjustment payables, medical cost payables, any remaining obligation to the deconsolidated entity, and other liabilities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. In response to these conditions, management continues to implement a restructuring plan to reduce capital needs and our operating expenses in the future to drive positive operating cash flow and increase liquidity. Additionally, the Company is actively engaged with the Board of Directors and outside advisors to evaluate additional financing. In addition, the Company may not fully collect the contingent consideration associated with the sale of the California Medicare Advantage business or be able to obtain additional liquidity on acceptable terms, as both of these matters will be subject to market conditions that are not fully within the Company’s control. The Company will be unable to satisfy its obligations unless it obtains additional liquidity or takes other management actions. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Operating Costs: Our operating costs, by functional classification for the three and six months ended June 30, 2021March 31, 2024 and 2020,2023, are as follows (in thousands):
| | Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
| Compensation and fringe benefits | Compensation and fringe benefits | $ | 77,379 | | | $ | 31,447 | | | $ | 134,405 | | | $ | 57,001 | |
| Professional fees | Professional fees | 42,303 | | | 15,424 | | | 81,765 | | | 32,636 | |
| Marketing and selling expense | 63,988 | | | 14,474 | | | 114,193 | | | 23,115 | |
| Technology expenses | |
| General and administrative expenses | |
| Other operating expenses | Other operating expenses | 77,390 | | | 27,482 | | | 138,937 | | | 50,519 | |
| Total operating costs | Total operating costs | $ | 261,060 | | | $ | 88,827 | | | $ | 469,300 | | | $ | 163,271 | |
Recently Issued and Adopted Accounting Pronouncements: There wereare no accounting pronouncements that were recently issued and not yet adopted or adopted since our audited consolidated financial statements were issued that had, or are expected to have, a material impact on our consolidated financial position, results of operations, or cash flows.
NOTE 2. BUSINESS COMBINATIONS
Centrum Acquisition: On July 1, 2021, we acquired 75% of the outstanding equity interests of Centrum for cash consideration of $232.4 million and $75.0 million of common stock, for total purchase consideration of $306.2 million, net of $1.2 million of cash acquired. Centrum is a value-based primary care focused, multi-specialty medical group, with which our Bright HealthCare business partners within Florida. Centrum operates 17 health centers in Florida, serving Commercial, Medicare, and Medicaid consumers across multiple payors, with secured expansion locations in Texas and North Carolina. Centrum is included in our NeueHealth reportable segment. Transaction costs of $0.9 million incurred in connection with the acquisition are included in operating costs in the Condensed Consolidated Statements of Income (Loss) for the three and six months ended June 30, 2021, respectively.
The total preliminary purchase consideration for the Centrum acquisition is allocated to tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. The excess of the purchase price over the net assets acquired is recorded as goodwill, which is predominately attributable to the incremental financial benefits achievable through Bright Health Group’s integrated care delivery model, whereby Bright HealthCare members are cared for under value-based arrangements with Centrum. This model brings together the financing, distribution, and delivery of high-quality healthcare and provides the opportunity to enhance overall margin potential for the Company. The goodwill is not deductible for tax purposes.
Bright Health Group,NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table disclosesNOTE 2. RESTRUCTURING CHARGES
In October 2022, we announced our decision to further focus our business on our Fully Aligned Care Model, our NeueCare and NeueSolutions segments, and that we will no longer offer commercial plans through Bright HealthCare, or Medicare Advantage
products outside of California in 2023. As a result of these strategic changes, we announced and have taken actions to restructure the preliminary estimated fair values of assetsCompany’s workforce and liabilities acquiredreduce expenses based on our updated business model.
Restructuring charges by reportable segment and corporate for the Company in the Centrum acquisitionperiods ended March 31 were as follows (in thousands):
| | | | | |
Accounts receivable | $ | 1,874 | |
Prepaids and other current assets | 627 | |
Property and equipment | 2,557 | |
Intangible assets | 157,040 | |
Other Assets | 30 | |
Total Assets | 162,128 | |
Medical costs payable | 19 | |
Accounts payable | 359 | |
Other current liabilities | 861 | |
Other liabilities | 2,609 | |
Total liabilities | 3,848 | |
Net identified assets acquired | 158,280 | |
Goodwill | 233,022 | |
Redeemable noncontrolling interest | (85,075) | |
Total purchase consideration | $ | 306,227 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
| NeueCare | | NeueSolutions | | Corporate & Eliminations | | Total |
| Employee termination benefits | $ | — | | | $ | — | | | $ | (58) | | | $ | (58) | |
| Long-lived asset impairments | — | | | — | | | — | | | — | |
| Contract termination and other costs | — | | | — | | | — | | | — | |
| Total continuing operations | $ | — | | | $ | — | | | $ | (58) | | | $ | (58) | |
The preliminary fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additional information, such as post-close working capital adjustments, becomes available. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| NeueCare | | NeueSolutions | | Corporate & Eliminations | | Total |
| Employee termination benefits | $ | — | | | $ | — | | | $ | (766) | | | $ | (766) | |
| Long-lived asset impairments | — | | | — | | | 880 | | | 880 | |
| Contract termination and other costs | — | | | — | | | 187 | | | 187 | |
| Total continuing operations | $ | — | | | $ | — | | | $ | 301 | | | $ | 301 | |
The acquisition accounting is preliminary, as we have not obtained enough information to determine the fair value of operating lease right of use assets and liabilities. We also have not finalized the valuation of acquired intangible assets. Our preliminary estimate of intangible assets consists of customer relationships and trade names, and the values are based on the allocation of total purchase consideration to identified intangible assets in past acquisitions by the Company and analysis of comparable third-party business combinations. The fair value of noncontrolling interest was determined using an income approach and market approach and included a discount to account for the lack of marketability of the noncontrolling interest.
The acquisition of Centrum would not have had a material impact on our revenue or net loss had it been included in the consolidated results of the Company for the three and six months ended June 30, 2021 and 2020.
Central Health Plan Acquisition: On April 1, 2021, we acquired all of the outstanding shares of Central Health Plan of California, Inc. (“CHP”) for cash consideration of $276.0 million and $79.8 million in Series E preferred stock, for total purchase consideration of $271.7 million, net of $84.1 million of cash acquired. CHP is an insurance provider of Medicare Advantage (“MA”) HMO services. CHP is included in our Bright HealthCare reportable segment. Transaction costs of $0.2 million incurred in connection with the acquisition are included in operating costs in the Condensed Consolidated Statements of Income (Loss) for the six months ended June 30, 2021, out of $1.4 million of total transaction costs we have incurred.
The total preliminary purchase consideration$0.9 million of long-lived asset impairments is the result of a lease abandonment for one of our corporate office locations during the three months ended March 31, 2023.
Restructuring accrual activity recorded by major type for the CHP acquisition is allocated to tangible and intangible assets acquired and liabilities assumed based on their respective fair valuesthree months ended March 31, 2024 were as of the acquisition date. The excess of the purchase price over the net assets acquired is recorded as goodwill. The goodwill for CHP is attributable to synergies from leveraging CHP’s clinical model and California consumer expertise to continue to expand our MA business in the California market. The goodwill is not deductible for tax purposes.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table discloses the preliminary estimated fair values of assets and liabilities acquired by the Company in the CHP acquisitionfollows (in thousands):
| | | | | |
Accounts receivable | $ | 16,361 | |
Short-term investments | 19,041 | |
Prepaids and other current assets | 25,520 | |
Property and equipment | 370 | |
Intangible assets | 102,000 | |
Total Assets | 163,292 | |
Medical costs payable | 79,450 | |
Accounts payable | 2,371 | |
Other current liabilities | 17,212 | |
Other liabilities | 28,622 | |
Total liabilities | 127,655 | |
Net identified assets acquired | 35,637 | |
Goodwill | 236,037 | |
Total purchase consideration | $ | 271,674 | |
| | | | | | | | | | | | | | | | | |
| Employee Termination Benefits | | Contract Termination Costs | | Total |
| Balance at January 1, 2024 | $ | 8,389 | | | $ | — | | | $ | 8,389 | |
| Net charges | (58) | | | — | | | (58) | |
| Cash payments | (2,400) | | | — | | | (2,400) | |
| Balance at March 31, 2024 | $ | 5,931 | | | $ | — | | | $ | 5,931 | |
The preliminary fair values of acquired assets andEmployee termination benefits are recorded within Other current liabilities assumed represent management’s estimate of fair value andwhile contract termination costs are subject to change if additional information, such as post-close working capital adjustments, becomes available. The fair values of certain assets and liabilities have changed from previous disclosure. We reclassified $19.0 million to short-term investments from cash and cash equivalents, and we obtained additional information to estimate the fair value of risk adjustment receivables and payables, pharmacy rebates and other medical costsrecorded within accounts receivable, prepaids and other current assets, medical costs payable and other current liabilities. We also updated the fair value of identified intangible assets based on the methodologies described below and identified a $28.5 million deferred tax liability related to the intangible assets.Accounts payable.
Our preliminary estimate of intangible assets related to the CHP acquisition consists of customer relationships with a 10-year useful life, trade names with a 15-year useful life and the provider network with a 7-year useful life. The value of the trade name was determined using the relief from royalty method and the excess earnings method was used to value the customer relationships; both methods are considered Level 3 fair value measurements.
The following pro forma financial information presents our revenue and net loss as if CHP had been included in the consolidated results of the Company for the six months ended June 30, 2021 and the three and six months ended June 30, 2020 (in thousands):
| | | | | | | | | | | | | | | | | |
| Pro Forma Consolidated Statements of Income (Loss) |
| (Unaudited) |
| Three Months Ended | | Six Months Ended June 30, |
| June 30, 2020 | | 2021 | | 2020 |
| Revenue | $ | 430,200 | | | $ | 2,117,268 | | | $ | 760,638 | |
| Net Loss | (15,123) | | | (58,271) | | | (21,763) | |
True Health New Mexico and Zipnosis Acquisitions: On March 31, 2021 we acquired all of the outstanding equity interests of True Health New Mexico, Inc. (“THNM”) for cash consideration of $27.5 million, net of cash acquired of $24.1 million, for total purchase consideration of $3.4 million. THNM is a physician-led health insurance company offering policies available through the commercial market for individual on- and off-exchange and employer-sponsored health coverage. THNM is included in our Bright HealthCare reportable segment. In addition, on March 31, 2021, we acquired Zipnosis, Inc. (“Zipnosis”), which is a telehealth platform that offers virtual care to health systems around the U.S., for aggregate consideration of $73.5 million, including $55.1 million in Series E preferred stock. We acquired $3.2 million of cash as part of the Zipnosis acquisition, for net total purchase consideration of $70.3 million. Zipnosis is included in our NeueHealth reportable segment.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Transaction costs of $0.5 million incurred in connection with these acquisitions are included in operating costs in the Condensed Consolidated Statements of Income (Loss) for the three and six months ended June 30, 2021.
The total preliminary purchase consideration for the THNM and Zipnosis acquisitions is allocated to tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. The excess of the purchase price over the net assets acquired is recorded as goodwill. The goodwill for THNM is attributable to synergies from leveraging THNM’s strong local clinical model of care and the ability to enter into a new state of strategic interest for future growth and expansion. The goodwill from the Zipnosis acquisition is attributable to benefits from the ability to enhance our proprietary technology platform, DocSquad, and Zipnosis’ attractive virtual care capabilities to enhance Bright Health’s consumer and provider connectivity. The goodwill from the THNM and Zipnosis acquisitions is not deductible for tax purposes.
The following table discloses the preliminary estimated fair values of assets and liabilities acquired by the Company in the THNM and Zipnosis acquisitions (in thousands):
| | | | | | | | | | | |
| THNM | | Zipnosis |
| Accounts receivable | $ | 714 | | | $ | 1,062 | |
| Short-term investments | 4,677 | | | 0 | |
| Prepaids and other current assets | 8,337 | | | 141 | |
| Property and equipment | 0 | | | 232 | |
| Intangible assets | 7,300 | | | 8,970 | |
| Long-term investments | 13,081 | | | 0 | |
| Other non-current assets | 1,324 | | | 766 | |
| Total Assets | 35,433 | | | 11,171 | |
| Medical costs payable | 13,268 | | | 0 | |
| Accounts payable | 14,663 | | | 136 | |
| Unearned revenue | 3,645 | | | 120 | |
| Other current liabilities | 2,682 | | | 665 | |
| Other liabilities | 2,499 | | | 2,730 | |
| Total liabilities | 36,757 | | | 3,651 | |
| Net identified assets acquired | (1,324) | | | 7,520 | |
| Goodwill | 4,739 | | | 62,827 | |
| Total purchase consideration | $ | 3,415 | | | $ | 70,347 | |
The preliminary fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additional information, such as post-close working capital adjustments, becomes available.
Our preliminary estimate of intangible assets related to the THNM acquisition consists of customer relationships with 10-to-14-year useful lives, trade names with a 15-year useful life and the provider network with a 7-year useful life. For the Zipnosis acquisition, our preliminary estimate of intangible assets consists of customer relationships with a 15-year useful life, trade names with a 5-year useful life and developed technology with a 7-year useful life. For these acquisitions the value of the trade names and developed technology was determined using the relief from royalty method and the excess earnings method was used to value the customer relationships; both methods are considered Level 3 fair value measurements.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following pro forma financial information presents our revenue and net loss as if THNM and Zipnosis had been included in the consolidated results of the Company for the six months ended June 30, 2021 and three and six months ended June 30, 2020 (in thousands):
| | | | | | | | | | | | | | | | | |
| Pro Forma Consolidated Statements of Income (Loss) |
| (Unaudited) |
| Three Months Ended | | Six months ended June 30, |
| June 30, 2020 | | 2021 | | 2020 |
| Revenue | 325,278 | | | $ | 2,036,297 | | | 558,488 | |
| Net Loss | (20,623) | | | $ | (71,651) | | | (28,954) | |
PMA Acquisition: On December 31, 2020, we acquired a 62% controlling interest in Premier Medical Associates of Florida, LLC (“PMA”) in exchange for $74.2 million. PMA provides care services to Medicare and Medicaid patients in Florida through a network of primary care providers and population health-focused specialists. The acquisition of PMA is expected to enhance our clinical capabilities to better serve enrollees as part of our Florida market expansion. The total purchase consideration for the PMA acquisition was allocated to tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. The excess of the purchase price over the net assets acquired was recorded as goodwill. The purchase price allocation is preliminary and subject to change, including the valuation of property, equipment and capitalized software and intangible assets, among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date.
BND Acquisition: On April 30, 2020, we acquired all of the outstanding shares of Universal Care, Inc. (d.b.a. Brand New Day) (“BND”). BND is a leader in providing healthcare services in California and serves Medicare eligible seniors and special needs populations through their extensive network of primary care providers and specialists. BND combines analytics and evidence-based clinical programs with aligned provider relationships to provide high quality, affordable care for complex and vulnerable populations. The total consideration included $206.9 million in cash and $80.0 million in Bright Health Series D preferred stock. We have since applied indemnity escrow adjustments of $44.0 million to the acquisition price, bringing total consideration to $210.1 million, net of cash acquired of $32.8 million. The escrow adjustments are made up of $40.2 million of tangible net equity adjustments and $3.8 million of target gross margin adjustments. Transaction costs of $3.8 million incurred in connection with the acquisition are included in operating costs in the Consolidated Statements of Income (Loss) for the year ended December 31, 2020. If BND had been included in the consolidated results of the Company for the three and six months ended June 30, 2020, our pro forma revenue would have been $346.5 million and $691.6 million, respectively, and our pro forma net loss would have been $(22.8) million, and $(41.8) million, respectively.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The total purchase consideration for the BND acquisition was allocated to tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. The excess of the purchase price over the net assets acquired was recorded as goodwill. The goodwill is attributable to synergies from leveraging BND’s strong clinical model of care to drive growth in our MA business outside of California. The goodwill from the BND acquisition is not deductible for tax purposes. The following table discloses the preliminary estimated fair values of assets and liabilities acquired by the Company in the BND acquisition, as well as measurement adjustments made in the three months ended June 30, 2021 to the amounts initially recorded in 2020 (in thousands):
| | | | | | | | | | | | | | | | | |
| Amount Recognized as of
Acquisition Date
(as previously reported) | | Measurement
Period
Adjustments | | Amounts Recognized as of
Acquisition Date
(as adjusted) |
| Accounts receivable | $ | 74,128 | | | $ | 0 | | | $ | 74,128 | |
| Prepaid and other currents assets | 30,583 | | | 0 | | | 30,583 | |
| Property and equipment | 4,375 | | | 0 | | | 4,375 | |
| Intangible assets | 72,600 | | | 1,900 | | | 74,500 | |
| Other non-current assets | 2,906 | | | 0 | | | 2,906 | |
| Total Assets | 184,592 | | | 1,900 | | | 186,492 | |
| Medical costs payable | 119,408 | | | 0 | | | 119,408 | |
| Other current liabilities | 51,744 | | | 174 | | | 51,918 | |
| Other liabilities | 1,236 | | | 108 | | | 1,344 | |
| Total liabilities | 172,388 | | | 282 | | | 172,670 | |
| Net identified assets acquired | 12,204 | | | 1,618 | | | 13,822 | |
| Goodwill | 197,886 | | | (1,618) | | | 196,268 | |
| Total purchase consideration | $ | 210,090 | | | $ | 0 | | | $ | 210,090 | |
The measurement period adjustments above primarily resulted from completing valuations for certain intangible assets. The related impact to net earnings that would have been recognized in previous periods if the adjustments were recognized as of the acquisition date is immaterial to the consolidated financial statements. We recognized intangible assets related to the BND acquisition, which consist of $25.6 million for the BND trade name with an estimated useful life of 15 years, customer relationships valued at $46.9 million with a 12-year useful life, and $2.0 million of other intangibles related to the provider network with a 10-year useful life. The value of the trade name was determined using the relief from royalty method and the excess earnings method was used to value the customer relationships; both methods are considered Level 3 fair value measurements.
Bright Health Group,NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3. INVESTMENTS
Fixed Maturity Securities
Available-for-sale securities are reported at fair value as of June 30, 2021 and December 31, 2020. Held-to-maturity securities are reported at amortized cost as of June 30, 2021 and December 31, 2020. The following is a summary of our investment securities as of June 30, 2021 and December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Carrying
Value |
| Cash equivalents | $ | 344,084 | | | $ | 0 | | | $ | 0 | | | $ | 344,084 | |
| Available for sale: | | | | | | | |
| U.S. government and agency obligations | 498,098 | | | 773 | | | (461) | | | 498,410 | |
| Corporate obligations | 264,662 | | | 657 | | | (115) | | | 265,204 | |
| State and municipal obligations | 17,352 | | | 69 | | | (4) | | | 17,417 | |
| Commercial paper | 1,000 | | | 0 | | | 0 | | | 1,000 | |
| Certificates of deposit | 19,326 | | | 0 | | | 0 | | | 19,326 | |
| Mortgage-backed securities | 2,745 | | | 113 | | | 0 | | | 2,858 | |
| Other | 1,097 | | | 0 | | | 0 | | | 1,097 | |
| Total available-for-sale securities | 804,280 | | | 1,612 | | | (580) | | | 805,312 | |
| Held to maturity: | | | | | | | |
| U.S. government and agency obligations | 6,650 | | | 0 | | | 0 | | | 6,650 | |
| Certificates of deposit | 1,518 | | | 0 | | | 0 | | | 1,518 | |
| Total held-to-maturity securities | 8,168 | | | 0 | | | 0 | | | 8,168 | |
| Total investments | 1,156,532 | | | 1,612 | | | (580) | | | 1,157,564 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Carrying
Value |
| Cash equivalents | $ | 153,743 | | | $ | 0 | | | $ | (3) | | | $ | 153,740 | |
| Available for sale: | | | | | | | |
| U.S. government and agency obligations | 291,834 | | | 1,246 | | | (1) | | | 293,079 | |
| Corporate obligations | 280,557 | | | 1,104 | | | (30) | | | 281,631 | |
| State and municipal obligations | 18,459 | | | 107 | | | 0 | | | 18,566 | |
| Commercial paper | 14,990 | | | 1 | | | 0 | | | 14,991 | |
| Certificates of deposit | 53,504 | | | 2 | | | (1) | | | 53,505 | |
| Other | 5,534 | | | 2 | | | 0 | | | 5,536 | |
| Total available-for-sale securities | 664,878 | | | 2,462 | | | (32) | | | 667,308 | |
| Held to maturity: | | | | | | | |
| U.S. government and agency obligations | 6,677 | | | 0 | | | 0 | | | 6,677 | |
| Certificates of deposit | 1,119 | | | 0 | | | 0 | | | 1,119 | |
| Total held-to-maturity securities | 7,796 | | | 0 | | | 0 | | | 7,796 | |
| Total investments | 826,417 | | | 2,462 | | | (35) | | | 828,844 | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The fair value of available-for-sale investments, including those that are cash equivalents, with gross unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2021 and December 31, 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Less Than 12 Months | | 12 Months or Greater | | Total |
| Description of Investments | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| U.S. government and agency obligations | $ | 348,290 | | | $ | (461) | | | $ | 0 | | | $ | 0 | | | $ | 348,290 | | | $ | (461) | |
| Corporate obligations | 160,409 | | | (115) | | | 0 | | | 0 | | | 160,409 | | | (115) | |
| State and municipal obligations | 3,311 | | | (4) | | | 0 | | | 0 | | | 3,311 | | | (4) | |
| Total bonds | $ | 513,127 | | | $ | (580) | | | $ | 0 | | | $ | 0 | | | $ | 513,127 | | | $ | (580) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Less Than 12 Months | | 12 Months or Greater | | Total |
| Description of Investments | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| Cash equivalents | $ | 25,007 | | | $ | (3) | | | $ | 0 | | | $ | 0 | | | $ | 25,007 | | | $ | (3) | |
| U.S. government and agency obligations | 12,507 | | | (1) | | | 0 | | | 0 | | | 12,507 | | | (1) | |
| Corporate obligations | 121,006 | | | (30) | | | 0 | | | 0 | | | 121,006 | | | (30) | |
| Commercial paper | 999 | | | 0 | | | 0 | | | 0 | | | 999 | | | 0 | |
| Certificates of deposit | 14,003 | | | (1) | | | 0 | | | 0 | | | 14,003 | | | (1) | |
| Total bonds | $ | 173,522 | | | $ | (35) | | | $ | 0 | | | $ | 0 | | | $ | 173,522 | | | $ | (35) | |
As of June 30, 2021, we had 705 investment positions out of 1,919 that were in an unrealized loss position. As of December 31, 2020, we had 117 investment positions out of 1,917 that were in an unrealized loss position. We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. At each reporting period, we evaluate securities for impairment when the fair value of the investment is less than its amortized cost. We evaluated the underlying credit quality and credit ratings of the issuers, noting no significant deterioration since purchase. As of June 30, 2021, we did not have the intent to sell any of the securities in an unrealized loss position. Therefore, we believe these losses to be temporary.
As of June 30, 2021, the maturity of available-for-sale securities, by contractual maturity, reflected at amortized cost and fair value were as follows (in thousands):
| | | | | | | | | | | |
| Amortized
Cost | | Fair
Value |
| Due in one year or less | $ | 194,644 | | | $ | 195,191 | |
| Due after one year through five years | 609,636 | | | 610,121 | |
| Due after five years through 10 years | 0 | | | 0 | |
| Due after 10 years | 0 | | | 0 | |
| Total debt securities | $ | 804,280 | | | $ | 805,312 | |
Investment income in the Condensed Consolidated Statements of Income (Loss) for the six months ended June 30, 2021 and 2020, was $2.4 million, and $5.3 million, respectively, related to our fixed maturity securities. Realized gains (losses) from our
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
fixed maturity securities of $0.2 million and $0.1 million are included within total investment income, and reclassified out of accumulated other comprehensive income, for the six months ended June 30, 2021 and 2020, respectively.
Equity Securities
On April 1, 2021 we completed the purchase of 1.6 million shares of equity securities for aggregate cash consideration of $40.1 million. As of June 30, 2021, the equity securities had a carrying value of $102.9 million, which is included in short-term investments in the Condensed Consolidated Balance Sheet. We recognized an unrealized gain of $58.5 million and $62.8 million in investment income in the Condensed Consolidated Statements of Income (Loss) for the three and six months ended June 30, 2021, respectively.
NOTE 4. FAIR VALUE MEASUREMENTS
Basis of fair value measurement:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:
Quoted prices for similar assets or liabilities in active markets or quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Certain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, except for the equity securities, see Note 5 of Notes to the Audited Consolidated Financial Statements included in our Prospectus filed with the SEC.
Equity Securities — The fair value of the equity securities was determined based on the quoted market price of the underlying securities in an active market.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables set forth our fair value measurements as of June 30, 2021 and December 31, 2020, for assets measured at fair value on a recurring basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 332,305 | | | $ | 0 | | | $ | 0 | | | $ | 332,305 | |
| Fixed maturity securities, available for sale: | | | | | | | |
| U.S. government and agency obligations | 342,365 | | | 156,045 | | | 0 | | | 498,410 | |
| Corporate obligations | 2,368 | | | 262,836 | | | 0 | | | 265,204 | |
| State and municipal obligations | 0 | | | 17,417 | | | 0 | | | 17,417 | |
| Commercial paper | 0 | | | 1,000 | | | 0 | | | 1,000 | |
| Certificates of deposit | 18,726 | | | 600 | | | 0 | | | 19,326 | |
| Mortgage-backed securities | 2,858 | | | 0 | | | 0 | | | 2,858 | |
| Other | 0 | | | 1,097 | | | 0 | | | 1,097 | |
| Total fixed maturity securities, available for sale: | 366,317 | | | 438,995 | | | 0 | | | 805,312 | |
| Equity securities | 102,886 | | | 0 | | | 0 | | | 102,886 | |
| Total assets at fair value | $ | 469,203 | | | $ | 438,995 | | | $ | 0 | | | $ | 908,198 | |
| Liabilities | | | | | | | |
| Contingent consideration | $ | 0 | | | $ | 0 | | | $ | 6,775 | | | $ | 6,775 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 149,499 | | | $ | 4,019 | | | $ | 0 | | | $ | 153,518 | |
| Fixed maturity securities, available for sale: | | | | | | | |
| U.S. government and agency obligations | 197,886 | | | 95,193 | | | 0 | | | 293,079 | |
| Corporate obligations | 0 | | | 281,631 | | | 0 | | | 281,631 | |
| State and municipal obligations | 0 | | | 18,566 | | | 0 | | | 18,566 | |
| Commercial paper | 0 | | | 14,991 | | | 0 | | | 14,991 | |
| Certificates of deposit | 0 | | | 53,505 | | | 0 | | | 53,505 | |
| Other | 0 | | | 5,536 | | | 0 | | | 5,536 | |
| Total assets at fair value | $ | 347,385 | | | $ | 473,441 | | | $ | 0 | | | $ | 820,826 | |
| Liabilities | | | | | | | |
| Contingent consideration | $ | 0 | | | $ | 0 | | | $ | 5,716 | | | $ | 5,716 | |
The following tables set forth the Company’s fair value measurements as of June 30, 2021 and December 31, 2020, for certain financial instruments not measured at fair value on a recurring basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents, held to maturity | $ | 11,779 | | | $ | 0 | | | $ | 0 | | | $ | 11,779 | |
| Fixed maturity securities, held to maturity: | | | | | | | |
| U.S. government and agency obligations | 6,681 | | | 0 | | | 0 | | | 6,681 | |
| Certificates of deposit | 1,518 | | | 0 | | | 0 | | | 1,518 | |
| Total held to maturity | $ | 19,978 | | | $ | 0 | | | $ | 0 | | | $ | 19,978 | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents, held to maturity | $ | 222 | | | $ | 0 | | | $ | 0 | | | $ | 222 | |
| Fixed maturity securities, held to maturity: | | | | | | | |
| U.S. government and agency obligations | 6,732 | | | 0 | | | 0 | | | 6,732 | |
| Certificates of deposit | 0 | | | 1,119 | | | 0 | | | 1,119 | |
| Total held to maturity | $ | 6,954 | | | $ | 1,119 | | | $ | 0 | | | $ | 8,073 | |
There have been no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy. The contingent consideration liability is measured using Level 3 inputs based on a formulaic multiple of forecasted 2023 EBITDA per the terms of the purchase agreement discounted back to net present value. The following table presents the changes in fair value of the contingent consideration liability for the six months ended June 30, 2021 and year ended December 31, 2020 (in thousands):
| | | | | | | | | | | |
| 2021 | | 2020 |
| Balance at beginning of period | $ | 5,716 | | | $ | 5,716 | |
| Change in fair value of contingent consideration | 1,059 | | | 0 | |
| Balance at end of period | $ | 6,775 | | | $ | 5,716 | |
The carrying amounts reported on the Condensed Consolidated Balance Sheets for other current financial assets and liabilities approximate fair value due to their short-term nature. The carrying value for short-term borrowings under our credit facility approximate fair value due to the short-term nature of this obligation and is categorized within Level 2 of the fair value hierarchy based on observable market borrowing rates. These assets and liabilities are not included in the tables above.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying value of goodwill by reportable segment were as follows
(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Bright HealthCare | | NeueHealth |
| Gross Carrying
Amount | | Cumulative
Impairment | | Gross Carrying
Amount | | Cumulative
Impairment |
| Balance at December 31, 2020 | $ | 197,886 | | | $ | 0 | | | $ | 65,149 | | | $ | 0 | |
| Acquisitions | 240,776 | | | | | 62,827 | | | |
| Purchase adjustments | (1,618) | | | — | | | 0 | | | — | |
| Balance at June 30, 2021 | $ | 437,044 | | | $ | 0 | | | $ | 127,976 | | | $ | 0 | |
The gross carrying value and accumulated amortization for definite-lived intangible assets were as follows (in thousands)thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Gross Carrying
Amount | | Accumulated Amortization | | Gross Carrying
Amount | | Accumulated Amortization |
| Customer relationships | $ | 201,051 | | | $ | 11,459 | | | $ | 117,451 | | | $ | 3,664 | |
| Trade names | 64,131 | | | 3,365 | | | 38,161 | | | 1,604 | |
| Developed technology | 6,200 | | | 148 | | | 0 | | | 0 | |
| Other | 6,400 | | | 390 | | | 2,000 | | | 133 | |
| Total | $ | 277,782 | | | $ | 15,362 | | | $ | 157,612 | | | $ | 5,401 | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Gross Carrying
Amount | | Accumulated Amortization | | Gross Carrying
Amount | | Accumulated Amortization |
| Customer relationships | $ | 80,021 | | | $ | 28,231 | | | $ | 80,021 | | | $ | 26,144 | |
| Trade names | 48,361 | | | 9,806 | | | 48,361 | | | 9,000 | |
| Total | $ | 128,382 | | | $ | 38,037 | | | $ | 128,382 | | | $ | 35,144 | |
The acquisition date fair values
For the three months ended March 31, 2024 and weighted-average useful lives assigned to2023, there were no impairments of the definite-lived intangible assets acquired during the six months ended June 30, 2021 were as follows assets.
(in thousands):
| | | | | | | | | | | |
| Fair Value | | Weighted-Average
Useful Life
(in years) |
| Customer relationships | $ | 82,400 | | | 10.3 |
| Trade names | 25,270 | | | 14.7 |
| Developed technology | 6,200 | | | 7.0 |
| Other | 4,400 | | | 7.0 |
| Total | $ | 118,270 | | | 10.9 |
Amortization expense relating to intangible assets for the three months ended June 30, 2021March 31, 2024 and 20202023 was $6.3$2.9 million and $1.4$2.9 million, respectively, and amortization expense for the six months ended June 30, 2021 and 2020 was $10.0 million and $1.8 million, respectively. Estimated amortization expense relating to intangible assets for the remainder of 20212024 and for each of the next five full years ending December 31 is as follows (in thousands)thousands):
| | | | | |
| 2021 (July-December) | $ | 20,018 | |
| 2022 | 39,840 | |
| 2023 | 39,840 | |
| 2024 | 39,840 | |
| 2025 | 39,840 | |
| 2026 | 39,725 | |
| | | | | |
| 2024 (April-December) | $ | 8,681 | |
| 2025 | $ | 11,574 | |
| 2026 | $ | 11,574 | |
| 2027 | $ | 11,574 | |
| 2028 | $ | 10,295 | |
| 2029 | $ | 10,295 | |
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 6.4. MEDICAL COSTS PAYABLE
The following table shows the components of the change in medical costs payable for the sixthree months ended June 30March 31, 2024 and 2023 (in thousands)thousands):
| | | | | | | | | | | |
| 2021 | | 2020 |
| Medical costs payable - January 1 | $ | 249,777 | | | $ | 44,804 | |
| Incurred related to: | | | |
| Current year | 1,604,472 | | | 373,901 | |
| Prior year | 334 | | | (8,157) | |
| Total incurred | 1,604,806 | | | 365,744 | |
| Paid related to: | | | |
| Current year | 1,183,622 | | | 313,166 | |
| Prior year | 198,059 | | | 30,094 | |
| Total paid | 1,381,681 | | | 343,260 | |
| | | |
| Acquired claims liabilities | 92,718 | | | 118,662 | |
| Medical costs payable - June 30 | $ | 565,620 | | | $ | 185,950 | |
| | | | | | | | | | | |
| March 31, |
| 2024 | | 2023 |
| Medical costs payable - January 1 | $ | 157,903 | | | $ | 116,021 | |
| Incurred related to: | | | |
| Current year | 201,420 | | | 254,782 | |
| Prior year | (4,546) | | | 2,806 | |
| Total incurred | 196,874 | | | 257,588 | |
| Paid related to: | | | |
| Current year | 87,372 | | | 90,768 | |
| Prior year | 109,804 | | | 95,660 | |
| Total paid | 197,176 | | | 186,428 | |
| | | |
| Medical costs payable - March 31 | $ | 157,601 | | | $ | 187,181 | |
Medical costs payable attributable to prior years decreased by $4.5 million and increased by $0.3 million and decreased by $8.2$2.8 million for the sixthree months ended June 30, 2021March 31, 2024 and 2020,2023, respectively. Medical costs payable estimates are adjusted as additional information regarding claims becomes known regarding claims;known; there were no significant changes to estimation methodologies during the periods.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below details the components making up the medical costs payable as of June 30March 31, 2024 and December 31, 2023 (in thousands)thousands):
| | | | | | | | | | | |
| 2021 | | 2020 |
| Claims unpaid | $ | 23,040 | | | $ | 24,408 | |
| Provider incentive payable | 64,453 | | | 10,391 | |
| Claims adjustment expense liability | 9,718 | | | 3,294 | |
| Incurred but not reported (IBNR) | 468,409 | | | 147,857 | |
| Total medical costs payable | $ | 565,620 | | | $ | 185,950 | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Provider incentive payable | 42,366 | | | 2,367 | |
| Incurred but not reported (IBNR) | 115,235 | | | 155,536 | |
| Total medical costs payable | $ | 157,601 | | | $ | 157,903 | |
Medical costs payable are primarily related to the current year. The Company has recorded claims adjustment expense as a component of operating costs in the Condensed Consolidated Statements of Income (Loss).
NOTE 7. SHORT-TERM5. BORROWINGS AND COMMON STOCK WARRANTS
OnShort-term Borrowings and Troubled Debt Restructuring: In March 1, 2021, we entered into a $350.0 million revolving credit agreement with JPMorgan Chase Bank, N.A. and a syndicate of banks, (the “Credit Agreement”). which was set to mature on February 28, 2024.
On August 2,December 27, 2023, we entered into an agreement regarding our 2021 the Credit Agreement was amendedwith the Agent providing that upon closing of the sale of our California Medicare Advantage business, and payments of $274.6 million to change the definitionAgent and $24.1 million to the issuers of “Qualified IPO” by reducingletters of credit outstanding under the net proceeds required to be received by2021 Credit Agreement, all liabilities of the Company from $1.0 billion to $850.0 million. In addition, prior to such amendment,under the 2021 Credit Agreement contained a covenantwould be terminated (other than those under the outstanding letters of credit that requiredremained outstanding thereafter) (collectively, the Company to maintain a total debt to capitalization ratio of (a) 0.25 to 1.00 prior to a Qualified IPO,“Termination”). These amounts were paid on January 2, 2024, and (b) 0.30 to 1.00 after a Qualified IPO. The Amendment changed this covenant by removingon that date the increase inTermination occurred and we had no outstanding borrowings under the ratio after a Qualified IPO such that the Company is now required to maintain a total debt to capitalization ratio of 0.25 to 1.00. On August 4, 2021 we elected to extend the maturity date of the Credit Agreement from February 28, 2022 to February 28, 2024. We utilized a portion of the net IPO proceeds to repay the $200.0 million principal balance of indebtedness outstanding under our revolving credit agreement originally entered into on March 1, 2021 and the associated interest and other costs of $3.2 million. As of June 30, 2021, we repaid the full amount and have no borrowings outstanding under the Credit Agreement.
As of March 31, 2024 and December 31, 2023 we had $0.0 million and $303.9 million, respectively, borrowed under the 2021 Credit Agreement at a weighted-average effective annual interest rate of 10.07%. As of March 31, 2024, the letters of credit outstanding under the 2021 Credit Agreement with a principal balance of $22.9 million are collateralized at 105% of the
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
principal balance and reported as restricted cash included in cash and cash equivalents on the Condensed Consolidated Balance Sheet.
Upon occurrence of the Termination, we recognized a gain on troubled debt restructuring of $30.3 million. For the three months ended March 31, 2024, the gain on troubled debt restructuring resulted in a decrease of basic and diluted loss per share of $3.75. There was no gain on troubled debt restructuring for the three months ended March 31, 2023.
Long-term Borrowings: On August 4, 2023, the Company entered into a credit agreement (as amended, supplemented, restated or otherwise modified from time to time, the “2023 Credit Agreement”), among the Company, NEA 18 Venture Growth Equity, L.P. (“NEA”) and the lenders from time to time party thereto (together with NEA and each of their respective successors and assigns, the “Lenders”), to provide for a credit facility pursuant to which, among other things, the lenders have provided $60.0 million delayed draw term loan commitments, which matures on December 31, 2025.
On October 2, 2023, the Company, NEA, as the existing lender (the “Existing Lender”), and California State Teachers’ Retirement System, as an incremental lender (“the New Lender”) entered into an amendment (“Incremental Amendment No. 1”) to the 2023 Credit Agreement to provide for a term loan commitment increase in an aggregate principal amount of $6.4 million by the New Lender under the 2023 Credit Agreement. Loans under Incremental Amendment No. 1 have the same terms as loans under the original term loan commitments provided by the Existing Lender. As of March 31, 2024 and December 31, 2023, we had $66.4 million borrowed under the 2023 Credit Agreement at a weighted-average effective interest rate of 15.00%.
On April 8, 2024, the Company and NEA, New Enterprise Associates 17, L.P., New Enterprise Associates 16, L.P. and New Enterprise Associates 15, L.P. (collectively, the “NEA Lenders”) entered into an amendment (“Incremental Amendment No. 2”) to the 2023 Credit Agreement (as amended to date the “Amended 2023 Credit Agreement”) to provide for a term loan commitment increase in an aggregate principal amount of up to $30.0 million by the NEA Lenders under the Amended 2023 Agreement. Loans under Incremental Amendment No. 2 have the same terms as loans under the original term loan commitments provided by NEA. Subsequent to March 31, 2024, we borrowed an additional $20.0 million under the 2023 Credit Agreement.
Common Stock Warrants: On August 4, 2023, we entered into a warrantholders agreement (the “NEA Warrantholders Agreement”) with NEA 18 Venture Growth Equity, L.P. and the lenders from time-to-time party thereto, setting forth the rights and obligations of the Company and the lenders as holders of the warrants to acquire shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. We established a warrant liability of $25.1 million on this date, representing the 1.7 million warrants available to be issued under the NEA Warrantholders Agreement at a fair market value of $15.12 (closing share price on August 4th, 2023 minus the $0.01 exercise price); the warrant liability is reported within Other current liabilities. The warrants do not contain any exercise contingencies and expire on the fifth anniversary of the first closing date.
On October 2, 2023, we entered into a warrantholders agreement (the “CalSTRS Warrantholders Agreement” and together with the “NEA Warrantholders Agreement,” the “Warrantholders Agreements”) with the New Lender, setting forth the rights and obligations of the Company and the lenders as holders of the warrants to acquire shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. We increased the warrant liability by $1.0 million on this date, representing the 0.2 million warrants available to be issued under the CalSTRS Warrantholders Agreement at a fair market value of $5.80 (closing share price on October 2, 2023 minus the $0.01 exercise price). The warrants do not contain any exercise contingencies and expire on the fifth anniversary of the first closing date.
We account for our common stock warrants at the time of inception as derivatives, utilizing ASC 815 Derivatives and Hedging, by recording a liability equal to the warrants’ fair market value that is marked to market at the end of each period. Per the terms of the Warrantholders Agreements, the market value is calculated as the ending stock price less the $0.01 exercise price. As we draw on the available funds, warrants are issued; warrants will remain classified as a liability and be fair valued each period until they are exercised by the warrantholder. Upon exercise, we relieve the associated liability into additional paid in capital at the fair value of the warrants on the date of exercise, classifying the exercised warrants as equity.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | |
| Fair Value |
| Balance at January 1, 2024 | $ | 13,971 | |
| Newly executed Warrantholders Agreement | — | |
| Change in fair value of outstanding warrants | (2,072) | |
| Balance at March 31, 2024 | $ | 11,899 | |
As of March 31, 2024 no issued warrants have been exercised and no warrants remain available to be issued under the Warrantholders Agreements. For the three months ended March 31, 2024, Warrant income was $2.1 million. There was no equivalent liability and activity at March 31, 2023 and for the three months then ended.
On April 8, 2024, the Company and the NEA Lenders entered into a warrantholders agreement setting forth the rights and obligations of the Company and the NEA Lenders as holders of the warrants to acquire up to 1,113,563 shares of Common Stock at an exercise price of $0.01per share, and providing for the issuance of warrants. As of March 31, 2024, no warrant liability has been established pursuant to this agreement.
The Company classifies its warrant liability as Level 2 fair value because they are valued using observable, unadjusted quoted prices in active markets. See Note 15, Discontinued Operations for the full definition of Level 1, Level 2, and Level 3 fair values.
NOTE 8.6. SHARE-BASED COMPENSATION
2016 Incentive Plan
The Company adopted its 2016 Stock Incentive Plan (the “2016 Incentive Plan”) in March 2016. The 2016 Incentive Plan allowed for the Company to grant stock options, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”) to certain employees, consultants and non-employee directors. The 2016 Incentive Plan was initially adopted on March 25, 2016, and most recently amended in December 2020. Following the effectiveness of our 2021 Omnibus Plan (the “2021 Incentive Plan”), no further awards will be granted under the 2016 Incentive Plan. However, all outstanding awards granted under the 2016 Incentive Plan will continue to be governed by the existing terms of the 2016 Incentive Plan and the applicable award agreements.
2021 Incentive Plan
The 2021 Incentive Plan was adopted by our Board of Directors on May 21, 2021 and approved by our stockholders on May 25, 2021 and June 5, 2021. The 2021 Incentive Plan allows the Company to grant stock options, RSAs, RSUs, stock appreciation rights, other equity basedequity-based awards, and cash basedcash-based incentive awards to certain employees, consultants and non-employee directors. ThereThe 2021 Incentive Plan was most recently amended in May 2024. As of March 31, 2024 there are 42.02.1 million shares of common stock authorized for issuance under the 2021 Incentive Plan. As of June 30, 2021,Plan and a total of 27.31.0 million shares of common stock were available for future issuance under the 2021 Incentive Plan.
Share-Based Compensation Expense
We recognized share-based compensation expense of $19.1$18.6 million and $2.2$33.3 million for the sixthree months ended June 30, 2021March 31, 2024 and 2020,2023, respectively, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss).
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock Options
The Board of Directors, or the Compensation and Human Capital Committee of the Board of Directors, as applicable, determines the exercise price, vesting periods and expiration date at the time of the grant. The option awardsStock options granted prior to the third quarter of 2021 generally vest 25% at one year from the grant date, then ratably over the next 36 months with continuous
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
employee service. Stock options granted after the beginning of the third quarter of 2021 generally vest ratably over three years. Option grants generally expire 10 years from the date of grant.
The calculated value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that used the following weighted-average assumptions forThere were no options granted during the sixthree months ended June 30, 2021:
| | | | | |
| 2021 |
Risk-free interest rate | 0.8 | % |
Expected volatility | 33.3 | % |
Expected dividend rate | 0.0 | % |
Forfeiture rate | 14.5 | % |
Expected life in years | 6.1 |
Risk-free interest rates are based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on the historical volatility of our publicly traded industry peers. We use historical data to estimate option forfeitures within the valuation model. The expected lives of options granted represent the period of time that the awards granted are expected to be outstanding based on historical exercise patterns.March 31, 2024.
The activity for the stock options for the sixthree months ended June 30, 2021March 31, 2024 is as follows (in thousands,thousands, except exercise price, weighted average contractual life, and contractual life)aggregate intrinsic value):
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted-Average
Exercise Price | | Weighted-Average
Remaining
Contractual Life
(In Years) | | Aggregate
Intrinsic Value |
| Outstanding at January 1, 2021 | 63,925 | | | $ | 1.47 | | | 8.7 | | $ | 53,573 | |
| Granted | 20,241 | | | 2.53 | | | | | |
| Exercised | (8,781) | | | 1.05 | | | | | |
| Forfeited | (3,155) | | | 1.60 | | | | | |
| Expired | (11) | | | 1.09 | | | | | |
| Outstanding at June 30, 2021 | 72,219 | | | $ | 1.81 | | | 8.7 | | $ | 1,108,293 | |
The weighted-average grant date fair value of | | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average
Exercise Price | | Weighted Average
Remaining
Contractual Life
(In Years) | | Aggregate
Intrinsic Value |
| Outstanding at January 1, 2024 | 633 | | | $ | 138.33 | | | 5.2 | | $ | 213 | |
| Granted | — | | | — | | | | | |
| Exercised | — | | | — | | | | | |
| Forfeited | (3) | | | 175.02 | | | | | |
| Expired | (16) | | | 213.84 | | | | | |
| Outstanding at March 31, 2024 | 614 | | | $ | 136.12 | | | 4.3 | | $ | 171 | |
We recognized share-based compensation expense related to stock options granted duringof $6.8 million for the sixthree months ended June 30, 2021 was $10.92 per share.March 31, 2024, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At June 30, 2021,March 31, 2024, there was $158.3$20.4 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 1.40.9 years.
Restricted Stock Units
RSUs represent the right to receive shares of our common stock at a specified date in the future and generally vest over a three-year period, except for Board of Director grants which generally vest one year from the date of grant. The fair value of RSUs is determined based on the closing market price of our common stock on the date of grant.
The following table summarizes RSU award activity for the three months ended March 31, 2024 (in thousands, except weighted average grant date fair value):
| | | | | | | | | | | |
| Number of RSUs | | Weighted Average Grant Date Fair Value |
| Unvested RSUs at January 1, 2024 | 776 | | $ | 53.32 | |
| Granted | — | | | — | |
| Vested | (171) | | | 49.00 | |
| Forfeited | (30) | | | 46.91 | |
| Unvested RSUs at March 31, 2024 | 575 | | | $ | 54.94 | |
We recognized share-based compensation expense related to RSUs of $5.5 million for the three months ended March 31, 2024, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). As of March 31, 2024, there was $18.0 million of unrecognized compensation expense related to the RSU grants, which is expected to be recognized over a weighted-average period of 1.1 years.
Performance-based Restricted Stock Units (“PSUs”)
In connection with our IPO,initial public offering, our Board of Directors approved the grant of PSUs to members of our executive leadership team. The grant encompassesencompassed a total of 14.7 million183,750 PSUs, separated into 4four equal tranches, each of which are eligible
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
to vest based on the achievement of predetermined stock price goals and a minimum service period of three3.0 years. This grant is intended to retain and incentivize our executive leadership to leadThe fair value of the Company to sustained, long-term financial and operational performance.PSUs was determined using a Monte-Carlo simulation.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes PSU award activity for the sixthree months ended June 30, 2021March 31, 2024 (in thousands, except weighted average grant date fair value):
| | | | | | | | | | | |
| PSU |
| Number of PSUs | | Weighted Average Grant Date Fair Value |
| Unvested PSUs at December 31, 2020 | 0 | | $ | 0 | |
| PSUs granted | 14,700 | | | 9.30 | |
| PSUs canceled | 0 | | | 0 | |
| Unvested PSUs at June 30, 2021 | 14,700 | | | $ | 9.30 | |
| | | | | | | | | | | |
| Number of PSUs | | Weighted Average Grant Date Fair Value |
| Unvested PSUs at January 1, 2024 | 131 | | $ | 744.00 | |
| Granted | — | | | — | |
| Forfeited | (13) | | | 744.02 | |
| Unvested PSUs at March 31, 2024 | 118 | | | $ | 744.01 | |
We recognized share-based compensation expense related to the PSU grantPSUs of $0.3$6.3 million for the three and six months ended June 30, 2021,March 31, 2024, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At June 30, 2021,March 31, 2024, there was $116.9$5.4 million of unrecognized compensation expense related to the PSU grant, which is expected to be recognized over a weighted-average period of three0.2 years.
NOTE 9.7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Pursuant to the Certificate of Designations designating the shares of our Series A Convertible Perpetual Preferred Stock and the Certificate of Designations designating the shares of our Series B Convertible Perpetual Preferred Stock (collectively, the “Preferred Stock”) each of which we filed with the Secretary of State of the State of Delaware (together, the “Certificate of Designations”), the Preferred Stock ranks senior to our shares of common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock is convertible into common stock and is entitled to an initial liquidation preference, in each case subject to certain limitations outlined in the Certificates of Designations.
Series A Convertible Preferred Stock
On January 3, 2022, we issued 750,000 shares of Series A Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $750.0 million, or $1,000 per share.
The Series A Preferred Stock ranks senior to the shares of the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock has an initial liquidation preference of $1,000 per share, which shall increase by accumulated quarterly dividends that are not paid in cash (“compounded dividends”). Holders of the Series A Preferred Stock are entitled to a dividend at the rate of 5.0% per annum, accruing daily and payable quarterly in arrears and subject to certain adjustments, as set forth in the Certificate of Designations. Dividends will be payable in cash, by increasing the amount of liquidation preference (compounded dividends) with respect to a share of Series A Preferred Stock, or any combination thereof, at the sole discretion of the Company. The Series A Preferred Stock had accrued compounded dividends of $88.3 million and $78.0 million as of March 31, 2024 and December 31, 2023, respectively.
The Series A Preferred Stock will be convertible at the option of the holders into (I) the number of shares of common stock equal to the quotient of (a) the sum of (x) the liquidation preference (reflecting increases for compounded dividends) plus (y) the accrued dividends with respect to each share of Series A Preferred Stock as of the applicable conversion date divided by (b) the conversion price (initially approximately $364.00 per share and approximately $283.19 per share subsequent to the issuance of all warrants prior to the three months ended March 31, 2024) as of the applicable conversion date plus (II) cash in lieu of fractional shares, subject to certain anti‑dilution adjustments. At any time after January 3, 2025, if the closing price per share of Common Stock on the New York Stock Exchange was greater than 175% of the then effective Conversion Price for (x) each of at least twenty (20) trading days in any period of thirty (30) consecutive trading days and (y) the last trading day immediately before the Company provides the holders with notice of its election to convert all of the Series A Preferred Stock into the
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
relevant number of shares of common stock, the Company may elect to convert all of the Series A Preferred Stock into the relevant number of shares of common stock.
Under the Certificate of Designations, holders of the Series A Preferred Stock are entitled to vote with the holders of the common stock on an as‑converted basis, solely with respect to (i) a change of control transaction (to the extent such change of control transaction is submitted to a vote of the holders of the common stock) or (ii) the issuance of capital stock by the Company in connection with an acquisition by the Company (to the extent such issuance is submitted to a vote of the holders of the common stock), subject to certain restrictions. Holders of the Series A Preferred Stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Series A Preferred Stock, authorizations or issuances by the Company of securities that are senior to the Series A Preferred Stock, increases or decreases in the number of authorized shares of Preferred Stock, and issuances of shares of the Series A Preferred Stock after January 3, 2022.
At any time following January 3, 2027, the Company may redeem all of the Series A Preferred Stock for a per share amount in cash equal to: (i) the sum of (A) the liquidation preference (reflecting increases for compounded dividends) thereof plus (B) all accrued dividends as of the applicable redemption date, multiplied by (ii) (A) 105% if the redemption occurs at any time prior to January 3, 2029 and (B) 100% if the redemption occurs at any time on or after January 3, 2029. Upon certain change of control events involving the Company, the holders of the Series A Preferred Stock may, at such holder’s election, convert their shares of Series A Preferred Stock into common stock at the then‑current conversion price or require the Company to purchase all or a portion of such holder’s shares of Preferred Stock that have not been so converted at a purchase price per share of Preferred Stock, payable in cash, equal to the greater of (I) (A) if the change of control effective date occurs at any time prior to January 3, 2029, the product of 105% multiplied by the sum of (x) the liquidation preference of such share of Series A Preferred Stock (reflecting increases for compounded dividends) plus (y) the accrued dividends in respect of such share of Series A Preferred Stock as of the change of control purchase date and (B) if the change of control effective date occurs on or after January 3, 2029, the sum of (x) the liquidation preference (reflecting increases for compounded dividends) of such share of Series A Preferred Stock plus (y) the accrued dividends in respect of such share of Series A Preferred Stock as of the change of control purchase date and (II) the consideration that would have been payable in connection with such change of control if such share of Series A Preferred Stock had been converted into Common Stock immediately prior to the change of control.
Series B Convertible Preferred Stock
On October 17, 2022, we issued 175,000 shares of Series B Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $175.0 million, or $1,000 per share.
The Series B Preferred Stock ranks senior to the shares of the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock has an initial liquidation preference of $1,000 per share, which shall increase by compounded dividends. Holders of the Series B Preferred Stock are entitled to a dividend at the rate of 5.0% per annum, accruing daily and payable quarterly in arrears and subject to certain adjustments, as set forth in the Certificate of Designations. Dividends will be payable in cash, by increasing the amount of liquidation preference (compounded dividends) with respect to a share of Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company. The Series B Preferred Stock had accrued compounded dividends of $13.1 million and $10.8 million as of March 31, 2024 and December 31, 2023, respectively.
The Series B Preferred Stock will be convertible at the option of the holders into (I) the number of shares of common stock equal to the quotient of (a) the sum of (x) the liquidation preference (reflecting increases for compounded dividends) plus (y) the accrued dividends with respect to each share of Series B Preferred Stock as of the applicable conversion date divided by (b) the conversion price (initially approximately $113.60 per share and approximately $98.68 per share subsequent to the issuance of all warrants prior to the three months ended March 31, 2024) as of the applicable conversion date plus (II) cash in lieu of fractional shares, subject to certain anti‑dilution adjustments. At any time after October 17, 2025, if the closing price per share of common stock on the NYSE was greater than 287% of the then effective Conversion Price for (x) each of at least twenty (20) trading days in any period of thirty (30) consecutive trading days and (y) the last trading day immediately before the Company provides the holders with notice of its election to convert all of the Series B Preferred Stock into the relevant number of shares
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
of common stock, the Company may elect to convert all of the Series B Preferred Stock into the relevant number of shares of common stock.
Under the Certificate of Designations, holders of the Series B Preferred Stock are entitled to vote with the holders of the common stock on an as‑converted basis, solely with respect to (i) a change of control transaction (to the extent such change of control transaction is submitted to a vote of the holders of the common stock) or (ii) the issuance of capital stock by the Company in connection with an acquisition by the Company (to the extent such issuance is submitted to a vote of the holders of the common stock), subject to certain restrictions. Holders of the Series B Preferred Stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Series B Preferred Stock, authorizations or issuances by the Company of securities that are senior to the Series B Preferred Stock, increases or decreases in the number of authorized shares of Preferred Stock, and issuances of shares of the Series B Preferred Stock after October 17, 2022.
At any time following October 17, 2027, the Company may redeem all of the Series B Preferred Stock for a per share amount in cash equal to: (i) the sum of (A) the liquidation preference (reflecting increases for compounded dividends) thereof plus (B) all accrued dividends as of the applicable redemption date, multiplied by (ii) (A) 105% if the redemption occurs at any time prior to October 17, 2029 and (B) 100% if the redemption occurs at any time on or after October 17, 2029. Upon certain change of control events involving the Company, the holders of the Series B Preferred Stock may, at such holder’s election, convert their shares of Series B Preferred Stock into common stock at the then‑current conversion price or require the Company to purchase all or a portion of such holder’s shares of Preferred Stock that have not been so converted at a purchase price per share of Preferred Stock, payable in cash, equal to the greater of (I) (A) if the change of control effective date occurs at any time prior to October 17, 2029, the product of 105% multiplied by the sum of (x) the liquidation preference of such share of Series B Preferred Stock (reflecting increases for compounded dividends) plus (y) the accrued dividends in respect of such share of Series B Preferred Stock as of the change of control purchase date and (B) if the change of control effective date occurs on or after October 17, 2029, the sum of (x) the liquidation preference (reflecting increases for compounded dividends) of such share of Series B Preferred Stock plus (y) the accrued dividends in respect of such share of Series B Preferred Stock as of the change of control purchase date and (II) the consideration that would have been payable in connection with such change of control if such share of Series B Preferred Stock had been converted into common stock immediately prior to the change of control.
NOTE 8. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the three and six months ended June 30March 31 (in thousands, except for per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net loss attributable to Bright Health Group, Inc. common shareholders | $ | (44,518) | | | $ | (18,074) | | | $ | (69,680) | | | $ | (25,354) | |
| Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 160,942 | | | 135,801 | | | 150,616 | | | 135,719 | |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.28) | | | $ | (0.13) | | | $ | (0.46) | | | $ | (0.19) | |
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2024 | | 2023 |
| Loss from continuing operations, net noncontrolling interests and accrued preferred stock dividends | $ | (18,653) | | | $ | (71,362) | |
| Loss from discontinued operations | (9,865) | | | (115,543) | |
| Net loss attributable to NeueHealth, Inc. common shareholders | $ | (28,518) | | | $ | (186,905) | |
| Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 8,079 | | | 7,894 | |
| Basic and diluted loss per share attributable to NeueHealth, Inc. common shareholders |
| Continuing operations | $ | (2.31) | | | $ | (9.04) | |
| Discontinued operations | $ | (1.22) | | | $ | (14.64) | |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (3.53) | | | $ | (23.68) | |
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect for the sixthree months ended June 30March 31 (in thousands)thousands):
| | | | | | | | | | | |
| Six Months Ended June 30 |
| 2021 | | 2020 |
| Redeemable convertible preferred stock (as converted to common stock) | 0 | | | 341,352 | |
| Stock options to purchase common stock | 72,219 | | | 57,689 | |
| Total | 72,219 | | | 399,041 | |
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2024 | | 2023 |
| Redeemable convertible preferred stock (as converted to common stock) | 4,867 | | | 4,031 | |
| Issued and outstanding common stock warrants | 1,834 | | | — | |
| Stock options to purchase common stock | 614 | | | 771 | |
| Restricted stock units | 575 | | | 999 | |
| Total | 7,890 | | | 5,801 | |
NOTE 10.9. COMMITMENTS AND CONTINGENCIES
Legal proceedings: In the normal course of business, we could be involved in various legal proceedings such as, but not limited to, the following: lawsuits alleging negligence in care or general liability, violation of regulatory bodies’ rules and regulations, or violation of federal and/or state laws. At
On January 6, 2022, a putative securities class action lawsuit was filed against us and certain of our officers and directors in the Eastern District of New York. The case is captioned Marquez v. Bright Health Group, Inc. et al., 1:22-cv-00101 (E.D.N.Y.). The lawsuit alleges, among other things, that we made materially false and misleading statements regarding our business, operations, and compliance policies, which in turn adversely affected our stock price. An amended complaint was filed on June 30,24, 2022, which expands on the allegations in the original complaint and alleges a putative class period of June 24, 2021 through March 1, 2022. The amended complaint also adds as defendants the underwriters of our initial public offering. The Company has served a motion to dismiss the amended complaint, which has not yet been ruled on by the court.
We are vigorously defending the Company in the above actions, but there can be no assurance that we will be successful in any defense.
Based on our assessment of the facts underlying the claims and the degree to which we intend to defend the Company in these matters, the amount or range of reasonably possible losses, if any, cannot be estimated. We have not accrued for any potential loss as of March 31, 2024 and December 31, 2020, there2023 for these actions.
Other commitments: As of March 31, 2024, we had letters of credit unrelated to the 2021 Credit Agreement of $7.6 million, as well as surety bonds of $19.7 million. On our Condensed Consolidated Balance Sheets, $50.0 million of the cash and cash equivalents is restricted as collateral to our undrawn letters of credit and surety bonds.
NOTE 10. SEGMENTS AND GEOGRAPHIC INFORMATION
Factors used to determine our reportable segments include the nature of operating activities, economic characteristics, existence of separate senior management teams and the type of information used by the Company’s Chief Operating Decision Maker (“CODM”) to evaluate its results of operations. We have identified two operating segments within our continuing operations based on our primary product and service offerings: NeueCare and NeueSolutions. The NeueCare and NeueSolutions segments were no material known contingent liabilities.new starting in the second quarter of 2023 and were formerly reported together within the aggregated Consumer Care segment. The updates to our reportable segments conform with the Company’s CODM’s view of our ongoing operations.
NeueCare and NeueSolutions, which make up our value-driven Consumer Care business that manages risk in partnership with external payors, aim to significantly reduce the friction and current lack of coordination between payors by delivering on our Fully Aligned Care Model with multiple payors. The following is a description of the types of products and services from which the two reportable segments of our continuing operations derive their revenues:
Bright Health Group,NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 11. SEGMENTS AND GEOGRAPHIC INFORMATIONNeueCare: Provides care services in our clinics with wrap around care management and care coordination activities for those members where we take full or partial risk. As of March 31, 2024, NeueCare provides virtual and in-person clinical care through its 73 owned primary care clinics within an integrated care delivery system. Through these risk-bearing clinics and our affiliated network of care providers, our NeueCare segment serves approximately 360,000 consumers. NeueCare customers include external payors, third party administrators, affiliated providers and direct-to-government programs.
NeueSolutions:Our provider enablement business that facilitates care coordination activities through the use of population health tools including technology, data analytics, care and utilization management, and clinical solutions and care teams to support patients. As of March 31, 2024, NeueSolutions has approximately 45,000 members attributed to its REACH ACO’s and 109,000 enablement services lives representing members attributed to NeueHealth by provider partner groups that are outside of the NeueHealth owned network.
The Company’s accounting policies for reportable segment operations are consistent with those described in Note 2, Summary of Significant Accounting Policies, in our 2023 Form 10-K. We utilize operating income (loss) before income taxes as the profitability metric for our reportable segments are Bright HealthCare and NeueHealth.segments.
The following tables presentspresent the reportable segment financial information for the three and six months ended June 30, 2021March 31, 2024 and 20202023 (in thousands):
| | Three Months Ended June 30, 2021 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | | $ | 1,023,759 | | | $ | 18,327 | | | $ | — | | | $ | 1,042,086 | |
| Three Months Ended March 31, 2024 | | Three Months Ended March 31, 2024 | | NeueCare | | NeueSolutions | | Corporate & Eliminations | | Consolidated |
| Capitated revenue | |
| ACO REACH revenue | |
| Service revenue | Service revenue | | 90 | | | 11,995 | | | — | | | 12,085 | |
| Investment income | Investment income | | 1,158 | | | 58,511 | | | — | | | 59,669 | |
| Total unaffiliated revenue | Total unaffiliated revenue | | 1,025,007 | | | 88,833 | | | — | | | 1,113,840 | |
| Affiliated revenue | Affiliated revenue | | — | | | 25,481 | | | (25,481) | | | — | |
| Total segment revenue | Total segment revenue | | 1,025,007 | | | 114,314 | | | (25,481) | | | 1,113,840 | |
| Operating income (loss) | Operating income (loss) | | (115,964) | | | 56,919 | | | — | | | (59,045) | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 4,583 | | | $ | 2,612 | | | $ | — | | | $ | 7,195 | |
| Bad debt expense | |
| Restructuring charges | |
| | Three Months Ended June 30, 2020 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | | $ | 288,980 | | | $ | 1,992 | | | $ | — | | | $ | 290,972 | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2023 | | Care Delivery | | Care Solutions | | Corporate & Eliminations | | Consolidated |
| Capitated revenue | |
| ACO REACH revenue | |
| Service revenue | Service revenue | | 0 | | | 3,604 | | | — | | | 3,604 | |
| Investment income | | 2,280 | | | 0 | | | — | | | 2,280 | |
| Investment income (loss) | |
| Total unaffiliated revenue | Total unaffiliated revenue | | 291,260 | | | 5,596 | | | — | | | 296,856 | |
| Affiliated revenue | Affiliated revenue | | — | | | 2,742 | | | (2,742) | | | — | |
| Total segment revenue | Total segment revenue | | 291,260 | | | 8,338 | | | (2,742) | | | 296,856 | |
| Operating income (loss) | Operating income (loss) | | (25,054) | | | (2,182) | | | — | | | (27,236) | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 1,595 | | | $ | 490 | | | $ | — | | | $ | 2,085 | |
| Restructuring charges | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | | $ | 1,865,684 | | | $ | 37,033 | | | $ | — | | | $ | 1,902,717 | |
| Service revenue | | 90 | | | 20,433 | | | — | | | 20,523 | |
| Investment income | | 2,404 | | | 62,754 | | | — | | | 65,158 | |
| Total unaffiliated revenue | | 1,868,178 | | | 120,220 | | | — | | | 1,988,398 | |
| Affiliated revenue | | — | | | 42,633 | | | (42,633) | | | — | |
| Total segment revenue | | 1,868,178 | | | 162,853 | | | (42,633) | | | 1,988,398 | |
| Operating income (loss) | | (140,179) | | | 58,301 | | | — | | | (81,878) | |
| | | | | | | | |
| Depreciation and amortization | | $ | 6,940 | | | $ | 4,836 | | | $ | — | | | $ | 11,776 | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | | $ | 477,713 | | | $ | 3,996 | | | $ | — | | | $ | 481,709 | |
| Service revenue | | 0 | | | 8,424 | | | — | | | 8,424 | |
| Investment income | | 5,289 | | | 0 | | | — | | | 5,289 | |
| Total unaffiliated revenue | | 483,002 | | | 12,420 | | | — | | | 495,422 | |
| Affiliated revenue | | — | | | 5,449 | | | (5,449) | | | — | |
| Total segment revenue | | 483,002 | | | 17,869 | | | (5,449) | | | 495,422 | |
| Operating income (loss) | | (31,164) | | | (3,352) | | | — | | | (34,516) | |
| | | | | | | | |
| Depreciation and amortization | | $ | 1,857 | | | $ | 1,015 | | | $ | — | | | $ | 2,872 | |
For all periods presented, all of our long-lived assets were located in the United States, and all revenues were earned in the United States. We do not include asset information by reportable segment in the reporting provided to the chief operating decision maker.CODM.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 12.11. INCOME TAXES
Income tax benefit was $19.5an expense of $0.7 million and $18.3$1.3 million for the three and six months ended June 30, 2021,March 31, 2024 and 2023, respectively. This was primarily attributable to the release of valuation allowance in connection with new deferred tax liabilities recorded on identifiable intangibles as part of business combination accounting. The impact from income taxes varies from the federal statutory rate of 21.0% due to state income taxes, changes in the valuation allowance for deferred tax assets and adjustments for permanent differences. For the sixthree months ended June 30, 2021,March 31, 2024, the variance is primarily dueexpense largely relates to adjustmentsestimated state income taxes attributable to income earned in separate filing states without state net operating loss carryforwards. For the valuation allowance for federalthree months ended March 31, 2023, the expense largely relates to amortization of originating goodwill from asset acquisitions and estimated state deferred tax assets, as well as the effect of deferredincome taxes recorded as part of business combination accounting for the BND, Zipnosis, THNM, and CHP acquisitions.attributable to income earned in separate filing states without state net operating loss carryforwards.
We assess whether sufficient future taxable income will be generated to permit the use of deferred tax assets. This assessment includes consideration of the cumulative losses incurred over the three-year period ended June 30, 2021.March 31, 2024. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for future earnings. On the basis of this evaluation, we have recorded a valuation allowance for deferred tax assets to the extent that they cannot be supported by reversals of existing cumulative temporary differences. Any federal tax benefit generated from losses in 20212024 is expected to require an offsetting adjustment to the valuation allowance for deferred tax assets, and thus have no net effect on the income tax provision.
NOTE 13.12. REDEEMABLE NONCONTROLLING INTEREST
There was 0 redeemableRedeemable noncontrolling interest during the three and six months ended June 30, 2020.interests in our subsidiaries whose redemption is outside of our control are classified as temporary equity. The following tabletable provides details of our redeemable noncontrolling interest activity for the three months ended March 31, 2024 and six months ended June 30, 20212023 (in thousands):
| | | | | | | | | | | |
| 2024 | | 2023 |
| Balance at January 1 | $ | 88,908 | | | $ | 219,758 | |
| Earnings attributable to noncontrolling interest | 4,227 | | | 1,421 | |
| Distribution to noncontrolling interest holders | (1,884) | | | (1,805) | |
| Measurement adjustment | 7,510 | | | 4,129 | |
| Balance at March 31 | $ | 98,761 | | | $ | 223,503 | |
NOTE 13. ACO REACH
We participate in the CMS ACO REACH Model with three REACH ACOs participating through the global risk arrangement and assuming full risk for the total cost of care of aligned beneficiaries. As part of our participation in the ACO REACH Model, we are guaranteeing the performance of our care network of participating and preferred providers. The intention of the ACO REACH Model is to enhance the quality of care for Medicare FFS beneficiaries while reducing the administrative burden, supporting a focus on complex, chronically ill patients, and encouraging physician organizations that have not typically participated in Medicare FFS programs to serve Medicare FFS beneficiaries.
Key components of the financial agreement for the ACO REACH Model include:
•Performance Year Benchmark: The target amount for Medicare expenditures on covered services (Medicare Part A and B) furnished to a REACH ACO’s aligned beneficiaries during a performance year. The Performance Year Benchmark will be compared to the REACH ACO’s performance year expenditures. This comparison will be used to calculate shared savings and shared losses. The Performance Year Benchmark is established at the beginning of the performance year utilizing prospective trend estimates and is subject to retrospective trend adjustments, if warranted, before the Financial Reconciliation.
•Risk-Sharing Arrangements: Used in determining the percent of savings and losses that REACH ACOs are eligible to receive as shared savings or may be required to repay as shared losses.
•Financial Reconciliation: The process by which CMS determines shared savings or shared losses by comparing the calculated total benchmark expenditures for a given REACH ACO’s aligned population to the actual expenditures of
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
that REACH ACO’s aligned beneficiaries over the course of a performance year that includes various risk-mitigation options such as stop-loss reinsurance and risk corridors.
•Risk-Mitigation Options: Two of our REACH ACOs elected to participate in a “stop-loss arrangement” for the current and prior performance year offered by CMS, while one REACH ACO has elected third-party coverage. The “stop-loss arrangement” and third-party coverage are designed to reduce the financial uncertainty associated with high-cost expenditures of individual beneficiaries. Additionally, CMS has created a mandatory risk corridor program that allocates the REACH ACO’s shared savings and losses in bands of percentage thresholds, after a deviation of greater than 25.0% of the Performance Year Benchmark.
Performance Guarantees
Through our participation in the ACO REACH Model, we determined that our arrangements with the providers of our REACH ACO beneficiaries require us to guarantee their performance to CMS. At the beginning of the performance year, we recognized the ACO REACH estimated performance year obligation and receivable for the duration of the performance year. This receivable and obligation are measured at an amount equivalent to the estimated Performance Year Benchmark per CMS that is representative of the expected Medicare expenditures for beneficiaries aligned to our REACH ACOs. As we fulfill our obligation, we amortize the guarantee on a straight-line basis for the amount that represents the completed portion of the performance obligation. The receivable is reduced as we receive payments from CMS for in-network claims or receive CMS reporting detailing out-of-network claims paid by CMS on behalf of our aligned beneficiaries. At the end of each reporting period, we estimate both in-network claims and out-of-network claims incurred by beneficiaries aligned to our REACH ACOs but not yet reported and record a reserve for the estimated amount which is included in medical costs payable on the Condensed Consolidated Balance Sheets. For each performance year, the final consideration due to the REACH ACOs by CMS (shared savings) or the consideration due to CMS by the REACH ACOs (shared loss) is reconciled in the year following the performance year. On a periodic basis CMS adjusts the estimated Performance Year Benchmark based upon revised trend assumptions and changes in attributed membership. CMS will also estimate the shared savings or loss for the REACH ACO on a quarterly basis based upon the estimated Performance Year Benchmark, changes to membership, payments made to the REACH ACO for in-network claims, out-of-network claims paid on behalf of the REACH ACO and various other assumptions including incurred but not reported reserves. The estimated Performance Year Benchmark is our best estimate of our obligation as we are unable to estimate the potential shared savings or loss due to the “stop-loss arrangement”, risk corridor components of the agreement, and a number of variables including but not limited to risk ratings and benchmark trends that could have an inestimable impact on estimated future payments.
The tables below include the financial statement impacts of the performance guarantee at March 31, 2024 and December 31, 2023 and for the three-month periods ended March 31, 2024 and 2023 (in thousands):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
ACO REACH performance year receivable(1) | $ | 646,627 | | | $ | 115,878 | |
| ACO REACH performance year obligation | 529,657 | | | — | |
(1) As of March 31, 2024, we estimate there to be in-network and out-of-network claims incurred by beneficiaries aligned to our REACH ACOs but not reported of $110.9 million related to performance year 2024 and $4.3 million related to performance year 2023; this is included in medical costs payable on the Condensed Consolidated Balance Sheets.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Amortization of ACO REACH performance year receivable(1) | $ | 175,460 | | | $ | 175,523 | |
| Amortization of ACO REACH performance year obligation | 176,552 | | | 239,807 | |
ACO REACH revenue(2) | 171,811 | | | 239,807 | |
(1) The amortization of the ACO REACH performance year receivable includes $111.3 million and $84.3 million related to the amortization of the prior year receivable for the three months ended March 31, 2024 and 2023, respectively.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(2) ACO REACH revenue is inclusive of $4.7 million relating to the 2023 performance year.
For the three months ended March 31, 2024 and 2023, respectively, there is $0.3 million and $0.3 million reported within ACO REACH revenue on the Condensed Consolidated Statements of Income (Loss), that is related to our NeueCare clinics that are participating providers within our REACH ACOs. This revenue is presented gross in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts With Customers (“ASC 606”).
NOTE 14. DECONSOLIDATION OF BRIGHT HEALTHCARE INSURANCE COMPANY OF TEXAS
On November 29, 2023, BHIC-Texas (the “Deconsolidated Entity”) was placed into liquidation and the Texas Department of Insurance was appointed as receiver. The Deconsolidated Entity’s financial results are included in the Company’s consolidated results through November 28, 2023, the day prior to the date of the receivership. However, under ASC 810, consolidation of a majority-owned subsidiary is precluded where control of the subsidiary does not rest with the majority owners. Once the Texas Department of Insurance was appointed as receiver of BHIC-Texas we concluded the Company no longer controlled the subsidiary, and we deconsolidated BHIC-Texas as of that date.
The deconsolidation of BHIC-Texas resulted in certain related party balances that had previously been eliminated upon consolidation to become liabilities of the Company. In 2022, BHIC-Texas entered into a risk share contract with a different NeueHealth affiliate, whereby losses incurred at BHIC-Texas over a specified medical loss ratio target were transferred from BHIC-Texas to the affiliated entity. On November 29, 2023 the accrued loss of BHIC-Texas related to the risk share contract was $124.0 million. Upon deconsolidation of BHIC-Texas, this liability is required to be recorded as risk share payable to deconsolidated entity on the Consolidated Balance Sheet. The corresponding receivable on BHIC-Texas was included in our carrying value evaluation described below.
The table below presents the balance sheet of BHIC-Texas on November 29, 2023, the date the Deconsolidated Entity was placed into receivership.
| | | | | |
| Redeemable
Noncontrolling
Interest |
Balance at January 1, 2021Cash and cash equivalents | $ | 39,60060,560 | |
Earnings attributable to noncontrolling interestPrepaids and other current assets | 2881,522 | |
Measurement adjustmentRisk Share Receivable | 329123,981 | |
Balance at March 31, 2021Total Assets | $ | 40,217186,063 | |
Earnings attributable to noncontrolling interestAccounts payable | 640135 | |
Measurement adjustmentMedical costs payable | 1553,283 | |
Balance at June 30, 2021Other current liabilities | 1,523 | |
| Risk adjustment payable | 89,638 | |
| Total Liabilities | $ | 41,01294,579 | |
| Additional paid in capital | 204,753 | |
| Accumulated deficit | (113,269) | |
| Total Equity | $ | 91,484 | |
| Total Liabilities and Equity | $ | 186,063 | |
Under ASC 810, Consolidation, this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value. Upon deconsolidation, the Company valued its investment in BHIC-Texas to be $91.5 million, which is equivalent to the Deconsolidated Entity's carrying value. Upon valuing the investment in BHIC-Texas we assessed the current expected credit loss associated with the underlying receivables; as a result of our analysis we recorded a full valuation allowance on the investment due to uncertainties related to the collection of the risk share receivable.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 15. DISCONTINUED OPERATIONS
In April 2023, we announced that we were exploring strategic alternatives for our California Medicare Advantage business, the Bright HealthCare reporting segment, with the focus on a potential sale. At that time, we met the criteria for “held for sale,” in accordance with ASC 205-20. This represents a strategic shift that will have a material impact on our business and financial results. As such, we have reflected amounts relating to Bright HealthCare as a disposal group as part of discontinued operations. On June 30, 2023, the Company entered into the Molina Purchase Agreement to sell its California Medicare Advantage business, which consisted of BND and CHP. On December 13, 2023, the Company, Molina, Bright Health Company of California, Inc. (“BHCC”), CHP, and BND amended the Molina Purchase Agreement, pursuant to which, the parties agreed to amend the total purchase consideration to $500.0 million subject to certain contingencies and TNE adjustments. The transaction was consummated on January 1, 2024.
In October 2022, we announced that we will no longer offer commercial plans through our Bright HealthCare - Commercial segment in 2023. As a result, we exited the Commercial marketplace effective December 31, 2022. We determined this exit represented a strategic shift that will have a material impact on our business and financial results that requires presentation as discontinued operations.
While we are no longer offering plans in the Commercial marketplace as of December 31, 2022, we will continue to have involvement in the states where we formerly operated in, as we support run out activities of medical claims incurred in the 2022 plan year and perform other activities necessary to wind down our operations in each state. We are substantially complete with medical claim payments as of the end of 2023, and we will continue to make remaining medical claim payments and payments towards the remaining risk adjustment obligations through 2024 and early 2025.
Our discontinued operations are also inclusive of our DocSquad business that was sold in March 2023; this is presented within the column labeled Other in the tables below.
The discontinued operations presentation has been retrospectively applied to all prior periods presented.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The financial results of discontinued operations by major line item for the periods ended March 31 were as follows (in thousands):
| | | | | |
| Three Months Ended March 31, 2024 | Bright HealthCare - Commercial |
| Revenue: | |
| Premium revenue | $ | (215) | |
| Investment income | 1,568 | |
| Total revenue from discontinued operations | 1,353 | |
| Operating expenses: | |
| Medical costs | (3,759) | |
| Operating costs | 6,585 | |
| Restructuring charges | (379) | |
| Total operating expenses from discontinued operations | 2,447 | |
| Operating loss from discontinued operations | (1,094) | |
| Interest expense | 8,765 | |
| Loss from discontinued operations before income taxes | (9,859) | |
| Income tax expense (benefit) | 6 | |
| Net loss from discontinued operations | $ | (9,865) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Bright HealthCare - Commercial | | Bright HealthCare | | Other | | Total |
| Revenue: | | | | | | | | |
| Premium revenue | | $ | 766 | | | 453,317 | | | $ | — | | | $ | 454,083 | |
| Service revenue | | 30 | | | — | | | 2,383 | | | 2,413 | |
| Investment income | | 20,891 | | | 38 | | | — | | | 20,929 | |
| Total revenue from discontinued operations | | 21,687 | | | 453,355 | | | 2,383 | | | 477,425 | |
| Operating expenses: | | | | | | | | |
| Medical costs | | 46,014 | | | 428,725 | | | — | | | 474,739 | |
| Operating costs | | 47,478 | | | 56,339 | | | 2,049 | | | 105,866 | |
| Restructuring charges | | 7,956 | | | — | | | — | | | 7,956 | |
| Depreciation and amortization | | — | | | 4,407 | | | — | | | 4,407 | |
| Total operating expenses from discontinued operations | | 101,448 | | | 489,471 | | | 2,049 | | | 592,968 | |
| Operating loss from discontinued operations | | (79,761) | | | (36,116) | | | 334 | | | (115,543) | |
| Interest expense | | — | | | — | | | — | | | — | |
| Loss from discontinued operations before income taxes | | (79,761) | | | (36,116) | | | 334 | | | (115,543) | |
| Income tax expense (benefit) | | — | | | — | | | — | | | — | |
| Net loss from discontinued operations | | $ | (79,761) | | | $ | (36,116) | | | $ | 334 | | | $ | (115,543) | |
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents cash flows from operating and investing activities for discontinued operations for the three months ended March 31, 2024 (in thousands):
| | | | | |
| Cash used in operating activities - discontinued operations | $ | (37,958) | |
| Cash provided by investing activities - discontinued operations | 198,451 | |
Assets and liabilities of discontinued operations were as follows (in thousands):
| | | | | | | | |
| | March 31, 2024 |
| | Bright HealthCare - Commercial |
| Assets | | |
| Current assets: | | |
| Cash and cash equivalents | | $ | 136,668 | |
| Short-term investments | | 6,995 | |
| Accounts receivable, net of allowance | | 1,427 | |
| Prepaids and other current assets | | 4,262 | |
| Current assets of discontinued operations | | 149,352 | |
| Total assets of discontinued operations | | $ | 149,352 | |
| Liabilities | | |
| Current liabilities: | | |
| Medical costs payable | | $ | 15,781 | |
| Accounts payable | | 19,616 | |
| Risk adjustment payable | | 279,922 | |
| Other current liabilities | | 29,729 | |
| Current liabilities of discontinued operations | | 345,048 | |
| Total liabilities of discontinued operations | | $ | 345,048 | |
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Bright HealthCare - Commercial | | Bright HealthCare | | Total |
| Assets | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $ | 159,769 | | | $ | 128,212 | | | $ | 287,981 | |
| Short-term investments | 9,163 | | | 20,218 | | | 29,381 | |
| Accounts receivable, net of allowance | 1,430 | | | 51,929 | | | 53,359 | |
| Prepaids and other current assets | 7,838 | | | 114,532 | | | 122,370 | |
| Property, equipment and capitalized software, net | — | | | 17,954 | | | 17,954 | |
| Intangible assets, net | — | | | 138,982 | | | 138,982 | |
| Goodwill | — | | | 172,543 | | | 172,543 | |
| Current assets of discontinued operations | 178,200 | | | 644,370 | | | 822,570 | |
| Total assets of discontinued operations | $ | 178,200 | | | $ | 644,370 | | | $ | 822,570 | |
| Liabilities | | | | | |
| Current liabilities: | | | | | |
| Medical costs payable | $ | 31,881 | | | $ | 272,138 | | | $ | 304,019 | |
| Accounts payable | 25,648 | | | 7,719 | | | 33,367 | |
| Risk adjustment payable | 291,146 | | | — | | | 291,146 | |
| Other current liabilities | 28,045 | | | 43,181 | | | 71,226 | |
| Current liabilities of discontinued operations | 376,720 | | | 323,038 | | | 699,758 | |
| Total liabilities of discontinued operations | $ | 376,720 | | | $ | 323,038 | | | $ | 699,758 | |
California Medicare Advantage Sale:On June 30, 2023, the Company entered into a definitive agreement with Molina to sell its California Medicare Advantage business, which consisted of BND and CHP, for total purchase consideration of $600.0 million, subject to regulatory approval and other closing conditions. Subsequently, on December 13, 2023 we announced that we entered an amendment (the “Amendment”) with Molina which reduced the purchase price of our California Medicare Advantage business from $600.0 million to $500.0 million. The $500.0 million purchase price includes $167.3 million of purchase price adjustments subject to contingencies and TNE adjustments (in thousands):
| | | | | |
Consolidation and Adjustment Escrow Amount (1) | $ | 100,000 | |
TNE deficit at closing (2) | 57,326 | |
Indemnity Escrow Amount (3) | 10,000 | |
| Total consideration subject to contingencies | $ | 167,326 | |
(1) Contingent upon either (i) Molina obtaining regulatory approval of the consolidation of BND into CHP or (ii) receipt by BND of a Part D Summary Rating for its Part D operations for contract year 2025 of at least 3 Stars from CMS. If this contingency is successful, it is payable in November 2024 net of any TNE deficit deterioration and subject to certain other purchase price adjustments as described further in the Amendment.
(2) Amount by which minimum required TNE exceeds estimated TNE as of December 31, 2023. To the extent the TNE deficit improves on a restated basis by the cutoff date of June 30, 2024, Molina will owe the Company for that difference, payable in November 2024. To the extent the TNE deficit worsens on a restated basis by the time of the cutoff date, such difference will be deducted from Consolidation and Adjustment Escrow Amount. If the conditions around the
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Consolidation and Adjustment Escrow Amount are not satisfied, Molina would retain the Consolidation and Adjustment Escrow Amount in satisfaction of any TNE deficit deterioration.
(3) For 18 months post-closing date, the Company will indemnify Molina against and are liable to Molina for any and all losses incurred by Molina resulting from breach or inaccuracy of warranties and representations made, breach or failure to perform any covenant of the Molina Purchase Agreement, among others. As the Indemnity Escrow Amount is subject to these conditions for 18 months post close, the Company will only recognize this amount in the fair value of consideration received at the point those 18 months have passed, on July 1, 2025. The amount recognized will be that equal to the $10.0 million Indemnity Escrow amount less any agreed upon or finally adjudicated losses as of July 1, 2025
As the conditions surrounding collection of total consideration and contingencies are largely outside of the Company’s control, we have not recorded any contingent consideration receivable as of March 31, 2024.
At the time of the sale, our investment in the California MA business was calculated as follows (in thousands):
| | | | | |
Total assets (1) | $ | 647,254 | |
| Total liabilities | (323,038) | |
| Investment in California MA Business | $ | 324,216 | |
(1) Total assets of the California MA business at the time of the sale are inclusive of $2.9 million unsettled intercompany receivable that was eliminated at consolidation. NeueHealth has recorded the corresponding payable within other current liabilities of our continuing operations as of March 31, 2024.
The company recorded no gain or loss associated with the sale of the California Medicare Advantage business (in thousands):
| | | | | |
| Sale price of California MA Business | $ | 500,000 | |
| Less: Portion of sale price subject to contingencies | (167,326) | |
| Less: Investment in California MA Business | (324,216) | |
| Less: Transactions costs contingent on closing of sale | (8,458) | |
| Gain or loss on sale of California MA Business | $ | — | |
Upon the close of the sale, we ceased having a controlling financial interest over BND and CHP and have not retained any investments in the former subsidiaries. Molina is not a related party and subsequent to the close of the sale BND and CHP are no longer considered related parties to the Company. In connection with the sale, Molina and the Company are each providing customary transition services during 2024.
Revenue Recognition: We record adjustments for changes to the risk adjustment balances for individual policies in premium revenue. The risk adjustment program adjusts premiums based on the demographic factors and health status of each consumer as derived from current-year medical diagnoses as reported throughout the year. Under the risk adjustment program, a risk score is assigned to each covered consumer to determine an average risk score at the individual and small-group level by legal entity in a particular market in a state. Additionally, an average risk score is determined for the entire subject population for each market in each state. Settlements are determined on a net basis by legal entity and state and are made in the middle of the year following the end of the contract year. Each health insurance issuer’s average risk score is compared to the state’s average risk score. Risk adjustment is subject to audit by the U.S. Department of Health and Human Services (“HHS”), which could result in future payments applicable to benefit years.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Restructuring Charges: As a result of the strategic changes, we announced and have taken actions to restructure the Company’s workforce and reduce expenses based on our updated business model.
Restructuring charges within our discontinued operations for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| Employee termination benefits | $ | 129 | | | $ | 2,965 | |
| Long-lived asset impairments | — | | | 100 | |
| Contract termination and other costs | (508) | | | 4,891 | |
| Total discontinued operations restructuring charges | $ | (379) | | | $ | 7,956 | |
Restructuring accrual activity recorded by major type for the three months ended March 31, 2024 was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Employee Termination Benefits | | Contract Termination Costs | | Total |
| Balance at January 1, 2024 | $ | 2,867 | | | $ | 22,492 | | | $ | 25,359 | |
| Net charges | 129 | | | (508) | | | (379) | |
| Cash payments | (1,485) | | | (6,495) | | | (7,980) | |
| Balance at March 31, 2024 | $ | 1,511 | | | $ | 15,489 | | | $ | 17,000 | |
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Employee termination benefits are recorded within Other current liabilities of discontinued operations while contract termination costs are recorded within Accounts payable of discontinued operations.
Fixed Maturity Securities: Available-for-sale securities within our discontinued operations are reported at fair value as of March 31, 2024 and December 31, 2023. Held-to-maturity securities are reported at amortized cost as of March 31, 2024 and December 31, 2023. The following is a summary of our investment securities (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Carrying Value |
| Cash equivalents | $ | 106,536 | | | $ | — | | | $ | (5) | | | $ | 106,531 | |
| Held to maturity: | | | | | | | |
| U.S. government and agency obligations | 6,878 | | | — | | | — | | | 6,878 | |
| Corporate obligations | 117 | | | — | | | — | | | 117 | |
| Total held-to-maturity securities | 6,995 | | | — | | | — | | | 6,995 | |
| Total investments | $ | 113,531 | | | $ | — | | | $ | (5) | | | $ | 113,526 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Carrying Value |
| Cash equivalents | $ | 150,939 | | | $ | — | | | $ | — | | | $ | 150,939 | |
| Available for sale: | | | | | | | |
| U.S. government and agency obligations | 1,557 | | | — | | | (100) | | | 1,457 | |
| Corporate obligations | 615 | | | — | | | (11) | | | 604 | |
| Certificates of deposit | 19,653 | | | — | | | — | | | 19,653 | |
| Mortgage-backed securities | 951 | | | — | | | (63) | | | 888 | |
| Total available-for-sale securities | 22,776 | | | — | | | (174) | | | 22,602 | |
| Held to maturity: | | | | | | | |
| U.S. government and agency obligations | 6,503 | | | 1 | | | (59) | | | 6,445 | |
| Certificates of deposit | 334 | | | — | | | — | | | 334 | |
| Total held-to-maturity securities | 6,837 | | | 1 | | | (59) | | | 6,779 | |
| Total investments | $ | 180,552 | | | $ | 1 | | | $ | (233) | | | $ | 180,320 | |
We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. At each reporting period, we evaluate securities for impairment when the fair value of
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the investment is less than its amortized cost. We evaluated the underlying credit quality and credit ratings of the issuers, noting no significant deterioration since purchase.
Fair Value Measurements: Certain assets and liabilities are measured at fair value in the condensed consolidated financial statements or have fair values disclosed in the notes to the condensed consolidated financial statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets or quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument see Note 19 to the audited consolidated financial statements included in our 2023 Form 10-K.
As of March 31, 2024, investments and cash equivalents within our discontinued operations were comprised of $111.1 million and $2.4 million with fair value measurements of Level 1 and Level 2, respectively. As of December 31, 2023, the investments and cash equivalents within our discontinued operations were comprised of $157.8 million and $22.6 million with fair value measurements of Level 1 and Level 2, respectively.
Medical Costs Payable: The table below details the components making up the medical costs payable within current liabilities of discontinued operations (in thousands):
| | | | | | | | | | | |
| Bright HealthCare - Commercial |
| March 31, 2024 | | December 31, 2023 |
| Claims unpaid | $ | 10,775 | | | $ | 14,500 | |
| Claims adjustment expense liability | 229 | | | 2,382 | |
| Incurred but not reported (IBNR) | 4,777 | | | 14,999 | |
| Total medical costs payable of discontinued operations | $ | 15,781 | | | $ | 31,881 | |
Risk Adjustment: In September 2023, our insurance subsidiaries in Colorado, Florida, Illinois and Texas entered into repayment agreements with CMS with respect to the unpaid amount of their risk adjustment obligations for an aggregate amount of $380.2 million (the "Repayment Agreements"). The amount owed under the Repayment Agreements is due 18 months from September 15, 2023 (the date the first installment payment was made under the Repayment Agreements) and bears interest at a rate of 11.5% per annum. Our risk adjustment payable liability was $279.9 million and $291.1 million as of March 31, 2024 and December 31, 2023, respectively.
Restricted Capital and Surplus: Our regulated insurance legal entities are required by statute to meet and maintain a minimum level of capital as stated in applicable state regulations, such as risk-based capital requirements. These balances are monitored regularly to ensure compliance with these regulations. For the period ended March 31, 2024, we are out of compliance with the minimum levels for certain of our regulated insurance legal entities.
NeueHealth, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 16. SUBSEQUENT EVENTS
On April 8, 2024, the Company and the NEA Lenders entered into Incremental Amendment No. 2 to the 2023 Credit Agreement, dated as of August 4, 2023, between the Company and NEA 18 to provide for a term loan commitment increase in an aggregate principal amount of up to $30.0 million by the NEA Lenders under the 2023 Credit Agreement. Loans under Incremental Amendment No. 2 have the same terms as loans under the original term loan commitments provided by NEA 18.
In connection with Incremental Amendment No. 2, on April 8, 2024, the Company and the NEA Lenders entered into a warrantholders agreement setting forth the rights and obligations of the Company and the NEA Lenders as holders of Warrants, and providing for the issuance of the Warrants to purchase up to 1,113,563 shares of Common Stock. See Note 5, Borrowings and Common Stock Warrants, for additional information regarding the 2023 Credit Agreement, Incremental Amendment No.2 and the Warrantholders Agreement.
Subsequent to March 31, 2024, we borrowed an additional $20.0 million under the 2023 Credit Agreement and issued a total of 742,375 warrants.
On May 2, 2024, our stockholders approved an amendment to our 2021 Incentive Plan to authorize an additional 2,275,000 shares of our common stock to be issued under the 2021 Incentive Plan. After such approval, we granted 2.4 million RSUs; 1.6 million will vest three years from the start of the vesting period that began on October 11, 2023 and 0.9 million will vest ratably over a three-year period that began on March 11, 2024.
We have evaluated the events and transactions that have occurred through the date at which the condensed consolidated financial statements were issued. Except as stated above, no additional events or transactions have occurred that may require adjustment to the condensed consolidated financial statements or disclosure.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes and the “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and Bright Health Group, Inc.’sour audited consolidated financial statements and the accompanying notes as well as the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Bright Health Group, Inc.’s Prospectus dated June 23, 2021 (File No. 333-256286), as filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Prospectus”).our 2023 Form 10-K. Unless the context otherwise indicates or requires, the terms “we”, “our”, and the “Company” as used herein refer to Bright Health Group,NeueHealth, Inc. and its consolidated subsidiaries.
Business Overview
Bright Health GroupNeueHealth, Inc. was founded in 2015 to transform healthcare. Our missionAlthough the business has evolved, our commitment to making high-quality, coordinated healthcare accessible and affordable to all populations remains unchanged. NeueHealth consists of Making Healthcare Right. Together. is built upon the belief that by connectingtwo reportable segments within our continuing operations: NeueCare and aligning the best local resources in healthcare delivery with the financing of care, we can drive a superior consumer experience, reduce systemic waste, lower costs, and optimize clinical outcomes. We believe that for too long, U.S. healthcare, primarily designed to cater to employers and large institutions, has failed the consumer through unnecessary complexity, a lack of transparency, and rising costs. We are making healthcare simple, personal, and affordable.
To execute on our mission,NeueSolutions. Additionally, we have developed a model for healthcare transformation built upon the delivery, financing, and optimization of care. By bringing these three core pillars together, we aim to build the national, integrated healthcare system of the future, designed to break down historical barriers and create an environmentone reportable segment in which all stakeholders — from the consumer, to the provider, to the payor — can win.our discontinued operations: Bright HealthCare - Commercial.
Bright Health Group consists of two reportable segments: NeueHealth and Bright HealthCare:
NeueHealth is critical to our differentiated, aligned model of care. While Bright HealthCare is currently a larger contributor to revenue, due in part to the significant health plan premium revenue contribution from our consumers, we believe NeueHealth has a disproportional impact on our enterprise today and anticipate it will become increasingly important to our business and prospects, contributing an increasing percentage of our overall revenue in the long-term. We have presented NeueHealth first in the following discussion, consistent with management’s view of our business.
NeueHealth.NeueCare. Our healthcare enablementvalue-driven care delivery business that manages risk in partnership with external payors and technology business, NeueHealth, is developingserves all populations across the next generation, integrated healthcare system. NeueHealthACA Marketplace, Medicare, and Medicaid. NeueCare aims to significantly reducesreduce the friction and current lack of coordination between payors and providers to enable a truly consumer-centric healthcare experience. As of July 2021, NeueHealth works with over 235,000 care provider partners andMarch 31, 2024, NeueCare delivers high-quality virtualin-person and in-personvirtual clinical care through our 44its 73 owned primary care clinics within itsan integrated care delivery system. Through thosethese risk-bearing clinics NeueHealth maintains over 200,000 unique patient relationships asand our affiliated network of July 2021, nearly 170,000care providers, NeueCare maintained approximately 360,000 consumers, inclusive of which are served through315,000 value-based arrangements, across multiple payors. In addition to our directly owned clinics, NeueHealth manages care for an additional 87 clinics through its additional affiliated clinics.consumers and 45,000 fee-for-service consumers.
NeueHealth engages in local, personalized care delivery in multiple ways, including:
•Integrated Care Delivery – NeueHealth operates clinics providing comprehensive care to all populations.
•Bright Health Network – A key component of our NeueHealth business is our ecosystem of Care Partners with whom we contract in service of Bright HealthCare today.
•Value Services Organization – NeueHealth empowers high-performing primary care practices and care delivery organizations to succeed in their evolution towards risk-bearing care delivery.
NeueHealth receives network rental fees from Bright HealthCare for the delivery of NeueHealth’s Care Partner and network services. In addition, NeueHealth contracts directly with Bright HealthCare to provide care through its managed and affiliated
clinics. Other NeueHealth customers include external payors and TPAs, affiliated providers and direct-to-government programs.
Bright HealthCare.NeueSolutions. Our healthcare financingprovider enablement business that includes a suite of technology, services, and distribution business, Bright HealthCare, delivers simple, personal,clinical care solutions that empower providers to thrive in performance-based arrangements. As of March 31, 2024, NeueSolutions had approximately 45,000 value-based care consumers attributed to its REACH ACOs and affordable solutions to integrate the consumer into Bright Health’s alignment model. Bright HealthCare currently aggregates and delivers healthcare benefits to approximately 663,000 consumers through its various offerings, serving consumers across multiple product lines in 14 states and 99 markets. We also participate in a number of specialized plans and recently began offering employer group plans.109,000 enablement services lives.
Bright HealthCare’s customers include commercial health plans across 11 states, which serve approximately 553,000 individuals, as well as Medicare Advantage products in 11 states, which serve approximately 110,000 lives and generally focus on higher risk, special needs populations. We believe we are well-positioned to grow our Medicaid and Employer ASO products, which would provide strategic diversification and be highly complementary to our aligned model.
Key Factors Affecting Our Performance
We believe that the growth and future success of our business depends on a number of factors described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address to sustain our growth and continue to improve results of operations.
Bright HealthCare’s ability to grow membership and retain consumers drives revenue growth
Bright HealthCare products are primarily sold for the following year through an annual selling season, which includes the open enrollment period for - Commercial.Individual Included in our discontinued operations, our Commercial healthcare financing and Family Plan (IFP) products and annual enrollment period for Medicare Advantage (MA). Outside of an annual selling season, IFP and MA products typically can only be sold during special enrollment periods baseddistribution business focused on the consumer’s eligibility status and certain life events. It is critical to effectively engage both prospective and existing consumers through our multi-channel distribution strategy. For both IFP and MA products,commercial plans. In October 2022, we aim toannounced that we would no longer offer competitive benefits at an affordable price to meet the needs of our consumers. Our IFP products membership typically peaks after the open enrollment period and experiences modest levels of attrition until year-end. We have historically increased our MA consumer base during special enrollment periods, given our consumers' eligibility to enroll during those periods.
Our MA business is afforded additional in-year growth opportunity due to its focus on serving low-income seniors and special needs individuals, who can enroll in and change MAcommercial health plans effective at any time. Therefore, constant engagement with this population is critical to effectively retain membership and drive in-year growth. MA products are generally associated with higher revenue and higher medical cost ratios (MCR) as compared to IFP products, particularly with respect to special needs plans.
Bright HealthCare’s ability to capture complete and accurate risk adjustment data affects revenue
Portions of premium revenue from our IFP products and MA plans are determined by the applicable CMS risk adjustment models, which compensate insurers based on the underlying health status (acuity) of insured consumers. CMS requires that a consumer’s health status be documented annually and accurately submitted to CMS to determine the appropriate risk adjustment. Ensuring that complete and accurate health conditions of our consumers are captured within documentation submitted to CMS is critical to recognizing accurate risk adjustment, which is reflected in our revenue year-over-year.
Bright HealthCare’s ability to drive lower unit costs and medical utilization reduces medical costs and MCR
Bright HealthCare utilizes our Bright Health Network to provide healthcare services primarily within its exclusive provider networks under capitated contracts and fee-for-service arrangements. Certain provider and payor contracts include value-based incentive compensation based on providers meeting contractually defined quality and financial performance metrics. To effectively manage medical costs, Bright HealthCare must ensure a consumer’s healthcare needs are primarily delivered through its Care Partners to recognize discounted contracted rates, which limits the amount of out-of-network utilization that can have an adverse financial impact on medical costs and MCR. Out-of-network utilization is typically higher upon entry into new markets, which increases medical costs during periods of market expansion.
Our business is generally affected by the seasonal patterns of medical expenses. With respect to IFP products, medical costs tend to be lower early in the year and increase toward the end of year, driven by high deductible plan designs and out-of-pocket maximums over the course of the policy year, which shifts more costs to us in the second half of the year as we pay a higher proportion of claims. With respect to MA plans, medical costs are impacted by the severity of the flu season, generally from December to March, and we typically experience slightly higher Part D medical costs early in the year, which decline toward the end of year due to standard plan design.
NeueHealth’s ability to identify and align with high-performing care delivery partners drives performance
NeueHealth engages providers through a variety of alignment options ranging from having providers participate in our networks to having providers employed by us. As we enter new markets and expand our offerings, we must build an ecosystem of care delivery assets capable of supporting both our Bright HealthCare business as well as third-party payors.
NeueHealth’s ability to deliver and enable high-quality, value-based care drives revenue
NeueHealth supports and manages providers in fee-for-service and value-based contracts with payors. We help organizations enter value-based arrangements designed around their needs, while simultaneously empowering them with the tools and capabilities necessary to maximize their success. In order to drive financial performance, NeueHealth must effectively manage risk and continue to develop and deliver tools and services supporting both managed and affiliated providers.
Bright Health Group’s ability to achieve operating cost efficiencies and scale profitably
Bright Health Group, including Bright HealthCare and NeueHealth, will need to continue investing in operating platforms, processes, people, and resources to enable our businesses to scale profitably. We leverage centralized shared services for operational, clinical, technological, and administrative functions to support the segments in a cost-effective and efficient manner.
Components of Our Results of Operations
Revenue
We generate revenue from premiums, including value-based provider revenue, and fee-for-service provider revenue received from consumers and payors, as well as income from our investments.
Premium revenue
Premium revenue is derived primarily from Bright HealthCare IFP products and MA plans sold to consumers as well as NeueHealth value-based provider revenue from serving patients.
Bright HealthCare Commercial premium revenue
The sources of commercial premium revenue are primarily IFP products which are comprised of advanced premium tax credits subsidies that are based on consumers income levels and compensated directly by the federal government, as well as billed consumer premiums. IFP products reflect adjustments related to the Patient Protection and Affordable Care Act risk adjustment program, which adjusts premium revenue based on the demographic factors and health status of each consumer as derived from current-year medical diagnoses.
Bright HealthCare MA premium revenue
The sources of MA premium revenue are Medicare Part C premiums related to consumers’ medical benefit coverage and Part D premiums related to consumers’ prescription drug benefit coverage. Medicare Part C premiums are comprised of CMS monthly capitation premiums that are risk adjusted based on CMS defined formulas using consumers’ demographics and prior-year medical diagnoses. Medicare Part D premiums are comprised of CMS monthly capitation premiums that are risk adjusted,
consumer billed premiums and CMS low-income premium subsidies for the Company’s insurance risk coverage. Medicare Part D premiums are subject to risk sharing with CMS under the risk corridor provisions based on profitability of the Part D benefit. As a percentage of our total consolidated revenue, premium revenues from CMS were 29% and 28% for the six months ended June 30, 2021 and 2020, respectively, which are included in our Bright HealthCare segment.
NeueHealth premium revenue
NeueHealth premium revenue represents revenue under value-based arrangements entered into by NeueHealth’s Value Services Organization and affiliated medical groups in which the responsibility for control of an attributed patient’s medical care is transferred, in part or wholly, to such medical groups. Such revenue includes capitation payments, as well as quality incentive payments, and shared savings distributions payable upon achievement of certain financial and quality metrics. Value-based revenue shifts responsibility for control over the medical care delivered to attributed patients to the Company and aligns incentives around the overall well-being of the payor’s consumers.
We expect that as our NeueHealth business continues to grow, NeueHealth premium revenue will become an increasing proportion of our overall revenue.
Service revenue
Service revenue primarily represents revenue from fee-for-service payments received by NeueHealth’s affiliated medical groups. These include patient copayments and deductibles collected directly from patients and payments from private and government payors based upon contractual terms that define the fee-for-service reimbursement for specific procedures performed.
In addition, service revenue includes network service revenue generated by NeueHealth’s Bright Health Network. Bright HealthCare is currently the only customer of Bright Health Network.
Investment income
The sources of investment income are interest income and realized gains and losses derived from the Company’s investment portfolio that is comprised of debt securities of the U.S. government and other government agencies, corporate investment grade, money market funds and various other securities, as well as realized and unrealized gains and losses from equity securities.
Operating Costs
Medical costs
Medical costs consist of reimbursements to providers for medical services, costs of prescription drugs, supplemental benefits, reinsurance and quality incentive and shared savings compensation to providers. The Company contracts with hospitals, physicians and other providers of healthcare primarily within its exclusive provider networks under fee-for-service and value-based arrangements. Emergency medical services incurred out-of-network are a covered benefit to consumers and reimbursed to providers according to the Company’s payment policies that are based on applicable regulations. Prescription drug costs are determined based on the contract with our pharmacy benefits manager, which includes pharmacy rebates that are received for certain drug utilization levels or contracted minimums. Dental, vision, and other supplemental medical services are provided to consumers under capitated arrangements. Reinsurance arrangements enable us to cede a specified percent of our premiums and claims to our third-party reinsurers. Under such contracts, the reinsurer is paid to cover claims-related losses over a specified amount, which mitigates catastrophic risk. We make quality incentive and shared savings compensation payments to certain providers in accordance with the terms of the contractual arrangement upon the achievement of certain financial and quality metrics.
Operating Costs
Operating costs are comprised of the expenses necessary to execute the Company’s business operations. These include employee compensation for salaries and related benefit costs, share-based compensation, outsourced vendor contracted service and technology fees, professional services, technological infrastructure and service fees, facilities costs and other administrative expenses. Operating costs also include payments made by Bright HealthCare to NeueHealth for the provision of Bright Health Network services; selling and marketing expenses from external broker commissions and advertising, primarily related to consumer acquisition; and premium taxes, exchange fees and other regulatory costs, which are primarily based on premium revenue. We expect operating costs to increase in absolute amounts as our business grows, but to decrease as a percentage of our revenue in the long-term.
Depreciation and Amortization
Depreciation and amortization consist of depreciation of property, equipment and capitalized software, as well as amortization of definite-lived intangible assets acquired in business combinations, including trade names and customer relationships.
Other Income
Income Tax (Benefit) Expense
Income tax (benefit) expense consists primarily of changes to our current and deferred federal tax assets and liabilities net of applicable valuation allowances.
Initial Public Offering
On June 23, 2021, the Company’s Registration Statement on Form S-1 for the initial public offering of shares of common stock was declared effective by the U.S. Securities & Exchange Commission. The Company’s common stock began trading on the NYSE under the ticker symbol “BHG” on June 24, 2021. The IPO closed on June 28, 2021 and the Company sold 51,350,000 shares of common stock at a price of $18.00 per share. In aggregate, the shares issued in the offering generated $887.3 million in net proceeds, the amount of which is net of $37.0 million in underwriters’ discounts and commissions. Immediately effective upon the closing of our IPO, all 167,731,830 shares of our then outstanding preferred stock were converted into 427,897,381 shares of common stock, causing the Company to reclassify $1.8 billion from redeemable preferred stock within temporary equity to common stock and additional paid-in capital on our consolidated balance sheet.
We utilized a portion of the net proceeds to repay the $200.0 million principal balance of indebtedness outstanding under our revolving credit agreement originally entered into on March 1, 2021 and the associated interest and other costs of $3.2 million. Additionally, we used a portion of the proceeds to fund the acquisition of Centrum as described in Note 2, Business Combinations. The remainder of the net proceeds will be used for general corporate purposes.
See further discussion related to the IPO as described in Note 1, Basis of Presentation, to Bright Health Group, Inc.’s unaudited condensed consolidated financial statements.2022.
COVID-19 Update
The COVID-19 pandemic, including its effect on the macroeconomic environment, and the response of our local, state, and federal governments to contain and manage the virus, continues to impact our business. Governmental authorities have begun to lift or have already lifted restrictions on elective medical services, but the emergence of COVID-19 variants in the United States and abroad continues to prolong the risk of additional surges of COVID-19. In addition, some individuals have delayed or are not seeking routine medical care to avoid COVID-19 exposure. These and other responses to the COVID-19 pandemic have meant that our MCR may be subject to additional uncertainty as certain segments of the economy and workforce come back on line, members resume care that may have been foregone, and the broader population becomes vaccinated.
We have experienced impacts to our business from COVID-19, which have varied as the pandemic progressed. Initially, as a result of the suspension of elective surgeries and deferral of medical care, we experienced decreased medical utilization, particularly in the second quarter of 2020. Since then, medical utilization has returned to more normal levels and adverse financial impacts from inpatient admissions emerged primarily due to increased average length of stays. For the three months ended June 30, 2021 and 2020, the impact of COVID-19 increased our MCR by 320 basis points and 220 basis points, respectively, reflecting an increase in medical costs of $33.6 million and $6.4 million, respectively. For the six months ended June 30, 2021 and 2020, the impact of COVID-19 increased our MCR by 360 basis points and 130 basis points, respectively, reflecting an increase in medical costs of $68.4 million and $6.4 million, respectively.
Overall measures to contain the COVID-19 outbreak may remain in place for a significant period of time, as certain geographic regions have experienced a resurgence of COVID-19 infections and new strains of COVID-19 that appear to be more transmissible have emerged. Although the number of people who have been vaccinated has been increasing, the duration and severity of this pandemic is unknown and the extent of the business disruption and financial impact depends on factors beyond our knowledge and control.
Business Update
We are a healthcare company at our core, and because of that, our mission is central to what we do at Bright Health Group each day. Making Healthcare Right. Together. is built on the belief that by connecting and aligning the best local resources in healthcare delivery with the financing of care, we can deliver better outcomes, at a lower cost, for all consumers.
Bright Health Group is well on its way to building the national, integrated system of care needed to change healthcare in the United States. Both Bright HealthCare and NeueHealth are demonstrating significant growth and diversification. As we enter the second half of 2021, Bright HealthCare has seen tremendous growth, and currently serves a diverse customer base, with nearly 663,000 total consumers across our commercial and MA lines of business. Our NeueHealth business has also seen remarkable growth, with 131 total owned and affiliated primary care clinics and nearly 170,000 patients served under value-based arrangements through our owned clinics following our acquisition of Centrum on July 1, 2021.
We began our journey as a public company with strong secondfirst quarter results, demonstrating significant growth across both NeueHealth, our personalized care delivery business, and Bright HealthCare, our healthcare financing and distribution business. Bright Health Group total revenue of $1.1 billion in the second quarter of 2021 increased by $817.0 million, or 275.2%, compared to the prior-year period. These results were driven primarily by organic membershipcontinued momentum in both our NeueCare and NeueSolutions business segments. In 2024, we are focused on driving long-term, sustainable growth in Bright HealthCare, both duringof our value-driven, consumer-centric care model as we align interests to create a better healthcare experience for all. We believe our model is built for the 2020 open enrollment periodfuture of healthcare. It represents a strong alternative to traditional approaches which rely on broad provider networks with limited care coordination and lack of focus on the consumer. Our model is grounded in the special enrollment period forpower of longstanding, trusted relationships in local communities – not one-time, episodic encounters. This means we are focused on deeply understanding the consumers we serve, proactively managing care on an ongoing basis, and fostering strong partnerships with providers and payors to create a seamless, more coordinated care experience. Our relationship-based approach gives us confidence in our commercial business that beganability to take on February 15, 2021,greater risk-sharing in the future as well as both organicwe continue to build upon our knowledge of the populations we manage and inorganic growth at NeueHealth. We also experienced an increase in investment income duethe local communities we serve.
Through our differentiated model, we are serving a diverse population base, including consumers across the Affordable Care Act (“ACA”) Marketplace, Medicare and Medicaid, which is a large and growing addressable market. Our ability to a $58.5 million unrealized gain on equity securities.drive differentiated results across product categories allows us to capture opportunities with payors and providers throughout the industry, while limiting concentration risk.
Our GAAP net loss was $43.7 million inmodel continues to resonate with our partners and the second quarter of 2021, an increase in net loss of $25.6 million comparedbroader marketplace, leading to the prior-year period. Our non-GAAP adjusted EBITDA was a loss of $35.3 million in the second quarter of 2021, compared to a loss of $23.2 million in the prior-year period.
When reviewingstrong consumer engagement and satisfaction. Overall, our results of operations for the second quarter and first half of 2021, we believe it is important to keep five key themes in mind:
(1)We have demonstrated significant growth – Bright HealthCare ended 2020 with approximately 207,000 members, approximately 145,000 Commercial members and 62,000 MA members. As of the end of the second quarter of 2021, Bright HealthCare served nearly 663,000 consumers, an increase of 220.0%.
(2)We have delivered consistent performance – Critical to ourvalue-driven, consumer-centric care model is our abilityattracting and retaining consumers and leading to price to our underlying capabilitieslongstanding partnerships with providers and cost structure in each market. Even with our significant growth, we have been able to demonstrate a medical cost ratio below 80%payors across our enterprise during the first half of 2021 after factoring in the impact of COVID-19 and prior period developments. Critical to this measure is our model’s ability to drive in-network utilization within our integrated systems of care.
(3)We are driving differentiation through NeueHealth – We have been building our NeueHealth business since the beginning of Bright Health; however, we are now starting to see it come to life. Focused on serving all populations,industry.
NeueHealth builds
NeueCare
Starting in 2024, we expanded our operations in Central Florida to serve additional ACA Marketplace consumers. We completed this expansion in a capital-efficient manner, leveraging existing relationships to expand our footprint and operates local, integrated systemsthe consumers we serve across our owned and affiliated clinics. This expansion demonstrates the value we are driving for our payor partners and the trusted relationships we have built, especially in managing the ACA Marketplace population in performance-based arrangements. We continually evaluate strategic opportunities to expand our value-based footprint not only in Florida, but throughout the country, and we believe we have a strong pipeline in place for the remainder of 2024, 2025, and beyond.
In our clinics, we are taking a holistic and comprehensive approach to care that starts with engagement. This helps us to guide our consumers to the right point of care, provide personalized and tailored treatment plans, follow up on progress, and maintain ongoing, trusted relationships throughout the entire healthcare journey. With this strong focus on proactive engagement, we seek to drive improved results for all consumers – no matter their need or circumstance – and deliver a healthcare experience that clinically, financially,is affordable, convenient, and with data and technology, align all stakeholders in a local market. Today, NeueHealth directly manages care for approximately 170,000 value-based care patients through our 44 owned primary care clinics following our acquisition of Centrum. This represents over 700% growth from the approximately 19,400 patients we managed at the end of the second quarter of 2020.coordinated.
(4)We are building one technology platform – Core to our model is a single technology platform, purpose built for the aligned model of care. This platform, which leverages our provider and consumer-facing tools, branded as DocSquad, connects our consumers and patients to their personalized care teams. We are also moving to a single operating system that spans our care financing and care delivery businesses, which will enable us to continue demonstrating differentiated performance and outcomes.
(5)NeueSolutionsContinued future growth – Bright Health Group has significant near and long-term growth prospects as we plan to offer Bright HealthCare products in four new states during the 2022 open enrollment period and expand our NeueHealth integrated care delivery footprint into Texas, North Carolina, and beyond.
In our NeueSolutions segment, we continued to advance our provider enablement business, including our suite of population health tools and capabilities, as well as our ACO REACH business in the first quarter. In the fourth quarter, we announced that we secured new partnerships with provider groups that increased the lives we are serving in our provider enablement business. In the first quarter, we served approximately 109,000 consumers through our provider enablement business. We continue to see this business as a key driver of future growth opportunities, leading to new provider and payor partnerships and opportunities to serve additional consumers in diverse product categories.
Looking at our first quarter 2024 ACO REACH results, we are performing in-line with our expectations. This year, we have a carefully selected group of high-performing provider partners, and we are confident in our ability to deliver strong performance and improved margins in the program. We are working closely with our provider partners on care management and patient engagement initiatives focused on delivering consumer-centric care, preventing avoidable readmissions, optimizing site of service, and proactively identifying high risk and rising risk beneficiaries. We will maintain tight collaboration with our provider partners as we continue to deliver high-quality, personalized care to the Medicare beneficiaries we manage.
In summary, we have built a differentiated model that aligns with the industry’s shift towards value-based care. Grounded in the power of strong, ongoing relationships and proactive consumer engagement, our model allows us to deliver a more coordinated, personalized care experience for all populations across the ACA Marketplace, Medicare, and Medicaid.
NeueHealth is a more mature and focused business this year, and we continue to see our value proposition resonating with the broader market as evidenced by the longstanding relationships we have formed with key payor and provider partners, the capital efficient growth we have driven to start the year, and the high consumer satisfaction scores we are receiving. We are confident in our ability to continue to drive strong performance this year as we maintain our focus on creating a better healthcare experience for all.
Key Metrics and Non-GAAP Financial Measures
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions.
| | | | | | | | | | | |
| As of June 30, |
| 2021 | | 2020 |
| Bright HealthCare Consumers Served | | | |
Commercial(1) | 552,759 | | | 153,083 | |
| Medicare Advantage | 110,066 | | | 54,141 | |
| | | |
| NeueHealth Patients | | | |
| Value-based Care Patient Lives | 42,305 | | | 19,419 | |
(1)Commercial plans include IFP The following table provides the approximate consumers and employer plans. Prior to 2021, our commercial business was solely comprisedpatients served as of IFP products.
Bright HealthCare Consumers ServedMarch 31, 2024 and 2023.
Consumers served include Bright HealthCare individual lives served via health insurance policies across multiple lines of business, primarily attributable to IFP products and MA plans in markets across the country. We believe growth in the number of consumers is a key indicator of the performance of our Bright HealthCare business. It also informs our management of the operational, clinical, technological, and administrative functional area needs that will require further investment to support expected future consumer growth. | | | | | | | | | | | |
| As of March 31, |
| 2024 | | 2023 |
| Value-Based Consumers served | 360,000 | | | 373,000 | |
| Enablement Services Lives | 109,000 | | | 27,000 | |
Value-Based Care PatientsConsumers
Value-based care patientsconsumers are patientsconsumers attributed to providers contracted under variedvarious value-based care delivery models in which the responsibility for control of an attributed patient’s medical care is transferred, in part or wholly, to our NeueHealth managedowned or affiliated medical groups. We believe growth in the number of value-based care patientsconsumers is a key indicator of the performance of our NeueHealth business. It also informs our management of the operational, clinical, technological and administrative functional area needs that will require further investment to support expected future patient growth. Over time, we expect ourWe saw a year over year decrease in value-based care patients will increase as we convert fee-for-service arrangements intoconsumers of approximately 13,000 consumers; driven by an approximately 23,000 decline in ACO REACH lives partially offset by an approximately 10,000 value-based care financial arrangements.consumer increase through our third-party payor relationships. Our focus is to continue to grow the number of value-based care consumers through third-party payor relationships.
32Enablement Services Lives
Enablement services lives represent members to NeueHealth by provider partner groups that are outside of
Contentsthe NeueHealth owned network. We bring the people. process, and technology platforms necessary to manage the administrative support for these value-based and risk arrangement members, on behalf of our provider partners. As a result of the value we drive, we ended the quarter with approximately 109,000 enablement services lives under contract within those organizations.
| | Three Months Ended June 30 | | Six Months Ended June 30 |
| Three Months Ended
March 31, | | | Three Months Ended
March 31, |
| ($ in thousands) | ($ in thousands) | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | 2024 | | 2023 |
| Net Loss | $ | (43,723) | | | (18,074) | | | $ | (68,268) | | | (25,354) | |
| Net income (loss) from continuing operations | |
Adjusted EBITDA(1) | Adjusted EBITDA(1) | $ | (35,255) | | | (23,248) | | | $ | (44,839) | | | (27,104) | |
(1)See “Non-GAAP Financial Measures” below for reconciliations to the most directly comparable financial measures calculated in accordance with GAAP and related disclosures.
Non-GAAP Financial Measures
Adjusted EBITDA
We define Adjusted EBITDA as net loss excluding loss from discontinued operations, interest expense, income taxes, depreciation and amortization, any impairment of goodwill or intangible assets, adjusted for the impact of acquisition and financing-related transaction costs, share-based compensation, andchanges in the fair value of equity securities, changes in the fair value of contingent consideration.consideration, contract termination costs and restructuring costs. Adjusted EBITDA has been presented in this Quarterly Report as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP, because we believe it assists management and investors in comparing our operating performance across reporting
periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA is useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management uses Adjusted EBITDA to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.
Adjusted EBITDA is not a recognized term under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, this measure is not intended to be a measure of free cash flow available for management’s discretionary use as we do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of this measure has limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentation of this measure may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
The following table provides a reconciliation of net loss to Adjusted EBITDA for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
| Net loss | $ | (43,723) | | | $ | (18,074) | | | $ | (68,268) | | | $ | (25,354) | |
| Interest expense | 4,142 | | | — | | | 4,688 | | | — | |
| Income tax (benefit) expense | (19,464) | | | (9,162) | | | (18,298) | | | (9,162) | |
| Depreciation and amortization | 7,195 | | | 2,085 | | | 11,776 | | | 2,872 | |
Transaction costs (a) | 3,130 | | | 653 | | | 5,150 | | | 2,347 | |
Share-based compensation expense (b) | 13,878 | | | 1,250 | | | 19,054 | | | 2,193 | |
Change in fair value of contingent consideration (c) | (413) | | | — | | | 1,059 | | | — | |
| Adjusted EBITDA | $ | (35,255) | | | $ | (23,248) | | | $ | (44,839) | | | $ | (27,104) | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| ($ in thousands) | 2024 | | 2023 |
| Net loss | $ | (4,177) | | | $ | (169,461) | |
Loss from Discontinued Operations (a) | 9,865 | | | 115,543 | |
| EBITDA adjustments from continuing operations | | | |
| Interest expense | 2,930 | | | 7,787 | |
| Income tax expense | 663 | | | 1,259 | |
| Depreciation and amortization | 4,562 | | | 5,483 | |
Transaction costs (b) | 1,121 | | | 1,852 | |
Share-based compensation expense (c) | 18,627 | | | 33,320 | |
Gain on troubled debt restructuring (d) | (30,311) | | | — | |
Change in fair value of warrant liability (e) | (2,072) | | | — | |
Restructuring and contract termination costs (f) | (58) | | | 301 | |
ACO REACH care partner bankruptcy (g) | 1,248 | | | — | |
| Impairment of goodwill and long-lived assets | 131 | | | — | |
Change in fair value of contingent consideration (h) | — | | | (1,827) | |
| EBITDA adjustments from continuing operations | $ | (3,159) | | | $ | 48,175 | |
| Adjusted EBITDA | $ | 2,529 | | | $ | (5,743) | |
Table(a)Adjusted EBITDA excludes the impact of Contentsdiscontinued operations. The comparable period in 2023 has been recast to exclude the impacts of our discontinued MA Legacy operations and the California Medicare Advantage business that were included in discontinued operations beginning the seconding quarter of 2023.(a)(b)Transaction costs include accounting, tax, valuation, consulting, legal and investment banking fees directly relating to business combinations and certain costs associated with our initial public offering.financing initiatives. These costs can vary from period to period and impact comparability, and we do not believe such transaction costs reflect the ongoing performance of our business.
(c)Represents non-cash compensation expense related to stock option and restricted stock unit award grants, which can vary from period to period based on a number of factors, including the timing, quantity and grant date fair value of the awards.
(c)(d)Beginning in the first quarter of 2024, Adjusted EBITDA excludes the impact of gains on troubled debt restructuring. The comparable period in 2023 has been recast to exclude these impacts.
(e)Restructuring and contract termination costs represent severance costs as part of a workforce reduction, amounts paid for early termination of leases, and impairment of certain long-lived assets primarily relating to our decision to exit the Commercial business for the 2023 plan year.
(f)Represents the costs expected to be incurred as a result of one of our ACO REACH care partners filing for bankruptcy; includes the full allowance established for the outstanding receivable and ongoing costs incurred to manage and provide service to members attributed to the care partner that would have otherwise been reimbursed prior to the care partner’s bankruptcy.
(g)Represents the non-cash change in the fair value of the warrant liability established for warrants included in our financing arrangements, which are remeasured at fair value each reporting period.
(h)Represents the non-cash change in fair value of contingent consideration from business combinations, which is remeasured at fair value each reporting period. There was no material activity for periods prior to the first quarter
Results of Operations
The following table summarizes our unaudited Condensed Consolidated Statements of Income (Loss) data and other financial information for the three and six months ended June 30, 2021March 31, 2024 and 2020.2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | Three Months Ended June 30, | | Six Months Ended June 30, |
| Consolidated Statements of Income (loss) and operating data: | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
| Revenue: | | | | | | | |
| Premium revenue | $ | 1,042,086 | | | $ | 290,972 | | | $ | 1,902,717 | | | $ | 481,709 | |
| Service revenue | 12,085 | | | 3,604 | | | 20,523 | | | 8,424 | |
| Investment income | 59,669 | | | 2,280 | | | 65,158 | | | 5,289 | |
| Total revenue | 1,113,840 | | | 296,856 | | | 1,988,398 | | | 495,422 | |
| Operating expenses | | | | | | | |
| Medical costs | 904,630 | | | 233,180 | | | 1,589,200 | | | 363,795 | |
| Operating costs | 261,060 | | | 88,827 | | | 469,300 | | | 163,271 | |
| Depreciation and amortization | 7,195 | | | 2,085 | | | 11,776 | | | 2,872 | |
| Total operating expenses | 1,172,885 | | | 324,092 | | | 2,070,276 | | | 529,938 | |
| Operating loss | (59,045) | | | (27,236) | | | (81,878) | | | (34,516) | |
| Interest expense | 4,142 | | | — | | | 4,688 | | | — | |
| Loss before income taxes | (63,187) | | | (27,236) | | | (86,566) | | | (34,516) | |
| Income tax (benefit) expense | (19,464) | | | (9,162) | | | (18,298) | | | (9,162) | |
| Net loss | (43,723) | | | (18,074) | | | (68,268) | | | (25,354) | |
Net earnings attributable to non-controlling interest | (795) | | | — | | | (1,412) | | | — | |
Net loss attributable to Bright Health
Group, Inc. common shareholders | $ | (44,518) | | | $ | (18,074) | | | $ | (69,680) | | | $ | (25,354) | |
| Adjusted EBITDA | $ | (35,255) | | | $ | (23,248) | | | $ | (44,839) | | | $ | (27,104) | |
Medical Cost Ratio(1) | 86.8 | % | | 80.1 | % | | 83.5 | % | | 75.5 | % |
Operating Cost Ratio(2) | 23.4 | % | | 29.9 | % | | 23.6 | % | | 33.0 | % |
| | | | | | | | | | | |
| ($ in thousands) | Three Months Ended
March 31, |
| Condensed Consolidated Statements of Income (loss) and operating data: | 2024 | | 2023 |
| Revenue: | | | |
| Capitated revenue | $ | 61,466 | | $ | 49,548 |
| ACO REACH revenue | 171,811 | | 239,807 |
| Service revenue | 11,615 | | 11,187 |
| Investment income (loss) | 203 | | 8 |
| Total revenue | 245,095 | | 300,550 |
| Operating costs | | | |
| Medical costs | 196,874 | | 260,120 |
| Operating costs | 66,822 | | 79,518 |
| Bad debt expense | (3) | | — |
| Restructuring charges | (58) | | 301 |
| Depreciation and amortization | 4,562 | | 5,483 |
| Total operating costs | 268,197 | | 345,422 |
| Operating loss | (23,102) | | (44,872) |
| Interest expense | 2,930 | | 7,787 |
| Warrant expense | (2,072) | | — |
| Other income | (30,311) | | — |
| Loss from continuing operations before income taxes | 6,351 | | (52,659) |
| Income tax expense (benefit) | 663 | | 1,259 |
| Net loss from continuing operations | 5,688 | | (53,918) |
| Loss from discontinued operations, net of tax (Note 15) | (9,865) | | (115,543) |
| Net loss | (4,177) | | (169,461) |
| Net earnings from continuing operations attributable to noncontrolling interests | (11,737) | | (5,550) |
| Series A preferred stock dividend accrued | (10,294) | | (9,714) |
| Series B preferred stock dividend accrued | (2,310) | | (2,180) |
| Net loss attributable to NeueHealth, Inc. common shareholders | $ | (28,518) | | $ | (186,905) |
| Adjusted EBITDA | $ | 2,529 | | $ | (5,743) |
Operating Cost Ratio (1) | 27.3 | % | | 26.5 | % |
(1)Medical Cost Ratio is defined as medical costs divided by premium revenue.
(2)Operating Cost Ratio is defined as operating costs divided by total revenue.
Total revenues increasedrevenues decreased by $817.0$55.5 million, or 275.2%18.5%, for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020,2023, which was primarily driven by an increase in Bright HealthCare consumersa decrease of approximately 455,000 consumer lives, or 219.6%, primarily from organic growth in IFP within23,000 beneficiaries aligned to our Commercial business, includingREACH ACOs. Our capitated revenue increased $11.9 million for the 2021 special enrollment period, as well as organic and inorganic contributions from the MA business. The three months ended June 30, 2021 included $203.6 million from the acquisitions of PMA, THNM, Zipnosis and CHP. Total revenues increased by $1.5 billion, or 301.4%,
for the six months ended June 30, 2021March 31, 2024 as compared to the same period in 2020, primarily driven by organic volume growth in2023 as a result of increased membership through our Commercial business,third party payor contracts as well as favorable rate impacts in our Commercial business. The six months ended June 30, 2021 included $506.4 million from acquisitions for which there was no comparable amount in the six months ended June 30, 2020. The three and six months ended June 30, 2021 also experienced an increase in investment income compared to the same periods in 2020, driven by unrealized gains from investments in equity securitiesthree months ended March 31, 2023.
Medical costs increaseddecreased by $671.5$63.2 million, or 288.0%24.3%, for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. The increase in medical costs was driven by an increase in consumers through both organic growth in our Commercial and MA businesses and inorganic growth attributable to the acquisitions of PMA, THNM and CHP, as well as increased medical costs from COVID-19. Medical costs increased by $1.2 billion, or 336.8%, for the six months ended June 30, 2021 as compared to the same period in 2020.2023. The increasedecrease in medical costs was primarily driven by consistent factors witha decrease in beneficiaries aligned to our REACH ACOs.
Operating costs decreased by $12.7 million, or 16.0%, for the three months ended June 30, 2021 with additional impactMarch 31, 2024 as compared to the same period in 2023. The decrease in operating costs was primarily due to a decrease in share-based compensation resulting from the acquisition of Brand New Day, which was acquired on April 30, 2020.a decrease in employees.
Our MCRoperating cost ratio of 86.8%27.3% for the three months ended March 31, 2024, increased ended June 30, 2800021 increased 670 basis points compared to the same period in 2020. Our MCR2023. The increase is driven by the decrease in revenue due to a decline in our ACO REACH aligned beneficiaries outweighing the decreases in our operating costs that have continued to decrease as part of our restructuring efforts.
Depreciation and amortization decreased by $0.9 million for the three months ended June 30, 2021 included a 320 basis point unfavorable impact from COVID-19 related costs and a 160 basis point unfavorable impact from non-COVID prior period developments (“PPD”), and MCR for the three months ended June 30, 2020 included a 220 basis point unfavorable impact from COVID-19 costs and a 30 basis point favorable impact from non-COVID PPD. We also estimate that the three months ended June 30, 2020 included a favorable impact of 440 basis points due to eliminated or deferred care driven by reduced demand for services during the COVID-19 pandemic.
The increased MCR of 83.5% for the six months ended June 30, 2021 increased 800 basis points compared to the same period in 2020. Our MCR for the six months ended June 30, 2021 included a 360 basis point unfavorable impact from COVID-19 related costs and a 90 basis point unfavorable impact from non-COVID PPD, and our MCR for the six months ended June 30, 2020 included a 130 basis point unfavorable impact from COVID-19 costs, a 30 basis point favorable impact from non-COVID PPD and a 260 basis point favorable impact due to deferred utilization. The MCR in both 2021 periods was also impacted by increased medical costs from MA product mix as a result of the Brand New Day and CHP acquisitions, which were partially offset by favorable market mix and rate in IFP.
Operating costs increased by $172.2 million, or 193.9%, for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. Operating costs increased2023. The decrease is primarily driven by $306.0a corresponding decrease in property and equipment assets.
Interest expense decreased $4.9 million or 187.4%, for the sixthree months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. The increase in operating costs in both periods was2023. This decrease is primarily due to increases in operating costs from new market entry, increased marketing and selling expenses related tothe payoff of the 2021 special enrollment periodCredit Agreement in our Commercial business and increased compensation and benefit costs driven by an increase in employees and an increase in share-based compensation costs.January 2024.
Our operating cost ratioWe recognized warrant expense of 23.4%$2.1 million for the three months ended June 30, 2021, improved 650 basis pointsMarch 31, 2024 as compared to none in the same periodperiods in 2020, and2023. This is a result of the operating cost ratioWarrantholders Agreement executed in conjunction with the 2023 Credit Agreement in the third quarter of 23.6% for the six months ended June 30, 2021 improved 900 basis points compared2023; there were no warrants prior to the same period in 2020. The improved operating cost ratio in both periods was primarily due to operating costs increasing at a slower rate than the increased premium revenues earned due to consumer growth, as we continue to gain leverage on our operating costs as we grow.third quarter of 2023.
DepreciationIncome tax was an expense of $0.7 million and amortization increased by $5.1$1.3 million or 245.1%, for the three months ended June 30, 2021March 31, 2024 and 2023, respectively. The impact from income taxes varies from the federal statutory rate of 21% due to state income taxes, changes in the valuation allowance for deferred tax assets and adjustments for permanent differences. For the three months ended March 31, 2024, the expense largely relates to estimated state income taxes attributable to income earned in separate filing states without state net operating loss carryforwards.
Loss from discontinued operations decreased by $105.7 million for the three months ended March 31, 2024 as compared to the same period in 2020,2023. The decrease is primarily duedriven by the sale of the California Medicare Advantage business that occurred in January 2024, significantly decreasing our total discontinued operations. Additionally, the decrease is attributable to being more than a year into the $4.4runout of our Commercial business as of March 31, 2024 compared to only three months into runout as of March 31, 2023.
| | | | | | | | | | | |
| NeueCare | | | |
| ($ in thousands) | Three Months Ended
March 31, |
| Statement of income (loss) and operating data: | 2024 | | 2023 |
| | | |
| Revenue: | | | |
| Capitated revenue | $ | 61,466 | | $ | 49,548 |
| Service revenue | 9,530 | | 10,936 |
| Total unaffiliated revenue | 70,996 | | 60,484 |
| Affiliated revenue | 2,627 | | 2,195 |
| Total segment revenue | 73,623 | | 62,679 |
| Operating expenses | | | |
| Medical Costs | 27,436 | | 23,722 |
| Operating Costs | 32,589 | | 29,189 |
| Depreciation and amortization | 3,786 | | 3,132 |
| Total operating expenses | 63,811 | | 56,043 |
| Operating income (loss) | $ | 9,812 | | $ | 6,636 |
NeueCare’s capitated revenue increased by $11.9 million of amortization expense resulting from intangible assets acquired in the PMA, THNM, Zipnosis and CHP acquisitions,, or 24.1%, for which there were no comparable amounts in the three months ended June 30, 2020. Depreciation and amortization increased by $8.9 million, or 310.0%, for the six months ended June 30, 2021March 31, 2024 as compared to the same period in 2020, primarily due2023. The increase was a result of increased membership through our third-party payor contracts as compared to $8.2 million from intangible assets acquired for which there were no comparable amounts in the sixthree months ended June 30, 2020.
Interest expense was $4.1 million and $4.7 million for the three and six months ended June 30, 2021, respectively, which was due to interest on the Credit Agreement we entered into in March 2021, as well as amortization of debt issuance costs. We did not have any interest expense for either of the comparable periods in 2020.
Income tax benefit was $19.5 million and $18.3 million for the three and six months ended June 30, 2021, respectively which was due to the tax impact of goodwill and intangible assets acquired as part of the CHP acquisition in April 2021. The income tax benefit for the six months ended June 30, 2021 was also impacted by an adjustment to goodwill and intangible assets acquired in the Brand New Day transaction resulting from a measurement period adjustment in 2021. We recognized an income tax benefit of $9.2 million during the three and six month periods ended June 30, 2020, which was due to the impact of goodwill and intangible assets acquired in the Brand New Day acquisition in April 2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Bright HealthCare | | | | | | | |
| ($ in thousands) | Three Months Ended June 30, | | Six Months Ended June 30, |
| Statement of income (loss) and operating data: | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
| Bright HealthCare: | | | | | | | |
| Commercial revenue | $ | 683,943 | | | $ | 164,919 | | | $ | 1,304,999 | | | $ | 340,481 | |
| Medicare Advantage revenue | 339,906 | | | 124,061 | | | 560,775 | | | 137,232 | |
| Investment income | 1,158 | | | 2,280 | | | 2,404 | | | 5,289 | |
| Total revenue | 1,025,007 | | | 291,260 | | | 1,868,178 | | | 483,002 | |
| Operating expenses: | | | | | | | |
| Medical costs | 894,059 | | | 233,180 | | | 1,569,115 | | | 363,795 | |
| Operating costs | 242,329 | | | 81,539 | | | 432,302 | | | 148,514 | |
| Depreciation and amortization | 4,583 | | | 1,595 | | | 6,940 | | | 1,857 | |
| Total operating expenses | 1,140,971 | | | 316,314 | | | 2,008,357 | | | 514,166 | |
| Operating loss | $ | (115,964) | | | $ | (25,054) | | | $ | (140,179) | | | $ | (31,164) | |
| Medical Cost Ratio (MCR) | 87.3 | % | | 80.7 | % | | 84.1 | % | | 76.2 | % |
Commercial revenNeueCare’s service revenue decreased ue increased by $519.0$1.4 million or 314.7%, for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. 2023. The decrease in NeueCare’s service revenue for the three months ended March 31, 2024 was primarily driven by a change in our estimated implicit price concessions for our fee-for-service contracts to reflect more current collection trends.
Commercial
Affiliated revenue increased by $964.5$0.4 million or 283.3%, for the sixthree months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. The increase in revenues in both 2021 periods compared to 2020, was driven by an increase in consumer lives of approximately 381,0002023 due to organic growth and higher net premium ratesfluctuations in certain markets and mix of plans, as well as inorganic growth from the acquisition of THNM.ACO surplus at our owned providers.
MA revenueNeueCare’s medical costs increased by $215.8$3.7 million or 174.0%, for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. MA reven2023. The increase is primarily a result of increases in our value-based care lives through third-party payor contracts.
ue increased by $4
23.5 million, or 308.6%,Operating costs for the sixNeueCare segment increased $3.4 million for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020.2023. The three and six months ended June 30, 2021 included $141.1 million of revenue from CHP, acquired April 1, 2021. The remaining increase wasis primarily driven by volume increases duehigher payroll expense to organic growth.support the increase in value-based care lives attributed to third-party payor contracts.
Medical costs increased by $660.9 million, or 283.4%,NeueCare’s depreciation and amortization remained relatively flat for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020.2023, increasing by For$0.7 million. The increase is primarily due to the decrease in the estimated useful lives for certain fixed assets at our clinic locations.
| | | | | | | | | | | |
| NeueSolutions | | | |
| ($ in thousands) | Three Months Ended
March 31, |
| Statement of income (loss) and operating data: | 2024 | | 2023 |
| | | |
| Revenue: | | | |
| ACO REACH revenue | $ | 171,811 | | $ | 239,807 |
| Service revenue | 2,085 | | 251 |
| Total segment revenue | 173,896 | | 240,058 |
| Operating expenses | | | |
| Medical Costs | 172,065 | | 238,595 |
| Operating Costs | 4,766 | | 2,972 |
| Bad debt expense | (3) | | — |
| Total operating expenses | 176,828 | | 241,567 |
| Operating income | $ | (2,932) | | $ | (1,509) |
NeueSolutions’s ACO REACH revenue decreased $68.0 million, or 28.4% for the three months ended June 30, 2021 and 2020,March 31, 2024 compared to the impactsame period in 2023. This decrease is attributable to a decrease of COVID-19 increasedapproximately 23,000 beneficiaries aligned to our medical costs $33.6 million and $6.4 million, respectively.REACH ACOs as of Medical costs increased by $1.2 billion, or 331.3%March 31, 2024 compared to the same period in 2023. See Note 13, ACO REACH, for additional information regarding our remaining performance obligation based on the sixmost recent benchmark data.
NeueSolutions’s service revenue increased $1.8 million for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. For the six months ended June 30, 2021 and 2020, the impact of COVID-19 increased our medical costs $68.4 million and $6.4 million, respectively. 2023. The increase in both 2021 periods is also due to an increase in consumersservice revenue was driven by organic growth, unfavorable medical cost rates and inorganic growth as a result of acquisitions.revenue for the managed service organization contracts.
Our MCR of 87.3%NeueSolutions’s medical costs decreased by $66.5 million for the three months ended June 30, 2021 increased 660 basis points compared to the same period in 2020. Our MCR for the three months ended June 30, 2021 included a 330 basis point unfavorable impact from COVID-19 related costs and a 170 basis point unfavorable impact from non-COVID PPD, and MCR for the three months ended June 30, 2020 included a 220 basis point unfavorable impact from COVID-19 costs and a 30 basis point favorable impact from non-COVID PPD. We also estimate the three months ended June 30, 2020 included a favorable impact of 440 basis points due to eliminated or deferred care driven by reduced demand for services during the COVID-19 pandemic.
Our MCR of 84.1% for the six months ended June 30, 2021 increased 800 basis points compared to the same period in 2020. Our MCR for the six months ended June 30, 2021 included a 370 basis point unfavorable impact from COVID-19 related costs
and a 90 basis point unfavorable impact from non-COVID PPD, and our MCR for the six months ended June 30, 2020 included a 130 basis point unfavorable impact from COVID-19 costs, a 30 basis point favorable impact from non-COVID PPD and a 260 basis point favorable impact due to deferred utilization. The MCR in both 2021 periods also impacted by increased medical costs from MA product mix as a result of the Brand New Day and CHP acquisitions, which were partially offset by favorable market mix and rate in IFP.
Operating costs increased by $160.8 million, or 197.2%, for the three months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. Operating2023. This decrease is attributable to a decrease of approximately 23,000 beneficiaries aligned to our REACH ACOs as of March 31, 2024 compared to the same period in 2023.
NeueSolutions’s operating costs increased by increased b$1.8 milliony $283.8 million, or 191.1%, for the sixthree months ended June 30, 2021March 31, 2024 as compared to the same period in 2020. The increase in both periods during 2021 compared to2023. These increases were driven by the same periods in 2020 was primarily due to increases in operating costs from new market entry, increased marketingadditional compensation and sellingtechnology expenses related tosupporting the 2021 special enrollment period in our Commercialgrowing business and increased compensation and benefit costs driven by an increase in employees and an increase in share-based compensation costs. In addition, the 2021 periods also have increased operating costs from acquisitions, which don’t have a comparable prior period impact.
Depreciation and amortization increased by $3.0 million, or 187.3%, for the three months ended June 30, 2021 as compared to the same period in 2020. Depreciation and amortization increased by $6.9 million, or 273.7%, for the six months ended June 30, 2021 as compared to the same period in 2020. The increase in the three and six month periods ended June 30, 2021 was primarily due to amortization expense of $2.6 million and $4.6 million, respectively, resulting from intangible assets acquired in the THNM and CHP acquisitions, for which there were no comparable amounts in the 2020 periods.
| | | | | | | | | | | | | | | | | | | | | | | |
| NeueHealth | | | | | | | |
| ($ in thousands) | Three Months Ended June 30, | | Six Months Ended June 30, |
| Statement of income (loss) and operating data: | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
| NeueHealth: | | | | | | | |
| Premium revenue | $ | 36,172 | | | $ | 1,992 | | | $ | 64,846 | | | $ | 3,996 | |
| Service revenue | 19,631 | | | 6,346 | | | 35,253 | | | 13,873 | |
| Investment income | 58,511 | | | — | | | 62,754 | | | — | |
| Total revenue | 114,314 | | | 8,338 | | | 162,853 | | | 17,869 | |
| Operating expenses | | | | | | | |
| Medical costs | 28,415 | | | — | | | 47,897 | | | — | |
| Operating costs | 26,368 | | | 10,030 | | | 51,819 | | | 20,206 | |
| Depreciation and amortization | 2,612 | | | 490 | | | 4,836 | | | 1,015 | |
| Total operating expenses | 57,395 | | | 10,520 | | | 104,552 | | | 21,221 | |
| Operating income (loss) | $ | 56,919 | | | $ | (2,182) | | | $ | 58,301 | | | $ | (3,352) | |
| Medical Cost Ratio (MCR) | 78.6 | % | | — | % | | 73.9 | % | | — | % |
Premium revenue increased by $34.2 million, or 1,715.9%, for the three months ended June 30, 2021 as compared to the same period in 2020. Premium revenue increased by $60.8 million, or 1,522.8%, for the six months ended June 30, 2021 as compared to the same period in 2020. The increase in premium revenue in both periods during 2021 were driven by an increase in patient lives both organically and inorganically as a result of the PMA acquisition.
Service revenue increased by $13.3 million, or 209.3%, for the three months ended June 30, 2021 as compared to the same period in 2020. Service revenue increased by $21.4 million, or 154.1%, for the six months ended June 30, 2021 as compared to the same period in 2020. The increase in service revenue in both 2021 periods is primarily driven by increased intercompany network contract service revenue with our Bright HealthCare segment, which is charged on a per consumer per month basis and has increased due to market expansion and an increase in consumer lives. The acquisitions of PMA on December 31, 2020 and Zipnosis on March 31, 2021 also contributed to the year-over-year increase in service revenue.
Investment income was $58.5 million and $62.8 million for the three and six months ending June 30, 2021, respectively, due to unrealized gains on equity securities acquired in 2021. NeueHealth did not hold any investments during the six months ended June 30, 2020.
Medical costs were $28.4 million and $47.9 million for the three and six months ended June 30, 2021, respectively, which were primarily driven by an increase in patient lives as a result of the PMA acquisition, as well as organic growth in our value-based arrangements. MCR was 78.6% and 73.9% in the three and six months ended June 30, 2021, respectively. There were no medical costs in the three and six months ended June 30, 2020.
Operating costs increased by $16.3 million, or 162.9%, for the three months ended June 30, 2021 as compared to the same period in 2020. Operating costs increased by $31.6 million, or 156.5%, for the six months period ended June 30, 2021 as compared to the same period in 2020. The increase in both 2021 periods was primarily due to increased compensation and benefit costs from more employees, and outsourced vendor fees in support of consumer growth, as well as costs from the PMA and Zipnosis acquisitions.
Depreciation and amortization increased by $2.1 million, or 433.1%, for the three months ended June 30, 2021 as compared to the same period in 2020. Depreciation and amortization increased by $3.8 million, or 376.5%, for the six months ended June 30, 2021 as compared to the same period in 2020. The increase in the three and six months ended June 30, 2021 was primarily due to amortization expense of $1.9 million and $3.6 million, respectively, resulting from intangible assets acquired in the PMA and Zipnosis acquisitions, for which there were no comparable amounts in the 2020 periods.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. Our expected primary uses on a short-term and long-term basis are for geographic and service offering expansion, acquisitions, and other general corporate purposes. We have historically funded our operations and acquisitions primarily through the sale of preferred stock and more recently, through sales of our common stock, which generatedstock.
We believe that the existing cash proceedson hand and investments will not be sufficient to satisfy our anticipated cash requirements for the next twelve months following the date the condensed consolidated financial statements contained in this Quarterly Report are issued, for items such as IFP risk adjustment payables, medical costs payable, remaining obligation to the deconsolidated entity, and other liabilities. In response to these conditions, management has implemented a restructuring plan to reduce capital needs and our operating expenses in the future to drive positive operating cash flow and increase liquidity. Additionally, the Company is actively engaged with the Board of $887.3 million upon closingDirectors and outside advisors to evaluate additional financing. However, the Company may not fully collect the contingent consideration associated with the sale of the California Medicare Advantage business or be able to obtain financing on acceptable terms, as both of these matters will be subject to market conditions that are not fully within the Company’s control. In the event the Company is unable to obtain additional financing or take other management actions, among other potential consequences, the Company forecasts we will be unable to satisfy our IPOobligations.
In addition to our current capital needs, we regularly evaluate our future capital needs to support our future growth plans and other strategic opportunities that may arise. We may seek funds through borrowings or through additional rounds of financing,
including private or public equity offerings. Our longer-term future capital requirements and ability to raise additional capital will depend on June 28,many forward-looking factors, including:
•investor confidence in our ability to continue as a going concern,
•2021.our ability to continue executing on cost saving measures previously described, and
•our ability to successfully improve our profitability.
Our expected primary short-term uses of cash include ongoing run out disbursements for medical claims, risk adjustment principal and interest related to our regulated insurance entities, the ACO REACH performance year obligation, and other general and administrative costs. Our long-term cash requirements primarily include operating lease obligations, redeemable noncontrolling interests and ongoing general and administrative expenses.
Cash and investment balances held at regulated insurance entities are subject to regulatory restrictions and can only be accessed through dividends declared to the non-regulated parent company, pending regulatory approval, or through reimbursements fromrelated to administrative services agreements with the parent company. The Company has declared one dividend$13.2 million of dividends from the regulated insurance entities to the parent company during the sixthree months ended June 30, 2021,March 31, 2024 and had no dividends from the regulated insurance entities to the parent company for the same period in 2020. three months ended March 31, 2023.
The regulated legal entities are required to hold certain minimum levels of risk-based capital and surplus to meetsatisfy regulatory requirements. As of June 30, 2021 and DecemberMarch 31, 2020,2024, we were out of compliance with the amounts held in risk-based capital and surplus atminimum levels for certain of our regulated insurance legal entities was in excess of the minimum requirements.
We expect to continue to incur operating losses within our Bright HealthCare-Commercial and generate negative cash flows from operations for the foreseeable future due to the investments we intend to continue to make in expanding our operations and due to additional general and administrative costs we expect to incur in connection with operating as a public company. As a result, we may require additional capital resources to execute strategic initiatives to grow our business. We believe, however, that existing cash on hand plus amounts available under our Credit Agreement described below and the proceeds from the closing of our IPO will be sufficient to satisfy our anticipated cash requirements for the next twelve months. Our future capital requirements will depend on many factors, including funding for potential acquisitions, investments, and other growth and strategic opportunities that might require use of existing cash.Bright HealthCare segments.
Indebtedness
OnIn March 1, 2021, we entered into a $350.0 million revolving credit agreement with JPMorgan Chase Bank, N.A. (the “Agent”) and a syndicate of banks (the “Credit“2021 Credit Agreement”). On August 2, 2021, the Credit Agreement, which was amendedset to change the definition of “Qualified IPO” by reducing the net proceeds required to be received by the Company from $1.0 billion to $850.0 million. In addition, prior to such amendment, the Credit Agreement contained a covenant that required the Company to maintain a total debt to capitalization ratio of (a) 0.25 to 1.00 prior to a Qualified IPO, and (b) 0.30 to 1.00 after a Qualified IPO. The Amendment changed this
covenant by removing the increase in the ratio after a Qualified IPO such that the Company is now required to maintain a total debt to capitalization ratio of 0.25 to 1.00. On August 4, 2021, we elected to extend the maturity date of the Credit Agreement from February 28, 2022 tomature on February 28, 2024. We utilized a portionOn January 2, 2024, the Termination (as defined below) occured and, as of that date we had no outstanding borrowings on the Credit Agreement. As of March 31, 2024, we had letters of credit unrelated to the 2021 Credit Agreement of $7.6 million, as well as surety bonds of $19.7 million. On our Condensed Consolidated Balance Sheets, $50.0 million of the net IPO proceedscash and cash equivalents is restricted as collateral to repay the $200.0 million principal balanceour undrawn letters of indebtedness outstanding under our revolving credit agreement originally entered into on March 1, 2021 and the associated interest and other costs of $3.2 million. As of June 30, 2021, we repaid the full amount and have no borrowings outstanding under the Credit Agreement.The Credit Agreement also contain a covenant that require us to maintain a minimum liquidity of $150.0 million.surety bonds.
On August 4, 2023, the Company entered into a Credit Agreement (as amended, supplemented, restated or otherwise modified from time to time, the “2023 Credit Agreement”), among the Company, NEA and the lenders from time to time party thereto (together with NEA and each of their respective successors and assigns, the “Lenders”) to provide for a credit facility pursuant to which, among other things, the lenders have provided $60.0 million delayed draw term loan commitments. The obligationsCompany may borrow delayed draw term loans under such commitments at any time and from time to time on or prior to the date that is nine months after the effective date of the 2023 Credit Agreement, subject to the satisfaction or waiver of customary conditions. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its wholly owned subsidiaries that are designated as guarantors, including a pledge of the equity of each of its subsidiaries. Borrowings under the2023 Credit Agreement accrue interest at a rate per annum of 15.00%, payable quarterly in arrears at the Company’s election, either at a rate of:subject to limitations set forth in the (i) the sum of (a) the greatest of (1) the Prime RateFourth Waiver (as defined below) in respect of cash payments under the 2023 Credit Agreement), (2)Agreement, either in cash or “in kind” by adding the rateamount of accrued interest to the Federal Reserve Bank of New York in effect plus 1∕2 of 1.0% per annum, and (3) London interbank offered rate (“LIBOR”), plus 1% per annum, and (b) a margin of 4.0%; or (ii) the sum of (a) the LIBOR multiplied by a statutory reserve rate and (b) a margin of 5.0%. In addition, the commitment fee is 0.75% of the unusedprincipal amount of the outstanding loans under the 2023 Credit Agreement.
Furthermore, the The 2023 Credit Agreement contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to make dividends or other distributions,certain restricted payments, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates, change its business or make investments. In addition, the Credit Agreement contains other customary covenants, representations and events of default.
Commitments
In connection with the 2023 Credit Agreement, on August 4, 2023, the Company and the Lenders entered into a warrantholders agreement setting forth the rights and obligations of the Company and the Lenders as holders (in such capacity, the “Holders”) of the warrants to acquire shares of Common Stock at an exercise price of $0.01 per share (the “Warrants”), and providing for the issuance of the Warrants to purchase up to 1,656,789 shares of Common Stock.
On October 2, 2023, the Company, the Existing Lender, and California State Teachers’ Retirement System, as an incremental lender (the “New Lender”), entered into Incremental Amendment No. 1 to the 2023 Credit Agreement to provide for a commitment increase by the New Lender under the 2023 Credit Agreement. Loans under Incremental Amendment No. 1 have
the same terms as loans under the original term loan commitments provided by the Existing Lender. As of June 30, 2021,March 31, 2024, we had committed$66.4 million of long-term borrowings under the 2023 Credit Agreement.
In connection with Incremental Amendment No. 1, on October 2, 2023, the Company and the New Lender entered into a warrantholders agreement setting forth the rights and obligations of the Company and the New Lender as a holder of Warrants, and providing for the issuance of the Warrants to purchase up to 176,724 shares of Common Stock. See Note 5, Borrowings and Common Stock Warrants, for additional information regarding the 2023 Credit Agreement, Incremental Amendment No. 1 and the Warrantholders Agreement.
On December 27, 2023, we entered into an agreement regarding our 2021 Credit Agreement with the Agent providing that upon closing of the sale of our California Medicare Advantage business, and payments of $274.6 million to the Agent and $24.1 million to the issuers of letters of credit outstanding under the 2021 Credit Agreement, all liabilities of the Company under the 2021 Credit Agreement would be terminated (other than those under the outstanding letters of credit that remained outstanding thereafter) (collectively, the “Termination”). These amounts were paid on January 2, 2024, and on that date the Termination occurred and we had no outstanding borrowings under the 2021 Credit Agreement.
On April 8, 2024, the Company and NEA, New Enterprise Associates 17, L.P., New Enterprise Associates 16, L.P. and New Enterprise Associates 15, L.P. (collectively, the “NEA Lenders”) entered into Incremental Amendment No. 2 (“Incremental Amendment No. 2”) to the 2023 Credit Agreement (as amended to date the “Amended 2023 Credit Agreement”) to provide for a term loan commitment increase in an aggregate principal amount of up to $30.0 million by the NEA Lenders under the Amended 2023 Credit Agreement. Loans under the Amended 2023 Credit Agreement have the same terms as loans under the original term loan commitments provided by NEA. Subsequent to March 31, 2024, we borrowed an additional $20.0 million under the 2023 Credit Agreement.
In connection with Incremental Amendment No. 2, on April 8, 2024, the Company and the NEA Lendersentered into a warrantholders agreement setting forth the rights and obligations of the Company and the NEA Lenders as holders of the warrants to acquire 75%up to 1,113,563 shares of Common Stock at an exercise price of $0.01per share, and providing for the issuance of warrants. See Note 5, Borrowings and Common Stock Warrants, for additional information regarding the 2023 Credit Agreement, Incremental Amendment No. 2 and the Warrantholders Agreement.
Preferred Stock Financing
On January 3, 2022, we issued 750,000 shares of the outstanding equity interestsSeries A Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of Centrum Medical Holdings, LLC (“Centrum”) for estimated consideration$750.0 million. We used a portion of approximately $306.2the proceeds to repay in full our $155.0 million of which $75.0 million would be paid inoutstanding borrowings under the form of common stock based2021 Credit Agreement on fair market value determined at the time of closing, with the remaining consideration to be paid in cash. We completed the acquisition of Centrum on July 1, 2021. For a descriptionJanuary 4, 2022.
On October 17, 2022, we issued 175,000 shares of the Centrum acquisition,Series B Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $175.0 million.
For additional information on the Series A and Series B Preferred Stock, see Note 2,7, Business CombinationsRedeemable Convertible Preferred Stock, in our Condensed Consolidated Financial Statementscondensed consolidated financial statements of this Quarterly Report on Form 10-Q.Report.
Cash and Investments
As of June 30, 2021,March 31, 2024, we had $1.5 billion$249.4 million in cash and cash equivalents $283.3and $7.0 million in short-term investments across our continuing and $633.0 milliondiscontinued operations. As of March 31, 2024, we had no long-term investments on the consolidated balance sheet. Our cashacross our continuing and investments are held at non-regulated entities and regulated insurance entities.discontinued operations.
As of June 30, 2021,March 31, 2024, we had non-regulated cash and cash equivalents of $760.1 million,$112.8 million. As of March 31, 2024, we had no non-regulated short-term investments of $136.6 million and long-term investmentsinvestments. Of the $112.8 million, $50.0 million is restricted as collateral to our letters of $61.0 million.credit and surety bonds.
As of June 30, 2021,March 31, 2024, we had regulated insurance entity cash and cash equivalents of $746.2$136.7 million and short-term investments of $146.7 million,$7.0 million. As of which $3.8 million was restricted, andMarch 31, 2024, we had no regulated insurance entity long-term investments of $572.0 million, of which $3.4 million was restricted.investments.
Cash Flows
The following table presents a summary of our cash flows for the periods shown:
| | | | | | | | | | | |
| Six Months Ended June 30, |
| ($ in thousands) | 2021 | | 2020 |
| Net cash provided by operating activities | $ | 497,146 | | | $ | 87,044 | |
| Net cash used in investing activities | (368,221) | | | (452,127) | |
| Net cash provided by financing activities | 889,023 | | | 211,331 | |
| Net increase (decrease) in cash and cash equivalents | 1,017,948 | | | (153,752) | |
| Cash and cash equivalents at beginning of period | 488,371 | | | 522,910 | |
| Cash and cash equivalents at end of period | $ | 1,506,319 | | | $ | 369,158 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| ($ in thousands) | 2024 | | 2023 |
| Net cash used in operating activities | $ | (48,717) | | | $ | (615,024) | |
| Net cash provided by investing activities | 198,387 | | | 686,788 | |
| Net cash used in financing activities | (275,520) | | | (1,804) | |
| Net (decrease)/increase in cash and cash equivalents | $ | (125,850) | | | $ | 69,960 | |
| Cash and cash equivalents at beginning of period | $ | 375,280 | | | $ | 1,932,290 | |
| Cash and cash equivalents at end of period | $ | 249,430 | | | $ | 2,002,250 | |
Operating Activities
During the sixthree months ended June 30, 2021,March 31, 2024, net cash provided byused in operating activities increaseddecreased by $410.1$566.3 million compared to the six-monththree-month period ended June 30, 2020,March 31, 2023, primarily driven bya result of being further into the increaserun out of our Commercial operations at March 31, 2024 compared to March 31, 2023. For the three months ended March 31, 2023 we had approximately $599.2 million of cash used in consumer growth driving the increased medical costs and risk adjustment payables,operating activities attributable to our Commercial business in its first three months of run out as well as accounts payables and other liabilities, and increased medical costscompared to only $38.0 million in the MA business driven by the Brand New Day acquisition, partially offset by an increase in our net loss.three months ended March 31, 2024, more than a year into runout.
Investing Activities
During the sixthree months ended June 30, 2021,March 31, 2024, net cash used inprovided by investing activities decreased $83.9by $488.4 million compared to the six-monththree-month period ended June 30, 2020.March 31, 2023. During the three-month period ended March 31, 2023 we sold a significant majority of our investment holdings to cover remaining liabilities of our run out operations for the Commercial business. During the three months ended March 31, 2024 we did not have an equivalent amount of investment sales as the majority of our investment portfolio was liquidated in the prior year. The decrease wascash provided by investing activities during the three months ended March 31, 2024 is primarily attributable to a decrease in purchasesthe net proceeds received for the sale of investments, net of proceeds from sales, paydown and maturities of investments. The net decrease in cash used for investment activities was partially offset by a $36.4 million increase of cash used for acquisitions.our California Medicare Advantage business that close effective January 1, 2024.
Financing Activities
During the sixthree months ended June 30, 2021,March 31, 2024, net cash provided byused in financing activities increaseddecreased by $677.7$273.7 million compared to the six-month periodthree months ended June 30, 2020, primarily driven by $887.3 millionMarch 31, 2023. This fluctuation is a result of proceeds fromthe payoff of our IPO in June 2021, offset by $4.5 millionshort-term debt using a portion of cash paid for IPO offering costs, and an increase inthe proceeds from the issuancesale of common stock resulting from stock option exercise inour California Medicare Advantage business during the sixthree months ended June 30, 2021. These increases were partially offset by $211.2 million of proceeds from issuance of preferred stock in the six months ended June 30, 2020.March 31, 2024.
Critical Accounting Policies and Estimates
TheAs of March 31, 2024, there had been no material changes to the critical accounting policies that reflect our more significant judgements and estimates used in the preparation of our condensed consolidated financial statements include thoseas described in the Prospectus2023 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the Prospectus.
Recently Adopted Accounting Pronouncements
For a description of recently issued accounting pronouncements, see Note 1, Organization and Basis of Presentation, in our condensed consolidated financial statements of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and financial position are exposed to financial market risk, including those resulting from changes in interest rates.
Interest Risk
The level of our pretax earnings is subject to market risk due to changes in interest rates and the resulting impact on investment income and interest expense. We invest in a professionally managed portfolio of securities, which includes debt securities of publicly traded companies, obligations of the U.S. government, domestic government agencies, and state and political subdivisions. At June 30, 2021 our net unrealized gain position was $1.0 million, compared to a net unrealized gain position of $2.4 million at December 31, 2020.Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Limitations on effectivenessEffectiveness of controlsControls and proceduresProcedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controlsDisclosure Controls and proceduresProcedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021,March 31, 2024, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
As disclosed in the section entitled Risk Factorsour 2023 Form 10-K, in our Prospectus, we previously identified a material weakness in Brand New Day’s internal control over financial reporting. In addition,2022 we identified a material weakness in ourrelated to the control activities component of internal control over financial reporting, related to the valuation of our common stock underlying stock options granted during the three months ended March 31, 2021, as well as the valuation of our Series E preferred stock issued as equity consideration to the seller in the Zipnosis and CHP acquisitions. We believe the material weakness related to stock valuation was inherently remediatedbased upon the closingcriteria established in Internal Control-Integrated Framework (2013) issued by the Committee of our IPO on June 28, 2021, as we now determineSponsoring Organizations of the fair value of our common stock based on readily determinable prices in Treadway Commission (“the public market.
As of June 30, 2021, we continue to haveCOSO framework”). Specifically, multiple deficiencies constituted a material weakness, in Brand New Day’sthe aggregate, relating to deployment of control activities through internal control over financial reporting. So far in 2021, we have taken a number of remediation steps to enhance the control environment at Brand New Day, including actions to further centralize accounting and other financial responsibilities, enhance controlspolicies that establish what is expected and procedures over key accountsthat put policies into action. This material weakness remained as of December 31, 2023, as we were unable to conclude control activities consistently had sufficient time to demonstrate operational effectiveness.
For the quarter ended March 31, 2024, certain actions have been taken to support the Company’s ongoing efforts to remediate the material weakness, including the sale of the MA business to Molina in January 2024, and processes,the execution of annual Sarbanes-Oxley Act of 2002 training sessions for control owners. The remainder of 2024 will include additional remediation activities for outstanding deficiencies, followed by sufficient, timely and hire additional resourcesrelevant testing procedures to oversee accounting, reporting and othervalidate the operational effectiveness of control activities, occurring within Brand New Day. With these improvements, management is now focused on demonstrating consistency in the performance of these controls and procedures from period to period. Additionally, we will be migrating Brand New Day’s financial accounting and reporting activities over to Bright Health’s legacy enterprise resource planning system in the third quarter of 2021.including those previously deemed deficient.
Changes in Internal Control over Financial Reporting
We considerOther than the material weakness remediation actions discussed above, asthere have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management continues to advance its remediation program to ensure that control deficiencies contributing to the material weakness are remediated.
PartPART II. OTHER INFORMATION
Item 1. Legal Proceedings
WeOther than the matters described in Note 9, Commitments and Contingencies, we are not presently a party to any litigation the outcomes of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition.
Item 1A. Risk Factors
This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our Prospectus.2023 Form 10-K and our other filings with the SEC. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Prospectus.2023 Form 10-K.
Item 2. Unregistered SaleSales of Equity Securities, and Use of Proceeds,
Unregistered Sales and Issuer Purchases of Equity Securities
We have granted or issued the following securities that were not registered under the Securities Act:None.
•26,065,406 shares of Series C preferred stock to 37 accredited investors at a price of $7.673 per share, for aggregate proceeds of approximately $200.0 million;
•48,101,474 shares of Series D preferred stock to 44 accredited investors at a price of $15.0247 per share, for aggregate proceeds of approximately $635.0 million;
•24,488,556 shares of Series E preferred stock to 71 accredited investors at a price of $20.4177 per share, for aggregate proceeds of approximately $500.0 million;
•stock options to employees, directors, consultants and other service providers of the Registrant to purchase an aggregate of 88,806,393 shares of common stock under the Registrant’s 2016 Equity Plan, with per share exercise prices ranging from $0.54 to $4.18;
•16,602,300 shares of common stock to employees, directors, consultants and other service providers of the Registrant upon the exercise of stock options granted under the Registrant’s 2016 Equity Plan, with per share purchase prices ranging from $0.01 to $1.77.
On April 1, 2021, we issued 2,062,194 shares of Series E preferred stock to security holders of CHP in connection with our acquisition of CHP.
On June 28, 2021, we issued 427,897,381 shares of common stock upon conversion of all of our outstanding shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock, and Series E Convertible Preferred Stock pursuant to our eighth amended and restated certificate of incorporation.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder) or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were placed upon the stock certificates issued in these transactions.
Use of Proceeds from Initial Public Offering of Common Stock
On June 28, 2021, we completed our IPO in which we issued and sold 51,350,000 shares of common stock, par value $0.0001 per share, at an offering price of $18.00 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to the Company’s registration statement on Form S-1 (File No. 333-256286), as amended, which was declared effective by the SEC on June 23, 2021. We received net proceeds of $880.6 million from the sale of our common stock, after deducting underwriting discounts and commissions of $37.0 million and other offering expenses of $6.7 million. We used a portion of the net proceeds from our IPO to repay the $200.0 million principal balance of indebtedness outstanding under our revolving credit facility agreement originally entered into on March 1, 2021 and the associated interest and other
costs of $3.2 million. We used $232.4 million to fund the acquisition of Centrum as described in Note 2, Business Combinations. The remainder of the net proceeds will be used for general corporate purposes.
The representatives of the underwriters of our IPO were J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC and Barclays Capital Inc. No payments were made by us to directors, officers, or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors pursuant to our director compensation policy.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
EXHIBIT INDEX
| | | | | | | | |
Exhibit
Number | | Description |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 3.4 | | |
| 3.5 | | |
| 3.6 | | |
| 3.7 | | |
| 10.1 | | |
10.2† | | |
10.3† | | |
10.4† | | |
10.5† | | |
10.6†10.2 | | |
10.7† | | |
| 31.1 | | |
| 31.2 | | |
| 32.1 | | |
32.2 | | |
Table of Contents| 32.2 | | | | | | | | | | | Exhibit
Number | | Description | | 101 | | The following financial information from our Quarterly Report on Form 10-Q for the secondfirst quarter of fiscal 2021,2024, filed with the SEC on August 11, 2021,May 10, 2024, formatted in Inline Extensible Business Reporting Language (“iXBRL”) | | 104 | | Cover Page Interactive Data File (formatted as Inline XBRLiXBRL and embedded within Exhibit 101) | | | |
* Filed herewith †Denotes a management Management contract or compensatory plan or arrangement.
(1) The certifications in ExhibitExhibits 32.1 and 32.2 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | BRIGHT HEALTH GROUP,NEUEHEALTH, INC. | | | | Dated: August 11, 2021May 10, 2024 | By: | /s/ G. Mike Mikan | | Name: | G. Mike Mikan | | Title: | Vice Chairman, President and Chief Executive Officer | | | (Principal Executive Officer) | | | | | By: | /s/ Catherine R. SmithJay Matushak | | Name: | Catherine R. SmithJay Matushak | | Title: | Chief Financial and Administrative Officer | | | (Principal Financial Officer) | | | | | By: | /s/ Jeffrey J. Scherman | | Name: | Jeffrey J. Scherman | | Title: | Chief Accounting Officer | | | (Principal Accounting Officer) |
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