Bright Health Group Inc. [BHG] Filings

10-Q 1 bhg-20230630.htm 10-Q bhg-20230630

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, 2023


☐			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, 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, Suite 900, Minneapolis, MN			55437
(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

BHG

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 x No o

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	x
Non-accelerated filer	o	Smaller reporting company	x
Emerging growth company	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 August 2, 2023, the registrant had 7,972,092 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets (Unaudited)	2

	Condensed Consolidated Statements of Income (Loss) (Unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4

	Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders’ Equity (Deficit) (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45

Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION	47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	47

Item 3.	Defaults upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	48

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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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (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, 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,” “ensure” and other similar expressions. 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 continue as a going concern; our ability to comply with the terms of our credit facilities, including financial covenants, both during and after any applicable waiver period, and/or obtain any additional waivers of any terms of our credit facilities to the extent required; our ability to sell our Medicare Advantage business in California on acceptable terms, including our ability to receive the proceeds thereof in a manner that would alleviate our current financial position; the failure to satisfy or obtain a waiver of any closing condition in our agreement to sell our Medicare Advantage business in California to Molina Healthcare, Inc. (the “Molina Purchase Agreement”); our ability to comply with the terms of the Molina Purchase Agreement; whether our credit facilities will satisfy our working capital need pending the closing of our sale of our Medicare Advantage business in California; our ability to obtain any additional short or long term debt or equity financing needed to operate our business; our ability to quickly and efficiently wind down our Individual and Family Plan (“IFP”) businesses and Medicare Advantage (“MA”) businesses outside of California, including by satisfying liabilities of those businesses when due and payable; potential disruptions to our business due to our corporate restructuring and 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 Partners’ abilities to obtain and accurately assess, code, and report risk adjustment factor scores; our ability to contract with care providers and arrange for the provision of quality care; our ability to accurately estimate our medical expenses, effectively manage our costs and claims liabilities or appropriately price our products and charge premiums; our ability to obtain claims information timely and accurately; the impact of the ongoing COVID-19 pandemic 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 the 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; 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 new risks associated with our expansion into the ACO REACH program; and the other factors set forth under the heading “Risk Factors” in this Quarterly Report, Bright Health Group’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, that was filed with the United States Securities and Exchange Commission (the “SEC”) on May 10, 2023, and Bright Health Group’s Annual Report on Form 10-K for the year ended December 31, 2022, that was filed with the SEC on March 16, 2023 (“2022 Form 10-K”) and our other filings with the 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. Our 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 such forward-looking statements will be achieved or 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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Bright Health Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)


	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	107,660	$	217,006
Short-term investments	156		869
Accounts receivable, net of allowance of $7,653 and $6,098, respectively	27,633		19,576
ACO REACH performance year receivable	623,609		99,181
Current assets of discontinued operations (Note 14)	3,030,870		3,187,464
Prepaids and other current assets	61,198		46,538
Total current assets	3,851,126		3,570,634
Other assets:
Long-term investments	344		5,401
Property, equipment and capitalized software, net	18,474		21,298
Goodwill	401,385		401,385
Intangible assets, net	99,084		104,952
Long-term assets of discontinued operations (Note 14)	—		529,117
Other non-current assets	22,740		32,265
Total other assets	542,027		1,094,418
Total assets	$	4,393,153	$	4,665,052
Liabilities, Redeemable Noncontrolling Interest, Redeemable Preferred Stock and Shareholders’ Equity (Deficit)
Current liabilities:
Medical costs payable	$	179,855	$	116,021
Accounts payable	18,476		18,714
ACO REACH performance year obligation	474,700		—
Short-term borrowings	303,947		303,947
Current liabilities of discontinued operations (Note 14)	2,584,890		3,157,236
Other current liabilities	73,221		97,241
Total current liabilities	3,635,089		3,693,159
Other liabilities	28,792		32,208
Total liabilities	3,663,881		3,725,367
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests	244,561		219,758
Redeemable Series A preferred stock, $0.0001 par value;750,000 shares authorized in 2023 and 2022; 750,000 shares issued and outstanding in 2023 and 2022	747,481		747,481
Redeemable Series B preferred stock, $0.0001 par value; 175,000 shares authorized in 2023 and 2022; 175,000 shares issued and outstanding in 2023 and 2022	172,936		172,936
Shareholders’ equity (deficit):
Common stock, $0.0001 par value; 3,000,000,000 shares authorized in 2023 and 2022; 7,972,033 and 7,878,394 shares issued and outstanding in 2023 and 2022*, respectively	1		1
Additional paid-in capital	3,021,430		2,972,333
Accumulated deficit	(3,444,238)		(3,156,395)
Accumulated other comprehensive loss	(899)		(4,429)
Treasury Stock, at cost, 31,526 shares at June 30, 2023, and December 31, 2022*, respectively	(12,000)		(12,000)
Total shareholders’ equity (deficit)	(435,706)		(200,490)
Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit)	$	4,393,153	$	4,665,052

*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

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Bright Health Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(in thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue:
Capitated revenue	$	49,764	$	17,641	$	99,312	$	46,289
ACO REACH revenue	236,994		137,205		476,801		320,002
Service revenue	11,222		10,732		22,409		20,962
Investment income (loss)	2		(16,238)		10		(57,149)
Total revenue	297,982		149,340		598,532		330,104
Operating expenses:
Medical costs	245,160		130,793		505,280		310,249
Operating costs	70,280		78,997		149,798		175,785
Restructuring charges	1,285		2,793		1,586		9,657
Depreciation and amortization	4,671		8,276		10,154		16,336
Total operating expenses	321,396		220,859		666,818		512,027
Operating loss	(23,414)		(71,519)		(68,286)		(181,923)
Interest expense	9,170		337		16,957		1,530
Other income	—		2		—		2
Loss from continuing operations before income taxes	(32,584)		(71,858)		(85,243)		(183,455)
Income tax expense	(892)		2,904		367		12,885
Net loss from continuing operations	(31,692)		(74,762)		(85,610)		(196,340)
Loss from discontinued operations, net of tax (Note 14)	(56,935)		(176,568)		(172,478)		(235,619)
Net Loss	(88,627)		(251,330)		(258,088)		(431,959)
Net earnings from continuing operations attributable to noncontrolling interests	(24,205)		(23,336)		(29,755)		(37,941)
Series A preferred stock dividend accrued	(9,942)		(9,461)		(19,656)		(18,399)
Series B preferred stock dividend accrued	(2,231)		—		(4,411)		—
Net loss attributable to Bright Health Group, Inc. common shareholders	$	(125,005)	$	(284,127)	$	(311,910)	$	(488,299)

Basic and diluted loss per share attributable to Bright Health Group, Inc. common shareholders
Continuing operations	$	(8.55)	$	(13.68)	$	(17.59)	$	(32.14)
Discontinued operations	(7.15)		(22.45)		(21.76)		(29.97)
Basic and diluted loss per share	(15.70)		(36.13)		(39.35)		(62.11)

Basic and diluted weighted-average common shares outstanding*	7,962		7,865		7,928		7,862

*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

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Bright Health Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(88,627)	$	(251,330)	$	(258,088)	$	(431,959)
Other comprehensive (loss) income:
Unrealized investment holding gains (losses) arising during the year, net of tax of $0 and $0, respectively	20		(21,469)		1,749		(49,558)
Less: reclassification adjustments for investment (losses) gains, net of tax of $0 and $0, respectively	(1,317)		(758)		(1,781)		(2,507)
Other comprehensive (loss) income	1,337		(20,711)		3,530		(47,051)
Comprehensive loss	(87,290)		(272,041)		(254,558)		(479,010)
Comprehensive loss attributable to noncontrolling interests	(24,205)		(23,336)		(29,755)		(37,941)
Comprehensive loss attributable to Bright Health Group, Inc. common shareholders	$	(111,495)	$	(295,377)	$	(284,313)	$	(516,951)

See accompanying Notes to Condensed Consolidated Financial Statements

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Bright Health Group, 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)		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)

Net loss	—	$	—	—	$	—	$	—	$	(112,832)	$	—	$	—	$	(112,832)
Issuance of common stock	—	—		20	—		1		—		—		—		1
Share-based compensation	—	—		—	—		15,775		—		—		—		15,775
Other comprehensive loss	—	—		—	—		—		—		1,337		—		1,337
Balance at June 30, 2023	925	$	920,417	7,972	$	1	$	3,021,430	$	(3,444,238)	$	(899)	$	(12,000)	$	(435,706)

*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

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Bright Health Group, 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)		Treasury Stock		Total
2022	Shares	Amount		Shares*	Amount
Balance at January 1, 2022	—	$	—	7,858	$	1	$	2,861,305	$	(1,700,851)	$	(3,335)	$	(12,000)	$	1,145,120
Net loss	—	—		—	—		—		(195,234)		—		—		(195,234)
Issuance of preferred stock	750	747,481		—	—		—		—		—		—		—
Issuance of common stock	—	—		5	—		257		—		—		—		257
Share-based compensation	—	—		—	—		32,921		—		—		—		32,921
Other comprehensive loss	—	—		—	—		—		—		(26,340)		—		(26,340)
Balance at March 31, 2022	750	$	747,481	7,863	$	1	$	2,894,483	$	(1,896,085)	$	(29,675)	$	(12,000)	$	956,724

Net loss	—	$	—	—	$	—	$	—	$	(274,666)	$	—	$	—	$	(274,666)
Issuance of common stock	—	—		4	—		415		—		—		—		415
Share-based compensation	—	—		—	—		20,220		—		—		—		20,220
Other comprehensive loss	—	—		—	—		—		—		(20,711)		—		(20,711)
Balance at June 30, 2022	750	$	747,481	7,867	$	1	$	2,915,118	$	(2,170,751)	$	(50,386)	$	(12,000)	$	681,982

*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

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Bright Health Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(258,088)	$	(431,959)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	16,026		26,270
Impairment of intangible assets	—		6,720
Share-based compensation	49,095		53,141
Deferred income taxes	873		1,154
Unrealized loss on equity securities	—		57,151
Amortization of investments	(14,173)		2,748
Other, net	3,891		1,834
Changes in assets and liabilities, net of acquired assets and liabilities:
Accounts receivable	6,284		(31,404)
ACO REACH performance year receivable	(524,428)		(396,104)
Other assets	57,846		(60,991)
Medical cost payable	(567,932)		231,899
Risk adjustment payable	10,925		916,713
Accounts payable and other liabilities	(111,174)		35,312
Unearned revenue	132,129		3,577
ACO REACH performance year obligation	474,700		310,603
Net cash (used in) provided by operating activities	(724,026)		726,664
Cash flows from investing activities:
Purchases of investments	(828,546)		(1,140,896)
Proceeds from sales, paydown, and maturities of investments	988,749		204,775
Purchases of property and equipment	(2,394)		(15,154)
Business divestitures, net of cash disposed of	(682)		—
Business acquisitions, net of cash acquired	—		(310)
Net cash provided by (used in) investing activities	157,127		(951,585)
Cash flows from financing activities:
Repayments of short-term borrowings	—		(155,000)
Proceeds from issuance of preferred stock	—		747,481
Proceeds from issuance of common stock	2		672
Distributions to noncontrolling interest holders	(4,952)		(1,894)
Net cash (used in) provided by financing activities	(4,950)		591,259
Net (decrease)/ increase in cash and cash equivalents	(571,849)		366,338
Cash and cash equivalents – beginning of year	1,932,290		1,061,179
Cash and cash equivalents – end of period	$	1,360,441	$	1,427,517
Supplemental disclosures of cash flow information:
Changes in unrealized loss on available-for-sale securities in OCI	$	3,530	$	(47,051)
Cash paid for interest	7,700		1,168

See accompanying Notes to Condensed Consolidated Financial Statements

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Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization: Bright Health Group, Inc. and subsidiaries (collectively, “Bright Health,” “we,” “our,” “us,” or the “Company”) was founded in 2015 to transform healthcare. Our mission of Making Healthcare Right. Together. is built upon the belief that by aligning the best local resources in healthcare delivery with the financing of care we can drive a superior consumer experience, optimize clinical outcomes, reduce systemic waste, and lower costs. We are a healthcare company building a national Integrated System of Care in close partnership with our Care Partners. Our differentiated approach is built on alignment, focused on the consumer, and powered by technology. Our continuing Consumer Care business operates in two segments: Care Delivery and Care Solutions. Care Delivery provides primary comprehensive services in our clinics with wrap around care management and care coordination activities for those members where we take full or partial risk from a diverse set of payor partners. Care Solutions is our provider enablement business that facilitates care coordination activities using population health tools including technology and data analytics, and provides clinical solutions and care teams to support patients managed through our affiliate partners.

Basis of Presentation: The condensed consolidated financial statements include the accounts of Bright Health Group, 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”) 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, 2022 included in our Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for fair presentation of the interim financial statements.

Reportable Segments: During the three months ended June 30, 2023, our reportable segments changed. We now report our operating results through four reportable segments: Care Delivery and Care Solutions within continuing operations and Bright HealthCare - Commercial and Bright HealthCare within discontinued operations. The Care Delivery and Care Solutions segments were formerly within the Consumer Care segment. The updates to our reportable segments conform with the Company’s chief operating decision maker’s (“CODM”) view of our ongoing operations. See Note 10, Segments and Geographic Information, for additional information on our segments. We have reflected this change in all historical periods presented.

Discontinued Operations: Having met the criteria for “held for sale,” we have reflected amounts relating to Bright HealthCare, comprised of the California Medicare Advantage business, as a disposal group classified as held for sale and included as part of discontinued operations in accordance with Accounting Standards Codification (“ASC”) 205-20. The combined assets are valued at the lower of their carrying amount or fair value, net of costs to sell and included as current assets on the Company’s condensed consolidated balance sheet. Assets classified as held for sale are not depreciated. However, interest attributable to the liabilities associated with assets classified as held for sale and other related expenses continue to be accrued. Bright HealthCare is no longer included in the segment reporting following the reclassification to discontinued operations. Refer to Note 14 for further discussion of our discontinued operations inclusive of Bright HealthCare and Bright HealthCare - Commercial.

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, ACO REACH performance year receivable and obligation, shared savings and shared losses for our capitation contracts, and valuation and impairment of goodwill and other 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.

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Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company has a history of operating losses, and we generated a net loss of $258.1 million for the six months ended June 30, 2023. Additionally, the Company experienced negative operating cash flows primarily related to our discontinued Bright HealthCare – Commercial segment for the six months ended June 30, 2023, requiring additional cash to be infused to satisfy statutory capital requirements. The Company’s IFP discontinued operations will continue to experience negative cash flows through the third quarter of 2023, as it pays out the 2022 IFP risk adjustment obligations. Although the Company has sufficient cash to satisfy its IFP risk adjustment obligations in full in certain states, the Company is working with its regulators regarding the status of its obligations in certain other states.

In addition, the Company’s $350.0 million revolving credit agreement with a syndicate of banks (the “Credit Agreement”), matures on February 28, 2024. On March 1, 2023, the Company disclosed that during the First Quarter of 2023, it had breached the minimum liquidity covenant contained in the Credit Agreement. On June 29, 2023, the Company entered into a second amended and restated limited waiver and consent (the “Third Waiver”) under the Credit Agreement. The Third Waiver amended and restated the amended and restated limited waiver and consent entered into by the Company under the Credit Agreement on April 28, 2023 (the “Second Waiver”), which had amended and restated the limited waiver and consent entered into by the Company under the Credit Agreement on February 28, 2023 (the “Original Waiver”). The Third Waiver amended the Second Waiver and the Original Waiver by, among other things, extending the temporary waiver of compliance with the minimum liquidity covenant set forth in Section 11.12.2 of the Credit Agreement, which spanned from January 25, 2023 to June 30, 2023 under the Original Waiver and the Second Waiver, to January 25, 2023 to August 29, 2023 (the “Extended Waiver Period”). The Third Waiver also, among other things, added covenants (a) requiring the Company to deliver by July 17, 2023, an agreed term sheet for an equity or debt financing (the “Bridge Financing”) to support the Company’s ongoing operating cash needs through December 31, 2023 and, by July 31, 2023 (extended to August 4, 2023), definitive documentation for the Bridge Financing and an updated budget of the Company, (b) prohibiting the incurrence of certain types of debt and (c) requiring the Company not to request any interest period for any term SOFR borrowing other than a one-month interest period.

On August 4, 2023, the Company entered into a Credit Agreement (as amended, supplemented, restated or otherwise modified from time to time, the “New 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. The Company 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 New Credit Agreement, subject to the satisfaction or waiver of customary conditions. Borrowings under the New Credit Agreement accrue interest at a rate per annum of 15.00%, payable quarterly in arrears at the Company’s election, subject to limitations set forth in the Fourth Waiver (defined below) in respect of cash payments under the New Credit Agreement, either in cash or “in kind” by adding the amount of accrued interest to the principal amount of the outstanding loans under the New Credit Agreement. The New Credit Agreement contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to make 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. The New Credit Agreement constitutes the Bridge Financing referred to in the Third Waiver.

On August 4, 2023, the Company entered into a third amended and restated limited waiver and consent (the “Fourth Waiver”) under the Credit Agreement. The Fourth Waiver amends and restates the Third Waiver by, among other things, permanently waiving compliance with the minimum liquidity covenant set forth in Section 11.12.2 of the Credit Agreement, which waiver under the Third Waiver previously was temporary and would have expired on August 29, 2023. From August 4, 2023 until the Credit Agreement is terminated and all outstanding loans thereunder are repaid, the Company will be subject to a minimum liquidity covenant of not less than $25.0 million. The Fourth Waiver also, among other things, (a) removes from the credit agreement in its entirety the covenant requiring maintenance of a maximum total debt to capitalization ratio, which absent such removal would have applied after September 30, 2023, (b) prohibits the incurrence of certain types of debt and (c) requires the Company not to request any interest period for any Term Benchmark borrowing other than a one-month interest period.

In connection with the New Credit Agreement, on August 4, 2023, the Company and the Lenders entered into a warrantholders agreement (the “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 the Company’s common stock.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Any future non-compliance with the covenants under the Credit Agreement or the Fourth Waiver, or termination of our agreement to sell our Medicare Advantage business in California to Molina Healthcare, Inc. (“the Molina Purchase Agreement”), may result in the obligations under the Credit Agreement being accelerated.

Based on our projected cash flows and absent any other action, the Company may not meet certain covenants under the Credit Agreement, the Fourth Waiver or the New Credit Agreement which may result in the obligations under the Credit Agreement and New Credit Agreement being accelerated. The Company will require additional liquidity to meet its obligations as they come due in the 12 months following the date the condensed consolidated financial statements contained in this Quarterly Report are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

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. The Company’s Bright HealthCare - Commercial business exited the ACA marketplace at the end of the 2022 plan year. In addition to our market exits, management is in the process of executing upon additional restructuring activities, which include reducing our workforce, exiting excess office space, and terminating or restructuring contracts. The Company closed on a $175.0 million capital raise in October 2022 to fund our continuing operations as further described in Note 7, Redeemable Convertible Preferred Stock. On June 30, 2023, the Company entered into the Molina Purchase Agreement to sell its California Medicare Advantage business, which consists of Brand New Day and Central Health Plan, for total purchase consideration of $600.0 million, subject to regulatory approval and other closing conditions. The closing of this transaction is expected to occur by early 2024. Further, as described above, the Company entered into the New Credit Agreement on August 4, 2023.

In the event the Company is unable to execute the sale of the California Medicare Advantage business, obtain additional financing or take other management actions, among other potential consequences, we forecast we will be unable to satisfy our obligations. 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 condensed 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.

Reverse Stock Split: During our annual meeting on May 4, 2023, our stockholders voted to approve an amendment to our Ninth Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio of not less than 1-for-15 and not greater than 1-for-80, with the exact ratio and effective time of the Reverse Stock Split to be determined by our Board of Directors at any time within one year of the date of the Annual Meeting. On May 5, 2023, our Board approved a ratio of 1-for-80. The reverse stock split took effect on May 19, 2023.

The reverse stock split decreased the number of outstanding shares of the Company’s common stock by a factor of 80, subject to rounding of shares. The reverse stock split did not affect any stockholder’s proportionate equity interest in the Company. The par value of the Company’s common stock remains at $0.0001 per share following the reverse stock split and the number of outstanding shares of the Company’s common stock was proportionally reduced. As a consequence, the aggregate par value of the Company’s outstanding common stock was reduced, while the aggregate capital in excess of par value attributable to the Company’s outstanding common stock for accounting purposes was correspondingly increased. Total stockholder equity was

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

not affected. All shares and per share information has been retroactively adjusted following the effective date of the reverse stock split to reflect the reverse stock split for all periods presented in future filings.

Operating Costs: Our operating costs, by functional classification for the three and six months ended June 30, 2023 and 2022, are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Compensation and fringe benefits	$	42,413	$	55,497	$	101,037	$	125,008
Professional fees	13,771		6,962		19,619		15,745
Marketing and selling expenses	630		842		1,204		2,270
General and administrative expenses	7,766		5,999		15,223		13,917
Other operating expenses	5,700		9,697		12,715		18,845
Total operating costs	$	70,280	$	78,997	$	149,798	$	175,785

Recently Issued and Adopted Accounting Pronouncements: There are 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.

Correction of prior period financial statements: As previously reported, subsequent to the issuance of the condensed consolidated financial statements for the quarter ended June 30, 2022, we identified an error in the accounting for gross versus net revenue recognition conclusion from certain value-based care arrangements. As a result, Capitated revenue and Medical costs have been reduced by $54.9 million and $113.2 million for the three and six months ended June 30, 2022, respectively. There is no impact on Operating loss or Net loss. There was no impact to the condensed consolidated balance sheets, condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of changes in redeemable preferred stock and shareholders’ equity (deficit) and condensed consolidated statements of cash flows.

The Company determined that the correction of these errors was not material to the condensed consolidated financial statements.

NOTE 2. RESTRUCTURING CHARGES

In October 2022, we announced our decision to further focus our business on our Fully Aligned Care Model, 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 Company’s workforce and reduce expenses based on our updated business model.

Restructuring charges by reportable segment and corporate for the periods ended June 30 were as follows (in thousands):


	Three Months Ended June 30, 2023
	Care Delivery		Care Solutions		Corporate & Eliminations		Total
Employee termination benefits	$	—	$	—	$	1,387	$	1,387
Long-lived asset impairments	—		—		—		—
Contract termination and other costs	—		—		(102)		(102)
Total continuing operations	$	—	$	—	$	1,285	$	1,285

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Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Three Months Ended June 30, 2022
	Care Delivery		Care Solutions		Corporate & Eliminations		Total
Employee termination benefits	$	—	$	—	$	2,604	$	2,604
Long-lived asset impairments	—		—		—		—
Contract termination and other costs	—		—		189		189
Total continuing operations	$	—	$	—	$	2,793	$	2,793


	Six Months Ended June 30, 2023
	Care Delivery		Care Solutions		Corporate & Eliminations		Total
Employee termination benefits	$	(44)	$	3	$	662	$	621
Long-lived asset impairments	—		—		880		880
Contract termination and other costs	—		—		85		85
Total continuing operations	$	(44)	$	3	$	1,627	$	1,586


	Six Months Ended June 30, 2022
	Care Delivery		Care Solutions		Corporate & Eliminations		Total
Employee termination benefits	$	—	$	—	$	8,701	$	8,701
Long-lived asset impairments	—		—		—		—
Contract termination and other costs	—		—		956		956
Total continuing operations	$	—	$	—	$	9,657	$	9,657

The $0.9 million of long-lived asset impairments is the result of a lease abandonment for one of our corporate office locations during the six months ended June 30, 2023.

Restructuring accrual activity recorded by major type for the six months ended June 30, 2023 were as follows (in thousands):


	Employee Termination Benefits		Contract Termination Costs		Total
Balance at January 1, 2023	$	24,077	$	—	$	24,077
Charges	621		85		706
Cash payments	(16,935)		(85)		(17,020)
Balance at June 30, 2023	$	7,763	$	—	$	7,763

Employee termination benefits are recorded within Other current liabilities while contract termination costs are recorded within Accounts payable.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 3. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying value of goodwill by reportable segment were as follows (in thousands):


	June 30, 2023				December 31, 2022
	Gross Carrying Amount		Cumulative Impairment		Gross Carrying Amount		Cumulative Impairment
Care Delivery	$	401,385	$	—	$	401,385	$	—
Total	$	401,385	$	—	$	401,385	$	—

For the periods ending June 30, 2023 and December 31, 2022, Care Solutions had no assigned goodwill.

The gross carrying value and accumulated amortization for definite-lived intangible assets were as follows (in thousands):


	June 30, 2023				December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	80,021	$	21,910	$	80,021	$	17,655
Trade names	48,361		7,388		48,361		5,776
Total	$	128,382	$	29,298	$	128,382	$	23,431

There was no impairment expense for the three and six months ended June 30, 2023 and 2022.

We are continuously evaluating factors that affect the fair values of our reporting units including our market capitalization, macroeconomic trends and other events and uncertainties. Negative trends in these factors could result in a non-cash charge for impairment to goodwill or intangible assets in a future period.

Amortization expense relating to intangible assets for the three months ended June 30, 2023 and 2022 was $2.9 million and $6.2 million, respectively and amortization expense for the six months ended June 30, 2023 and 2022 was $5.9 million and $12.4 million, respectively. Estimated amortization expense relating to intangible assets for the remainder of 2023 and for each of the next five full years ending December 31 is as follows (in thousands):


2023 (July-December)	$	5,846
2024	$	11,574
2025	$	11,574
2026	$	11,574
2027	$	11,574
2028	$	10,295

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Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 4. MEDICAL COSTS PAYABLE

The following table shows the components of the change in medical costs payable for the six months ended June 30 (in thousands):


	June 30,
	2023		2022
Medical costs payable - January 1	$	116,021	$	6,764
Incurred related to:
Current year	504,307		312,339
Prior year	1,029		(2,089)
Total incurred	505,336		310,250
Paid related to:
Current year	347,629		210,452
Prior year	93,873		4,547
Total paid	441,502		214,999

Medical costs payable - June 30	$	179,855	$	102,015

Medical costs payable attributable to prior years increased by $1.0 million and decreased by $2.1 million for the six months ended June 30, 2023 and 2022, respectively. Medical costs payable estimates are adjusted as additional information regarding claims becomes known; there were no significant changes to estimation methodologies during the periods.

The table below details the components making up the medical costs payable as of June 30 (in thousands):


	June 30,
	2023		2022
Provider incentive payable	$	27,884	$	—
Incurred but not reported (IBNR)	151,971		102,015
Total medical costs payable	$	179,855	$	102,015

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 5. SHORT-TERM BORROWINGS

We have a $350.0 million revolving credit agreement with a syndicate of banks (the “Credit Agreement”), which matures on February 28, 2024. As of June 30, 2023 and December 31, 2022 we had $303.9 million borrowed under the Credit Agreement at a weighted-average effective annual interest rate of 10.19%, which remains outstanding as of June 30, 2023. Refer to Note 9, Commitments and Contingencies for more information on the undrawn letters of credit of $30.7 million under the Credit Agreement, which reduce the amount available to borrow.

On June 29, 2023, the Company entered into a second amended and restated limited waiver and consent (the “Third Waiver”) under the Credit Agreement, which amended and restated the amended and restated limited waiver and consent entered into by the Company under the Credit Agreement on April 28, 2023 (the “Second Waiver”), which previously amended and restated that certain limited waiver and consent entered into by the Company under the Credit Agreement on February 28, 2023 (the “Original Waiver”). The Third Waiver amended the Second Waiver and the Original Waiver by, among other things, extending

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

the temporary waiver of compliance with the minimum liquidity covenant set forth in Section 11.12.2 of the Credit Agreement, which spanned from January 25, 2023 to June 30, 2023 under the Original Waiver and the Existing Waiver, to January 25, 2023 to August 29, 2023 (the “Extended Waiver Period”). The Third Waiver also, among other things, added covenants (a) requiring the Company to deliver by July 17, 2023, an agreed term sheet for the Bridge Financing to support the Company’s ongoing operating cash needs through December 31, 2023 and, by July 31, 2023 (extended to August 4, 2023), definitive documentation for the Bridge Financing and an updated budget of the Company, (b) prohibiting the incurrence of certain types of debt and (c) requiring the Company not to request any interest period for any term SOFR borrowing other than a one-month interest period.

On August 4, 2023, the Company entered into a third amended and restated limited waiver and consent (the “Fourth Waiver”) under the Credit Agreement. The Fourth Waiver amends and restates the Third Waiver by, among other things, permanently waiving compliance with the minimum liquidity covenant set forth in Section 11.12.2 of the Credit Agreement, which under the Third Waiver previously was temporary and would have expired on August 29, 2023. From August 4, 2023 until the Credit Agreement is terminated and all outstanding loans thereunder are repaid, the Company will be subject to a minimum liquidity covenant of not less than $25.0 million. The Fourth Waiver also, among other things, (a) removes from the credit agreement in its entirety the covenant requiring maintenance of a maximum total debt to capitalization ratio, which absent such removal would have applied after September 30, 2023, (b) prohibits the incurrence of certain types of debt and (c) requires the Company not to request any interest period for any Term Benchmark borrowing other than a one-month interest period.

NOTE 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 based awards, and cash based incentive awards to certain employees, consultants and non-employee directors. There are 1.7 million shares of common stock authorized for issuance under the 2021 Incentive Plan. As of June 30, 2023, a total of 0.3 million shares of common stock were available for future issuance under the 2021 Incentive Plan.

Share-Based Compensation Expense

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

We recognized share-based compensation expense of $49.1 million and $53.1 million for the six months ended June 30, 2023 and 2022, respectively, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss).

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. Stock 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 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.

There were no options granted during the six months ended June 30, 2023.

The activity for stock options for the six months ended June 30, 2023 is as follows (in thousands, except exercise price and contractual life):


	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2023	804	$	145.60	6.7	$	6,560
Granted	—	—
Exercised	—	—
Forfeited	(26)	220.21
Expired	(58)	151.36
Outstanding at June 30, 2023	720	$	142.13	5.2	$	569

We recognized share-based compensation expense related to stock options of $24.5 million for the six months ended June 30, 2023, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At June 30, 2023, there was $17.7 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 1.6 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 six months ended June 30, 2023 (in thousands, except weighted average grant date fair value):


	Number of RSUs	Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2022	470	$	189.88
Granted	964	32.24
Vested	(94)	129.70
Forfeited	(232)	101.45
Unvested RSUs at June 30, 2023	1,108	$	72.57

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

We recognized share-based compensation expense related to RSUs of $10.8 million for the six months ended June 30, 2023, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). As of June 30, 2023, there was $44.3 million of unrecognized compensation expense related to the RSU grants, which is expected to be recognized over a weighted-average period of 1.8 years.

Performance-based Restricted Stock Units (“PSUs”)

In connection with our IPO, our Board of Directors approved the grant of PSUs to members of our executive leadership team. The grant encompassed a total of 183,750 PSUs, separated into four equal tranches, each of which are eligible to vest based on the achievement of predetermined stock price goals and a minimum service period of 3.0 years. The fair value of the PSUs was determined using a Monte-Carlo simulation.

The following table summarizes PSU award activity for the six months ended June 30, 2023 (in thousands, except weighted average grant date fair value):


	Number of PSUs	Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2022	131	$	744.00
Granted	—	—
Forfeited	—	—
Unvested PSUs at June 30, 2023	131	$	744.00

We recognized share-based compensation expense related to PSUs of $13.8 million for the six months ended June 30, 2023, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At June 30, 2023, there was $24.6 million of unrecognized compensation expense related to the PSU grant, which is expected to be recognized over a weighted-average period of 1.0 years.

NOTE 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK

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 $57.6 million and $37.9 million as of June 30, 2023 and December 31, 2022, 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 $325.32 per share subsequent to the issuance of the Series B Preferred Stock) 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 relevant number of shares of common

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 $6.2 million and $1.8 million as of June 30, 2023 and December 31, 2022, 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) 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

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Notes to Condensed Consolidated Financial Statements

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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 30 (in thousands, except for per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Loss from continuing operations, net noncontrolling interests and accrued preferred stock dividends	$	(68,070)	$	(107,559)	$	(139,432)	$	(252,680)
Loss from discontinued operations	(56,935)		(176,568)		(172,478)		(235,619)
Net loss attributable to Bright Health Group, Inc. common shareholders	$	(125,005)	$	(284,127)	$	(311,910)	$	(488,299)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted	7,962		7,865		7,928		7,862
Basic and diluted loss per share attributable to Bright Health Group, Inc. common shareholders
Continuing operations	$	(8.55)	$	(13.68)	$	(17.59)	$	(32.14)
Discontinued operations	$	(7.15)	$	(22.45)	$	(21.76)	$	(29.97)
Net loss per share attributable to common stockholders, basic and diluted	$	(15.70)	$	(36.13)	$	(39.35)	$	(62.11)

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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 six months ended June 30 (in thousands):


	Six Months Ended June 30,
	2023	2022
Redeemable convertible preferred stock (as converted to common stock)	4,081	2,112
Stock options to purchase common stock	720	853
Restricted stock units	1,108	458
Total	5,909	3,423

NOTE 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.

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 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, other than as set forth above, the amount or range of reasonably possible losses, if any, cannot be estimated. We have not accrued for any potential loss as of June 30, 2023 and December 31, 2022 for these actions.

Other commitments: As of June 30, 2023, we had $30.7 million outstanding, undrawn letters of credit under the Credit Agreement.

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 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: Care Delivery and Care Solutions. The Care Delivery and Care Solutions segments are new 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.

Care Delivery and Care Solutions, 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:

Care Delivery: 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 June 30, 2023, Care Delivery provides virtual and in-person clinical care through its 71 owned primary care clinics within an integrated care delivery system. Through these risk-bearing clinics and

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

our affiliated network of care providers, our Care Delivery segment serves approximately 340,000 consumers. Care Delivery customers include external payors, third party administrators, affiliated providers and direct-to-government programs.

Care Solutions: 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 June 30, 2023, Care Solutions has approximately 65,000 members attributed to its REACH ACO’s.

The Company’s accounting policies for reportable segment operations are consistent with those described in Note 2, Summary of Significant Accounting Policies, in our 2022 Form 10-K. We utilize operating income (loss) before income taxes as the profitability metric for our reportable segments.

The following tables present the reportable segment financial information for the three and six months ended June 30, 2023 and 2022 (in thousands):


Three Months Ended June 30, 2023	Care Delivery		Care Solutions		Corporate & Eliminations		Consolidated
Capitated revenue	$	49,764	$	—	$	—	$	49,764
ACO REACH revenue	—		236,994		—		236,994
Service revenue	10,530		692		—		11,222
Investment income (loss)	—		—		2		2
Total unaffiliated revenue	60,294		237,686		2		297,982
Affiliated revenue	5,774		—		(5,774)		—
Total segment revenue	66,068		237,686		(5,772)		297,982
Operating income (loss)	11,031		2,996		(37,441)		(23,414)
Depreciation and amortization	3,178		—		1,493		4,671
Restructuring charges	—		—		1,285		1,285


Three Months Ended June 30, 2022	Care Delivery		Care Solutions		Corporate & Eliminations		Consolidated
Capitated revenue	$	17,641	$	—	$	—	$	17,641
ACO REACH revenue	—		137,205		—		137,205
Service revenue	10,691		41		—		10,732
Investment income (loss)	—		—		(16,238)		(16,238)
Total unaffiliated revenue	28,332		137,246		(16,238)		149,340
Affiliated revenue	204,271		—		(204,271)		—
Total segment revenue	232,603		137,246		(220,509)		149,340
Operating income (loss)	(698)		825		(71,646)		(71,519)
Depreciation and amortization	6,369		—		1,907		8,276
Restructuring charges	—		—		2,793		2,793

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Notes to Condensed Consolidated Financial Statements

(Unaudited)


Six Months Ended June 30, 2023	Care Delivery		Care Solutions		Corporate & Eliminations		Consolidated
Capitated revenue	$	99,312	$	—	$	—	$	99,312
ACO REACH revenue	—		476,801		—		476,801
Service revenue	21,466		943		—		22,409
Investment income (loss)	—		—		10		10
Total unaffiliated revenue	120,778		477,744		10		598,532
Affiliated revenue	7,969		—		(7,969)		—
Total segment revenue	128,747		477,744		(7,959)		598,532
Operating income (loss)	17,667		1,487		(87,440)		(68,286)
Depreciation and amortization	6,310		—		3,844		10,154
Restructuring charges	—		—		1,586		1,586


Six Months Ended June 30, 2022	Care Delivery		Care Solutions		Corporate & Eliminations		Consolidated
Capitated revenue	$	46,289	$	—	$	—	$	46,289
ACO REACH revenue	—		320,002		—		320,002
Service revenue	20,910		52		—		20,962
Investment income (loss)	—		—		(57,149)		(57,149)
Total unaffiliated revenue	67,199		320,054		(57,149)		330,104
Affiliated revenue	572,391		—		(572,391)		—
Total segment revenue	639,590		320,054		(629,540)		330,104
Operating income (loss)	(22,749)		4,989		(164,163)		(181,923)
Depreciation and amortization	12,745		—		3,591		16,336
Restructuring charges	—		—		9,657		9,657

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 CODM.

NOTE 11. INCOME TAXES

Income tax was a benefit of $0.9 million and an expense of $2.9 million for the three months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, income tax was an expense of $0.4 million and $12.9 million, respectively. 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 three and six months ended June 30, 2023, and 2022, the expense largely relates to amortization of originating goodwill from asset acquisitions and estimated state income taxes 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, 2023. 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 2023 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.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 12. REDEEMABLE NONCONTROLLING INTEREST

Redeemable noncontrolling interests in our subsidiaries whose redemption is outside of our control are classified as temporary equity. The following table provides details of our redeemable noncontrolling interest activity for the three and six months ended June 30, 2023 and 2022 (in thousands):


	2023		2022
Balance at January 1	$	219,758	$	128,407
Earnings attributable to noncontrolling interest	1,421		(2,681)
Distribution to noncontrolling interest holders	(1,805)		—
Measurement adjustment	4,129		17,285
Balance at March 31	$	223,503	$	143,011
Earnings attributable to noncontrolling interest	3,139		3,625
Distribution to noncontrolling interest holders	(3,147)		(1,894)
Measurement adjustment	21,066		19,712
Balance at June 30	$	244,561	$	164,454

NOTE 13. ACO REACH

Bright Health Group Inc. [BHG] Filings
10-Q	[2023-08-09]
10-Q	[2023-05-10]
10-K	[2023-03-16]
10-Q	[2022-11-14]
10-Q	[2022-08-15]
10-Q	[2022-05-12]
10-K	[2022-03-18]
10-Q	[2021-11-15]
10-Q	[2021-08-11]
S-1	[2021-05-19]