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 ~~September 30, 2021~~March 31, 2022


☐			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 1200, 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	o
Non-accelerated filer	x	Smaller reporting company	o
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 ~~November 4, 2021~~May 3, 2022, the registrant had ~~628,315,180~~629,245,760 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 ~~Stockholders’~~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	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4 440

Item 4.	Controls and Procedures	4440

PART II.	OTHER INFORMATION	4541

Item 1.	Legal Proceedings	4541

Item 1A.	Risk Factors	4541

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	4641

Item 3.	Defaults upon Senior Securities	4741

Item 4.	Mine Safety Disclosures	4741

Item 5.	Other Information	4741

Item 6.	Exhibits	4742

Table of Contents

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.~~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” 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: a lack of acceptance or slow adoption of our business model; our ability to retain existing consumers and expand consumer enrollment; our ability to obtain and accurately assess, code, and report Individual and Family Plan (“IFP”) and Medicare Advantage (“MA”) risk adjustment factor scores for consumers; 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 Direct Contracting; and the other factors set forth under the heading “Risk Factors” in this Quarterly Report and Bright Health Group’s ~~prospectus dated June 23,~~Annual Report on Form 10-K for the year ended December 31, 2021, ~~(File No.333-256286), as~~that was filed with the United States Securities and Exchange Commission ~~pursuant to Rule 424(b)(4) under~~(“SEC”) on March 18, 2022 (“2021 Form 10-K”) and our 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. ~~Although~~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 ~~the~~such 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.

Table of Contents

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)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	956,189	$	488,371	Cash and cash equivalents	$	1,505,547	$	1,061,179
Short-term investments	Short-term investments	331,719		499,928		Short-term investments	692,472		193,835
Accounts receivable, net of allowance of $5,701 and $2,602, respectively		99,216		60,522
Accounts receivable, net of allowance of $5,172 and $4,074, respectively						Accounts receivable, net of allowance of $5,172 and $4,074, respectively	142,695		113,474
Direct contracting performance year receivable						Direct contracting performance year receivable	638,641		—
Prepaids and other current assets	Prepaids and other current assets	240,545		130,986		Prepaids and other current assets	315,422		291,712
Total current assets	Total current assets	1,627,669		1,179,807		Total current assets	3,294,777		1,660,200
Other assets:	Other assets:					Other assets:
Long-term investments	Long-term investments	681,923		175,176		Long-term investments	733,465		675,192
Property, equipment and capitalized software, net	Property, equipment and capitalized software, net	30,932		12,264		Property, equipment and capitalized software, net	41,279		38,344
Goodwill	Goodwill	842,301		263,035		Goodwill	835,450		835,140
Intangible assets, net	Intangible assets, net	351,519		152,211		Intangible assets, net	326,617		343,860
Other non-current assets	Other non-current assets	40,751		28,309		Other non-current assets	43,438		45,603
Total other assets	Total other assets	1,947,426		630,995		Total other assets	1,980,249		1,938,139
Total assets	Total assets	$	3,575,095	$	1,810,802	Total assets	$	5,275,026	$	3,598,339
Liabilities, Redeemable Noncontrolling Interest, Redeemable Preferred Stock and Shareholders’ Equity (Deficit)	Liabilities, Redeemable Noncontrolling Interest, Redeemable Preferred Stock and Shareholders’ Equity (Deficit)					Liabilities, Redeemable Noncontrolling Interest, Redeemable Preferred Stock and Shareholders’ Equity (Deficit)
Current liabilities:	Current liabilities:					Current liabilities:
Medical costs payable	Medical costs payable	$	685,045	$	249,777	Medical costs payable	$	1,155,155	$	817,975
Accounts payable	Accounts payable	95,161		57,252		Accounts payable	128,407		118,140
Unearned revenue	Unearned revenue	34,917		34,628		Unearned revenue	34,893		53,295
Risk adjustment payable	Risk adjustment payable	548,352		187,777		Risk adjustment payable	1,285,446		931,170
Direct contracting performance year obligation						Direct contracting performance year obligation	533,537		—
Short-term borrowings						Short-term borrowings	—		155,000
Other current liabilities	Other current liabilities	88,133		35,847		Other current liabilities	251,523		207,238
Total current liabilities	Total current liabilities	1,451,608		565,281		Total current liabilities	3,388,961		2,282,818
Other liabilities	Other liabilities	56,254		28,578		Other liabilities	38,849		41,994
Total liabilities	Total liabilities	1,507,862		593,859		Total liabilities	3,427,810		2,324,812
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)	0		0		Commitments and contingencies (Note 10)	0		0
Redeemable noncontrolling interests	Redeemable noncontrolling interests	130,029		39,600		Redeemable noncontrolling interests	143,011		128,407
Redeemable preferred stock, $0.0001 par value; 100,000,000 and 166,307,087 shares authorized in 2021 and 2020, respectively; — and 164,244,893 shares issued and outstanding in 2021 and 2020, respectively		—		1,681,015
Series A redeemable preferred stock, $0.0001 par value; 100,000,000 shares authorized in 2022 and 2021; 750,000 and — shares issued and outstanding in 2022 and 2021, respectively						Series A redeemable preferred stock, $0.0001 par value; 100,000,000 shares authorized in 2022 and 2021; 750,000 and — shares issued and outstanding in 2022 and 2021, respectively	747,481		—
Shareholders’ equity (deficit):	Shareholders’ equity (deficit):					Shareholders’ equity (deficit):
Common stock, $0.0001 par value; 3,000,000,000 and 658,993,725 shares authorized in 2021 and 2020, respectively; 628,133,782 and 137,662,698 shares issued and outstanding in 2021 and 2020, respectively		63		14
Common stock, $0.0001 par value; 3,000,000,000 shares authorized in 2022 and 2021; 628,992,422 and 628,622,872 shares issued and outstanding in 2022 and 2021, respectively						Common stock, $0.0001 par value; 3,000,000,000 shares authorized in 2022 and 2021; 628,992,422 and 628,622,872 shares issued and outstanding in 2022 and 2021, respectively	63		63
Additional paid-in capital	Additional paid-in capital	2,823,244		9,877		Additional paid-in capital	2,894,421		2,861,243
Accumulated deficit	Accumulated deficit	(886,333)		(515,989)		Accumulated deficit	(1,896,085)		(1,700,851)
Accumulated other comprehensive income		230		2,426
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(29,675)		(3,335)
Treasury stock, at cost, 2,522,148 shares at March 31, 2022 and December 31, 2021, respectively						Treasury stock, at cost, 2,522,148 shares at March 31, 2022 and December 31, 2021, respectively	(12,000)		(12,000)
Total shareholders’ equity (deficit)	Total shareholders’ equity (deficit)	1,937,204		(503,672)		Total shareholders’ equity (deficit)	956,724		1,145,120
Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit)	Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit)	$	3,575,095	$	1,810,802	Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit)	$	5,275,026	$	3,598,339

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

Bright Health Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(in thousands, except ~~share and~~ per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenue:	Revenue:									Revenue:
Premium revenue	Premium revenue	$	1,020,233	$	345,426	$	2,922,950	$	827,135	Premium revenue	$	1,680,450	$	860,631
Direct contracting revenue										Direct contracting revenue	182,797		—
Service revenue	Service revenue	11,079		4,920		31,602		13,344		Service revenue	12,428		8,438
Investment income		47,345		1,774		112,503		7,063
Investment income (loss)										Investment income (loss)	(40,100)		5,489
Total revenue	Total revenue	1,078,657		352,120		3,067,055		847,542		Total revenue	1,835,575		874,558
Operating expenses:	Operating expenses:									Operating expenses:
Medical costs	Medical costs	1,050,943		311,319		2,640,143		675,114		Medical costs	1,580,596		684,570
Operating costs	Operating costs	309,790		97,379		779,090		260,650		Operating costs	418,918		208,240
Depreciation and amortization	Depreciation and amortization	14,205		2,678		25,981		5,550		Depreciation and amortization	13,041		4,581
Total operating expenses	Total operating expenses	1,374,938		411,376		3,445,214		941,314		Total operating expenses	2,012,555		897,391
Operating loss	Operating loss	(296,281)		(59,256)		(378,159)		(93,772)		Operating loss	(176,980)		(22,833)
Interest expense	Interest expense	1,594		—		6,282		—		Interest expense	1,193		546
Other income	Other income	(1,226)		—		(1,226)		—		Other income	(784)		—
Loss before income taxes	Loss before income taxes	(296,649)		(59,256)		(383,215)		(93,772)		Loss before income taxes	(177,389)		(23,379)
Income tax expense (benefit)		73		—		(18,225)		(9,162)
Income tax expense										Income tax expense	3,240		1,166
Net loss	Net loss	(296,722)		(59,256)		(364,990)		(84,610)		Net loss	(180,629)		(24,545)
Net earnings attributable to noncontrolling interests	Net earnings attributable to noncontrolling interests	(3,942)		—		(5,354)		—		Net earnings attributable to noncontrolling interests	(14,605)		(617)
Series A preferred stock dividend accrued										Series A preferred stock dividend accrued	(8,938)		—
Net loss attributable to Bright Health Group, Inc. common shareholders	Net loss attributable to Bright Health Group, Inc. common shareholders	$	(300,664)	$	(59,256)	$	(370,344)	$	(84,610)	Net loss attributable to Bright Health Group, Inc. common shareholders	$	(204,172)	$	(25,162)
Basic and diluted loss per share attributable to Bright Health Group, Inc. common shareholders	Basic and diluted loss per share attributable to Bright Health Group, Inc. common shareholders	$	(0.48)	$	(0.43)	$	(1.19)	$	(0.62)	Basic and diluted loss per share attributable to Bright Health Group, Inc. common shareholders	$	(0.32)	$	(0.18)
Basic and diluted weighted-average common shares outstanding	Basic and diluted weighted-average common shares outstanding	630,378		136,337		312,294		135,926		Basic and diluted weighted-average common shares outstanding	628,765		140,175

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

Bright Health Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net loss	Net loss	$	(296,722)	$	(59,256)	$	(364,990)	$	(84,610)	Net loss	$	(180,629)	$	(24,545)
Other comprehensive (loss) income:	Other comprehensive (loss) income:									Other comprehensive (loss) income:
Unrealized investment holding (losses) gains arising during the year, net of tax of $0 and $0, respectively		(143)		(958)		(1,808)		2,326
Less: reclassification adjustments for investment gains, net of tax of $0 and $0, respectively		160		119		388		68
Unrealized investment holding losses arising during the year, net of tax of $0 and $0, respectively										Unrealized investment holding losses arising during the year, net of tax of $0 and $0, respectively	(28,089)		(980)
Less: reclassification adjustments for investment (losses) gains, net of tax of $0 and $0, respectively										Less: reclassification adjustments for investment (losses) gains, net of tax of $0 and $0, respectively	(1,749)		62
Other comprehensive (loss) income	Other comprehensive (loss) income	(303)		(1,077)		(2,196)		2,258		Other comprehensive (loss) income	(26,340)		(1,042)
Comprehensive loss	Comprehensive loss	(297,025)		(60,333)		(367,186)		(82,352)		Comprehensive loss	(206,969)		(25,587)
Comprehensive loss attributable to noncontrolling interests	Comprehensive loss attributable to noncontrolling interests	(3,942)		—		(5,354)		—		Comprehensive loss attributable to noncontrolling interests	(14,605)		(617)
Comprehensive loss attributable to Bright Health Group, Inc. common shareholders	Comprehensive loss attributable to Bright Health Group, Inc. common shareholders	$	(300,967)	$	(60,333)	$	(372,540)	$	(82,352)	Comprehensive loss attributable to Bright Health Group, Inc. common shareholders	$	(221,574)	$	(26,204)

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

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)				Total			Redeemable Preferred Stock						Common Stock			Additional Paid-In Capital			Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		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)
2022																				2022	Shares			Amount			Shares	Amount		Additional Paid-In Capital			Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at January 1, 2022																				Balance at January 1, 2022	—			$	—		628,623	$	63
Net loss	Net loss	—	—		—	—		—				(25,162)		—				(25,162)		Net loss	—			—			—	—				—			(195,234)		—		—		(195,234)
Issuance of preferred stock	Issuance of preferred stock	1,420	55,137		—	—		—				—		—				—		Issuance of preferred stock	750			747,481			—	—		—			—		—		—		—
Issuance of common stock	Issuance of common stock	—	—		4,661	—		4,893				—		—				4,893		Issuance of common stock	—			—			370	—		257			—		—		—		257
Share-based compensation	Share-based compensation	—	—		—	—		5,176				—		—				5,176		Share-based compensation	—			—			—	—		32,921			—		—		—		32,921
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—		(1,042)				(1,042)		Other comprehensive loss	—			—			—	—		—			—		(26,340)		—		(26,340)
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		—	—		625,691	$	63	$	2,735,099			$	(585,669)	$	533			$	2,150,026

Net loss		—	—		—	—		—				(300,664)		—				(300,664)
Issuance of common stock		—	—		4,965	—		75,965				—		—				75,965
Return of common stock from escrow settlement		—	—		(2,522)	—		(12,000)				—		—				(12,000)
Share-based compensation		—	—		—	—		24,180				—		—				24,180
Other comprehensive loss		—	—		—	—		—				—		(303)				(303)
Balance at September 30, 2021		—	—		628,134	$	63	$	2,823,244			$	(886,333)	$	230			$	1,937,204
Balance at March 31, 2022																				Balance at March 31, 2022	750			$	747,481		628,993	$	63	$	2,894,421		$	(1,896,085)	$	(29,675)	$	(12,000)	$	956,724

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)				Total			Redeemable Preferred Stock						Common Stock			Additional Paid-In Capital			Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		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)
2021																			2021	Shares			Amount			Shares	Amount		Additional Paid-In Capital			Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at January 1, 2021																			Balance at January 1, 2021	164,245			$	1,681,015		137,663	$	14
Net loss	Net loss	—	—	—	—		—				(7,280)		—				(7,280)		Net loss	—			—			—	—				—			(25,162)		—		—		(25,162)
Issuance of preferred stock	Issuance of preferred stock	—	—	—	—		—				—		—				—		Issuance of preferred stock	1,420			55,137			—	—		—			—		—		—		—
Issuance of common stock	Issuance of common stock	—	—	183	—		13				—		—				13		Issuance of common stock	—			—			4,661	—		4,893			—		—		—		4,893
Share-based compensation	Share-based compensation	—	—	—	—		943				—		—				943		Share-based compensation	—			—			—	—		5,176			—		—		—		5,176
Other comprehensive income (loss)		—	—	—	—		—				—		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 (loss)		—	—	—	—		—				—		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)

Net loss		—	—	—	—		—				(59,256)		—				(59,256)
Issuance of preferred stock		23,296	475,640	—	—		—				—		—				—
Issuance of common stock		—	—	882	—		743				—		—				743
Share-based compensation		—	—	—	—		1,529				—		—				1,529
Other comprehensive income (loss)		—	—	—	—		—				—		(1,077)				(1,077)
Balance at September 30, 2020		162,179	1,638,830	136,820	$	14	$	7,780			$	(352,157)	$	3,240			$	(341,123)
Other comprehensive loss																			Other comprehensive loss	—			—			—	—		—			—		(1,042)		—		(1,042)
Balance at March 31, 2021																			Balance at March 31, 2021	165,665			$	1,736,152		142,324	$	14	$	19,946		$	(541,151)	$	1,384	$	—	$	(519,807)

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

Bright Health Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in ~~thousands)~~thousands)

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(370,344)	$	(84,610)	Net loss	$	(180,629)	$	(25,162)
Adjustments to reconcile net loss to net cash provided by operating activities:	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	25,981		5,550		Depreciation and amortization	13,041		4,581
Impairment of intangible assets						Impairment of intangible assets	6,720		—
Share-based compensation	Share-based compensation	43,234		3,722		Share-based compensation	32,921		5,176
Deferred income taxes	Deferred income taxes	(17,946)		—		Deferred income taxes	717		1,166
Unrealized gain on equity securities		(109,012)		—
Unrealized loss on equity securities						Unrealized loss on equity securities	40,968		—
Other, net	Other, net	14,555		1,022		Other, net	2,378		2,694
Changes in assets and liabilities, net of acquired assets and liabilities:	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	(18,683)		27,508		Accounts receivable	(29,221)		(23,188)
Direct contracting performance year receivable						Direct contracting performance year receivable	(638,641)		—
Other assets	Other assets	(86,836)		(24,980)		Other assets	(22,270)		(15,707)
Medical cost payable	Medical cost payable	342,531		35,458		Medical cost payable	337,180		225,814
Risk adjustment payable	Risk adjustment payable	359,257		68,186		Risk adjustment payable	354,276		137,215
Accounts payable and other liabilities	Accounts payable and other liabilities	53,853		(22,015)		Accounts payable and other liabilities	52,182		30,096
Unearned revenue	Unearned revenue	(3,476)		1,498		Unearned revenue	(18,402)		918
Direct contracting performance year obligation						Direct contracting performance year obligation	533,537		—
Net cash provided by operating activities	Net cash provided by operating activities	233,114		11,339		Net cash provided by operating activities	484,757		343,603
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of investments	Purchases of investments	(736,838)		(702,672)		Purchases of investments	(782,091)		(298,957)
Proceeds from sales, paydown, and maturities of investments	Proceeds from sales, paydown, and maturities of investments	536,110		349,113		Proceeds from sales, paydown, and maturities of investments	154,765		265,521
Purchases of property and equipment	Purchases of property and equipment	(20,682)		(1,181)		Purchases of property and equipment	(5,491)		(4,215)
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	(431,718)		(174,090)		Business acquisitions, net of cash acquired	(310)		(18,624)
Net cash used in investing activities	Net cash used in investing activities	(653,128)		(528,830)		Net cash used in investing activities	(633,127)		(56,275)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of preferred stock	Proceeds from issuance of preferred stock	—		686,840		Proceeds from issuance of preferred stock	747,481		—
Proceeds from issuance of common stock	Proceeds from issuance of common stock	10,581		874		Proceeds from issuance of common stock	257		4,893
Proceeds from short-term borrowings	Proceeds from short-term borrowings	200,000		—		Proceeds from short-term borrowings	—		200,000
Repayments of short-term borrowings	Repayments of short-term borrowings	(200,000)		—		Repayments of short-term borrowings	(155,000)		—
Payments for debt issuance costs	Payments for debt issuance costs	(3,391)		—		Payments for debt issuance costs	—		(3,391)
Proceeds from IPO		887,328		—
Payments for IPO offering costs	Payments for IPO offering costs	(6,686)		—		Payments for IPO offering costs	—		(1,268)
Net cash provided by financing activities	Net cash provided by financing activities	887,832		687,714		Net cash provided by financing activities	592,738		200,234
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	467,818		170,223		Net increase in cash and cash equivalents	444,368		487,562
Cash and cash equivalents – beginning of year	Cash and cash equivalents – beginning of year	488,371		522,910		Cash and cash equivalents – beginning of year	1,061,179		488,371
Cash and cash equivalents – end of period	Cash and cash equivalents – end of period	$	956,189	$	693,133	Cash and cash equivalents – end of period	$	1,505,547	$	975,933
Supplemental disclosures of cash flow information:	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	$	(2,196)	$	2,258	Changes in unrealized (loss) gain on available-for-sale securities in OCI	$	(26,340)	$	(1,042)
Cash paid for interest	Cash paid for interest	3,865		—		Cash paid for interest	1,168		244
Supplemental schedule of non-cash activities:	Supplemental schedule of non-cash activities:					Supplemental schedule of non-cash activities:
Redeemable convertible preferred stock issued for acquisitions	Redeemable convertible preferred stock issued for acquisitions	$	134,944	$	80,000	Redeemable convertible preferred stock issued for acquisitions	$	—	$	32,982
Conversion of redeemable convertible preferred stock to common stock upon initial public offering		1,815,916		—

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

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 ~~connecting and~~ 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,~~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 ~~optimize clinical outcomes.~~powered by technology. We have two market facing businesses: NeueHealth and Bright HealthCare. NeueHealth provides care delivery and value-based enablement services through our owned and affiliated clinics. Bright HealthCare offers Commercial and Medicare health plan products across the nation.

~~Stock Split:~~ ~~On June~~Beginning January 1, 2022, 2 ~~2021, we effected a stock split of~~Direct Contracting Entities (“DCEs”) aligned with our NeueHealth segment began participating in the ~~Company’s common stock on a 1-for-3 basis (the “Stock Split”~~Centers for Medicare and Medicaid Services' (“CMS”) Global and Professional Direct Contracting model (“DC Model”). ~~In connection with the Stock Split, the conversion rate~~Both DCEs assume full risk for the ~~Company’s preferred stock was proportionately adjusted such that the common stock issuable upon conversion~~total cost of such preferred stock was increased 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.care of aligned beneficiaries.

~~Initial Public Offering:~~ ~~On June 28, 2021,~~In April 2022, we ~~completed our initial public offering (“IPO”)~~announced that Bright HealthCare will be exiting the Commercial marketplace in ~~which we issued~~6 states for the 2023 plan year: Illinois, New Mexico, Oklahoma, South Carolina, Utah, 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,Virginia, 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~~discontinuing 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.employer group business.

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, ~~2020~~2021 included in our Form 10-K for the ~~prospectus dated June 23,~~year ended December 31, 2021 ~~(File No.333-256286) (the “Prospectus”~~(“2021 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.

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, premium deficiency reserve, Direct Contracting performance year receivable and obligation, and valuation and impairment of goodwill and other intangible ~~assets, valuation and impairment of investments and estimates of share-based compensation.~~assets. Actual results could differ from these estimates.

Performance Guarantees: Through our participation in the DC Model, we determined that our arrangements with the providers of our DCE beneficiaries require us to guarantee their performance to CMS. We recognized our obligation to guarantee their performance for the duration of the performance year on the Condensed Consolidated Balance Sheets. As we fulfill our obligation we ratably amortize the guarantee for the amount that represents the completed portion of the performance obligation as direct contracting revenue on the Condensed Consolidated Statements of Income (Loss). Direct contracting revenue is derived from the estimated annual sum of the capitation payments made to the DCEs for services within the scope of the capitation arrangement with CMS and fee-for-service (“FFS”) payments from CMS made directly to third-party providers for our aligned beneficiaries. For each performance year, the ~~three months ended September 30, 2021,~~final consideration due to the DCEs by CMS (shared savings) or the consideration due to CMS by the DCEs (shared loss) is reconciled in the year following the performance year. Periodically during the performance year, CMS will measure the shared savings or loss and adjust the performance benchmark and thus the remaining performance obligation if we ~~recognized~~are in a ~~change in estimate~~probable shared loss position.

Net loss per share: Prior to 2022, basic net loss per share attributable to common stockholders was computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for ~~risk adjustment~~the period. Diluted net loss attributable to common stockholders is computed by adjusting net losses attributable to common stockholders to reallocate undistributed earnings based on the potential impact of ~~$134.0 million as a result of updated data inputs used~~dilutive securities. Diluted net loss per share attributable to ~~calculate Individual and Family Plan (“IFP”) members’ expected full year risk scores, which resulted in an increase in risk adjustment~~common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the

Table of Contents

Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~payable~~weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. Beginning in 2022, we also include our Series A Convertible Perpetual Preferred Stock (“Series A Preferred Stock”) issued in January 2022 as a participating security in the ~~Condensed Consolidated Balance Sheets~~computation of net loss per share pursuant to the two-class method. The two-class method of calculating net income (loss) per share is an allocation method that calculates earnings per share for common stock and ~~a reduction~~participating securities. Under the two-class method, total dividends due to the holders of the Series A Preferred Stock and undistributed earnings allocated to participating securities are subtracted from net income (loss) in ~~premium revenue in the Condensed Consolidated Statements of Income (Loss).~~determining net income (loss) attributable to common stockholders.

Operating Costs: Our operating costs, by functional classification for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ are as follows (in ~~thousands)~~thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Compensation and fringe benefits	Compensation and fringe benefits	$	100,062	$	35,588	$	234,467	$	92,589	Compensation and fringe benefits	$	132,067	$	57,026
Professional fees	Professional fees	61,483		20,745		143,248		53,381		Professional fees	66,811		39,463
Marketing and selling expense		69,443		15,941		183,636		39,056
Marketing and selling expenses										Marketing and selling expenses	91,807		50,205
Premium taxes and fees										Premium taxes and fees	69,781		37,731
General and administrative expenses										General and administrative expenses	40,710		14,440
Other operating expenses	Other operating expenses	78,802		25,105		217,739		75,624		Other operating expenses	17,742		9,375
Total operating costs	Total operating costs	$	309,790	$	97,379	$	779,090	$	260,650	Total operating costs	$	418,918	$	208,240

Recently Issued and Adopted Accounting Pronouncements: In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. We adopted ASU 2020-06 on January 1, 2022. The adoption did not have a material impact on our financial condition, results of operations or cash flows.

There were no other 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 Medical Holdings, LLC (“Centrum”) for cash consideration of $222.4 million and $75.0 million of common stock, for total purchase consideration of $296.2 million, net of $1.2 million of cash acquired. Centrum is a value-based primary care focused, multi-specialty medical group based in Florida. Centrum operates 17 health centers in Florida, Texas and North Carolina serving Commercial, Medicare, and Medicaid consumers across multiple ~~payors, with secured expansion locations in Texas and North Carolina.~~payors. Centrum is included in our NeueHealth reportable segment. Transaction costs of $1.0 million incurred in connection with the acquisition are included in operating costs in the Condensed Consolidated Statements of Income (Loss) for the nine months ended September 30, 2021.

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 predominantly 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 from the Centrum acquisition is expected to be deductible for tax purposes.

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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 Centrum acquisition (in ~~thousands)~~thousands):


Accounts receivable	$	1,874
Prepaids and other current assets	627
Property and equipment	2,557
Intangible assets	102,370
Other assets	8,917
Total assets	116,345
Medical payables	19
Accounts payable	359
Other current liabilities	861
Other liabilities	11,636
Total liabilities	12,875
Net identified assets acquired	103,470
Goodwill	~~277,831~~275,066
Redeemable noncontrolling interest	~~(85,075)~~(82,310)
Total purchase consideration, net of cash acquired	$	296,226

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. The Company is in process of identifying any additional intangible assets that would reduce the goodwill recognized. The fair values of certain assets and liabilities have changed from previous disclosure. We obtained additional information to estimate the fair value of the right-of-use lease asset and liability included within other assets and other liabilities. We also updated the fair value of intangible assets based on the methodologies described below.

Our preliminary estimate of intangible assets related to the Centrum acquisition consists of trade names with a 15-year useful life, customer relationships with 2- to 15-year useful lives, and a reacquired contract between Bright HealthCare and Centrum with a useful life of 4.5 years. The value of the trade name was determined using the relief of royalty method and the excess earnings method was used to value the customer relationships; both methods are considered Level 3 fair value measurements. The fair value of noncontrolling interest was determined using a 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 ~~nine~~three months ended ~~September 30, 2021 or the three and nine months ended September 30, 2020.~~March 31, 2021.

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 and $13.9 million of working capital adjustments, for total purchase consideration of ~~$271.7~~$285.6 million, net of $84.1 million of cash acquired. All outstanding shares of Series E preferred stock were converted into shares of common stock automatically immediately prior to the closing of our initial public offering on June 28, 2021. CHP is an insurance provider of Medicare Advantage (“MA”) ~~HMO~~Health Maintenance Organization (“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 nine months ended September 30, 2021, out of $1.4 million of total transaction cost~~s we have incurred.~~

The total ~~preliminary~~ purchase consideration for the CHP 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. 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.

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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 acquisition (in ~~thousands)~~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~~


	Amount Recognized as of Acquisition Date (as previously reported)		Measurement Period Adjustments		Amounts Recognized as of Acquisition Date (as adjusted)
Accounts receivable	$	16,361	$	879	$	17,240
Short-term investments	19,041		—		19,041
Prepaids and other current assets	25,520		10		25,530
Property and equipment	370		—		370
Intangible assets	102,000		—		102,000
Other assets	—		1,249		1,249
Total assets	163,292		2,138		165,430
Medical costs payable	79,450		(3,807)		75,643
Accounts payable	2,371		—		2,371
Other current liabilities	17,212		(9,228)		7,984
Other liabilities	28,622		(2,347)		26,275
Total liabilities	127,655		(15,382)		112,273
Net identified assets acquired	35,637		17,520		53,157
Goodwill	236,037		(3,595)		232,442
Total purchase consideration, net of cash acquired	$	271,674	$	13,925	$	285,599

The measurement period adjustments above primarily resulted from obtaining additional information for the valuation of deferred taxes included in other liabilities, to estimate the fair value of the right-of-use lease asset and liability included within other assets and other liabilities, and to recognize post-close working capital true-ups based on additional information. 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 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~~If CHP had been included in the consolidated results of the Company for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 our pro forma revenue would have been $1.0 billion and ~~the three and nine months ended September 30, 2020~~ ~~(in thousands)~~:

Pro Forma Consolidated Statements of Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
September 30,
September 30, 2020 2021 2020
Revenue $ 502,378 $ 3,195,925 $ 1,263,016
Net Loss (49,157) (358,935) (70,971)

our pro forma net loss would have been $13.5 million.

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 initial cash consideration of $27.5 million and $8.1 million of favorable risk-based capital adjustments, net of cash acquired of $24.1 million, for total purchase consideration of ~~$3.4~~$(4.7) 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 $73.0 million, including $55.1 million in Series E preferred stock and adjusted for $0.5 million of tangible net equity adjustments. We acquired $3.2 million of cash as part of the Zipnosis acquisition, for net total purchase consideration of $69.8 million. Zipnosis is included in our NeueHealth reportable segment. 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 nine months ended September 30, 2021.

~~Table of Contents~~

~~Bright Health Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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

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Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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)~~thousands):


		THNM		Zipnosis			THNM		Zipnosis
Accounts receivable	Accounts receivable	$	714	$	1,062	Accounts receivable	$	714	$	1,062
Short-term investments	Short-term investments	4,677		—		Short-term investments	4,705		—
Prepaids and other current assets	Prepaids and other current assets	8,337		141		Prepaids and other current assets	8,337		141
Property and equipment	Property and equipment	—		232		Property and equipment	—		232
Intangible assets	Intangible assets	7,300		8,970		Intangible assets	7,300		9,180
Long-term investments	Long-term investments	13,081		—		Long-term investments	13,644		—
Other non-current assets	Other non-current assets	1,324		766		Other non-current assets	1,324		766
Total assets	Total assets	35,433		11,171		Total assets	36,024		11,381
Medical costs payable	Medical costs payable	13,268		—		Medical costs payable	12,617		—
Accounts payable	Accounts payable	14,663		136		Accounts payable	14,663		136
Unearned revenue	Unearned revenue	3,645		120		Unearned revenue	3,645		120
Other current liabilities	Other current liabilities	2,682		665		Other current liabilities	11,406		665
Other liabilities	Other liabilities	2,499		2,730		Other liabilities	2,499		2,730
Total liabilities	Total liabilities	36,757		3,651		Total liabilities	44,830		3,651
Net identified assets acquired		(1,324)		7,520
Net identified assets (liabilities) acquired						Net identified assets (liabilities) acquired	(8,806)		7,730
Goodwill	Goodwill	4,739		62,277		Goodwill	4,148		62,067
Total purchase consideration		$	3,415	$	69,797
Total purchase consideration, net of cash acquired						Total purchase consideration, net of cash acquired	$	(4,658)	$	69,797

~~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~~We recognized measurement period adjustments for THNM for post-close working capital ~~adjustments, becomes available.~~true-ups of a $0.7 million reduction in medical costs payable (from the $13.3 million previously reported) and a $8.7 million increase in other current liabilities (from the $2.7 million previously reported) based on additional information.

~~Our preliminary estimate of intangible~~Intangible assets initially recognized related to the THNM acquisition ~~consists~~consisted of customer relationships with ~~10-to~~10- to 14-year useful lives, trade names with a 15-year useful life and the provider network with a 7-year useful life. In the first quarter of 2022, we fully impaired the intangible assets related to THNM as a result of our decision to no longer offer Individual and Family Plan (“IFP”) products in New Mexico for the 2023 plan year and exit the employer business as contracts expire. 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.

~~Table of Contents~~

~~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~~If THNM and Zipnosis had been included in the consolidated results of the Company for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 ~~and three and nine months ended September 30, 2020~~ ~~(in thousands)~~:

Pro Forma Consolidated Statements of Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
September 30,
September 30, 2020 2021 2020
Revenue 384,797 $ 3,114,954 943,286
Net Loss (57,035) $ (372,315) (85,988)

~~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. 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 nine months ended September 30, 2020, our pro forma revenue would have been ~~$1.0 billion,~~$922.5 million and our pro forma net loss would have been ~~$(100.9)~~$27.1 million.

During the three months ended March 31, 2022, we completed an immaterial business combination which increased goodwill.

~~Table of Contents~~

~~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 nine months ended September 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 $ — $ 74,128
Prepaid and other currents assets 30,583 — 30,583
Property and equipment 4,375 — 4,375
Intangible assets 72,600 1,900 74,500
Other non-current assets 2,906 — 2,906
Total assets 184,592 1,900 186,492
Medical costs payable 119,408 — 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 $ — $ 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.

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Bright Health Group, 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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. Held-to-maturity securities are reported at amortized cost as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. The following is a summary of our investment securities as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 (in ~~thousands)~~thousands):


		September 30, 2021									March 31, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Value
Cash equivalents	Cash equivalents	$	271,984	$	1	$	(1)	$	271,984	Cash equivalents	$	586,011	$	—	$	(41)	$	585,970
Available for sale:	Available for sale:									Available for sale:
U.S. government and agency obligations	U.S. government and agency obligations	501,343		283		(376)		501,250		U.S. government and agency obligations	752,881		69		(7,366)		745,584
Corporate obligations	Corporate obligations	290,917		384		(106)		291,195		Corporate obligations	392,440		56		(15,316)		377,180
State and municipal obligations	State and municipal obligations	15,437		51		(3)		15,485		State and municipal obligations	18,654		2		(215)		18,441
Commercial paper		5,160		5		—		5,165
Certificates of deposit	Certificates of deposit	26,809		—		—		26,809		Certificates of deposit	14,340		—		(2)		14,338
Mortgage-backed securities	Mortgage-backed securities	2,533		—		—		2,533		Mortgage-backed securities	126,271		75		(4,564)		121,782
Asset-backed securities										Asset-backed securities	62,104		9		(1,766)		60,347
Other	Other	12,876		1		(8)		12,869		Other	392		—		(11)		381
Total available-for-sale securities	Total available-for-sale securities	855,075		724		(493)		855,306		Total available-for-sale securities	1,367,082		211		(29,240)		1,338,053
Held to maturity:	Held to maturity:									Held to maturity:
U.S. government and agency obligations	U.S. government and agency obligations	7,745		—		—		7,745		U.S. government and agency obligations	7,055		—		—		7,055
Certificates of deposit	Certificates of deposit	1,447		—		—		1,447		Certificates of deposit	1,447		—		—		1,447
Total held-to-maturity securities	Total held-to-maturity securities	9,192		—		—		9,192		Total held-to-maturity securities	8,502		—		—		8,502
Total investments	Total investments	$	1,136,251	$	725	$	(494)	$	1,136,482	Total investments	$	1,961,595	$	211	$	(29,281)	$	1,932,525


		December 31, 2020									December 31, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Value
Cash equivalents	Cash equivalents	$	153,743	$	—	$	(3)	$	153,740	Cash equivalents	$	192,623	$	—	$	—	$	192,623
Available for sale:	Available for sale:									Available for sale:
U.S. government and agency obligations	U.S. government and agency obligations	291,834		1,246		(1)		293,079		U.S. government and agency obligations	311,936		259		(2,200)		309,995
Corporate obligations	Corporate obligations	280,557		1,104		(30)		281,631		Corporate obligations	313,965		326		(1,104)		313,187
State and municipal obligations	State and municipal obligations	18,459		107		—		18,566		State and municipal obligations	16,122		33		(38)		16,117
Commercial paper		14,990		1		—		14,991
Certificates of deposit	Certificates of deposit	53,504		2		(1)		53,505		Certificates of deposit	18,752		—		—		18,752
Mortgage-backed securities										Mortgage-backed securities	38,558		63		(67)		38,554
Other	Other	5,534		2		—		5,536		Other	42,889		13		(30)		42,872
Total available-for-sale securities	Total available-for-sale securities	664,878		2,462		(32)		667,308		Total available-for-sale securities	742,222		694		(3,439)		739,477
Held to maturity:	Held to maturity:									Held to maturity:
U.S. government and agency obligations	U.S. government and agency obligations	6,677		—		—		6,677		U.S. government and agency obligations	7,739		—		—		7,739
Certificates of deposit	Certificates of deposit	1,119		—		—		1,119		Certificates of deposit	1,447		—		—		1,447
Total held-to-maturity securities	Total held-to-maturity securities	7,796		—		—		7,796		Total held-to-maturity securities	9,186		—		—		9,186
Total investments	Total investments	$	826,417	$	2,462	$	(35)	$	828,844	Total investments	$	944,031	$	694	$	(3,439)	$	941,286

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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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were as follows (in ~~thousands)~~thousands):


		September 30, 2021													March 31, 2022
		Less Than 12 Months				12 Months or Greater				Total					Less Than 12 Months				12 Months or Greater				Total
Description of Investments	Description of Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Description of Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Cash equivalents	Cash equivalents	$	9,643	$	(1)	$	—	$	—	$	9,643	$	(1)	Cash equivalents	204,916		(41)		—		—		204,916		(41)
U.S. government and agency obligations	U.S. government and agency obligations	347,735		(376)		—		—		347,735		(376)		U.S. government and agency obligations	715,592		(6,884)		13,148		(482)		728,740		(7,366)
Corporate obligations	Corporate obligations	137,456		(106)		—		—		137,456		(106)		Corporate obligations	358,350		(15,311)		127		(5)		358,477		(15,316)
State and municipal obligations	State and municipal obligations	2,812		(3)		—		—		2,812		(3)		State and municipal obligations	15,113		(215)		—		—		15,113		(215)
Certificates of deposit														Certificates of deposit	936		(2)		—		—		936		(2)
Mortgage-backed securities														Mortgage-backed securities	112,180		(4,564)		—		—		112,180		(4,564)
Asset-backed securities														Asset-backed securities	56,979		(1,766)		—		—		56,979		(1,766)
Other	Other	10,950		(8)		—		—		10,950		(8)		Other	382		(11)		—		—		382		(11)
Total bonds	Total bonds	$	508,596	$	(494)	$	—	$	—	$	508,596	$	(494)	Total bonds	$	1,464,448	$	(28,794)	$	13,275	$	(487)	$	1,477,723	$	(29,281)


		December 31, 2020													December 31, 2021
		Less Than 12 Months				12 Months or Greater				Total					Less Than 12 Months				12 Months or Greater				Total
Description of Investments	Description of Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Description of Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Cash equivalents		$	25,007	$	(3)	$	—	$	—	$	25,007	$	(3)
U.S. government and agency obligations	U.S. government and agency obligations	12,507		(1)		—		—		12,507		(1)		U.S. government and agency obligations	286,823		(2,200)		—		—		286,823		(2,200)
Corporate obligations	Corporate obligations	121,006		(30)		—		—		121,006		(30)		Corporate obligations	234,070		(1,104)		—		—		234,070		(1,104)
Commercial paper		999		—		—		—		999		—
Certificates of deposit		14,003		(1)		—		—		14,003		(1)
State and municipal obligations														State and municipal obligations	10,442		(38)		—		—		10,442		(38)
Mortgage-backed securities														Mortgage-backed securities	32,715		(67)		—		—		32,715		(67)
Other														Other	29,115		(30)		—		—		29,115		(30)
Total bonds	Total bonds	$	173,522	$	(35)	$	—	$	—	$	173,522	$	(35)	Total bonds	$	593,165	$	(3,439)	$	—	$	—	$	593,165	$	(3,439)

As of ~~September 30, 2021,~~March 31, 2022, we had ~~744~~1,704 investment positions out of ~~1,859~~1,976 that were in an unrealized loss position. As of December 31, ~~2020,~~2021, we had ~~117~~1,343 investment positions out of ~~1,917~~1,836 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 ~~September 30, 2021,~~March 31, 2022, 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 September 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 $ 203,284 $ 203,614
Due after one year through five years 651,705 651,606
Due after five years through 10 years 86 86
Due after 10 years — —
Total debt securities $ 855,075 $ 855,306

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Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of March 31, 2022, 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	$	627,728	$	626,875
Due after one year through five years	502,915		486,128
Due after five years through 10 years	228,247		217,160
Due after 10 years	8,192		7,890
Total debt securities	$	1,367,082	$	1,338,053

Investment income in the Condensed Consolidated Statements of Income (Loss) for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ was ~~$3.5~~$0.9 million, and ~~$7.1~~$1.2 million, respectively, related to our fixed maturity securities. The gross proceeds from the sale of available-for-sale securities for the three months ended March 31, 2022 and 2021 were $127.6 million and $89.8 million, respectively. Realized (losses) gains ~~(losses)~~ from our fixed maturity securities of $~~0.4~~(1.7) million and $0.1 million are included within total investment income, and reclassified out of accumulated other comprehensive income, for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 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 ~~September 30,~~March 31, 2022 and December 31, 2021, the equity securities had a carrying value of ~~$149.1~~$79.4 million and $120.4 million, respectively, which is included in short-term investments in the Condensed Consolidated Balance Sheet. We recognized an unrealized ~~gain~~(losses) gains of ~~$46.3~~$(41.0) million and ~~$109.0~~$4.2 million in investment income (loss) in the Condensed Consolidated Statements of Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 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~~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.~~2021 Form 10-K.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following tables set forth our fair value measurements as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, for assets measured at fair value on a recurring basis (in ~~thousands)~~thousands):


		September 30, 2021									March 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Cash equivalents	Cash equivalents	$	209,727	$	35,507	$	—	$	245,234	Cash equivalents	$	563,876	$	21,103	$	—	$	584,979
Fixed maturity securities, available for sale:	Fixed maturity securities, available for sale:									Fixed maturity securities, available for sale:
U.S. government and agency obligations	U.S. government and agency obligations	358,202		143,048		—		501,250		U.S. government and agency obligations	724,519		21,065		—		745,584
Corporate obligations	Corporate obligations	2,234		288,961		—		291,195		Corporate obligations	2,255		374,925		—		377,180
State and municipal obligations	State and municipal obligations	—		15,485		—		15,485		State and municipal obligations	—		18,441		—		18,441
Commercial paper		—		5,165		—		5,165
Certificates of deposit	Certificates of deposit	18,738		8,071		—		26,809		Certificates of deposit	—		14,338		—		14,338
Mortgage-backed securities	Mortgage-backed securities	2,533		—		—		2,533		Mortgage-backed securities	—		121,782		—		121,782
Asset-backed securities										Asset-backed securities	—		60,347		0		60,347
Other	Other	—		12,869		—		12,869		Other	—		381		—		381
Total fixed maturity securities, available for sale:	Total fixed maturity securities, available for sale:	381,707		473,599		—		855,306		Total fixed maturity securities, available for sale:	726,774		611,279		—		1,338,053
Equity securities	Equity securities	149,144		—		—		149,144		Equity securities	79,396		—		—		79,396
Total assets at fair value	Total assets at fair value	$	740,578	$	509,106	$	—	$	1,249,684	Total assets at fair value	$	1,370,046	$	632,382	$	—	$	2,002,428
Liabilities	Liabilities									Liabilities
Contingent consideration	Contingent consideration	$	—	$	—	$	7,079	$	7,079	Contingent consideration	$	—	$	—	$	1,495	$	1,495


		December 31, 2020									December 31, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Cash equivalents	Cash equivalents	$	149,499	$	4,019	$	—	$	153,518	Cash equivalents	$	192,063	$	250	$	—	$	192,313
Fixed maturity securities, available for sale:	Fixed maturity securities, available for sale:									Fixed maturity securities, available for sale:
U.S. government and agency obligations	U.S. government and agency obligations	197,886		95,193		—		293,079		U.S. government and agency obligations	220,801		89,194		—		309,995
Corporate obligations	Corporate obligations	—		281,631		—		281,631		Corporate obligations	2,323		310,864		—		313,187
State and municipal obligations	State and municipal obligations	—		18,566		—		18,566		State and municipal obligations	—		16,117		—		16,117
Commercial paper		—		14,991		—		14,991
Certificates of deposit	Certificates of deposit	—		53,505		—		53,505		Certificates of deposit	—		18,752		—		18,752
Mortgage-backed securities										Mortgage-backed securities	2,404		36,150		—		38,554
Other	Other	—		5,536		—		5,536		Other	—		42,872		—		42,872
Total fixed maturity securities, available for sale:										Total fixed maturity securities, available for sale:	225,528		513,949		—		739,477
Equity securities										Equity securities	120,364		—		—		120,364
Total assets at fair value	Total assets at fair value	$	347,385	$	473,441	$	—	$	820,826	Total assets at fair value	$	537,955	$	514,199	$	—	$	1,052,154
Liabilities	Liabilities									Liabilities
Contingent consideration	Contingent consideration	$	—	$	—	$	5,716	$	5,716	Contingent consideration	$	—	$	—	$	1,495	$	1,495

The following tables set forth the Company’s fair value measurements as of September 30, 2021 and December 31, 2020, for certain financial instruments not measured at fair value on a recurring basis
~~(in thousands)~~:

September 30, 2021
Level 1 Level 2 Level 3 Total
Cash equivalents, held to maturity $ 26,750 $ — $ — $ 26,750
Fixed maturity securities, held to maturity:
U.S. government and agency obligations 7,768 — — 7,768
Certificates of deposit 1,447 — — 1,447
Total held to maturity $ 35,965 $ — $ — $ 35,965

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

December 31, 2020
Level 1 Level 2 Level 3 Total
Cash equivalents, held to maturity $ 222 $ — $ — $ 222
Fixed maturity securities, held to maturity:
U.S. government and agency obligations 6,732 — — 6,732
Certificates of deposit — 1,119 — 1,119
Total held to maturity $ 6,954 $ 1,119 $ — $ 8,073
The following tables set forth the Company’s fair value measurements as of March 31, 2022 and December 31, 2021, for certain financial instruments not measured at fair value on a recurring basis (in thousands):


	March 31, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents, held to maturity	$	991	$	—	$	—	$	991
Fixed maturity securities, held to maturity:
U.S. government and agency obligations	7,055		—		—		7,055
Certificates of deposit	—		1,447		—		1,447
Total held to maturity	$	8,046	$	1,447	$	—	$	9,493


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Cash equivalents, held to maturity	$	310	$	—	$	—	$	310
Fixed maturity securities, held to maturity:
U.S. government and agency obligations	7,732		—		—		7,732
Certificates of deposit	—		1,447		—		1,447
Total held to maturity	$	8,042	$	1,447	$	—	$	9,489

There have been no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy. The contingent consideration liability related to the acquisition of AssociatesMD Medical Group, Inc. 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 ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and year ended December 31, ~~2020~~2021 (in ~~thousands)~~thousands):


		2021		2020			2022		2021
Balance at beginning of period	Balance at beginning of period	$	5,716	$	5,716	Balance at beginning of period	$	1,495	$	5,716
Change in fair value of contingent consideration	Change in fair value of contingent consideration	1,363		—		Change in fair value of contingent consideration	—		(4,221)
Balance at end of period	Balance at end of period	$	7,079	$	5,716	Balance at end of period	$	1,495	$	1,495

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. 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)~~thousands):

Bright HealthCare NeueHealth
Gross Carrying
Amount Cumulative
Impairment Gross Carrying
Amount Cumulative
Impairment
Balance at December 31, 2020 $ 197,886 $ — $ 65,149 $ —
Acquisitions 240,776 340,108
Purchase adjustments (1,618) — — —
Balance at September 30, 2021 $ 437,044 $ — $ 405,257 $ —

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

September 30, 2021 December 31, 2020
Gross Carrying
Amount Accumulated Amortization Gross Carrying
Amount Accumulated Amortization
Customer relationships $ 209,321 $ 19,257 $ 117,451 $ 3,664
Trade names 99,231 5,057 38,161 1,604
Reacquired contract 59,000 3,278 — —
Developed technology 6,200 443 — —
Other 6,400 598 2,000 133
Total $ 380,152 $ 28,633 $ 157,612 $ 5,401


	Bright HealthCare				NeueHealth
	Gross Carrying Amount		Cumulative Impairment		Gross Carrying Amount		Cumulative Impairment
Balance at December 31, 2021	$	432,858	$	—	$	402,282	$	—
Acquisitions	—		—		310		—
Purchase adjustments	—		—		—		—
Balance at March 31, 2022	$	432,858	$	—	$	402,592	$	—

1917

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The ~~acquisition date fair values~~gross carrying value and ~~weighted-average useful lives assigned to~~accumulated amortization for definite-lived intangible assets ~~acquired during the nine months ended September 30, 2021~~ were as follows (in ~~thousands)~~thousands):


						March 31, 2022				December 31, 2021
		Fair Value		Weighted-Average Useful Life (in years)		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	Customer relationships	$	90,670	16.0	Customer relationships	$	206,321	$	26,632	$	209,421	$	21,728
Trade names	Trade names	60,370		14.9	Trade names	96,041		8,205		99,241		6,738
Reacquired contract	Reacquired contract	59,000		4.5	Reacquired contract	59,000		9,833		59,000		6,556
Developed technology	Developed technology	6,200		7.0	Developed technology	6,300		900		6,300		675
Other	Other	4,400		7.0	Other	5,400		875		6,400		805
Total	Total	$	220,640	9.8	Total	$	373,062	$	46,445	$	380,362	$	36,502

We recognized $6.7 million of impairment expense on the intangible assets related to our THNM acquisition in operating costs in the Condensed Consolidated Statements of Income (Loss) for the three months ended March 31, 2022. See Note 2 Business Combinations, for additional information on this impairment. There was no impairment expense for the three months ended March 31, 2021.

Amortization expense relating to intangible assets for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ was ~~$13.3~~$10.5 million and ~~$1.8 million, respectively, and amortization expense for the nine months ended September 30, 2021 and 2020 was $23.2 million and $3.6~~$3.7 million, respectively. Estimated amortization expense relating to intangible assets for the remainder of ~~2021~~2022 and for each of the next five full years ending December 31 is as follows (in ~~thousands)~~thousands):


2021 (October-December)		$	10,513
2022		42,050
2022 (April-December)				2022 (April-December)	$	31,120
2023	2023	42,029		2023	41,471
2024	2024	41,890		2024	41,332
2025	2025	41,890		2025	41,332
2026	2026	26,323		2026	28,104
2027				2027	28,065

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 6. MEDICAL COSTS PAYABLE

The following table shows the components of the change in medical costs payable for the ~~nine~~three months ended ~~September 30~~March 31 (in ~~thousands)~~thousands):


		2021		2020			2022		2021
Medical costs payable - January 1	Medical costs payable - January 1	$	249,777	$	44,804	Medical costs payable - January 1	$	817,975	$	249,777
Incurred related to:	Incurred related to:					Incurred related to:
Current year	Current year	2,647,719		685,637		Current year	1,576,725		689,572
Prior year	Prior year	1,726		(9,297)		Prior year	5,218		(3,076)
Total incurred	Total incurred	2,649,445		676,340		Total incurred	1,581,943		686,496
Paid related to:	Paid related to:					Paid related to:
Current year	Current year	2,074,602		610,161		Current year	710,804		307,442
Prior year	Prior year	232,312		29,974		Prior year	533,959		153,240
Total paid	Total paid	2,306,914		640,135		Total paid	1,244,763		460,682

Acquired claims liabilities	Acquired claims liabilities	92,737		118,662		Acquired claims liabilities	—		13,268
Medical costs payable - September 30		$	685,045	$	199,671
Medical costs payable - March 31						Medical costs payable - March 31	$	1,155,155	$	488,859

Medical costs payable attributable to prior years increased by ~~$1.7~~$5.2 million and decreased by $~~9.3~~3.1 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Medical costs payable estimates are adjusted as additional information becomes known regarding claims; there were no significant changes to estimation methodologies during the periods.

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The table below details the components making up the medical costs payable as of ~~September 30~~March 31 (in ~~thousands)~~thousands):


							March 31,
		2021		2020			2022		2021
Claims unpaid	Claims unpaid	$	42,488	$	25,961	Claims unpaid	$	102,293	$	19,652
Provider incentive payable	Provider incentive payable	69,274		10,391		Provider incentive payable	45,805		36,592
Claims adjustment expense liability	Claims adjustment expense liability	12,413		2,572		Claims adjustment expense liability	15,479		5,038
Incurred but not reported	Incurred but not reported	560,870		160,747		Incurred but not reported	991,578		427,577
Total medical costs payable	Total medical costs payable	$	685,045	$	199,671	Total medical costs payable	$	1,155,155	$	488,859

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-TERM BORROWINGS

~~On March 1, 2021, we entered into~~We have a $350.0 million revolving credit agreement with a syndicate of banks (the “Credit Agreement”)~~. On August 2, 2021,~~, which matures on February 28, 2024. During the three months ended March 31, 2022, we repaid the $155.0 million outstanding under the Credit Agreement ~~was amended to change the definition~~as 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,~~December 31, 2021. As of March 31, 2022, we had no short-term borrowings under the Credit Agreement.

The Credit Agreement ~~contained~~contains a covenant that ~~required~~requires 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~~The Credit Agreement ~~from February 28, 2022~~also contains a covenant that require us to ~~February 28, 2024. During the second quarter~~maintain a minimum liquidity of ~~2021, we utilized a portion~~$150.0 million. We were in compliance with our debt covenants as 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 September 30, 2021, we have no borrowings outstanding under the Credit Agreement.~~31, 2022.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 8. 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 ~~42.0~~73.4 million shares of common stock authorized for issuance under the 2021 Incentive Plan. As of ~~September 30, 2021,~~March 31, 2022, a total of ~~26.8~~14.7 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 ~~$43.2~~$32.9 million and $~~3.7~~5.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss).

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Stock Options

The Board of Directors or the Compensation Committee of the Board of Directors 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.

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 for options granted during the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:


	~~2021~~2022
Risk-free interest rate	~~0.8~~1.7	%
Expected volatility	~~33.3~~55.0	%
Expected dividend rate	0.0	%
Forfeiture rate	~~14.5~~10.0	%
Expected life in years	~~6.1~~6.0

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.~~peers and the implied volatility from exchange-traded options on the Company’s common stock. 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.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The activity for ~~the~~ stock options for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 is as follows (in ~~thousands,~~thousands, except exercise price and contractual life):


		Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (In Years)	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
Outstanding at January 1, 2022								Outstanding at January 1, 2022	69,244	$	1.84	8.2	$	113,908
Granted	Granted	20,447	2.58					Granted	6,896	1.79
Exercised	Exercised	(9,373)	1.09					Exercised	(338)	0.76
Forfeited	Forfeited	(4,709)	1.75					Forfeited	(2,416)	2.24
Expired	Expired	(11)	1.09					Expired	(412)	2.22
Outstanding at September 30, 2021		70,279	$	1.83	8.5	$	445,246
Outstanding at March 31, 2022								Outstanding at March 31, 2022	72,974	$	1.83	7.8	$	22,419

We recognized share-based compensation expense related to stock options of $18.3 million for the three months ended March 31, 2022, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). The weighted-average grant date fair value of stock options granted during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$10.86~~$0.94 per share. At ~~September 30, 2021,~~March 31, 2022, there was ~~$150.7~~$124.4 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of ~~3.4~~2.9 years.

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~~Bright Health Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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. 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 ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 (in ~~in thousands,~~thousands, except weighted average grant date fair value):

RSU
Number of RSUs Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2020 — $ —
RSUs granted 364 9.11
RSUs canceled (19) 9.01
Unvested RSUs at September 30, 2021 345 $ 9.11


	Number of RSUs	Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2021	15,651	$	3.98
Granted	23,154	1.79
Vested	(36)	8.95
Forfeited	(1,977)	3.64
Unvested RSUs at March 31, 2022	36,792	$	2.61

We recognized share-based compensation expense related to RSUs of ~~$0.2~~$4.4 million for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). As of ~~September 30, 2021,~~March 31, 2022, there was ~~$2.5~~$72.8 million of unrecognized compensation expense related to the RSU grants, which is expected to be recognized over a weighted-average period of ~~2.7~~2.8 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 encompasses a total of 14.7 million PSUs, separated into 4 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 years. ~~This grant is intended to retain and incentivize our executive leadership to lead the Company to sustained, long-term financial and operational performance.~~ The fair value of the PSUs iswas determined using a Monte-Carlo simulation.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes PSU award activity for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 (in ~~thousands,~~thousands, except weighted average grant date fair value):

PSU
Number of PSUs Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2020 — $ —
PSUs granted 14,700 9.30
PSUs canceled — —
Unvested PSUs at September 30, 2021 14,700 $ 9.30


	Number of PSUs	Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2021	14,700	$	9.30
Granted	—	—
Forfeited	—	—
Unvested PSUs at March 31, 2022	14,700	$	9.30

We recognized share-based compensation expense related to ~~the PSU grant~~PSUs of ~~$10.0 million and~~ $10.3 million for the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At ~~September 30, 2021,~~March 31, 2022, there was ~~$108.5~~$91.1 million of unrecognized compensation expense related to the PSU grant, which is expected to be recognized over a weighted-average period of ~~2.7~~2.2 years.

NOTE 9. REDEEMABLE CONVERTIBLE PREFERRED STOCK

Series A Convertible Preferred Stock

On December 6, 2021, we entered into an investment agreement with certain subsidiaries of Cigna Corporation and certain affiliates of New Enterprise Associates (collectively, the “Purchasers”) relating to the issuance of 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 “Issuance”). The close of the Issuance occurred on January 3, 2022 (the “Closing Date”).

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 $8.9 million as of March 31, 2022.

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 $4.55 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 the third anniversary of the Closing Date, if the closing price per share of Common Stock on the New York Stock Exchange was greater than $7.96 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 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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Stock, increases or decreases in the number of authorized shares of Preferred Stock, and issuances of shares of the Series A Preferred Stock after the Closing Date.

At any time following the fifth anniversary of the original issuance date, 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 the seventh anniversary of the Closing Date and (B) 100% if the redemption occurs at any time on or after the seventh anniversary of the Closing Date. 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 the seventh anniversary of the Closing Date, 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 the seventh anniversary of the Closing Date, 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.

We have applied the guidance in ASC 480‑10‑S99‑3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities, and have therefore classified the Series A Preferred Stock outside of shareholders’ equity on the Condensed Consolidated Balance Sheet because the shares contain liquidation features that are not solely within the Company's control. The Series A Preferred Stock was recorded at its fair value on the date of issuance net of $2.5 million of issuance costs. The Company has elected not to adjust the carrying value of the Series A Preferred Stock to the liquidation preference of such shares because of the uncertainty of whether or when such an event would occur. Subsequent adjustments to increase the carrying value to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur.

NOTE 9.10. 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 nine~~ months ended ~~September 30~~March 31, (in ~~thousands,~~thousands, except for per share amounts):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net loss attributable to Bright Health Group, Inc. common shareholders	Net loss attributable to Bright Health Group, Inc. common shareholders	$	(300,664)	$	(59,256)	$	(370,344)	$	(84,610)	Net loss attributable to Bright Health Group, Inc. common shareholders	$	(204,172)	$	(25,162)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted	Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted	630,378		136,337		312,294		135,926		Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted	628,765		140,175
Net loss per share attributable to common stockholders, basic and diluted	Net loss per share attributable to common stockholders, basic and diluted	$	(0.48)	$	(0.43)	$	(1.19)	$	(0.62)	Net loss per share attributable to common stockholders, basic and diluted	$	(0.32)	$	(0.18)

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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 ~~nine~~three months ended ~~September 30~~March 31 (in ~~thousands)~~thousands):


		Nine Months Ended September 30,			Three Months Ended March 31,
		2021	2020		2022	2021
Redeemable convertible preferred stock (as converted to common stock)	Redeemable convertible preferred stock (as converted to common stock)	—	411,238	Redeemable convertible preferred stock (as converted to common stock)	166,852	421,697
Stock options to purchase common stock	Stock options to purchase common stock	70,279	58,224	Stock options to purchase common stock	72,974	76,913
Restricted stock units				Restricted stock units	36,792	—
Total	Total	70,279	469,462	Total	276,618	498,610

NOTE ~~10.~~11. 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. No specific amounts of damages have been alleged in the putative securities class action lawsuit. We expect an amended complaint will be filed later this year in this action. Such amended complaint could assert additional or broader claims than the current complaint. We intend to vigorously defend this action; 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 our company in these matters, the amount or range of reasonably possible losses, if any, cannot be estimated. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no material known contingent liabilities.

Other commitments: As of March 31, 2022, we have $46.1 million outstanding, undrawn letters of credit under the Credit Agreement.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE ~~11.~~12. SEGMENTS AND GEOGRAPHIC INFORMATION

Our 2 reportable segments are Bright HealthCare and NeueHealth.

The following tables present the reportable segment financial information for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in ~~thousands)~~thousands):


Three Months Ended September 30, 2021		Bright HealthCare		NeueHealth		Eliminations		Consolidated
Three Months Ended March 31, 2022										Three Months Ended March 31, 2022	Bright HealthCare		NeueHealth		Eliminations		Consolidated
Premium revenue	Premium revenue	$	994,586	$	25,647	$	—	$	1,020,233	Premium revenue	$	1,593,501	$	86,949	$	—	$	1,680,450
Direct contracting revenue										Direct contracting revenue	—		182,797		—		182,797
Service revenue	Service revenue	(61)		11,140		—		11,079		Service revenue	36		12,392		—		12,428
Investment income	Investment income	1,087		46,258		—		47,345		Investment income	868		(40,968)		—		(40,100)
Total unaffiliated revenue	Total unaffiliated revenue	995,612		83,045		—		1,078,657		Total unaffiliated revenue	1,594,405		241,170		—		1,835,575
Affiliated revenue	Affiliated revenue	—		139,759		(139,759)		—		Affiliated revenue	—		379,782		(379,782)		—
Total segment revenue	Total segment revenue	995,612		222,804		(139,759)		1,078,657		Total segment revenue	1,594,405		620,952		(379,782)		1,835,575
Operating income (loss)	Operating income (loss)	(303,271)		6,990		—		(296,281)		Operating income (loss)	(107,022)		(69,958)		—		(176,980)

Depreciation and amortization	Depreciation and amortization	$	4,584	$	9,621	$	—	$	14,205	Depreciation and amortization	$	6,039	$	7,002	$	—	$	13,041


Three Months Ended September 30, 2020		Bright HealthCare		NeueHealth		Eliminations		Consolidated
Three Months Ended March 31, 2021										Three Months Ended March 31, 2021	Bright HealthCare		NeueHealth		Eliminations		Consolidated
Premium revenue	Premium revenue	$	343,472	$	1,954	$	—	$	345,426	Premium revenue	$	841,925	$	18,706	$	—	$	860,631
Direct contracting revenue										Direct contracting revenue	—		—		—		—
Service revenue	Service revenue	—		4,920		—		4,920		Service revenue	—		8,438		—		8,438
Investment income	Investment income	1,774		—		—		1,774		Investment income	1,246		4,243		—		5,489
Total unaffiliated revenue	Total unaffiliated revenue	345,246		6,874		—		352,120		Total unaffiliated revenue	843,171		31,387		—		874,558
Affiliated revenue	Affiliated revenue	—		2,727		(2,727)		—		Affiliated revenue	—		17,152		(17,152)		—
Total segment revenue	Total segment revenue	345,246		9,601		(2,727)		352,120		Total segment revenue	843,171		48,539		(17,152)		874,558
Operating income (loss)	Operating income (loss)	(57,263)		(1,993)		—		(59,256)		Operating income (loss)	(24,215)		1,382		—		(22,833)

Depreciation and amortization	Depreciation and amortization	$	2,274	$	404	$	—	$	2,678	Depreciation and amortization	$	2,357	$	2,224	$	—	$	4,581

Nine Months Ended September 30, 2021 Bright
HealthCare NeueHealth Eliminations Consolidated
Premium revenue $ 2,860,270 $ 62,680 $ — $ 2,922,950
Service revenue 29 31,573 — 31,602
Investment income 3,491 109,012 — 112,503
Total unaffiliated revenue 2,863,790 203,265 — 3,067,055
Affiliated revenue — 182,392 (182,392) —
Total segment revenue 2,863,790 385,657 (182,392) 3,067,055
Operating income (loss) (443,450) 65,291 — (378,159)
Depreciation and amortization $ 11,524 $ 14,457 $ — $ 25,981

~~Table~~As a percentage of ~~Contents~~

our total consolidated revenue, premium revenues and direct contracting revenues from CMS were 33% and 25% for the three months ended March 31, 2022 and 2021, respectively, which are included in premium revenue of our Bright ~~Health Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Nine Months Ended September 30, 2020 Bright
HealthCare NeueHealth Eliminations Consolidated
Premium revenue $ 821,185 $ 5,950 $ — $ 827,135
Service revenue — 13,344 — 13,344
Investment income 7,063 — — 7,063
Total unaffiliated revenue 828,248 19,294 — 847,542
Affiliated revenue — 8,176 (8,176) —
Total segment revenue 828,248 27,470 (8,176) 847,542
Operating income (loss) (88,427) (5,345) — (93,772)
Depreciation and amortization $ 4,131 $ 1,419 $ — $ 5,550

HealthCare segment and direct contracting revenue of our NeueHealth segment. 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.

NOTE ~~12.~~13. INCOME TAXES

Income tax expense ~~(benefit)~~ was ~~an expense of $0.1~~$3.2 million and ~~a benefit of $18.2~~$1.2 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, 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 months ended ~~September 30, 2021,~~March 31, 2022, the expense largely relates to amortization of originating goodwill from asset ~~acquisitions.~~acquisitions and estimated state income taxes attributable to income earned in separate filing states without state net operating loss carryforwards. For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, the ~~overall tax benefit is primarily due~~expense largely relates to adjustments to the ~~release of~~ valuation allowance ~~in connection with new~~for federal and state deferred tax ~~liabilities~~assets, as well as the effect of deferred taxes recorded ~~on identifiable intangibles~~ as part of business combination accounting for the ~~BND, Zipnosis,~~Universal Care, Inc. (d.b.a. Brand New Day) and THNM ~~and CHP stock~~ acquisitions. ~~The Centrum acquisition was treated as an asset acquisition, and accordingly, no deferred tax assets or liabilities were recorded as part of business-combination accounting.~~

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Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 ~~September 30, 2021.~~March 31, 2022. 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 ~~2021~~2022 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.~~14. REDEEMABLE NONCONTROLLING INTEREST

~~As part of the Centrum acquisition on July 1, 2021, we entered into put/call agreements with respect to the equity~~Redeemable noncontrolling interests in ~~Centrum held by the controlling~~our subsidiaries whose redemption is outside of our control are classified as temporary equity. The following table provides details of our redeemable noncontrolling interest ~~holder. The call options allow~~activity for the ~~Company to purchase the 25% noncontrolling interest equity over time beginning on September 30,~~three months ended March 31, 2022 ~~or under certain other accelerating events as defined~~ and 2021 (in the agreement, solely at the Company’s discretion. The put options allow the noncontrolling interest holder the ability to cause the Company to purchase their noncontrolling equity interest on consistent terms with the call options.thousands):


	Three Months Ended March 31,
	2022		2021
Balance at beginning of period	$	128,407	$	39,600
Earnings attributable to noncontrolling interest	(2,681)		288
Measurement adjustment	17,285		329
Balance at end of period	$	143,011	$	40,217

~~Based on~~

NOTE 15. DIRECT CONTRACTING

Beginning January 1, 2022, we began participating in CMS’ DC Model with 2 DCEs participating through the ~~nature~~global risk arrangement and assuming full risk for the total cost of care of aligned beneficiaries. As part of our participation in the DC Model, we are guaranteeing the performance of our care network of participating and preferred providers. The intention of the ~~put option’s redemption features, which are outside~~DC Model is to enhance the ~~control~~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 ~~Company,~~financial agreement for the ~~noncontrolling interests are classified as redeemable in~~DC Model include:

•Performance Year Benchmark: The target amount for Medicare expenditures on covered services (Medicare Part A and B) furnished to a DCE’s aligned beneficiaries during a performance year. The Performance Year Benchmark will be compared to the ~~accompanying Condensed Consolidated Balance Sheets~~DCE’s performance year expenditures. This comparison will be used to calculate shared savings and shared losses. The Performance Year Benchmark is established at ~~September 30, 2021. The put option redemption feature that is outside~~ the ~~control~~beginning of the ~~Company~~performance year utilizing prospective trend estimates and is ~~settled based on EBITDA,~~subject to retrospective trend adjustments, if warranted, before the Financial Reconciliation.

•Risk-Sharing Arrangements: Used in determining the percent of savings and losses that DCEs 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 expenditure for a given DCE’s aligned population to the actual expenditures of that DCE’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: Both DCEs elected to participate in a “stop-loss arrangement” for the current performance year offered by CMS. The “stop-loss arrangement” is ~~an other~~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 DCE’s shared savings and losses in bands of percentage thresholds, after a deviation of greater than 25.0% of the Performance Year Benchmark.

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Bright Health Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Performance Guarantees

~~fair value settlement amount.~~

Through our participation in the DC Model, we determined that our arrangements with the providers of our DCE beneficiaries require us to guarantee their performance to CMS. At the beginning of the performance year, we recognized the Direct Contracting performance year obligation and receivable for the duration of the performance year. This receivable and obligation were measured at an amount equivalent to the Performance Year Benchmark per CMS that is representative of the expected Medicare expenditures for beneficiaries aligned to our DCEs. As ~~such,~~ 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 amortized as we receive payment from CMS 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 out-of-network claims incurred by beneficiaries aligned to our DCEs 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 DCEs by CMS (shared savings) or the consideration due to CMS by the DCEs (shared loss) is reconciled in the year following the performance year. Periodically during the performance year, CMS will ~~make~~measure the shared savings or loss and adjust the performance benchmark and thus the remaining performance obligation if we are in a ~~measurement adjustment when~~probable shared loss position. The performance year benchmark is our best estimate of our obligation as we are unable to estimate the ~~put option redemption price exceeds~~potential shared savings or loss due to the ~~carrying amount as calculated under ASC 810,~~ ~~Consolidation~~.“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.

There ~~was~~ were no ~~redeemable noncontrolling interest during~~financial statement impacts of the ~~three and nine months ended September 30, 2020. The following table provides details of our redeemable noncontrolling interest activity~~performance guarantee at March 31, 2021 or for the ~~three~~three-month period then ended. The tables below include the financial statement impacts of the performance guarantee at March 31, 2022 and ~~nine months e~~for the three-month period then ended (~~nded September 30, 2021~~ in thousands~~(in thousands)~~):


	Redeemable Noncontrolling InterestMarch 31, 2022
Direct contracting performance year receivable (1)	$	638,641
Direct contracting performance year obligation(2)	533,537

(1) We estimate there to be $115.1 million in out-of-network claims incurred by beneficiaries aligned to our DCE but not reported as of March 31, 2022; this is included in medical costs payable on the Condensed Consolidated Balance Sheets.

(2) This obligation represents the consideration due to providers, net of the shared savings or loss for the period and amortization of the liability.


	Three Months Ended March 31, 2022
~~Balance at January 1, 2021~~Amortization of Direct contracting performance year receivable	$	~~39,600~~75,127
~~Earnings attributable to noncontrolling interest~~Amortization of Direct contracting performance year obligation	~~288~~182,797
~~Measurement adjustment~~Direct contracting revenue	~~329~~
~~Balance at March 31, 2021~~	$	~~40,217~~
~~Earnings attributable to noncontrolling interest~~	~~640~~
~~Measurement adjustment~~	~~155~~
~~Balance at June 30, 2021~~	$	~~41,012~~
~~Acquisition~~	~~85,075~~
~~Loss attributable to noncontrolling interest~~	~~(4,577)~~
~~Measurement adjustment~~	~~8,519~~
~~Balance at September 30, 2021~~	$	~~130,029~~182,797

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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.’s 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,~~our 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”).~~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, Inc. and its consolidated subsidiaries.

Business Overview

Bright Health Group was founded in 2015 to transform healthcare. Our mission of Making Healthcare Right. Together.is built upon the belief that by ~~connecting and~~ 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, ~~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 risinglower costs. We are ~~making~~a healthcare ~~simple, personal, and affordable.~~

~~To execute~~company building a national Integrated System of Care in close partnership with our Care Partners. Our differentiated approach is built on our mission, 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 environment in which all stakeholders — fromalignment, focused on the consumer, ~~to the provider, to the payor — can win.~~

and powered by technology. Bright Health Group consists of two reportable segments: NeueHealth and Bright ~~HealthCare~~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. Our healthcare enablement and technology business, NeueHealth, is developing the next generation, integrated healthcare system. NeueHealth significantly reduces the friction and current lack of coordination between payors and providers to enable a truly consumer-centric healthcare experience. As of ~~September 2021,~~March 2022, NeueHealth ~~works with nearly 250,000 care provider partners and~~ delivers high-quality virtual and in-person clinical care through our 4475 owned primary care clinics within its integrated care delivery system. Through those risk-bearing clinics, NeueHealth maintains over ~~200,000~~570,000 unique patient relationships as of ~~September 30, 2021,~~March 31, 2022, over ~~170,000~~530,000 of which are served through 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.~~

~~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

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~~clinics. Other NeueHealth customers include external payors, third party administrators, affiliated providers and direct-to-government programs.~~

Bright HealthCare. Our healthcare financing and distribution business, Bright HealthCare, delivers simple, personal, and affordable solutions to integrate the consumer into Bright Health’s alignment model. Bright HealthCare currently aggregates and delivers healthcare benefits to over ~~720,000~~1.1 million 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.~~

17 states. Bright HealthCare’s customers include commercial health plans across 1116 states, which serve ~~approximately 607,000~~over 1.0 million individuals, as well as MA products in ~~11 states,~~6 states, which serve ~~approximately 114,000~~over 120,000 lives and generally focus on higher risk, special needs populations. We believe we are well-positioned to grow our Medicaid and Employer administrative services only (“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~~ ~~Individual and Family Plan~~ products and annual enrollment period for Medicare Advantage. Outside of an annual selling season, IFP and MA products typically can only be sold during special enrollment periods based 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, we aim to 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 MA health plans 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 Centers for Medicare and Medicaid Services (“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

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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 shift 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 credit 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 (“ACA”) 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

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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 30% and 37% for the nine months ended September 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.

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~~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, customer relationships, and reacquired rights.

~~Other Income~~

~~Income Tax Expense (Benefit)~~

~~Income tax expense (benefit) 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.~~

COVID-19 Update

The ongoing 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. The emergence of COVID-19 variants in the United States and abroad continues to prolong the risk of additional surges of the virus. 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~~Medical Cost Ratio (“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.

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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.

In the third quarter of 2021, our results were impacted by COVID-19 trends in two of our largest IFP markets. Florida and North Carolina both saw significant increases in COVID-19 cases in the third quarter, with Centers for Disease Control and Prevention (“CDC”) data indicating average daily COVID-19 case counts were up nearly 300% in each state when compared to the second quarter of 2021. In addition, during the third quarter of 2021, the Southeast United States experienced average daily COVID-19 counts increasing nearly 250% when compared against the second quarter of 2021. This drove our COVID-19 expense in the third quarter of 2021 up 65.6% from the second quarter and our IFP COVID expense was up more than 160% compared to the second quarter of 2021. ForFor the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the impact of COVID-19 increased our MCR by ~~540~~310 basis points and ~~390~~410 basis points, respectively, reflecting an increase in medical costs of ~~$55.6~~$58.4 million and ~~$13.3~~$34.8 million, respectively. For the nine months ended September 30, 2021 and 2020, the impact of COVID-19 increased our MCR by 420 basis points and 290 basis points, respectively, reflecting an increase in medical costs of $124.0 million and $23.8 million, respectively.

Overall measures to contain the ongoing 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.

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Business Update

~~We continue to make progress~~Our mission – Making Healthcare Right. Together. – is built on ~~our model~~the belief that ~~aligns~~by connecting and aligning the best local resources in healthcare delivery with the financing of care, ~~with~~we can deliver better outcomes at a lower cost for all consumers.

We had a strong start to the ~~delivery of care.~~year and continued to deliver substantial growth. We have reached significant scale and are maturing as a business; 2022 will be focused on ~~serving~~optimizing the ~~consumer~~Company and executing on our strategic initiatives. We have made investments to position Bright HealthCare as a differentiated competitor in ~~retail healthcare marketplaces, including~~states with significant addressable markets in both the ~~exchange~~Commercial marketplace and ~~government direct-to-consumer markets. Both businesses~~in Medicare Advantage, as well as establishing our NeueHealth care delivery business.

We expect the next phase of our growth to be more capital efficient, as we focus on performance within our markets and expanding our NeueHealth business. Our underlying capabilities are ~~supported by our Bright Health Intelligent Operating System (“BiOS”) technology platform, where~~maturing and improving, and we continue to ~~see efficiencies~~drive down operating costs and leverage our technology investments to enhance our performance.

We believe we are well positioned in 2022, with key tailwinds and strategic actions supporting better performance. Bright HealthCare now serves over 1.1 million consumers and NeueHealth has reached approximately 530,000 lives served under value-based contracts. We have scale in major markets, including Florida, Texas, North Carolina, and California. The percentage of our Commercial membership that was new to us in 2022 was consistent with our expectations at 56.1%, meaningfully lower than 2021 due to ~~that investment.~~strong renewal rates and lower overall impact from new market entries. Bright HealthCare’s Medicare Advantage business produced year over year growth, both organic and through acquisition, now serving over 120,000 consumers. We ~~view~~are making improvements in our operations including significantly reducing our claims backlog, successfully implementing our new technology platforms, and demonstrating NeueHealth’s differentiation to our Bright HealthCare business while it is also becoming a meaningful contributor to our overall results.

We have made meaningful progress on the following ~~five key themes as important in connection with our third quarter and year-to-date~~specific actions to drive improved year-over-year results:

1.~~We continue to demonstrate significant growth~~Net Pricing Action in Core Markets: – We ~~continue to experience strong growth across both~~took pricing actions for the majority of our ~~businesses. Bright HealthCare now serves over 720,000 consumers~~membership in legacy Commercial markets, in excess of underlying medical cost trends, to support our objective to improve profitability. We expect net pricing in both Commercial and Medicare Advantage to remain an important lever in 2023 as ~~of September 30, 2021, up 247% compared~~we continue on our path to the third quarter of 2020. This includes over 114,000 MA members. In commercial, the growth in members reflects the extended 2021 Special Enrollment Period in IFP with enrollment of nearly 607,000 consumers at the end of the third quarter of 2021 up nearly 10% from the end of the second quarter of 2021. NeueHealth also continues to demonstrate growth with a total of 131 owned and affiliated Primary Care Clinics serving over 170,000 patients under value-based arrangements as of September 30, 2021.profitability.

2.Unit Cost Reductions and Medical Cost Management Initiatives:We ~~have delivered consistent performance~~ are improving our unit cost and executing on medical management opportunities that we identified in 2021 as areas for improvement. We are focused on specific initiatives in contracting, out of network rates, specialty provider networks, and more closely managing high-cost cases. We believe we will deliver on the expected medical cost improvement to our year-over-year improvement in Adjusted EBITDA.

3.–Risk Adjustment Actions: Our ~~third quarter 2021 results reflect quarterly variability due~~high-performing local Care Partner networks were better prepared in 2022 for our strong growth, which allowed us to the negative impact of an increase in direct COVID-19 costs, as well as risk adjustment pressures from the significant contribution of new 2021 membership and COVID-19 related challenges in member engagement. The extended Special Enrollment Period ledattribute members to ~~significant membership growth beyond the interim capacity within the~~ owned and affiliated ~~parts~~physicians much faster, including in Florida and new markets such as Texas. This has enabled our owned and affiliated physicians to engage with their members earlier in the year. That early engagement, combined with higher renewed membership, and the significant investments we made in data and operational capabilities, helps ensure we are accurately capturing the risk of the population we serve.

4.Claims and Clinical Platform Stabilization: We launched all of our ~~integrated systems~~new market membership on our new claims administration platform in January 2022. The new claims platform is performing well and covers nearly one third of ~~care, which~~our Commercial membership. We also added resources to our legacy outsourced claims platform, and we ~~have alleviated through an accelerated pace of clinic and affiliate development and additional investments~~are seeing improvements in ~~our operating platform. While we did experience a modest reduction in utilization from non-COVID related procedures, such as certain elective inpatient surgeries and other diagnostic tests,~~ the cost benefit was more than offset by the negative impact to appropriately diagnose our newly attributed members, which resulted in an increase in our risk adjustment payable. We believe our year-to-date results better reflect the underlying performance of that system. We continue to expect that we will transition the remainder of our ~~business than~~Commercial members to the ~~third quarter results. We~~new claims management platform in January 2023. Our proprietary clinical system, Panorama, is also delivering significant benefits to our performance this year. All of our legacy Commercial markets are currently on Panorama, and we expect ~~a number~~to have all of the factors that drove volatility in the third quarter of 2021 to normalize in 2022 as the contribution from retained consumers increases, direct COVID-19 costs decrease, and as capacity improvements in our ~~aligned integrated systems of care drive improved gross margin.~~Commercial membership on Panorama by 2023.

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3.5.We are ~~driving differentiation through NeueHealth~~Addressing Talent and Cost Structure: –We remain disciplined on our expenses, as we continue to focus on productivity gains and operating expense leverage, while also adding selectively to our team to support growth and enhance our operational performance.

We will continue to focus on markets where our Fully Aligned Care Model can deliver differentiated results, where we can get to sufficient scale, and where we believe we can deliver on our financial targets. We are ~~seeing strong growth~~focusing our Commercial business to offer Individual and Family Plans in ~~NeueHealth’s revenue and operating income that~~10 states where we believe ~~highlights~~we can drive differentiated value through our Fully Aligned Care Model. We believe these decisions place us in the ~~power~~best position to achieve long-term success for our members and Care Partners. These states have a substantial addressable market at approximately 50% of ~~our owned clinics and our affiliates within our aligned model. The growth~~the Commercial Marketplace consumers. We have meaningful scale in our NeueHealth business reflects the continued investments we are making in value-based care, as well as the Centrum acquisition, which closed on July 1, 2021. We are continuing to expand on this model in Florida, ~~as well as bringing this model to new markets, including~~ Texas, and North Carolina, and growth opportunities with strong Care Partner relationships in ~~2022. Our previous~~the other seven states. Optimizing our footprint supports our strategy for profitable, capital efficient growth on our path to improved performance in 2023 and our target ~~to open more than 25 de novo clinics~~for Enterprise Adjusted EBITDA breakeven in 2022 is still on track. We are also bringing in more affiliates into a fully aligned model, where providers are clinically, financially, and technologically aligned with Bright HealthCare. In addition, we have a robust pipeline of third-party payors interested in leveraging our integrated model across multiple populations as we go into 2022 and, as a result, expect to see growth in health plan customers in 2022.2024.

4.~~We are building one technology platform~~ – We continue investing in the BiOS back-end infrastructure, DocSquad consumer and provider-facing tools, and acquisition integration. We have been making investments and accelerating our timeline for integration to one platform, which has resulted in some near-term cost structure headwinds. We are making progress on integrating the health plan assets we acquired, with integration of appropriate corporate office and support functions expected to be completed in 2022, our Bright HealthCare ~~IFP business expected~~will be exiting the Commercial marketplace in six states for the 2023 plan year: Illinois, New Mexico, Oklahoma, South Carolina, Utah, and Virginia, as well as discontinuing our employer group business. The markets we are exiting represent approximately 8% of total Bright HealthCare membership, and they are forecast to contribute approximately 5% of our 2022 consolidated revenue and would have an immaterial impact on ~~a single platform~~revenue in 2023 and ~~full operating platform unification to follow.~~beyond.

We expect modest 2022 cost savings associated with reduced spending in the markets we are exiting, and we also expect a benefit to our capital position as we will not need to add growth capital to the markets we are exiting. Over time we also expect to have the opportunity to recover or redirect the excess statutory capital currently invested in these states after we resolve all medical claims.

5.
~~Continued future growth~~ ~~– NeueHealth~~

We believe we will continue to ~~be an increasingly important component~~grow as we deepen our presence in Bright HealthCare’s 2023 Commercial marketplace states, and as we build on our 120,000 member Medicare Advantage business. We will also continue to grow the NeueHealth care delivery and provider enablement business, including deeper penetration in the Bright HealthCare business and expanding NeueHealth’s external payor relationships. We have built a differentiated Fully Aligned Care Model and our market decisions for 2023 are focused on optimizing this model to deliver the best healthcare experience for consumers and for the long-term success of our business. We expect growth for the business in 2022 and continued integration of NeueHealth with our Bright HealthCare business. In Florida and Texas, we expect to see movement toward health plan offerings that leverage our owned and affiliated clinics within our aligned Integrated Systems of Care. Direct Contracting also provides a new growth opportunity for NeueHealth, adding to the total lives in fully aligned value-based arrangements and contributing to revenue in a capital efficient model. In Bright HealthCare, we expect growth in our core MA markets with a focus on higher complexity patient populations, including C-SNP and D-SNP products, specific ethnic communities requiring culturally competent care and service models, and states with an opportunity for IFP consumers to age into MA plans. In IFP, we are well-positioned based on where we have set rates for 2022, with our plans consistently the lowest or second-lowest cost silver plan in core growth markets. Additionally, we are expanding our addressable market next year, entering four new states including Texas and Georgia, and offering IFP plans for the first time California, which represent three of the largest ACA markets in the country. At the same time, we will remain disciplined in our growth, making appropriate rate adjustments based on our 2021 experience and competitive positioning.

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. The following table provides the approximate consumers and patients served as of March 31, 2022 and 2021.


		As of September 30,			As of March 31,
		2021	2020		2022	2021
Bright HealthCare Consumers Served	Bright HealthCare Consumers Served			Bright HealthCare Consumers Served
Commercial(1)	Commercial(1)	606,594	149,794	Commercial(1)	1,040,000	480,000
Medicare Advantage	Medicare Advantage	114,094	57,751	Medicare Advantage	120,000	60,000

NeueHealth Patients	NeueHealth Patients			NeueHealth Patients
Value-based Care Patient Lives	Value-based Care Patient Lives	170,211	19,141	Value-based Care Patient Lives	530,000	30,000

(1) Commercial plans include IFP and employer plans. ~~Prior to 2021, our commercial business was solely comprised of IFP products.~~

Bright HealthCare Consumers Served

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

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operational, clinical, technological and administrative functional area needs that will require further investment to support expected future consumer growth.

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Value-Based Care Patients

Value-based care patients are patients attributed to providers contracted under varied 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 managed medical groups. We believe growth in the number of value-based care patients 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 our value-based care patients will increase as we convert fee-for-service arrangements into value-based care financial arrangements.


		Three Months Ended September 30,			Nine Months Ended September 30,				Three Months Ended March 31,
($ in thousands)	($ in thousands)	2021		2020	2021		2020	($ in thousands)	2022		2021
Net Loss	Net Loss	$	(296,722)	(59,256)	$	(364,990)	(84,610)	Net Loss	$	(180,629)	(24,545)
Adjusted EBITDA(1)	Adjusted EBITDA(1)	$	(245,918)	(54,084)	$	(290,757)	(81,188)	Adjusted EBITDA(1)	$	(74,830)	(13,827)

(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 interest expense, income taxes, depreciation and amortization, adjusted for the impact of acquisition and financing-related transaction costs, share-based compensation, changes in the fair value of contingent consideration, ~~and~~changes in the fair value of equity securities, 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.

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The following table provides a reconciliation of net loss to Adjusted EBITDA for the periods presented:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
($ in thousands)	($ in thousands)	2021		2020		2021		2020		($ in thousands)	2022		2021
Net loss	Net loss	$	(296,722)	$	(59,256)	$	(364,990)	$	(84,610)	Net loss	$	(180,629)	$	(24,545)
Interest expense	Interest expense	1,594		—		6,282		—		Interest expense	1,193		546
Income tax expense (benefit)	Income tax expense (benefit)	73		—		(18,225)		(9,162)		Income tax expense (benefit)	3,240		1,166
Depreciation and amortization	Depreciation and amortization	14,205		2,678		25,981		5,550		Depreciation and amortization	13,041		4,581
Impairment of intangible assets										Impairment of intangible assets	6,720		—
Transaction costs (a)	Transaction costs (a)	448		965		5,598		3,312		Transaction costs (a)	111		2,020
Share-based compensation expense (b)	Share-based compensation expense (b)	24,180		1,529		43,234		3,722		Share-based compensation expense (b)	32,921		5,176
Change in fair value of contingent consideration (c)		304		—		1,363		—
Contract termination costs (d)		10,000		—		10,000		—
Change in fair value of equity securities (c)										Change in fair value of equity securities (c)	40,968		(4,243)
Change in fair value of contingent consideration (d)										Change in fair value of contingent consideration (d)	—		1,472
Contract termination costs (e)										Contract termination costs (e)	741		—
Restructuring costs (f)										Restructuring costs (f)	6,864		—
Adjusted EBITDA	Adjusted EBITDA	$	(245,918)	$	(54,084)	$	(290,757)	$	(81,188)	Adjusted EBITDA	$	(74,830)	$	(13,827)

(a)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. 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.

(b)Represents non-cash compensation expense related to stock option and restricted stock 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)Beginning in 2022, Adjusted EBITDA excludes the impact of changes in unrealized gains and losses on equity securities. The comparable period in 2021 has been recast to exclude changes in unrealized gains and losses on equity securities.

(d)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 of 2021.~~

~~(d)~~(e)Represents ~~amount~~amounts paid for early termination of an existing vendor ~~contract.~~contracts.

(f)Restructuring costs represents severance costs as part of a workforce reduction in 2022.

Acquisitions

Effective March 31, 2021, we acquired THNM, which offers policies available through the commercial market for individual on- and off-exchange and employer-sponsored health coverage. In addition, we acquired Zipnosis on March 31, 2021, which is a telehealth platform that offers virtual care to health systems around the U.S. This NeueHealth acquisition was completed to enhance our proprietary technology platform, DocSquad, and our consumer and provider connectivity with Zipnosis’ virtual care capabilities.

Effective April 1, 2021, we acquired CHP, an insurance provider of MA HMO services. This Bright HealthCare acquisition was completed to gain synergies from leveraging CHP’s clinical model and California consumer expertise to continue to expand our MA business in the California market.

Effective July 1, 2021, we acquired Centrum, a value-based primary care focused, multi-specialty medical group, serving Commercial, Medicare, and Medicaid consumers across multiple payors. This NeueHealth acquisition was completed for the incremental financial benefits achievable through our 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 our overall margin potential.

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See Note 2, Business Combinations, in our condensed consolidated financial statements of this Quarterly Report. for more information regarding our business combinations.

Results of Operations

The following table summarizes our unaudited Condensed Consolidated Statements of Income (Loss) data and other financial information for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.


($ in thousands)	($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				($ in thousands)	Three Months Ended March 31,
Condensed Consolidated Statements of Income (loss) and operating data:	Condensed Consolidated Statements of Income (loss) and operating data:	2021		2020		2021		2020		Condensed Consolidated Statements of Income (loss) and operating data:	2022		2021

Revenue:	Revenue:									Revenue:
Premium revenue	Premium revenue	$	1,020,233	$	345,426	$	2,922,950	$	827,135	Premium revenue	$	1,680,450	$	860,631
Direct contracting revenue										Direct contracting revenue	182,797		—
Service revenue	Service revenue	11,079		4,920		31,602		13,344		Service revenue	12,428		8,438
Investment income		47,345		1,774		112,503		7,063
Investment income (loss)										Investment income (loss)	(40,100)		5,489
Total revenue	Total revenue	1,078,657		352,120		3,067,055		847,542		Total revenue	1,835,575		874,558
Operating expenses	Operating expenses									Operating expenses
Medical costs	Medical costs	1,050,943		311,319		2,640,143		675,114		Medical costs	1,580,596		684,570
Operating costs	Operating costs	309,790		97,379		779,090		260,650		Operating costs	418,918		208,240
Depreciation and amortization	Depreciation and amortization	14,205		2,678		25,981		5,550		Depreciation and amortization	13,041		4,581
Total operating expenses	Total operating expenses	1,374,938		411,376		3,445,214		941,314		Total operating expenses	2,012,555		897,391
Operating loss	Operating loss	(296,281)		(59,256)		(378,159)		(93,772)		Operating loss	(176,980)		(22,833)
Interest expense	Interest expense	1,594		—		6,282		—		Interest expense	1,193		546
Other income	Other income	(1,226)		—		(1,226)		—		Other income	(784)		—
Loss before income taxes	Loss before income taxes	(296,649)		(59,256)		(383,215)		(93,772)		Loss before income taxes	(177,389)		(23,379)
Income tax expense (benefit)		73		—		(18,225)		(9,162)
Income tax expense										Income tax expense	3,240		1,166
Net loss	Net loss	(296,722)		(59,256)		(364,990)		(84,610)		Net loss	(180,629)		(24,545)
Net earnings attributable to non-controlling interest	Net earnings attributable to non-controlling interest	(3,942)		—		(5,354)		—		Net earnings attributable to non-controlling interest	(14,605)		(617)
Series A preferred stock dividend accrued										Series A preferred stock dividend accrued	(8,938)		—
Net loss attributable to Bright Health Group, Inc. common shareholders	Net loss attributable to Bright Health Group, Inc. common shareholders	$	(300,664)	$	(59,256)	$	(370,344)	$	(84,610)	Net loss attributable to Bright Health Group, Inc. common shareholders	$	(204,172)	$	(25,162)
Adjusted EBITDA	Adjusted EBITDA	$	(245,918)	$	(54,084)	$	(290,757)	$	(81,188)	Adjusted EBITDA	$	(74,830)	$	(13,827)
Medical Cost Ratio (1)	Medical Cost Ratio (1)	103.0%		90.1%		90.3%		81.6%		Medical Cost Ratio (1)	84.8%		79.5%
Operating Cost Ratio (2)	Operating Cost Ratio (2)	28.7%		27.7%		25.4%		30.8%		Operating Cost Ratio (2)	22.8%		23.8%

(1)Medical Cost Ratio is defined as medical costs divided by premium and direct contracting revenue.

(2)Operating Cost Ratio is defined as operating costs divided by total revenue.

Total ~~revenue~~srevenues increased by ~~$726.5~~$961.0 million, or ~~206.3%~~109.9%, for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020,~~2021, which was ~~largely~~ driven by premium revenue due to an increase inof approximately 620,000 Bright HealthCare consumers and over 500,000 value-based care patient lives. In addition, two DCEs aligned with our NeueHealth segment began participating in the DC Model effective January 1, 2022, which contributed $182.8 million of ~~approximately 513,000 consumer lives, or 247.2%, primarily from organic growth~~the increase in ~~IFP within our Commercial business, including the 2021 Special Enrollment Period, as well as organic~~total revenue. The increases in premium revenue and ~~inorganic contributions from the MA business. Increases in our risk adjustment liability~~Direct Contracting revenue were partially offset ~~the total revenue increases. For~~by an investment loss for the three months ended ~~September 30, 2021, we recognized a change in estimate for risk adjustment of $134.0 million due to a change in our risk adjustment payable accrual~~March 31, 2022, as a result of ~~updated data inputs used to calculate IFP members’ expected full year risk scores,~~$41.0 million of ~~which $89.3~~unrealized losses from investments in equity securities.

Medical costs increased by $896.0 million, ~~related to~~or 130.9%, for the ~~first six months of 2021. The~~ three months ended September 30, 2021 included $200.0 million from the acquisitions of PMA, THNM, Zipnosis, CHP and Centrum. Total revenues increased by $2.2 billion, or 261.9%, for the nine months ended September 30, 2021March 31, 2022 as compared to the same period in 2020, primarily driven by organic consumer growth in our Commercial business, as well as favorable rate impacts in our Commercial business. The nine months ended September 30, 2021 included $699.8 million from acquisitions for which there was no comparable amount in the nine months ended September 30, 2020. The three and nine months ended September 30, 2021 also experienced an increase in investment income compared to the same periods in 2020, primarily driven by unrealized gains from investments in equity securities of $46.3 million and $109.0 million, respectively.

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~~Medical costs increased by $739.6 million, or 237.6%, for the three months ended September 30, 2021 as compared to the same period in 2020.~~2021. The increase in medical costs was driven by an increase in consumers through both organic growth in ~~our Commercial and MA businesses~~

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consumers and inorganic growth attributable to the acquisitions of ~~PMA, THNM,~~ CHP and ~~Centrum, as well as increased medical costs from COVID-19.~~Centrum. Medical costs ~~increased by $2.0 billion, or 291.1%, for the nine months ended September 30, 2021 as compared~~incurred associated with beneficiaries aligned to our DCEs also contributed to the ~~same period in 2020. The increase in medical costs was driven by consistent factors with~~increase.

Our MCR of 84.8% for the three months ended ~~September 30, 2021 with additional impact from the acquisition of Brand New Day, which was acquired on April 30, 2020.~~

~~Our MCR of 103.0% for the~~ ~~three months~~ ~~ended September 30, 2021~~March 31, 2022 increased ~~1,290~~530 basis points compared to the same period in ~~2020.~~ The Special Enrollment Period and our overall growth created challenges for capturing underlying risk, and we were impacted by COVID-19 related costs given the significant portion of our consumers in Florida, as well as our significant mix of new members given our consumer growth in 2021. Our MCR ~~for the three months ended September 30, 2021~~ included a ~~540~~310 basis point ~~unfavorable impact from COVID-19 related costs~~ and a 900 basis point unfavorable impact from non-COVID prior period developments (“PPD”) primarily related to a reduction in premium revenue related to an increase in our risk adjustment payable. Our MCR for the three months ended September 30, 2020 included a 390410 basis point unfavorable impact from COVID-19 costs ~~and a 530 basis point favorable impact from non-COVID PPD.~~

~~Our MCR~~ ~~of 90.3%~~for the ~~nine~~three months ended ~~September 30, 2021 increased 870 basis points compared to the same period in 2020, which reflected the challenges of COVID-19, significant growth~~March 31, 2022 and ~~the Special Enrollment Period. Our~~2021, respectively. In addition, our MCR ~~for the nine~~ months ended September 30, 2021 included a 420 basis point unfavorable impact from COVID-19 related costs and a 90 basis point unfavorable impact from non-COVID PPD. Our MCR for the nine months ended September 30, 2020 included a 290 basis point unfavorable impact from COVID-19 costs, a 200 basis point favorable impact from non-COVID PPD and a 150 basis point favorable impact due to deferred utilization. T~~he MCR in both 2021 periods~~ was ~~also~~ impacted by Direct Contracting revenue recorded at a 96.6% MCR, which increased ~~medical costs from MA product mix as a result of the Brand New Day and CHP acquisitions.~~our MCR by 130 basis points.

Operating costs increased by ~~$212.4~~$210.7 million, or ~~218.1%~~101.2%, for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020. Operating costs increased by $518.4 million, or 198.9%, for the nine months ended September 30, 2021 as compared to the same period in 2020.~~2021. The increase in operating costs ~~in both periods~~ was primarily due to a $75.0 million increase in compensation and benefit costs driven by increases in employees, a $27.7 million increase in share-based compensation costs and $6.9 million of restructuring severance costs as part of a workforce reduction in 2022. In addition, operating costs from new market entry ~~increased~~and marketing and selling expenses ~~related~~contributed to the ~~2021 special enrollment period in our Commercial business and increased compensation and benefit costs driven by an~~year-over-year increase in ~~employees and an increase in share-based compensation~~operating costs. Operating costs for the three months ended March 31, 2022, also include a $6.7 million impairment of intangible assets.

Our operating cost ratio of ~~28.7%~~22.8% for the three months ended ~~September 30, 2021, increased~~March 31, 2022, decreased 100 basis points compared to the same period in ~~2020~~2021. The decrease was primarily due to operating costs increasing at a slower rate than the increased premium revenues earned due to consumer growth and participation in the DC Model, as we continue to gain leverage on our operating costs as we grow, partially offset by an increase in compensation and benefit costs and an impairment of intangible assets.

Depreciation and amortization increased by $8.5 million for the three months ended March 31, 2022 as compared to the same period in 2021, primarily due to the $7.0 million of amortization expense resulting from intangible assets acquired in the Centrum, CHP and Zipnosis acquisitions, for which there were no comparable amounts in the three months ended March 31, 2021.

Interest expense was $1.2 million and $0.5 million for the three months ended March 31, 2022 and, 2021, respectively, which was due to interest on the Credit Agreement we entered into in March 2021.

Income tax expense was $3.2 million for the three months ended March 31, 2022. For the three months ended March 31, 2022, the income tax 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. For the three months ended March 31, 2021, income tax expense was $1.2 million, which was due to an adjustment to the tax impact of goodwill and intangible assets acquired as part of the Brand New Day and THNM acquisitions.


Bright HealthCare
($ in thousands)	Three Months Ended March 31,
Statement of income (loss) and operating data:	2022			2021

Bright HealthCare:
Commercial revenue	$	1,163,224		$	621,056
Medicare Advantage revenue	430,313			220,869
Investment income	868			1,246
Total revenue	1,594,405			843,171
Operating expenses:
Medical costs	1,323,724			675,056
Operating costs	371,664			189,973
Depreciation and amortization	6,039			2,357
Total operating expenses	1,701,427			867,386
Operating loss	$	(107,022)		$	(24,215)
Medical Cost Ratio (MCR)	83.1		%	80.2		%

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Commercial revenue increased by $542.2 million, or 87.3%, for the three months ended March 31, 2022 as compared to the same period in 2021. The increase in revenues was driven by an increase in consumer lives of approximately 560,000 due to organic growth and entry into new markets in 2022 – particularly entry into Texas, which is partially offset by an increase in risk adjustment payable.

Medicare Advantage revenue increased by $209.4 million, or 94.8%, for the three months ended March 31, 2022 as compared to the same period in 2021. The three months ended March 31, 2022 included $129.2 million of revenue from our acquisition of CHP, which occurred on April 1, 2021. The remaining increase was primarily driven by organic growth and favorable premium rates.

Medical costs increased by $648.7 million, or 96.1%, for the three months ended March 31, 2022 as compared to the same period in 2021. For the three months ended March 31, 2022 and 2021, the impact of COVID-19 increased our medical costs $58.4 million and $34.8 million, respectively. The remaining increase in 2022 is due to an increase in consumers and medical costs from our acquisition of CHP, partially offset by favorable medical cost rates in our Commercial business.

Our MCR of 83.1% for the three months ended March 31, 2022 increased 290 basis points compared to the same period in 2021. Our MCR for the three months ended March 31, 2022 included a 370 basis point unfavorable impact from COVID-19 costs. Our MCR for the three months ended March 31, 2021 included a 410 basis point unfavorable impact from COVID-19 costs. The increase in MCR is primarily due to an increase in risk adjustment payable.

Operating costs increased by $181.7 million, or 95.6%, for the three months ended March 31, 2022 as compared to the same period in 2021. The increase was primarily due to increased compensation and benefit costs driven by an increase in employees and an increase in share-based compensation costs. In addition, we experienced increases in operating costs ~~as well as an early contract termination charge in the current-year period. Our operating cost ratio of 25.4%~~from new market entry and increased marketing and selling expenses. Operating costs for the ~~nine~~three months ended ~~September 30, 2021 improved 540 basis points compared to the same period in 2020 primarily due to operating costs increasing at~~March 31, 2022, also include 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, partially offset by an increase in broker commission costs associated with new membership growth .$6.7 million impairment of intangible assets.

Depreciation and amortization increased by ~~$11.5~~$3.7 million ~~or 430.4%,~~ for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020,~~2021. The increase was primarily due to ~~the $11.3 million of~~ amortization expense of $2.6 million resulting from intangible assets acquired in the ~~PMA, THNM, Zipnosis,~~ CHP ~~and Centrum acquisitions,~~acquisition on April 1, 2021, for which there ~~were~~are no comparable amounts in the three months ended September 30, 2020. Depreciation and amortization increased by $20.4 million, or 368.1%, for the nine months ended September 30, 2021 as compared to the same period in 2020, primarily due to $19.5 million from intangible assets acquired for which there were no comparable amounts in the nine months ended September 30, 2020.

~~Interest expense was $1.6 million and $6.3 million for the three and nine months ended September 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 was an expense of $0.1 million and a benefit of $18.2 million for the three and nine months ended September 30, 2021, respectively.~~ ~~For the three months ended September 30, 2021, the income tax expense largely relates to amortization of~~31, 2021.

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originating goodwill from asset acquisitions. For the nine months ended September 30, 2021, the overall tax benefit is primarily due to the release of valuation allowance in connection with new deferred tax liabilities recorded on identifiable intangibles as part of business combination accounting for the Zipnosis, THNM, and CHP stock acquisitions, as well as a measurement period adjustment related to the BND acquisition. We recognized an income tax benefit of $9.2 million during the nine months ended September 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
NeueHealth														NeueHealth
($ in thousands)	($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,						($ in thousands)	Three Months Ended March 31,
Statement of income (loss) and operating data:	Statement of income (loss) and operating data:	2021			2020			2021			2020			Statement of income (loss) and operating data:	2022			2021

Bright HealthCare:
Commercial revenue		$	625,926		$	170,434		$	1,930,925		$	510,915
Medicare Advantage revenue		368,599			173,038			929,374			310,270
Investment income		1,087			1,774			3,491			7,063
NeueHealth:														NeueHealth:
Premium revenue														Premium revenue	$	455,002		$	28,674
Direct contracting revenue														Direct contracting revenue	182,797			—
Service revenue														Service revenue	24,121			15,622
Investment income (loss)														Investment income (loss)	(40,968)			4,243
Total revenue	Total revenue	995,612			345,246			2,863,790			828,248			Total revenue	620,952			48,539
Operating expenses:
Operating expenses														Operating expenses
Medical costs	Medical costs	1,019,081			311,319			2,588,196			675,114			Medical costs	624,994			19,482
Operating costs	Operating costs	275,218			88,916			707,520			237,430			Operating costs	58,914			25,451
Depreciation and amortization	Depreciation and amortization	4,584			2,274			11,524			4,131			Depreciation and amortization	7,002			2,224
Total operating expenses	Total operating expenses	1,298,883			402,509			3,307,240			916,675			Total operating expenses	690,910			47,157
Operating loss		$	(303,271)		$	(57,263)		$	(443,450)		$	(88,427)
Operating income (loss)														Operating income (loss)	$	(69,958)		$	1,382
Medical Cost Ratio (MCR)	Medical Cost Ratio (MCR)	102.5		%	90.6		%	90.5		%	82.2		%	Medical Cost Ratio (MCR)	98.0		%	67.9		%

~~Commercial revenue increase~~dPremium revenue increased by ~~$455.5~~$426.3 million ~~or 267.3%,~~ for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020. Commercial~~2021. The increase in premium revenue is primarily due to growth in capitated revenue driven by the acquisition of Centrum on July 1, 2021.

We began participating in the DC Model beginning in January 2022 through two DCEs aligned with our NeueHealth business. Direct contracting revenue was $182.8 million for the three months ended March 31, 2022. This revenue was attributable to the alignment of beneficiaries to our DCE entities, which numbered approximately 49,000 at March 31, 2022.

Service revenue increased by ~~$1.4 billion,~~$8.5 million, or ~~277.9%~~54.4%, for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 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 513,000 due to organic growth, higher net premium rates in certain markets, plan mix, and inorganic growth from the acquisition of THNM, which are partially offset by an increase in risk adjustment payables. The three months ended September 30, 2021 included a change in estimate for the expected full-year risk adjustment scoring impact of $134.0 million, of which $89.3 million related to the first six months of 2021.

~~MA revenue increased by $195.6~~ ~~million, or 113.0%, for the three months ended September 30, 2021 as compared to the same period in 2020. MA revenue increased by $619.1~~ million, or 199.5%, for the nine months ended September 30, 2021 as compared to the same period in 2020. The three and nine months ended September 30, 2021 included $125.7 million and $266.8 million, respectively, of revenue from our acquisition of CHP on April 1, 2021. The remaining increase was primarily driven by volume increases due to organic growth.

~~Medical costs increased by $707.8 million, or 227.3%, for the three months ended September 30, 2021 as compared to the same period in 2020.~~ ~~For the three months ended September 30, 2021 and 2020, the impact of COVID-19 increased our medical costs $55.6 million and $13.3 million, respectively.~~ ~~Medical costs increased by $1.9 billion, or 283.4%, for the nine months ended September 30, 2021 as compared to the same period in 2020.~~ ~~For the nine months ended September 30, 2021 and 2020, the impact of COVID-19 increased our medical costs by $124.0 million and $23.8 million, respectively.~~ ~~The increase in both 2021 periods is also due to an increase in consumers driven by organic growth, unfavorable medical cost rates and inorganic growth as a result of acquisitions.~~

Our MCR of 102.5% for the three months ended September 30, 2021 increased 1,180 basis points compared to the same period in 2020. Our MCR for the three months ended September 30, 2021 included a 560 basis point unfavorable impact from COVID-19 related costs and a 910 basis p~~oint unfavorable impact from non-COVID PPD related to risk adjustment. Our MCR~~

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~~for the three months ended September 30, 2020 included a 390 basis point unfavorable impact from COVID-19 costs and a 530 basis point favorable impact from non-COVID PPD.~~

Our MCR of 90.5% for the nine months ended September 30, 2021 increased 830 basis points compared to the same period in 2020. Our MCR for the nine months ended September 30, 2021 included a 430 basis point unfavorable impact from COVID-19 related costs and a 90 basis point unfavorable impact from non-COVID PPD. Our MCR for the nine months ended September 30, 2020 included a 290 basis point unfavorable impact from COVID-19 costs, a 210 basis point favorable impact from non-COVID PPD and a 150 basis point unfavorable impact from 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 and an increase in risk adjustment payable, which was partially offset by favorable market mix and rate in IFP.

Operating costs increased by $186.3 million, or 209.5%, for the three months ended September 30, 2021 as compared to the same period in 2020. Operating costs increased by $470.1 million, or 198.0%, for the nine months ended September 30, 2021 as compared to the same period in 2020. The increase in both periods during 2021 compared to the same periods in 2020 was primarily due to increases in operating costs from new market entry, increased marketing and selling expenses related to the 2021 SEP in our Commercial 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 do not have a comparable prior period impact.

Depreciation and amortization increased by $2.3 million, or 101.6%, for the three months ended September 30, 2021 as compared to the same period in 2020. Depreciation and amortization increased by $7.4 million, or 179.0%, for the nine months ended September 30, 2021 as compared to the same period in 2020. The increase in the three and nine month periods ended September 30, 2021 was primarily due to amortization expense of $2.6 million and $7.0 million, respectively, resulting primarily from intangible assets acquired for which there were no comparable amounts in the 2020 periods.

NeueHealth
($ in thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
Statement of income (loss) and operating data: 2021 2020 2021 2020
NeueHealth:
Premium revenue $ 156,990 $ 1,954 $ 221,836 $ 5,950
Service revenue 19,556 7,647 54,809 21,520
Investment income 46,258 — 109,012 —
Total revenue 222,804 9,601 385,657 27,470
Operating expenses
Medical costs 163,279 — 211,176 —
Operating costs 42,914 11,190 94,733 31,396
Depreciation and amortization 9,621 404 14,457 1,419
Total operating expenses 215,814 11,594 320,366 32,815
Operating income (loss) $ 6,990 $ (1,993) $ 65,291 $ (5,345)
Medical Cost Ratio (MCR) 104.0 % — % 95.2 % — %

Premium revenue increased by $155.0 million for the three months ended September 30, 2021 as compared to the same period in 2020. Premium revenue increased by $215.9 million for the nine months ended September 30, 2021 as compared to the same period in 2020. The increase in premium revenue for the three and nine months ended September 30, 2021 include~~s $137.2 million and $170.3 million, respectively, from the acquisitions of PMA and Centrum, as well as an organic increase in patient lives.~~

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Service revenue increased by $11.9 million, or 155.7%, for the three months ended September 30, 2021 as compared to the same period in 2020. Service revenue increased by $33.3 million, or 154.7%, for the nine months ended September 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~~acquisition 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 $46.3~~We experienced a $41.0 million ~~and $109.0 million~~investment loss for the three months ended March 31, 2022, compared to investment income of $4.2 million in the three months ended March 31, 2021. The investment income and ~~nine months ending September 30, 2021, respectively,~~loss in both periods was due to unrealized gains and losses on equity ~~securities acquired in 2021. NeueHealth did not hold any investments during the three and nine months ended September 30, 2020.~~securities.

Medical costs were ~~$163.3 million and $211.2~~$625.0 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, an increase of $605.5 million as compared to the same period in 2021, ~~respectively,~~ which ~~were~~was primarily driven by an increase in patient lives as a result of the ~~PMA~~Centrum acquisition, new market expansion and ~~Centrum acquisitions,~~our participation in Direct Contracting beginning in January 2022. MCR was 98.0% for the three months ended March 31, 2022, compared to 67.9% for the three months ended March 31, 2021. The increase was primarily due to higher MCRs in new markets where we do not have prior history, as well as ~~organic growth in~~a higher MCR for our value-based arrangements. MCR was 104.0% and 95.2% in the three and nine months ended September 30, 2021, respectively. There were no medical costs in the three and nine months ended September 30, 2020.DCEs of 96.6%.

Operating costs increased by ~~$31.7~~$33.5 million, or ~~283.5%~~131.5%, for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020. Operating costs increased by $63.3 million, or 201.7%, for the nine months ended September 30, 2021 as compared to the same period in 2020.~~2021. 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, Zipnosis and~~ Centrum ~~acquisitions.~~acquisition.

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Depreciation and amortization increased by ~~$9.2~~$4.8 million for the three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020. Depreciation and amortization increased by $13.0 million for the nine months ended September 30,~~ 2021, ~~as compared to the same period in 2020. The increase in the three and nine months ended September 30, 2021~~which was primarily due to amortization expense of ~~$8.8~~$4.4 million ~~and $12.4 million, respectively,~~ resulting from intangible assets acquired ~~for~~as part of the Centrum acquisition, which ~~there were no comparable amounts in the 2020 periods.~~occurred on July 1, 2021.

Liquidity and Capital Resources

We assess our liquidity and capital resources in terms of our ability to generate adequate amounts of cash to meet our 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,~~including the issuance of Series A Preferred Stock in January 2022, which generated cash proceeds of $750.0 million, as well as through ~~sales~~the issuance of ~~our~~ common stock in June 2021 in connection with our initial public offering, which generated cash proceeds of $887.3 ~~million upon closing of our IPO on June 28,2021.~~million.

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 ~~from~~related to administrative services agreements with the parent company. The Company ~~has~~ declared ~~one dividend~~no dividends from the regulated insurance entities to the parent company during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022 and ~~had no dividends for the same period in 2020.~~2021. The regulated legal entities are required to hold certain minimum levels of risk-based capital and surplus to ~~meet~~satisfy regulatory requirements. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the amounts held in risk-based capital and surplus at regulated insurance legal entities was in excess of the minimum ~~requirements.~~requirements, except for two states where we are working with the state departments of insurance to rectify potential instances of noncompliance.

Our expected primary short-term uses of cash for our regulated insurance entities include ongoing disbursements for claims payments, as well as payments into the risk adjustment program which generally occur in the third quarter. For our non-regulated entities, our expected short-term uses of cash include capital infusions into our regulated insurance entities, interest payments and other general and administrative costs. Our long-term cash requirements include operating lease obligations, the Direct Contracting performance year obligation and redeemable noncontrolling interest.

We expect to continue to incur operating losses ~~and generate negative cash flows from operations~~ for the foreseeable ~~future due~~future; however, we believe our business is at a different phase of capital need than in prior years when we were investing heavily in Bright HealthCare new state entries and acquisitions. In addition, we have taken actions to improve our capital position, including reducing headcount, renegotiating vendor contracts and exiting certain markets. We are seeking the ~~investments~~most capital efficient ways to achieve our growth and financial targets in order to reduce the need for external capital. This includes balancing our growth plans with our capital needs, continuing our efforts to drive better medical cost and more accurately capture the acuity of the population we ~~intend to~~serve, focusing our growth on NeueHealth, carefully managing expenses, and potentially increasing our use of quota share reinsurance. We continue to ~~make in expanding~~evaluate our ~~operations and due to additional general and administrative costs~~future capital needs; however, we ~~expect to incur in connection with operating as a public company. We~~ believe that existing cash on hand, investments and amounts available under our Credit Agreement described below will be sufficient to satisfy our anticipated cash requirements for the next twelve months. However, we may seek additional capital to support our future growth plans and other strategic opportunities that may arise.

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~~Indebtedness~~Credit Agreement

~~On March 1, 2021, we entered into~~We have a $350.0 million ~~revolving credit agreement with a syndicate of banks (the “Credit Agreement”). On August 2, 2021, the~~ Credit Agreement, was amended 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, thewhich matures on February 28, 2024. The Credit Agreement ~~contained~~contains a covenant that ~~required~~requires 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 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. During the second quarter of 2021, we repaid the full amount and as of September 30, 2021, we have no borrowings outstanding under the Credit Agreement. The Credit Agreement also contains a covenant that require us to maintain a minimum liquidity of $150.0 million.As of March 31, 2022, we had no short-term borrowings under the Credit Agreement.

The obligations 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 the Credit Agreement accrue interest at the Company’s election either at a rate of: the (i) the sum of (a) the greatest of (1) the Prime Rate (as defined in the Credit Agreement), (2) the rate of 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 unused amount of the Credit Agreement.

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Furthermore, the Credit Agreement contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to make dividends or other distributions, 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.

As of March 31, 2022, we had $46.1 million of outstanding, undrawn letters of credit under the Credit Agreement and $303.9 million of remaining availability thereunder.

Preferred Stock Financing

On January 3, 2022, we issued 750,000 shares of the Series A Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $750.0 million. We used a portion of the proceeds to repay in full our $155.0 million of outstanding borrowings under the Credit Agreement on January 4, 2022.

For additional information on the Series A Preferred Stock, see Note 9, Redeemable Convertible Preferred Stock, in our condensed consolidated financial statements of this Quarterly Report.

Cash and Investments

As of ~~September 30, 2021,~~March 31, 2022, we had ~~$956.2~~$1,505.5 million in cash and cash equivalents, ~~$331.7~~$692.5 million in short-term investments and ~~$681.9~~$733.5 million long-term investments on the consolidated balance sheet. Our cash and investments are held at non-regulated entities and regulated insurance entities.

As of ~~September 30, 2021,~~March 31, 2022, we had non-regulated cash and cash equivalents of ~~$207.9~~$284.7 million, short-term investments of ~~$206.8~~$80.5 million and no long-term ~~investments of $88.3 million.~~investments.

As of ~~September 30, 2021,~~March 31, 2022, we had regulated insurance entity cash and cash equivalents of ~~$748.3~~$1,220.8 million, of which $1.2 million was restricted, short-term investments of ~~$124.9~~$612.0 million, of which ~~$3.5~~$4.4 million was restricted, and long-term investments of ~~$593.6~~$733.5 million, of which ~~$4.1~~$3.0 million was restricted.

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Cash Flows

The following table presents a summary of our cash flows for the periods shown:


		Nine Months Ended September 30,					Three Months Ended March 31,
($ in thousands)	($ in thousands)	2021		2020		($ in thousands)	2022		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	233,114	$	11,339	Net cash provided by operating activities	$	484,757	$	343,603
Net cash used in investing activities	Net cash used in investing activities	(653,128)		(528,830)		Net cash used in investing activities	(633,127)		(56,275)
Net cash provided by financing activities	Net cash provided by financing activities	887,832		687,714		Net cash provided by financing activities	592,738		200,234
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	467,818		170,223		Net increase in cash and cash equivalents	444,368		487,562
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	488,371		522,910		Cash and cash equivalents at beginning of period	1,061,179		488,371
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	956,189	$	693,133	Cash and cash equivalents at end of period	$	1,505,547	$	975,933

Operating Activities

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, net cash provided by operating activities increased by ~~$221.8~~$141.2 million compared to the ~~nine-month~~three-month period ended ~~September 30, 2020,~~March 31, 2021, primarily driven by the increase in consumer growth driving the increased ~~medical costs and~~ risk adjustment and medical cost payables, as well as accounts payables and other liabilities, ~~and increased medical costs in the MA business driven by the Brand New Day and CHP acquisitions,~~ partially offset by an increase in our net loss.

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Investing Activities

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, net cash used in investing activities increased by ~~$124.3~~$576.9 million compared to the ~~nine-month~~three-month period ended ~~September 30, 2020.~~March 31, 2021. The increase was primarily attributable to a ~~$257.6~~$593.9 million increase ~~in cash used for acquisitions, which was partially offset by a decrease~~ in purchases of investments, net of proceeds from sales, paydowns and maturities of ~~investments.~~investments, which was driven by additional investments at our regulated entities to support continued consumer growth. The increase of cash used for investments was partially offset by a $18.3 million decrease in cash used for acquisitions compared to the three months ended March 31, 2021.

Financing Activities

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, net cash provided by financing activities increased by ~~$200.1~~$392.5 million compared to the ~~nine-month period~~three months ended ~~September 30, 2020,~~March 31, 2021, primarily driven by ~~$887.3~~$750 million of proceeds from ~~our IPO~~the issuance of Series A Preferred Stock in ~~June 2021,~~January 2022, offset by ~~$6.7~~$2.5 million of cash paid for ~~IPO offering costs, and an~~issuance costs. This increase ~~in proceeds from~~was partially offset by the repayment of our $155.0 million of outstanding borrowings under the Credit Agreement on January 4, 2022, subsequent to the issuance of ~~common stock resulting from stock option exercise in the nine~~Series A Preferred Stock. The three months ended ~~September 30, 2021. These increases were partially offset by $686.8~~March 31, 2021 also included $200.0 million of ~~proceeds~~cash from ~~issuance of preferred stock in the nine months ended September 30, 2020.~~borrowings under our Credit Facility.

Critical Accounting Policies and Estimates

The critical accounting policies that reflect our ~~more~~ significant judgements and estimates used in the preparation of our condensed consolidated financial statements include those described in the ~~Prospectus~~2021 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”

~~There~~Other than described below, which is due to our participation in the DC Model beginning on January 1, 2022, there have been no material changes to our critical accounting policies and estimates asfor the period ended March 31, 2022:

Direct Contracting Receivable and Performance Year Obligation

Performance year receivable and obligation represents the average Medicare beneficiary’s total cost of care for beneficiaries aligned to our DCEs and refers to the target expenditure amount that will be compared to Medicare expenditures for items and services furnished to aligned beneficiaries during a performance year. This comparison will be used to calculate shared savings and shared losses.

The key inputs in determining the ~~critical accounting policies~~performance year receivable and obligation are trends, risk score, and the number of beneficiaries aligned to our DCEs. We begin our benchmark estimation process with benchmark reports delivered from CMS’ Center for Medicare & Medicaid Innovation (“CMMI”) on a quarterly basis, which drive the determination of whether certain inputs to that calculation need to be adjusted or accrued as a result of more accurate data. Prospective and retrospective trends are set at a national level, and while it is unlikely we would deviate from CMMI’s estimates, ~~disclosed~~we could adjust from the benchmark report due to new information received directly from CMMI, national studies we complete ourselves, or other anticipated policy updates that we believe are probable and estimable. The preliminary benchmark is set based on risk scores with data captured as of a certain point in time. Once new data is received, an updated analysis of claims provides an opportunity for the ~~Prospectus.~~benchmark to be adjusted. Lastly, beneficiary counts are updated throughout the year and represent a timing difference between CMMI reporting, for which we accrue.

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.~~Report.

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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 September 30, 2021~~Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies and other factors outside of our ~~net unrealized gain position was $0.2 million, compared~~control. Assuming a hypothetical and immediate 1% increase in interest rates across the entire U.S. Treasury curve at March 31, 2022, the aggregate market value decrease to ~~a net unrealized gain position of $2.4 million at December 31, 2020.~~our regulated and unregulated portfolios would be approximately $18.6 million.

ITEM 4. CONTROLS AND PROCEDURES

Limitations on ~~effectiveness~~Effectiveness of ~~controls~~Controls and ~~procedures~~Procedures

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 controls~~Disclosure Controls and ~~procedures~~Procedures

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 ~~September 30, 2021,~~March 31, 2022, 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 Factors in~~ our ~~Prospectus,~~2021 Form 10-K, we previously identified a material weakness ~~in Brand New Day’s internal control over financial reporting.~~related to claims pertaining to our IFP business, which were processed by a third-party service provider. The claims were processed inaccurately according to terms of provider contracts and/or related fee schedules, or did not consistently go through claims re-pricing, where necessary, prior to payment. As of ~~September 30, 2021,~~March 31, 2022, we continue to have a material weakness in ~~Brand New Day’s internal control over financial reporting. So far in 2021,~~IFP third-party claims processing. Since the identification of this material weakness, we have ~~taken a number~~been expanding the comprehensiveness of ~~remediation steps to enhance the control environment at Brand New Day, including actions to further centralize accounting~~our pre-pay and ~~other financial responsibilities, enhance controls,~~post-pay claims quality assurance procedures and ~~documentation supporting key accounts~~datamining capabilities designed to enable targeted identification of potential claims payment discrepancies or other process gaps. Additionally, over the course of 2022, we will be improving provider data (e.g., provider roster data) and the processes ~~and hire additional resources~~of updating that data, both of which have contributed to ~~oversee accounting, reporting and other 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 migrated 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.identified claims processing errors.

Changes in Internal Control over Financial Reporting

~~We consider~~Other 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.

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~~Part~~PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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.~~2021 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,~~2021 Form 10-K, except for the following risk factor, which supplements the “Risk Factors” section in our ~~Prospectus.~~2021 Form 10-K.

~~Security incidents or breaches, loss of data and other disruptions~~Our expansion into Direct Contracting presents new risks to our or our third-party service providers’ systems, information technology infrastructure, and networks could compromise sensitive or legally protected information related to our business or consumers, disrupt our business operations, and expose us to liability, which could adversely affect our business and our reputation.business.

~~In the ordinary course of~~We expanded our business ~~we receive, collect, store, use, process, transmit and disclose~~into CMS’ new Direct Contracting model (“~~Process”~~DC Model”) ~~sensitive data, including protected health information (“PHI”), and other types~~in January 2022, enabling us to target a larger market opportunity, the Medicare FFS market, which is the largest segment of personal data, personal information or personally identifiable information protected by various laws and regulations (collectively, “PII”). We also use third-party service providers to Process PHI, PII, sensitive information and other confidential information, including that ofMedicare. As such, our consumers and service providers. We manage and maintain our technology platform and data using a combination of on-site systems, managed data center systems and cloud-based systems. Because of the sensitivity of the PHI, other PII and other confidential information we and our consumers and service providers process, the security of our technology platform and other aspects of our services, including those provided or facilitated by our third-party service providers, are critically important to our operations andDirect Contracting business ~~strategy.~~

The operation, stability, integrity and availability of our technology platform and underlying network infrastructure are critical to the implementation of our business strategy, our financial results, our brand and reputation, our relationship with our Care Partners, consumers, network providers, broker network, third-party providers and other key constituents. Any system failure, including network, software or hardware failure, that causes an interruption in our network or a decreaseis in the ~~responsiveness~~early stages of our technology platform could result in dissatisfaction and a loss of trust with those constituents and adversely impact our business and reputation. Although we have redundancies in place that will permit us to respond, at least to some degree, to service outages, it could take significant time to have all systems fully operational and our third-party cloud providers are also subject to vulnerabilities.

Security incidents and breaches of our infrastructure or our third-party service providers’ infrastructure, including physical or electronic break-ins, computer viruses, ransomware, or other malware, employee or contractor error or malfeasance, can disrupt or shut down our systems, or allow unauthorized access to, or misuse, disclosure, modifications or loss of confidential information, PHI, and other PII. Such breaches could result in legal claims or proceedings, liability under laws and regulations that protect the privacy of PHI or other PII, such as the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the California Consumer Privacy Act (“CCPA”), and other state and federal laws and regulations. We may also be required to notify government authorities, individuals, the media, and other third parties in connection with a security incident or breach involving PHI or other PII, and could become subject to investigations, consent decrees, resolution agreements, monitoring agreements and similar agreements, and civil penalties. We require business associates and other outsourcing subcontractors who handle consumer and patient information to enter into business associate agreements, if applicable, and to agree to use reasonable efforts to safeguard PHI, other PII and other sensitive information. However, these measures may not adequately protect us from the risks associated with the Processing of such information.

In October 2021, one of our subsidiaries, True Health New Mexico, Inc. (“True Health”) experienced a data security incident. Upon learning of the incident, we promptly took steps to secure and contain the impacted True Health systems and supplemented our internal response teams with leading cyber security defense firms and other outside experts. These steps included taking preventative measures, including shutting down certain systems where necessary, as well as taking steps to supplement existing security monitoring, scanning and protective measures. ~~True Health has restored its principal operations with no material day-to-day impact to its operations. Our investigation of the attack is substantially complete,~~development, and we are ~~also~~

~~Table~~subject to the risks inherent to the launch of ~~Contents~~

~~working with law enforcement officials on their ongoing criminal investigation of~~any new business, including the risks that we may not generate sufficient returns to justify our investment, it may take longer or be more costly to achieve the expected benefits from this ~~matter. True Health has notified appropriate governmental authorities~~new program, and ~~will provide additional notices~~that it may require us to, ~~impacted parties as required.~~

~~In addition, breaches of our security systems or those systems used by our third-party service providers or~~at least initially, divert management attention and other cyber security incidents could also result in the misappropriation of confidential or proprietary information of ourselves, our consumers, our patients, or other third parties; viruses, spyware, ransomware or other malware being servedresources from our ~~network, platform or systems; the deletion or modification of content or the display of unauthorized content on~~existing businesses. In connection with our platform; the loss of access to critical data or systems through ransomware, destructive attacks or other means; and business delays, service or system disruptions such as denials of service attacks. For example, although none of our consumers PHI or PII was put at risk, earlier this year, one of our third-party suppliers of certain services was recently subject to a ransomware attack, which caused delays in our claims payment processing to consumers. We cannot guarantee that our recovery protocols and backup systems will be sufficient to prevent data loss now or in the future, or that our remedies against third-party service providers will be sufficient to protect us in the event such service provider suffers a security breach or similar incident.

Ifexpansion into Direct Contracting, we are ~~not or are perceived~~forming relationships with a greater number of physicians, which may pose challenges to scaling quickly, influencing physician behavior and directly engaging beneficiaries, and we may face additional new risks and difficulties, many of which we may not be able to ~~prevent such security breaches~~predict or ~~privacy violations or implement acceptable remedial measures, we~~foresee. As a new advanced payment model, CMMI is constantly evaluating the program and has already revised the structure and design of the program for 2023, renaming the model “ACO REACH,” which stands for Realizing Equity, Access, and Community Health. The change to ACO REACH and potential future changes may be unable to operate our platform, perform our services, provide consumer assistance services, maintain accurate patient medical records, conduct research and development activities, collect, process and prepare company financial information, or provide information about our current and future products. There can be no assurance that we will be able to prevent another security incident such as occurred with True Health or that any future incidents will not have a ~~more~~ significant impact on our ~~operations. There~~ability to carry out our business. Similarly, while the Direct Contracting program is ~~an increased risk that~~expected to transition to ACO REACH and continue through 2026, CMMI can determine to terminate the program at any time, and in some cases may be required to do so. If the program is terminated, we ~~may experience cybersecurity-related events such as COVID-19-themed phishing attacks~~would need to reevaluate our Medicare FFS strategic options, which in turn could reduce the return on our investments and ~~other security challenges as a result of~~negatively impact our employees and service providers working remotely from non-corporate-managed networks during the ongoing pandemic and beyond. The True Health breach and any future such breaches and violations may result in fines and penalties, require us to comply with breach notification laws, require us to verify the accuracy of database contents, and expose us to material operating expenses related to investigation, remediation and resolution of claims, all of which could result in increased costs.

~~As a result, we could suffer a loss of~~ business, ~~and we may suffer reputational harm, adverse impacts on consumer and investor confidence and negative impact to our~~financial condition, results of ~~operations.~~operations and future prospects.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

On ~~July 1, 2021,~~January 3, 2022, we issued ~~4,388,811~~750,000 shares of ~~common stock, par value $0.0001~~our Series A Preferred Stock for an aggregate purchase price of $750.0 million, or $1,000 per share to ~~security holders~~certain subsidiaries of ~~Centrum in connection with our acquisition~~Cigna Corporation and certain affiliates of ~~Centrum. This~~New Enterprise Associates.

The foregoing transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The sale of the above securities was deemed to be exempt from ~~the~~ registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving any public offering. The recipients of the securities in this transaction 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~~securities issued in this transaction.

~~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 $222.4 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.

Upon completion of the sale of the shares of our common stock in the IPO, the IPO terminated. There has been no material change in the planned use of proceeds from our IPO from those disclosed in our final prospectus filed with the SEC on June 25, 2021, pursuant to Rule 424(b) under the Securities Act of 1933.

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Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number						Description
3.1						Ninth Amended and Restated Certificate of Incorporation of Bright Health Group, Inc. (incorporated by reference to Exhibit 4.1 filed with the Registrant’s Registration Statement on Form S-8 filed on June 28, 2021)
3.2						Certificate of Designations of Series A Convertible Perpetual Preferred Stock of Bright Health Group, Inc. (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K filed on January 3, 2022)
3.3						Amended and Restated Bylaws of Bright Health Group, Inc. (incorporated by reference to Exhibit 4.2 filed with the Registrant’s Registration Statement on Form S-8 filed on June 28, 2021)
10.1						Second Amendment to the Second Amended and Restated Registration Rights Agreement, dated as of January 3, 2022, by and among Bright Health Group, Inc. and the other parties named therein. (incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K filed on January 3, 2022)
10.2†*						Form of Executive Separation Agreement
31.1						Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
32.2						Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101						The following financial information from our Quarterly Report on Form 10-Q for the ~~third~~first quarter of fiscal ~~2021,~~2022, filed with the SEC on ~~November 15, 2021,~~May 12, 2022, formatted in Inline Extensible Business Reporting Language (“iXBRL”)
104						Cover Page Interactive Data File (formatted as ~~Inline XBRL~~iXBRL and embedded within Exhibit 101)

* Filed herewith.

† Management contract or compensatory plan or arrangement.

(1) The certifications in ~~Exhibit~~Exhibits 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.

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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, INC.

Dated: ~~November 15, 2021~~May 12, 2022	By:	/s/ G. Mike Mikan
	Name:	G. Mike Mikan
	Title:	Vice Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Catherine R. Smith
	Name:	Catherine R. Smith
	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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	Pro Forma Consolidated Statements of Income (Loss)
	(Unaudited)
	Three Months Ended		Nine Months Ended September 30,
	September 30, 2020		2021		2020
Revenue	$	502,378	$	3,195,925	$	1,263,016
Net Loss	(49,157)		(358,935)		(70,971)


	RSU
	Number of RSUs	Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2020	—	$	—
RSUs granted	364	9.11
RSUs canceled	(19)	9.01
Unvested RSUs at September 30, 2021	345	$	9.11


	PSU
	Number of PSUs	Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2020	—	$	—
PSUs granted	14,700	9.30
PSUs canceled	—	—
Unvested PSUs at September 30, 2021	14,700	$	9.30


Nine Months Ended September 30, 2021	Bright HealthCare		NeueHealth		Eliminations		Consolidated
Premium revenue	$	2,860,270	$	62,680	$	—	$	2,922,950
Service revenue	29		31,573		—		31,602
Investment income	3,491		109,012		—		112,503
Total unaffiliated revenue	2,863,790		203,265		—		3,067,055
Affiliated revenue	—		182,392		(182,392)		—
Total segment revenue	2,863,790		385,657		(182,392)		3,067,055
Operating income (loss)	(443,450)		65,291		—		(378,159)

Depreciation and amortization	$	11,524	$	14,457	$	—	$	25,981


Nine Months Ended September 30, 2020	Bright HealthCare		NeueHealth		Eliminations		Consolidated
Premium revenue	$	821,185	$	5,950	$	—	$	827,135
Service revenue	—		13,344		—		13,344
Investment income	7,063		—		—		7,063
Total unaffiliated revenue	828,248		19,294		—		847,542
Affiliated revenue	—		8,176		(8,176)		—
Total segment revenue	828,248		27,470		(8,176)		847,542
Operating income (loss)	(88,427)		(5,345)		—		(93,772)

Depreciation and amortization	$	4,131	$	1,419	$	—	$	5,550