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 March 31,June 30, 2022
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40537
BRIGHT HEALTH GROUP, 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 May 3,August 5, 2022, the registrant had 629,698,944629,245,760 shares of common stock, $0.0001 par value per share, outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Statements made in this Quarterly Report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements, and should be evaluated as such. Forward-looking statements include any statement or information concerning possible or assumed future results of operations, our business plan and strategies, and our operational and financial outlook, estimates, projections, and guidance. These statements often include words such as “anticipate,” “expect,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “projections,” “should,” “might,” “may,” “will” and other similar expressions. Such forward-looking statements are subject to various risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Factors that might materially affect such forward-looking statements include: our ability to continue as a going concern if we do not obtain additional financing; 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 Annual Report on Form 10-K for the year ended December 31, 2021, that was filed with the United States Securities and Exchange Commission (“SEC”) on March 18, 2022 (“2021 Form 10-K”) and our other filings with the SEC.
The preceding list is not intended to be an exhaustive list of all of the factors that might affect our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Other sections of this Quarterly Report may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
You should not rely upon forward-looking statements as predictions of future events. Our forward-looking statements speak only as of the date of this Quarterly Report and, although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in such forward-looking statements will be achieved or occur at all. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in our expectations.
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)
| | | | March 31,
2022 | | December 31,
2021 | | June 30,
2022 | | December 31,
2021 |
| Assets | Assets | | | | Assets | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,505,547 | | $ | 1,061,179 | Cash and cash equivalents | $ | 1,427,517 | | $ | 1,061,179 |
| Short-term investments | Short-term investments | 692,472 | | 193,835 | Short-term investments | 833,923 | | 193,835 |
| Accounts receivable, net of allowance of $5,172 and $4,074, respectively | 142,695 | | 113,474 | |
| Accounts receivable, net of allowance of $6,737 and $4,074, respectively | | Accounts receivable, net of allowance of $6,737 and $4,074, respectively | 144,878 | | 113,474 |
| Direct contracting performance year receivable | Direct contracting performance year receivable | 638,641 | | — | Direct contracting performance year receivable | 396,104 | | — |
| Prepaids and other current assets | Prepaids and other current assets | 315,422 | | 291,712 | Prepaids and other current assets | 357,989 | | 291,712 |
| Total current assets | Total current assets | 3,294,777 | | 1,660,200 | Total current assets | 3,160,411 | | 1,660,200 |
| Other assets: | Other assets: | | | | Other assets: | | | |
| Long-term investments | Long-term investments | 733,465 | | 675,192 | Long-term investments | 861,675 | | 675,192 |
| Property, equipment and capitalized software, net | Property, equipment and capitalized software, net | 41,279 | | 38,344 | Property, equipment and capitalized software, net | 47,937 | | 38,344 |
| Goodwill | Goodwill | 835,450 | | 835,140 | Goodwill | 835,450 | | 835,140 |
| Intangible assets, net | Intangible assets, net | 326,617 | | 343,860 | Intangible assets, net | 316,249 | | 343,860 |
| Other non-current assets | Other non-current assets | 43,438 | | 45,603 | Other non-current assets | 39,335 | | 45,603 |
| Total other assets | Total other assets | 1,980,249 | | 1,938,139 | Total other assets | 2,100,646 | | 1,938,139 |
| Total assets | Total assets | $ | 5,275,026 | | $ | 3,598,339 | Total assets | $ | 5,261,057 | | $ | 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 | $ | 1,155,155 | | $ | 817,975 | Medical costs payable | $ | 1,049,874 | | $ | 817,975 |
| Accounts payable | Accounts payable | 128,407 | | 118,140 | Accounts payable | 120,541 | | 118,140 |
| Unearned revenue | Unearned revenue | 34,893 | | 53,295 | Unearned revenue | 56,872 | | 53,295 |
| Risk adjustment payable | Risk adjustment payable | 1,285,446 | | 931,170 | Risk adjustment payable | 1,847,883 | | 931,170 |
| Direct contracting performance year obligation | Direct contracting performance year obligation | 533,537 | | — | Direct contracting performance year obligation | 310,603 | | — |
| Short-term borrowings | Short-term borrowings | — | | 155,000 | Short-term borrowings | — | | 155,000 |
| Other current liabilities | Other current liabilities | 251,523 | | 207,238 | Other current liabilities | 245,276 | | 207,238 |
| Total current liabilities | Total current liabilities | 3,388,961 | | 2,282,818 | Total current liabilities | 3,631,049 | | 2,282,818 |
| Other liabilities | Other liabilities | 38,849 | | 41,994 | Other liabilities | 36,091 | | 41,994 |
| Total liabilities | Total liabilities | 3,427,810 | | 2,324,812 | Total liabilities | 3,667,140 | | 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 | 143,011 | | 128,407 | Redeemable noncontrolling interests | 164,454 | | 128,407 |
| 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 | | — | 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 shares authorized in 2022 and 2021; 628,992,422 and 628,622,872 shares issued and outstanding in 2022 and 2021, respectively | 63 | | 63 | |
| Common stock, $0.0001 par value; 3,000,000,000 shares authorized in 2022 and 2021; 629,322,217 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; 629,322,217 and 628,622,872 shares issued and outstanding in 2022 and 2021, respectively | 63 | | 63 |
| Additional paid-in capital | Additional paid-in capital | 2,894,421 | | 2,861,243 | Additional paid-in capital | 2,915,056 | | 2,861,243 |
| Accumulated deficit | Accumulated deficit | (1,896,085) | | (1,700,851) | Accumulated deficit | (2,170,751) | | (1,700,851) |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (29,675) | | (3,335) | Accumulated other comprehensive loss | (50,386) | | (3,335) |
| Treasury stock, at cost, 2,522,148 shares at March 31, 2022 and December 31, 2021, respectively | (12,000) | | (12,000) | |
| Treasury stock, at cost, 2,522,148 shares at June 30, 2022 and December 31, 2021, respectively | | Treasury stock, at cost, 2,522,148 shares at June 30, 2022 and December 31, 2021, respectively | (12,000) | | (12,000) |
| Total shareholders’ equity (deficit) | Total shareholders’ equity (deficit) | 956,724 | | 1,145,120 | Total shareholders’ equity (deficit) | 681,982 | | 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) | $ | 5,275,026 | | $ | 3,598,339 | Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit) | $ | 5,261,057 | | $ | 3,598,339 |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss)
(in thousands, except per share data)
(Unaudited)
| | | Three Months Ended
March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue: | Revenue: | | | | Revenue: | | | | | | | |
| Premium revenue | Premium revenue | $ | 1,680,450 | | $ | 860,631 | Premium revenue | $ | 1,437,329 | | $ | 1,042,086 | | $ | 3,117,779 | | $ | 1,902,717 |
| Direct contracting revenue | Direct contracting revenue | 182,797 | | — | Direct contracting revenue | 137,205 | | — | | 320,002 | | — |
| Service revenue | Service revenue | 12,428 | | 8,438 | Service revenue | 12,845 | | 12,085 | | 25,273 | | 20,523 |
| Investment income (loss) | Investment income (loss) | (40,100) | | 5,489 | Investment income (loss) | (10,751) | | 59,669 | | (50,851) | | 65,158 |
| Total revenue | Total revenue | 1,835,575 | | 874,558 | Total revenue | 1,576,628 | | 1,113,840 | | 3,412,203 | | 1,988,398 |
| Operating expenses: | Operating expenses: | | | | Operating expenses: | | | | | | | |
| Medical costs | Medical costs | 1,580,596 | | 684,570 | Medical costs | 1,398,166 | | 904,630 | | 2,978,762 | | 1,589,200 |
| Operating costs | Operating costs | 418,918 | | 208,240 | Operating costs | 413,320 | | 261,060 | | 832,238 | | 469,300 |
| Depreciation and amortization | Depreciation and amortization | 13,041 | | 4,581 | Depreciation and amortization | 13,229 | | 7,195 | | 26,270 | | 11,776 |
| Total operating expenses | Total operating expenses | 2,012,555 | | 897,391 | Total operating expenses | 1,824,715 | | 1,172,885 | | 3,837,270 | | 2,070,276 |
| Operating loss | Operating loss | (176,980) | | (22,833) | Operating loss | (248,087) | | (59,045) | | (425,067) | | (81,878) |
| Interest expense | Interest expense | 1,193 | | 546 | Interest expense | 337 | | 4,142 | | 1,530 | | 4,688 |
| Other income | Other income | (784) | | — | Other income | 2 | | — | | (782) | | — |
| Loss before income taxes | Loss before income taxes | (177,389) | | (23,379) | Loss before income taxes | (248,426) | | (63,187) | | (425,815) | | (86,566) |
| Income tax expense | 3,240 | | 1,166 | |
| Income tax (benefit) expense | | Income tax (benefit) expense | 2,904 | | (19,464) | | 6,144 | | (18,298) |
| Net loss | Net loss | (180,629) | | (24,545) | Net loss | (251,330) | | (43,723) | | (431,959) | | (68,268) |
| Net earnings attributable to noncontrolling interests | Net earnings attributable to noncontrolling interests | (14,605) | | (617) | Net earnings attributable to noncontrolling interests | (23,336) | | (795) | | (37,941) | | (1,412) |
| Series A preferred stock dividend accrued | Series A preferred stock dividend accrued | (8,938) | | — | Series A preferred stock dividend accrued | (9,461) | | — | | (18,399) | | — |
| Net loss attributable to Bright Health Group, Inc. common shareholders | Net loss attributable to Bright Health Group, Inc. common shareholders | $ | (204,172) | | $ | (25,162) | Net loss attributable to Bright Health Group, Inc. common shareholders | $ | (284,127) | | $ | (44,518) | | $ | (488,299) | | $ | (69,680) |
| 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 | $ | (0.32) | | $ | (0.18) | Basic and diluted loss per share attributable to Bright Health Group, Inc. common shareholders | $ | (0.45) | | $ | (0.28) | | $ | (0.78) | | $ | (0.46) |
| Basic and diluted weighted-average common shares outstanding | Basic and diluted weighted-average common shares outstanding | 628,765 | | 140,175 | Basic and diluted weighted-average common shares outstanding | 629,201 | | 160,942 | | 628,984 | | 150,616 |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
| | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net loss | Net loss | $ | (180,629) | | $ | (24,545) | Net loss | $ | (251,330) | | $ | (43,723) | | $ | (431,959) | | $ | (68,268) |
| Other comprehensive (loss) income: | Other comprehensive (loss) income: | | | | Other comprehensive (loss) income: | | | | | | | |
| 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) | Unrealized investment holding losses arising during the year, net of tax of $0 and $0, respectively | (21,469) | | (684) | | (49,558) | | (1,665) |
| 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 | Less: reclassification adjustments for investment (losses) gains, net of tax of $0 and $0, respectively | (758) | | 167 | | (2,507) | | 228 |
| Other comprehensive (loss) income | Other comprehensive (loss) income | (26,340) | | (1,042) | Other comprehensive (loss) income | (20,711) | | (851) | | (47,051) | | (1,893) |
| Comprehensive loss | Comprehensive loss | (206,969) | | (25,587) | Comprehensive loss | (272,041) | | (44,574) | | (479,010) | | (70,161) |
| Comprehensive loss attributable to noncontrolling interests | Comprehensive loss attributable to noncontrolling interests | (14,605) | | (617) | Comprehensive loss attributable to noncontrolling interests | (23,336) | | (795) | | (37,941) | | (1,412) |
| Comprehensive loss attributable to Bright Health Group, Inc. common shareholders | Comprehensive loss attributable to Bright Health Group, Inc. common shareholders | $ | (221,574) | | $ | (26,204) | Comprehensive loss attributable to Bright Health Group, Inc. common shareholders | $ | (295,377) | | $ | (45,369) | | $ | (516,951) | | $ | (71,573) |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders’ Equity (Deficit)
(in thousands)
(Unaudited)
| | | Redeemable
Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | Total | | Redeemable
Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | Total |
| 2022 | 2022 | Shares | | Amount | | Shares | | Amount | | 2022 | Shares | | Amount | | Shares | | Amount | |
| Balance at January 1, 2022 | Balance at January 1, 2022 | — | | | $ | — | | | 628,623 | | | $ | 63 | | | $ | 2,861,243 | | | $ | (1,700,851) | | | $ | (3,335) | | | $ | (12,000) | | | $ | 1,145,120 | | Balance at January 1, 2022 | — | | | $ | — | | | 628,623 | | | $ | 63 | | | $ | 2,861,243 | | | $ | (1,700,851) | | | $ | (3,335) | | | $ | (12,000) | | | $ | 1,145,120 | |
| Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (195,234) | | | — | | | — | | | (195,234) | | Net loss | — | | | — | | | — | | | — | | | — | | | (195,234) | | | — | | | — | | | (195,234) | |
| Issuance of preferred stock | Issuance of preferred stock | 750 | | | 747,481 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Issuance of preferred stock | 750 | | | 747,481 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of common stock | Issuance of common stock | — | | | — | | | 370 | | | — | | | 257 | | | — | | | — | | | — | | | 257 | | Issuance of common stock | — | | | — | | | 370 | | | — | | | 257 | | | — | | | — | | | — | | | 257 | |
| Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 32,921 | | | — | | | — | | | — | | | 32,921 | | Share-based compensation | — | | | — | | | — | | | — | | | 32,921 | | | — | | | — | | | — | | | 32,921 | |
| Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (26,340) | | | — | | | (26,340) | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (26,340) | | | — | | | (26,340) | |
| 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 | | Balance at March 31, 2022 | 750 | | | $ | 747,481 | | | 628,993 | | | $ | 63 | | | $ | 2,894,421 | | | $ | (1,896,085) | | | $ | (29,675) | | | $ | (12,000) | | | $ | 956,724 | |
| | Net loss | | Net loss | — | | | — | | | — | | | — | | | — | | | (274,666) | | | — | | | — | | | (274,666) | |
| Issuance of common stock | | Issuance of common stock | — | | | — | | | 329 | | | — | | | 415 | | | — | | | — | | | — | | | 415 | |
| Share-based compensation | | Share-based compensation | — | | | — | | | — | | | — | | | 20,220 | | | — | | | — | | | — | | | 20,220 | |
| Other comprehensive loss | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (20,711) | | | — | | | (20,711) | |
| Balance at June 30, 2022 | | Balance at June 30, 2022 | 750 | | | $ | 747,481 | | | 629,322 | | | $ | 63 | | | $ | 2,915,056 | | | $ | (2,170,751) | | | $ | (50,386) | | | $ | (12,000) | | | $ | 681,982 | |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders’ Equity (Deficit)
(in thousands)
(Unaudited)
| | | Redeemable Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | Total | | Redeemable Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Retained
Earnings
(Deficit) | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | Total |
| 2021 | 2021 | Shares | | Amount | | Shares | | Amount | | 2021 | Shares | | Amount | | Shares | | Amount | |
| Balance at January 1, 2021 | Balance at January 1, 2021 | 164,245 | | | $ | 1,681,015 | | | 137,663 | | | $ | 14 | | | $ | 9,877 | | | $ | (515,989) | | | $ | 2,426 | | | $ | — | | | $ | (503,672) | | Balance at January 1, 2021 | 164,245 | | | $ | 1,681,015 | | | 137,663 | | | $ | 14 | | | $ | 9,877 | | | $ | (515,989) | | | $ | 2,426 | | | $ | — | | | $ | (503,672) | |
| Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (25,162) | | | — | | | — | | | (25,162) | | Net loss | — | | | — | | | — | | | — | | | — | | | (25,162) | | | — | | | — | | | (25,162) | |
| Issuance of preferred stock | Issuance of preferred stock | 1,420 | | | 55,137 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Issuance of preferred stock | 1,420 | | | 55,137 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of common stock | Issuance of common stock | — | | | — | | | 4,661 | | | — | | | 4,893 | | | — | | | — | | | — | | | 4,893 | | Issuance of common stock | — | | | — | | | 4,661 | | | — | | | 4,893 | | | — | | | — | | | — | | | 4,893 | |
| Share-based compensation | Share-based compensation | — | | | — | | | — | | | — | | | 5,176 | | | — | | | — | | | — | | | 5,176 | | Share-based compensation | — | | | — | | | — | | | — | | | 5,176 | | | — | | | — | | | — | | | 5,176 | |
| Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (1,042) | | | — | | | (1,042) | | 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) | | Balance at March 31, 2021 | 165,665 | | | $ | 1,736,152 | | | 142,324 | | | $ | 14 | | | $ | 19,946 | | | $ | (541,151) | | | $ | 1,384 | | | $ | — | | | $ | (519,807) | |
| | Net loss | | Net loss | — | | | — | | | — | | | — | | | — | | | (44,518) | | | — | | | — | | | (44,518) | |
| Issuance of preferred stock | | Issuance of preferred stock | 2,067 | | | 79,807 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Conversion of preferred stock to common stock | | 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 | | Issuance of common stock | — | | | — | | | 4,120 | | | 1 | | | 4,722 | | | — | | | — | | | — | | | 4,723 | |
| Sale of common stock from IPO, net of offering costs | | Sale of common stock from IPO, net of offering costs | — | | | — | | | 51,350 | | | 5 | | | 880,637 | | | — | | | — | | | — | | | 880,642 | |
| Share-based compensation | | Share-based compensation | — | | | — | | | — | | | — | | | 13,878 | | | — | | | — | | | — | | | 13,878 | |
| Other comprehensive loss | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (851) | | | — | | | (851) | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | — | | | $ | — | | | 625,691 | | | $ | 63 | | | $ | 2,735,099 | | | $ | (585,669) | | | $ | 533 | | | $ | — | | | $ | 2,150,026 | |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| | | Three Months Ended
March 31, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
| Net loss | Net loss | $ | (180,629) | | $ | (25,162) | Net loss | $ | (431,959) | | $ | (69,680) |
| 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 | 13,041 | | 4,581 | Depreciation and amortization | 26,270 | | 11,776 |
| Impairment of intangible assets | Impairment of intangible assets | 6,720 | | — | Impairment of intangible assets | 6,720 | | — |
| Share-based compensation | Share-based compensation | 32,921 | | 5,176 | Share-based compensation | 53,141 | | 19,054 |
| Deferred income taxes | Deferred income taxes | 717 | | 1,166 | Deferred income taxes | 1,154 | | (18,018) |
| Unrealized loss on equity securities | 40,968 | | — | |
| Unrealized loss (gain) on equity securities | | Unrealized loss (gain) on equity securities | 57,151 | | (62,754) |
| Other, net | Other, net | 2,378 | | 2,694 | Other, net | 4,582 | | 8,681 |
| 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 | (29,221) | | (23,188) | Accounts receivable | (31,404) | | (14,427) |
| Direct contracting performance year receivable | Direct contracting performance year receivable | (638,641) | | — | Direct contracting performance year receivable | (396,104) | | — |
| Other assets | Other assets | (22,270) | | (15,707) | Other assets | (60,991) | | (39,883) |
| Medical cost payable | Medical cost payable | 337,180 | | 225,814 | Medical cost payable | 231,899 | | 223,125 |
| Risk adjustment payable | Risk adjustment payable | 354,276 | | 137,215 | Risk adjustment payable | 916,713 | | 318,758 |
| Accounts payable and other liabilities | Accounts payable and other liabilities | 52,182 | | 30,096 | Accounts payable and other liabilities | 35,312 | | 120,847 |
| Unearned revenue | Unearned revenue | (18,402) | | 918 | Unearned revenue | 3,577 | | (333) |
| Direct contracting performance year obligation | Direct contracting performance year obligation | 533,537 | | — | Direct contracting performance year obligation | 310,603 | | — |
| Net cash provided by operating activities | Net cash provided by operating activities | 484,757 | | 343,603 | Net cash provided by operating activities | 726,664 | | 497,146 |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
| Purchases of investments | Purchases of investments | (782,091) | | (298,957) | Purchases of investments | (1,140,896) | | (596,811) |
| Proceeds from sales, paydown, and maturities of investments | Proceeds from sales, paydown, and maturities of investments | 154,765 | | 265,521 | Proceeds from sales, paydown, and maturities of investments | 204,775 | | 449,636 |
| Purchases of property and equipment | Purchases of property and equipment | (5,491) | | (4,215) | Purchases of property and equipment | (15,154) | | (10,554) |
| Business acquisitions, net of cash acquired | Business acquisitions, net of cash acquired | (310) | | (18,624) | Business acquisitions, net of cash acquired | (310) | | (210,492) |
| Net cash used in investing activities | Net cash used in investing activities | (633,127) | | (56,275) | Net cash used in investing activities | (951,585) | | (368,221) |
| 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 | 747,481 | | — | Proceeds from issuance of preferred stock | 747,481 | | — |
| Proceeds from issuance of common stock | Proceeds from issuance of common stock | 257 | | 4,893 | Proceeds from issuance of common stock | 672 | | 9,616 |
| 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 | (155,000) | | — | Repayments of short-term borrowings | (155,000) | | (200,000) |
| Distribution to noncontrolling interest holders | | Distribution to noncontrolling interest holders | (1,894) | | — |
| Payments for debt issuance costs | Payments for debt issuance costs | — | | (3,391) | Payments for debt issuance costs | — | | (3,391) |
| Proceeds from IPO | | Proceeds from IPO | — | | 887,328 |
| Payments for IPO offering costs | Payments for IPO offering costs | — | | (1,268) | Payments for IPO offering costs | — | | (4,530) |
| Net cash provided by financing activities | Net cash provided by financing activities | 592,738 | | 200,234 | Net cash provided by financing activities | 591,259 | | 889,023 |
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 444,368 | | 487,562 | Net increase in cash and cash equivalents | 366,338 | | 1,017,948 |
| Cash and cash equivalents – beginning of year | Cash and cash equivalents – beginning of year | 1,061,179 | | 488,371 | 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 | $ | 1,505,547 | | $ | 975,933 | Cash and cash equivalents – end of period | $ | 1,427,517 | | $ | 1,506,319 |
| 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 | $ | (26,340) | | $ | (1,042) | Changes in unrealized (loss) gain on available-for-sale securities in OCI | $ | (47,051) | | $ | (1,893) |
| Cash paid for interest | Cash paid for interest | 1,168 | | 244 | Cash paid for interest | 1,168 | | 3,195 |
| 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 | $ | — | | $ | 32,982 | Redeemable convertible preferred stock issued for acquisitions | $ | — | | $ | 134,944 |
| Conversion of redeemable convertible preferred stock to common stock upon initial public offering | | Conversion of redeemable convertible preferred stock to common stock upon initial public offering | $ | — | | $ | 1,815,916 |
| Offering costs included in accounts payable and accrued expenses | | Offering costs included in accounts payable and accrued expenses | $ | — | | $ | 2,156 |
See accompanying Notes to Condensed Consolidated Financial Statements
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization: Bright Health Group, Inc. and subsidiaries (collectively, “Bright Health,” “we,” “our,” “us,” or the “Company”) was founded in 2015 to transform healthcare. Our mission of Making Healthcare Right. Together. is built upon the belief that by aligning the best local resources in healthcare delivery with the financing of care we can drive a superior consumer experience, optimize clinical outcomes, reduce systemic waste, and lower costs. We are a healthcare company building a national Integrated System of Care in close partnership with our Care Partners. Our differentiated approach is built on alignment, focused on the consumer, and powered by technology. 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.
Beginning January 1, 2022, 2 Direct Contracting Entities (“DCEs”) aligned with our NeueHealth segment began participating in the Centers for Medicare and Medicaid Services' (“CMS”) Global and Professional Direct Contracting model (“DC Model”). Both DCEs assume full risk for the total cost of care of aligned beneficiaries.
In April 2022, we announced that Bright HealthCare will be exiting the Commercial marketplace in 6 states for the 2023 plan year: Illinois, New Mexico, Oklahoma, South Carolina, Utah, and Virginia, as well as discontinuing our 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, 2021 included in our Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). 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. Actual results could differ from these estimates. For the three months ended June 30, 2022, we recognized a change in estimate for risk adjustment of $552.3 million, which included a $93.1 million increase in risk adjustment based on expected final settlement of the 2021 risk adjustment payable, as well as an increase in risk adjustment payable related to 2022 as a result of updated data inputs used to calculate members’ expected full year risk scores. The change in our estimated risk adjustment resulted in an increase in risk adjustment payable in the Condensed Consolidated Balance Sheets and a reduction in premium revenue in the Condensed Consolidated Statements of Income (Loss).
Going Concern: The condensed consolidated financial statements have been prepared in accordance with GAAP assuming the Company will continue as a going concern. The Company has a history of operating losses, and we generated a net loss of $432.0 million for the six months ended June 30, 2022. These losses, as well as significant growth in consumers in the Bright HealthCare segment, which has required us to set aside additional cash for equity contributions to maintain minimum regulatory amounts, have reduced the cash available to fund operations. Based on our projected cash flows and absent any other action, the Company will require additional liquidity to meet its obligation as they come due in the 12 months following the date the condensed consolidated financial statements are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions, the Company is in the process of seeking additional financing. The Company has formed a special committee of the Board of Directors and engaged a financial advisor to evaluate financing opportunities. However, the
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Company may not be able to obtain financing on acceptable terms, as any potential financing will be subject to market conditions that are not within the Company’s control. In the event the Company is unable to obtain additional financing or take other management actions, among other potential consequences, we forecast we will be unable to satisfy our financial covenants under our Credit Agreement.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
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 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 are in a 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 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 dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 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 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 determining net income (loss) attributable to common stockholders.
Operating Costs: Our operating costs, by functional classification for the three and six months ended March 31,June 30, 2022 and 2021, are as follows (in thousands):
| | | Three Months Ended
March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Compensation and fringe benefits | Compensation and fringe benefits | $ | 132,067 | | | $ | 57,026 | | Compensation and fringe benefits | $ | 104,629 | | | $ | 77,379 | | | $ | 236,695 | | | $ | 134,405 | |
| Professional fees | Professional fees | 66,811 | | | 39,463 | | Professional fees | 75,318 | | | 42,303 | | | 142,129 | | | 81,765 | |
| Marketing and selling expenses | Marketing and selling expenses | 91,807 | | | 50,205 | | Marketing and selling expenses | 79,930 | | | 63,988 | | | 171,737 | | | 114,193 | |
| Premium taxes and fees | Premium taxes and fees | 69,781 | | | 37,731 | | Premium taxes and fees | 66,274 | | | 44,100 | | | 136,055 | | | 81,831 | |
| Premium deficiency reserve | | Premium deficiency reserve | 36,757 | | | — | | | 36,757 | | | — | |
| General and administrative expenses | General and administrative expenses | 40,710 | | | 14,440 | | General and administrative expenses | 33,858 | | | 19,266 | | | 74,566 | | | 33,706 | |
| Other operating expenses | Other operating expenses | 17,742 | | | 9,375 | | Other operating expenses | 16,554 | | | 14,024 | | | 34,299 | | | 23,400 | |
| Total operating costs | Total operating costs | $ | 418,918 | | | $ | 208,240 | | Total operating costs | $ | 413,320 | | | $ | 261,060 | | | $ | 832,238 | | | $ | 469,300 | |
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
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 primarily operates health centers in Florida Texas and North CarolinaTexas serving Commercial, Medicare, and Medicaid consumers across multiple payors. Centrum is included in our NeueHealth reportable segment.
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.
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):
| | | | | |
| 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 | 275,066 | |
| Redeemable noncontrolling interest | (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.
Our preliminary estimate of intangible assets related to the Centrum acquisition consistsconsist of trade names with a 15-year useful life, customer relationships with 2-2 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
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 three and six months ended March 31,June 30, 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 $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”)MA Health Maintenance Organization (“HMO”) services. CHP is included in our Bright HealthCare reportable segment.
The total 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.
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):
| | | | | | | | | | | | | | | | | |
| 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 consistsconsist 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
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
If CHP had been included in the consolidated results of the Company for the threesix months ended March 31,June 30, 2021, our pro forma revenue would have been $1.0$2.1 billion and our pro forma net loss would have been $13.5$58.3 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 $(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.
The total 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
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 fair values of assets and liabilities acquired by the Company in the THNM and Zipnosis acquisitions (in thousands):
| | | | | | | | | | | |
| THNM | | Zipnosis |
| Accounts receivable | $ | 714 | | | $ | 1,062 | |
| Short-term investments | 4,705 | | | — | |
| Prepaids and other current assets | 8,337 | | | 141 | |
| Property and equipment | — | | | 232 | |
| Intangible assets | 7,300 | | | 9,180 | |
| Long-term investments | 13,644 | | | — | |
| Other non-current assets | 1,324 | | | 766 | |
| Total assets | 36,024 | | | 11,381 | |
| Medical costs payable | 12,617 | | | — | |
| Accounts payable | 14,663 | | | 136 | |
| Unearned revenue | 3,645 | | | 120 | |
| Other current liabilities | 11,406 | | | 665 | |
| Other liabilities | 2,499 | | | 2,730 | |
| Total liabilities | 44,830 | | | 3,651 | |
| Net identified assets (liabilities) acquired | (8,806) | | | 7,730 | |
| Goodwill | 4,148 | | | 62,067 | |
| Total purchase consideration, net of cash acquired | $ | (4,658) | | | $ | 69,797 | |
We recognized measurement period adjustments for THNM for post-close working capital 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.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Intangible assets initially recognized related to the THNM acquisition consisted of customer relationships with 10- to 14-year useful lives, trade names with a 15-year useful life and the provider network with a 7-year useful life. 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”)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.
If THNM and Zipnosis had been included in the consolidated results of the Company for the threesix months ended March 31,June 30, 2021, our pro forma revenue would have been $922.5 million$2.0 billion and our pro forma net loss would have been $27.1$71.7 million.
During the threesix months ended March 31,June 30, 2022, we completed an immaterial business combination which increased goodwill.
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 March 31,June 30, 2022 and December 31, 2021. Held-to-maturity securities are reported at amortized cost as of March 31,June 30, 2022 and December 31, 2021. The following is a summary of our investment securities as of March 31,June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Carrying
Value |
| Cash equivalents | $ | 586,011 | | | $ | — | | | $ | (41) | | | $ | 585,970 | |
| Available for sale: | | | | | | | |
| U.S. government and agency obligations | 752,881 | | | 69 | | | (7,366) | | | 745,584 | |
| Corporate obligations | 392,440 | | | 56 | | | (15,316) | | | 377,180 | |
| State and municipal obligations | 18,654 | | | 2 | | | (215) | | | 18,441 | |
| Certificates of deposit | 14,340 | | | — | | | (2) | | | 14,338 | |
| Mortgage-backed securities | 126,271 | | | 75 | | | (4,564) | | | 121,782 | |
| Asset-backed securities | 62,104 | | | 9 | | | (1,766) | | | 60,347 | |
| Other | 392 | | | — | | | (11) | | | 381 | |
| Total available-for-sale securities | 1,367,082 | | | 211 | | | (29,240) | | | 1,338,053 | |
| Held to maturity: | | | | | | | |
| U.S. government and agency obligations | 7,055 | | | — | | | — | | | 7,055 | |
| Certificates of deposit | 1,447 | | | — | | | — | | | 1,447 | |
| Total held-to-maturity securities | 8,502 | | | — | | | — | | | 8,502 | |
| Total investments | $ | 1,961,595 | | | $ | 211 | | | $ | (29,281) | | | $ | 1,932,525 | |
| | | December 31, 2021 | | June 30, 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 | $ | 192,623 | | | $ | — | | | $ | — | | | $ | 192,623 | | Cash equivalents | $ | 391,200 | | | $ | — | | | $ | (15) | | | $ | 391,185 | |
| Available for sale: | Available for sale: | | | | | | | | Available for sale: | | | | | | | |
| U.S. government and agency obligations | U.S. government and agency obligations | 311,936 | | | 259 | | | (2,200) | | | 309,995 | | U.S. government and agency obligations | 901,208 | | | 80 | | | (8,788) | | | 892,500 | |
| Corporate obligations | Corporate obligations | 313,965 | | | 326 | | | (1,104) | | | 313,187 | | Corporate obligations | 518,584 | | | 137 | | | (28,928) | | | 489,793 | |
| State and municipal obligations | State and municipal obligations | 16,122 | | | 33 | | | (38) | | | 16,117 | | State and municipal obligations | 16,757 | | | — | | | (287) | | | 16,470 | |
| Certificates of deposit | Certificates of deposit | 18,752 | | | — | | | — | | | 18,752 | | Certificates of deposit | 16,115 | | | — | | | (2) | | | 16,113 | |
| Mortgage-backed securities | Mortgage-backed securities | 38,558 | | | 63 | | | (67) | | | 38,554 | | Mortgage-backed securities | 148,265 | | | 617 | | | (9,610) | | | 139,272 | |
| Asset-backed securities | | Asset-backed securities | 74,418 | | | 10 | | | (2,974) | | | 71,454 | |
| Other | Other | 42,889 | | | 13 | | | (30) | | | 42,872 | | Other | 391 | | | — | | | (13) | | | 378 | |
| Total available-for-sale securities | Total available-for-sale securities | 742,222 | | | 694 | | | (3,439) | | | 739,477 | | Total available-for-sale securities | 1,675,738 | | | 844 | | | (50,602) | | | 1,625,980 | |
| Held to maturity: | Held to maturity: | | Held to maturity: | |
| U.S. government and agency obligations | U.S. government and agency obligations | 7,739 | | | — | | | — | | | 7,739 | | U.S. government and agency obligations | 4,978 | | | — | | | — | | | 4,978 | |
| 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 | 9,186 | | | — | | | — | | | 9,186 | | Total held-to-maturity securities | 6,425 | | | — | | | — | | | 6,425 | |
| Total investments | Total investments | $ | 944,031 | | | $ | 694 | | | $ | (3,439) | | | $ | 941,286 | | Total investments | $ | 2,073,363 | | | $ | 844 | | | $ | (50,617) | | | $ | 2,023,590 | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Carrying
Value |
| Cash equivalents | $ | 192,623 | | | $ | — | | | $ | — | | | $ | 192,623 | |
| Available for sale: | | | | | | | |
| U.S. government and agency obligations | 311,936 | | | 259 | | | (2,200) | | | 309,995 | |
| Corporate obligations | 313,965 | | | 326 | | | (1,104) | | | 313,187 | |
| State and municipal obligations | 16,122 | | | 33 | | | (38) | | | 16,117 | |
| Certificates of deposit | 18,752 | | | — | | | — | | | 18,752 | |
| Mortgage-backed securities | 38,558 | | | 63 | | | (67) | | | 38,554 | |
| Other | 42,889 | | | 13 | | | (30) | | | 42,872 | |
| Total available-for-sale securities | 742,222 | | | 694 | | | (3,439) | | | 739,477 | |
| Held to maturity: | | | | | | | |
| U.S. government and agency obligations | 7,739 | | | — | | | — | | | 7,739 | |
| Certificates of deposit | 1,447 | | | — | | | — | | | 1,447 | |
| Total held-to-maturity securities | 9,186 | | | — | | | — | | | 9,186 | |
| Total investments | $ | 944,031 | | | $ | 694 | | | $ | (3,439) | | | $ | 941,286 | |
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 March 31,June 30, 2022 and December 31, 2021 were as follows (in thousands):
| | | March 31, 2022 | | June 30, 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 | 204,916 | | | (41) | | | — | | | — | | | 204,916 | | | (41) | | Cash equivalents | 48,419 | | | (15) | | | — | | | — | | | 48,419 | | | (15) | |
| U.S. government and agency obligations | U.S. government and agency obligations | 715,592 | | | (6,884) | | | 13,148 | | | (482) | | | 728,740 | | | (7,366) | | U.S. government and agency obligations | 865,788 | | | (8,143) | | | 15,470 | | | (645) | | | 881,258 | | | (8,788) | |
| Corporate obligations | Corporate obligations | 358,350 | | | (15,311) | | | 127 | | | (5) | | | 358,477 | | | (15,316) | | Corporate obligations | 458,430 | | | (28,857) | | | 1,422 | | | (71) | | | 459,852 | | | (28,928) | |
| State and municipal obligations | State and municipal obligations | 15,113 | | | (215) | | | — | | | — | | | 15,113 | | | (215) | | State and municipal obligations | 16,469 | | | (287) | | | — | | | — | | | 16,469 | | | (287) | |
| Certificates of deposit | Certificates of deposit | 936 | | | (2) | | | — | | | — | | | 936 | | | (2) | | Certificates of deposit | 2,856 | | | (2) | | | — | | | — | | | 2,856 | | | (2) | |
| Mortgage-backed securities | Mortgage-backed securities | 112,180 | | | (4,564) | | | — | | | — | | | 112,180 | | | (4,564) | | Mortgage-backed securities | 128,791 | | | (9,610) | | | — | | | — | | | 128,791 | | | (9,610) | |
| Asset-backed securities | Asset-backed securities | 56,979 | | | (1,766) | | | — | | | — | | | 56,979 | | | (1,766) | | Asset-backed securities | 68,580 | | | (2,974) | | | — | | | — | | | 68,580 | | | (2,974) | |
| Other | Other | 382 | | | (11) | | | — | | | — | | | 382 | | | (11) | | Other | 953 | | | (13) | | | — | | | — | | | 953 | | | (13) | |
| Total bonds | Total bonds | $ | 1,464,448 | | | $ | (28,794) | | | $ | 13,275 | | | $ | (487) | | | $ | 1,477,723 | | | $ | (29,281) | | Total bonds | $ | 1,590,286 | | | $ | (49,901) | | | $ | 16,892 | | | $ | (716) | | | $ | 1,607,178 | | | $ | (50,617) | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Less Than 12 Months | | 12 Months or Greater | | Total |
| Description of Investments | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| U.S. government and agency obligations | 286,823 | | | (2,200) | | | — | | | — | | | 286,823 | | | (2,200) | |
| Corporate obligations | 234,070 | | | (1,104) | | | — | | | — | | | 234,070 | | | (1,104) | |
| State and municipal obligations | 10,442 | | | (38) | | | — | | | — | | | 10,442 | | | (38) | |
| Mortgage-backed securities | 32,715 | | | (67) | | | — | | | — | | | 32,715 | | | (67) | |
| Other | 29,115 | | | (30) | | | — | | | — | | | 29,115 | | | (30) | |
| Total bonds | $ | 593,165 | | | $ | (3,439) | | | $ | — | | | $ | — | | | $ | 593,165 | | | $ | (3,439) | |
As of March 31,June 30, 2022, we had 1,7042,142 investment positions out of 1,9762,377 that were in an unrealized loss position. As of December 31, 2021, we had 1,343 investment positions out of 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 or issuer credit ratings associated with these securities. In addition, all issuers of debt securities we own remain current on all contractual payments as of June 30, 2022. At each reporting period, we evaluate debt securities for potential impairment when the fair value of the investment is less than its amortized cost. We evaluatedcost, and we intend to sell the underlying credit quality and credit ratingssecurities or it is more likely than not that we will be required to sell the securities before recovery of the issuers, noting no significant deterioration since purchase.their amortized cost basis. As of March 31,June 30, 2022, we did not have the intent to sell any of the securities in an unrealized loss position. Therefore,position, and it is not more likely than not that we believewill be required to sell these losses to be temporary.securities before recovery of their amortized cost basis.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of March 31,June 30, 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 | | Amortized
Cost | | Fair
Value |
| Due in one year or less | Due in one year or less | $ | 627,728 | | | $ | 626,875 | | Due in one year or less | $ | 785,073 | | | $ | 783,124 | |
| Due after one year through five years | Due after one year through five years | 502,915 | | | 486,128 | | Due after one year through five years | 540,080 | | | 516,463 | |
| Due after five years through 10 years | Due after five years through 10 years | 228,247 | | | 217,160 | | Due after five years through 10 years | 339,726 | | | 315,997 | |
| Due after 10 years | Due after 10 years | 8,192 | | | 7,890 | | Due after 10 years | 10,859 | | | 10,396 | |
| Total debt securities | Total debt securities | $ | 1,367,082 | | | $ | 1,338,053 | | Total debt securities | $ | 1,675,738 | | | $ | 1,625,980 | |
Investment income in the Condensed Consolidated Statements of Income (Loss) for the threesix months ended March 31,June 30, 2022 and 2021, was $0.9$6.3 million, and $2.4 million, respectively, and $5.4 million and $1.2 million for the three months ended June 30, 2022 and 2021, respectively, related to our fixed maturity securities. The gross proceeds from the sale of available-for-sale securities for the threesix months ended March 31,June 30, 2022 and 2021 were $127.6$157.1 million and $89.8$576.1 million, respectively. Realized (losses) gains from our fixed maturity securities of $(1.7)(2.5) million and $0.1$0.2 million are included within total investment income, and reclassified out of accumulated other comprehensive income, for the threesix months ended March 31,June 30, 2022 and 2021, 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 March 31,June 30, 2022 and December 31, 2021, the equity securities had a carrying value of $79.4$63.2 million and $120.4 million, respectively, which is included in short-term investments in the Condensed Consolidated Balance Sheet. We recognized unrealized (losses) gains of $(41.0)$(16.2) million and $4.2$58.5 million in investment income (loss) in the Condensed
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Consolidated Statements of Income (Loss) for the three months ended March 31,June 30, 2022 and 2021, respectively. We recognized unrealized (losses) gains of $(57.2) million and $62.8 million for the six months ended June 30, 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 see Note 5 to the audited consolidated financial statements included in our 2021 Form 10-K.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables set forth our fair value measurements as of March 31,June 30, 2022 and December 31, 2021, for assets measured at fair value on a recurring basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 563,876 | | | $ | 21,103 | | | $ | — | | | $ | 584,979 | |
| Fixed maturity securities, available for sale: | | | | | | | |
| U.S. government and agency obligations | 724,519 | | | 21,065 | | | — | | | 745,584 | |
| Corporate obligations | 2,255 | | | 374,925 | | | — | | | 377,180 | |
| State and municipal obligations | — | | | 18,441 | | | — | | | 18,441 | |
| Certificates of deposit | — | | | 14,338 | | | — | | | 14,338 | |
| Mortgage-backed securities | — | | | 121,782 | | | — | | | 121,782 | |
| Asset-backed securities | — | | | 60,347 | | | 0 | | 60,347 | |
| Other | — | | | 381 | | | — | | | 381 | |
| Total fixed maturity securities, available for sale: | 726,774 | | | 611,279 | | | — | | | 1,338,053 | |
| Equity securities | 79,396 | | | — | | | — | | | 79,396 | |
| Total assets at fair value | $ | 1,370,046 | | | $ | 632,382 | | | $ | — | | | $ | 2,002,428 | |
| Liabilities | | | | | | | |
| Contingent consideration | $ | — | | | $ | — | | | $ | 1,495 | | | $ | 1,495 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 192,063 | | | $ | 250 | | | $ | — | | | $ | 192,313 | |
| Fixed maturity securities, available for sale: | | | | | | | |
| U.S. government and agency obligations | 220,801 | | | 89,194 | | | — | | | 309,995 | |
| Corporate obligations | 2,323 | | | 310,864 | | | — | | | 313,187 | |
| State and municipal obligations | — | | | 16,117 | | | — | | | 16,117 | |
| Certificates of deposit | — | | | 18,752 | | | — | | | 18,752 | |
| Mortgage-backed securities | 2,404 | | | 36,150 | | | — | | | 38,554 | |
| Other | — | | | 42,872 | | | — | | | 42,872 | |
| Total fixed maturity securities, available for sale: | 225,528 | | | 513,949 | | | — | | | 739,477 | |
| Equity securities | 120,364 | | | — | | | — | | | 120,364 | |
| Total assets at fair value | $ | 537,955 | | | $ | 514,199 | | | $ | — | | | $ | 1,052,154 | |
| Liabilities | | | | | | | |
| Contingent consideration | $ | — | | | $ | — | | | $ | 1,495 | | | $ | 1,495 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 303,745 | | | $ | 61,483 | | | $ | — | | | $ | 365,228 | |
| Fixed maturity securities, available for sale: | | | | | | | |
| U.S. government and agency obligations | 865,957 | | | 26,543 | | | — | | | 892,500 | |
| Corporate obligations | — | | | 489,793 | | | — | | | 489,793 | |
| State and municipal obligations | — | | | 16,470 | | | — | | | 16,470 | |
| Certificates of deposit | — | | | 16,113 | | | — | | | 16,113 | |
| Mortgage-backed securities | — | | | 139,272 | | | — | | | 139,272 | |
| Asset-backed securities | — | | | 71,454 | | | 0 | | 71,454 | |
| Other | — | | | 378 | | | — | | | 378 | |
| Total fixed maturity securities, available for sale: | 865,957 | | | 760,023 | | | — | | | 1,625,980 | |
| Equity securities | 63,200 | | | — | | | — | | | 63,200 | |
| Total assets at fair value | $ | 1,232,902 | | | $ | 821,506 | | | $ | — | | | $ | 2,054,408 | |
| Liabilities | | | | | | | |
| Contingent consideration | $ | — | | | $ | — | | | $ | 1,495 | | | $ | 1,495 | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents | $ | 192,063 | | | $ | 250 | | | $ | — | | | $ | 192,313 | |
| Fixed maturity securities, available for sale: | | | | | | | |
| U.S. government and agency obligations | 220,801 | | | 89,194 | | | — | | | 309,995 | |
| Corporate obligations | 2,323 | | | 310,864 | | | — | | | 313,187 | |
| State and municipal obligations | — | | | 16,117 | | | — | | | 16,117 | |
| Certificates of deposit | — | | | 18,752 | | | — | | | 18,752 | |
| Mortgage-backed securities | 2,404 | | | 36,150 | | | — | | | 38,554 | |
| Other | — | | | 42,872 | | | — | | | 42,872 | |
| Total fixed maturity securities, available for sale: | 225,528 | | | 513,949 | | | — | | | 739,477 | |
| Equity securities | 120,364 | | | — | | | — | | | 120,364 | |
| Total assets at fair value | $ | 537,955 | | | $ | 514,199 | | | $ | — | | | $ | 1,052,154 | |
| Liabilities | | | | | | | |
| Contingent consideration | $ | — | | | $ | — | | | $ | 1,495 | | | $ | 1,495 | |
| | | | | | | |
The following tables set forth the Company’s fair value measurements as of March 31,June 30, 2022 and December 31, 2021, for certain financial instruments not measured at fair value on a recurring basis (in thousands):
| | | March 31, 2022 | | June 30, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents, held to maturity | Cash equivalents, held to maturity | $ | 991 | | | $ | — | | | $ | — | | | $ | 991 | | Cash equivalents, held to maturity | $ | 25,957 | | | $ | — | | | $ | — | | | $ | 25,957 | |
| Fixed maturity securities, held to maturity: | Fixed maturity securities, held to maturity: | | Fixed maturity securities, held to maturity: | |
| U.S. government and agency obligations | U.S. government and agency obligations | 7,055 | | | — | | | — | | | 7,055 | | U.S. government and agency obligations | 4,978 | | | — | | | — | | | 4,978 | |
| Certificates of deposit | Certificates of deposit | — | | | 1,447 | | | — | | | 1,447 | | Certificates of deposit | — | | | 1,447 | | | — | | | 1,447 | |
| Total held to maturity | Total held to maturity | $ | 8,046 | | | $ | 1,447 | | | $ | — | | | $ | 9,493 | | Total held to maturity | $ | 30,935 | | | $ | 1,447 | | | $ | — | | | $ | 32,382 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
value. The following table presents the changes in fair value of the contingent consideration liability for the threesix months ended March 31,June 30, 2022 and year ended December 31, 2021 (in thousands):
| | | | | | | | | | | |
| 2022 | | 2021 |
| Balance at beginning of period | $ | 1,495 | | | $ | 5,716 | |
| Change in fair value of contingent consideration | — | | | (4,221) | |
| 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | | $ | — | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Bright HealthCare | | NeueHealth |
| Gross Carrying
Amount | | Cumulative
Impairment | | Gross Carrying
Amount | | Cumulative
Impairment |
| Balance at December 31, 2021 | $ | 432,858 | | | $ | — | | | $ | 402,282 | | | $ | — | |
| Acquisitions | — | | | — | | | 310 | | | — | |
| Balance at June 30, 2022 | $ | 432,858 | | | $ | — | | | $ | 402,592 | | | $ | — | |
The gross carrying value and accumulated amortization for definite-lived intangible assets were as follows (in thousands):
| | | March 31, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| | Gross Carrying
Amount | | Accumulated Amortization | | Gross Carrying
Amount | | Accumulated Amortization | | Gross Carrying
Amount | | Accumulated Amortization | | Gross Carrying
Amount | | Accumulated Amortization |
| Customer relationships | Customer relationships | $ | 206,321 | | | $ | 26,632 | | | $ | 209,421 | | | $ | 21,728 | | Customer relationships | $ | 206,321 | | | $ | 31,705 | | | $ | 209,421 | | | $ | 21,728 | |
| Trade names | Trade names | 96,041 | | | 8,205 | | | 99,241 | | | 6,738 | | Trade names | 96,041 | | | 9,831 | | | 99,241 | | | 6,738 | |
| Reacquired contract | Reacquired contract | 59,000 | | | 9,833 | | | 59,000 | | | 6,556 | | Reacquired contract | 59,000 | | | 13,111 | | | 59,000 | | | 6,556 | |
| Developed technology | Developed technology | 6,300 | | | 900 | | | 6,300 | | | 675 | | Developed technology | 6,300 | | | 1,125 | | | 6,300 | | | 675 | |
| Other | Other | 5,400 | | | 875 | | | 6,400 | | | 805 | | Other | 5,400 | | | 1,041 | | | 6,400 | | | 805 | |
| Total | Total | $ | 373,062 | | | $ | 46,445 | | | $ | 380,362 | | | $ | 36,502 | | Total | $ | 373,062 | | | $ | 56,813 | | | $ | 380,362 | | | $ | 36,502 | |
We recognized no impairment expense and $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 and six months ended March 31, 2022.June 30, 2022, respectively. See Note 2 Business Combinations, for additional information on this impairment. There was no impairment expense for the three and six months ended March 31,June 30, 2021.
Amortization expense relating to intangible assets for the three months ended March 31,June 30, 2022 and 2021 was $10.5$10.4 million and $3.7$6.3 million, respectively, and amortization expense for the six months ended June 30, 2022 and 2021 was $20.9 million and
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
$10.0 million, respectively. Estimated amortization expense relating to intangible assets for the remainder of 2022 and for each of the next five full years ending December 31 is as follows (in thousands):
| | | | | |
| 2022 (April-December) | $ | 31,120 | |
| 2023 | 41,471 | |
| 2024 | 41,332 | |
| 2025 | 41,332 | |
| 2026 | 28,104 | |
| 2027 | 28,065 | |
| | | | | |
| 2022 (July-December) | $ | 20,746 | |
| 2023 | 41,471 | |
| 2024 | 41,332 | |
| 2025 | 41,332 | |
| 2026 | 28,104 | |
| 2027 | 28,065 | |
Bright Health Group, Inc.
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 threesix months ended March 31June 30 (in thousands):
| | | 2022 | | 2021 | | 2022 | | 2021 |
| Medical costs payable - January 1 | Medical costs payable - January 1 | $ | 817,975 | | | $ | 249,777 | | Medical costs payable - January 1 | $ | 817,975 | | | $ | 249,777 | |
| Incurred related to: | Incurred related to: | | | | Incurred related to: | | | |
| Current year | Current year | 1,576,725 | | | 689,572 | | Current year | 3,020,733 | | | 1,604,472 | |
| Prior year | Prior year | 5,218 | | | (3,076) | | Prior year | (40,520) | | | 334 | |
| Total incurred | Total incurred | 1,581,943 | | | 686,496 | | Total incurred | 2,980,213 | | | 1,604,806 | |
| Paid related to: | Paid related to: | | | | Paid related to: | | | |
| Current year | Current year | 710,804 | | | 307,442 | | Current year | 2,111,882 | | | 1,183,622 | |
| Prior year | Prior year | 533,959 | | | 153,240 | | Prior year | 636,432 | | | 198,059 | |
| Total paid | Total paid | 1,244,763 | | | 460,682 | | Total paid | 2,748,314 | | | 1,381,681 | |
| | Acquired claims liabilities | Acquired claims liabilities | — | | | 13,268 | | Acquired claims liabilities | — | | | 92,718 | |
| Medical costs payable - March 31 | $ | 1,155,155 | | | $ | 488,859 | | |
| Medical costs payable - June 30 | | Medical costs payable - June 30 | $ | 1,049,874 | | | $ | 565,620 | |
Medical costs payable attributable to prior years decreased by $40.5 million and increased by $5.2 million and decreased by $3.1$0.3 million for the threesix months ended March 31,June 30, 2022 and 2021, 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.
The table below details the components making up the medical costs payable as of March 31June 30 (in thousands):
| | | March 31, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Claims unpaid | Claims unpaid | $ | 102,293 | | | $ | 19,652 | | Claims unpaid | $ | 102,525 | | | $ | 23,040 | |
| Provider incentive payable | Provider incentive payable | 45,805 | | | 36,592 | | Provider incentive payable | 36,058 | | | 64,453 | |
| Claims adjustment expense liability | Claims adjustment expense liability | 15,479 | | | 5,038 | | Claims adjustment expense liability | 15,655 | | | 9,718 | |
| Incurred but not reported | Incurred but not reported | 991,578 | | | 427,577 | | Incurred but not reported | 895,636 | | | 468,409 | |
| Total medical costs payable | Total medical costs payable | $ | 1,155,155 | | | $ | 488,859 | | Total medical costs payable | $ | 1,049,874 | | | $ | 565,620 | |
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).
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 7. SHORT-TERM BORROWINGS
We have a $350.0 million revolving credit agreement with a syndicate of banks (the “Credit Agreement”), which matures on February 28, 2024. During the threesix months ended March 31,June 30, 2022, we repaid the $155.0 million outstanding under the Credit Agreement as of December 31, 2021. As of March 31,June 30, 2022, we had no short-term borrowings under the Credit Agreement.
The Credit Agreement contains a covenant that requires the Company to maintain a total debt to capitalization ratio of 0.25 to 1.00. The Credit Agreement also contains a covenant that require us to maintain a minimum liquidity of $150.0 million. We were in compliance with our debt covenants as of March 31,June 30, 2022.
In July 2022, we borrowed $153.9 million on the Credit Agreement at an effective annual interest rate of 8.32%.
Bright Health Group, Inc.
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 (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 73.4 million shares of common stock authorized for issuance under the 2021 Incentive Plan. As of March 31,June 30, 2022, a total of 14.717.6 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 $32.9$53.1 million and $5.219.1 million for the six months ended June 30, 2022 and 2021, respectively, and $20.2 million and $13.9 million for the three months ended March 31,June 30, 2022 and 2021, respectively, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss).
Stock Options
The Board of Directors, or the Compensation and Human Capital Committee of the Board of Directors, as applicable, determines the exercise price, vesting periods and expiration date at the time of the grant. Stock options granted prior to the third quarter of 2021 generally vest 25% at one year from the grant date, then ratably over the next 36 months with continuous employee service. Stock options granted after the beginning of the third quarter of 2021 generally vest ratably over three years. Option grants generally expire 10 years from the date of grant.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 threesix months ended March 31,June 30, 2022:
| | | | | |
| 2022 |
| Risk-free interest rate | 1.71.8 | % |
| Expected volatility | 55.054.9 | % |
| Expected dividend rate | 0.0 | % |
| Forfeiture rate | 10.010.1 | % |
| Expected life in years | 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 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.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The activity for stock options for the threesix months ended March 31,June 30, 2022 is as follows (in thousands, except exercise price and contractual life):
| | | Shares | | Weighted-Average
Exercise Price | | Weighted-Average
Remaining
Contractual Life
(In Years) | | Aggregate
Intrinsic Value | | Shares | | Weighted-Average
Exercise Price | | Weighted-Average
Remaining
Contractual Life
(In Years) | | Aggregate
Intrinsic Value |
| Outstanding at January 1, 2022 | Outstanding at January 1, 2022 | 69,244 | | | $ | 1.84 | | | 8.2 | | $ | 113,908 | | Outstanding at January 1, 2022 | 69,244 | | | $ | 1.84 | | | 8.2 | | $ | 113,908 | |
| Granted | Granted | 6,896 | | | 1.79 | | | Granted | 7,197 | | | 1.80 | | |
| Exercised | Exercised | (338) | | | 0.76 | | | Exercised | (610) | | | 1.10 | | |
| Forfeited | Forfeited | (2,416) | | | 2.24 | | | Forfeited | (7,005) | | | 2.05 | | |
| Expired | Expired | (412) | | | 2.22 | | | Expired | (623) | | | 2.16 | | |
| Outstanding at March 31, 2022 | 72,974 | | | $ | 1.83 | | | 7.8 | | $ | 22,419 | | |
| Outstanding at June 30, 2022 | | Outstanding at June 30, 2022 | 68,203 | | | $ | 1.82 | | | 7.4 | | $ | 16,523 | |
We recognized share-based compensation expense related to stock options of $18.3$27.6 million for the threesix months ended March 31,June 30, 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 threesix months ended March 31,June 30, 2022 was $0.94$0.95 per share. At March 31,June 30, 2022, there was $124.4$105.3 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 2.92.6 years.
Restricted Stock Units
RSUs represent the right to receive shares of our common stock at a specified date in the future and generally vest over a three-year period.period, except for Board of Director grants which generally vest one year from the date of grant. The fair value of RSUs is determined based on the closing market price of our common stock on the date of grant.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes RSU award activity for the threesix months ended March 31,June 30, 2022 (in thousands, except weighted average grant date fair value):
| | | Number of RSUs | | Weighted Average Grant Date Fair Value | | Number of RSUs | | Weighted Average Grant Date Fair Value |
| Unvested RSUs at December 31, 2021 | Unvested RSUs at December 31, 2021 | 15,651 | | $ | 3.98 | | Unvested RSUs at December 31, 2021 | 15,651 | | $ | 3.98 | |
| Granted | Granted | 23,154 | | | 1.79 | | Granted | 26,304 | | | 1.75 | |
| Vested | Vested | (36) | | | 8.95 | | Vested | (67) | | | 8.98 | |
| Forfeited | Forfeited | (1,977) | | | 3.64 | | Forfeited | (5,236) | | | 3.00 | |
| Unvested RSUs at March 31, 2022 | 36,792 | | | $ | 2.61 | | |
| Unvested RSUs at June 30, 2022 | | Unvested RSUs at June 30, 2022 | 36,652 | | | $ | 2.61 | |
We recognized share-based compensation expense related to RSUs of $4.4$10.5 million for the threesix months ended March 31,June 30, 2022, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). As of March 31,June 30, 2022, there was $72.8$65.3 million of unrecognized compensation expense related to the RSU grants, which is expected to be recognized over a weighted-average period of 2.82.6 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 encompassesencompassed 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. The fair value of the PSUs was determined using a Monte-Carlo simulation.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes PSU award activity for the threesix months ended March 31,June 30, 2022 (in thousands, except weighted average grant date fair value):
| | | Number of PSUs | | Weighted Average Grant Date Fair Value | | Number of PSUs | | Weighted Average Grant Date Fair Value |
| Unvested PSUs at December 31, 2021 | Unvested PSUs at December 31, 2021 | 14,700 | | $ | 9.30 | | Unvested PSUs at December 31, 2021 | 14,700 | | $ | 9.30 | |
| Granted | Granted | — | | | — | | Granted | — | | | — | |
| Forfeited | Forfeited | — | | | — | | Forfeited | (2,100) | | | 9.30 | |
| Unvested PSUs at March 31, 2022 | 14,700 | | | $ | 9.30 | | |
| Unvested PSUs at June 30, 2022 | | Unvested PSUs at June 30, 2022 | 12,600 | | | $ | 9.30 | |
We recognized share-based compensation expense related to PSUs of $10.3$15.0 million for the threesix months ended March 31,June 30, 2022, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At March 31,June 30, 2022, there was $91.1$70.3 million of unrecognized compensation expense related to the PSU grant, which is expected to be recognized over a weighted-average period of 2.22.0 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 (“Cigna”) and certain affiliates of New Enterprise Associates (“NEA”) (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
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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$18.4 million as of March 31,June 30, 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
Bright Health Group, Inc.
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.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 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 six months ended March 31,June 30, (in thousands, except for per share amounts):
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| 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 | 628,765 | | | 140,175 | |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.32) | | | $ | (0.18) | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net loss attributable to Bright Health Group, Inc. common shareholders | $ | (284,127) | | | $ | (44,518) | | | $ | (488,299) | | | $ | (69,680) | |
| Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 629,201 | | | 160,942 | | | 628,984 | | | 150,616 | |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.45) | | | $ | (0.28) | | | $ | (0.78) | | | $ | (0.46) | |
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 threesix months ended March 31June 30 (in thousands):
| | | Three Months Ended
March 31, | | Three Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Redeemable convertible preferred stock (as converted to common stock) | Redeemable convertible preferred stock (as converted to common stock) | 166,852 | | | 421,697 | | Redeemable convertible preferred stock (as converted to common stock) | 168,932 | | | — | |
| Stock options to purchase common stock | Stock options to purchase common stock | 72,974 | | | 76,913 | | Stock options to purchase common stock | 68,203 | | | 72,219 | |
| Restricted stock units | Restricted stock units | 36,792 | | | — | | Restricted stock units | 36,652 | | | — | |
| Total | Total | 276,618 | | | 498,610 | | Total | 273,787 | | | 72,219 | |
NOTE 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 allegedAn amended complaint was filed on June 24, 2022, which expands on the allegations in the original complaint and alleges a putative securitiesclass period of June 24, 2021 through March 1, 2022. The amended complaint also adds as defendants the underwriters of our initial public offering. The court has not yet set a motion to dismiss briefing schedule.
By letter dated January 28, 2022, we received a demand from a purported shareholder to inspect our books and records pursuant to Delaware law. The demand sought information related to the December 6, 2021 Investment Agreement that the Company entered into with NEA and Cigna. The Company and the shareholder’s counsel executed a confidentiality agreement, and we produced certain books and records in response to the demand. On June 3, 2022, the purported shareholder filed a putative class action lawsuit. We expectcomplaint against us and our Board of Directors alleging that the standstill provisions and certain transfer restrictions in the Investment Agreement breached fiduciary duties to shareholders. The case is captioned Berger v. Adkins et al., 2022-0487 (Del. Ch.). The complaint seeks declaratory and injunctive relief, and an amendedaward of attorneys’ fees, but does not allege damages. Plaintiff also filed a request for expedited discovery and a “prompt trial date.” Plaintiff claims that expedited treatment is necessary because the standstill provisions and transfer restrictions are allegedly interfering with the stockholder franchise. Plaintiff also claims that a trial must be held before December 2022, which is when plaintiff claims that Cigna’s standstill
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
period will expire. The Company filed a motion to dismiss the complaint will be filed later this year in this action. Such amended complaint could assert additionaland an opposition to Plaintiff’s request for expedited treatment. The court has not yet set a schedule for either briefing of the motion to dismiss or broader claims than the current complaint. trial.
We intend to vigorously defend this action;the Company in the above actions, but there can be no assurance that we will be successful in any defense. Based on our assessment of the facts underlying the claims and the degree to which we intend to defend our companythe Company in these matters, the amount or range of reasonably possible losses, if any, cannot be estimated. At March 31,As a result, we have not accrued for any potential loss as of June 30, 2022 and December 31, 2021, there were no material known contingent liabilities.for these actions.
Other commitments: As of March 31,June 30, 2022, we have $46.1 million outstanding, undrawn letters of credit under the Credit Agreement.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 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 six months ended March 31,June 30, 2022 and 2021 (in thousands):
| | Three Months Ended March 31, 2022 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | Premium revenue | | $ | 1,593,501 | | | $ | 86,949 | | | $ | — | | | $ | 1,680,450 | | Premium revenue | | $ | 1,364,834 | | | $ | 72,495 | | | $ | — | | | $ | 1,437,329 | |
| Direct contracting revenue | Direct contracting revenue | | — | | | 182,797 | | | — | | | 182,797 | | Direct contracting revenue | | — | | | 137,205 | | | — | | | 137,205 | |
| Service revenue | Service revenue | | 36 | | | 12,392 | | | — | | | 12,428 | | Service revenue | | 34 | | | 12,811 | | | — | | | 12,845 | |
| Investment income | Investment income | | 868 | | | (40,968) | | | — | | | (40,100) | | Investment income | | 5,433 | | | (16,184) | | | — | | | (10,751) | |
| Total unaffiliated revenue | Total unaffiliated revenue | | 1,594,405 | | | 241,170 | | | — | | | 1,835,575 | | Total unaffiliated revenue | | 1,370,301 | | | 206,327 | | | — | | | 1,576,628 | |
| Affiliated revenue | Affiliated revenue | | — | | | 379,782 | | | (379,782) | | | — | | Affiliated revenue | | — | | | 215,805 | | | (215,805) | | | — | |
| Total segment revenue | Total segment revenue | | 1,594,405 | | | 620,952 | | | (379,782) | | | 1,835,575 | | Total segment revenue | | 1,370,301 | | | 422,132 | | | (215,805) | | | 1,576,628 | |
| Operating income (loss) | Operating income (loss) | | (107,022) | | | (69,958) | | | — | | | (176,980) | | Operating income (loss) | | (229,602) | | | (18,485) | | | — | | | (248,087) | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 6,039 | | | $ | 7,002 | | | $ | — | | | $ | 13,041 | | Depreciation and amortization | | $ | 6,034 | | | $ | 7,195 | | | $ | — | | | $ | 13,229 | |
| | Three Months Ended March 31, 2021 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated | |
| Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | Premium revenue | | $ | 841,925 | | | $ | 18,706 | | | $ | — | | | $ | 860,631 | | Premium revenue | | $ | 1,023,759 | | | $ | 18,327 | | | $ | — | | | $ | 1,042,086 | |
| Direct contracting revenue | Direct contracting revenue | | — | | | — | | | — | | | — | | Direct contracting revenue | | — | | | — | | | — | | | — | |
| Service revenue | Service revenue | | — | | | 8,438 | | | — | | | 8,438 | | Service revenue | | 90 | | | 11,995 | | | — | | | 12,085 | |
| Investment income | Investment income | | 1,246 | | | 4,243 | | | — | | | 5,489 | | Investment income | | 1,158 | | | 58,511 | | | — | | | 59,669 | |
| Total unaffiliated revenue | Total unaffiliated revenue | | 843,171 | | | 31,387 | | | — | | | 874,558 | | Total unaffiliated revenue | | 1,025,007 | | | 88,833 | | | — | | | 1,113,840 | |
| Affiliated revenue | Affiliated revenue | | — | | | 17,152 | | | (17,152) | | | — | | Affiliated revenue | | — | | | 25,481 | | | (25,481) | | | — | |
| Total segment revenue | Total segment revenue | | 843,171 | | | 48,539 | | | (17,152) | | | 874,558 | | Total segment revenue | | 1,025,007 | | | 114,314 | | | (25,481) | | | 1,113,840 | |
| Operating income (loss) | Operating income (loss) | | (24,215) | | | 1,382 | | | — | | | (22,833) | | Operating income (loss) | | (115,964) | | | 56,919 | | | — | | | (59,045) | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 2,357 | | | $ | 2,224 | | | $ | — | | | $ | 4,581 | | Depreciation and amortization | | $ | 4,583 | | | $ | 2,612 | | | $ | — | | | $ | 7,195 | |
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | | $ | 2,958,335 | | | $ | 159,444 | | | $ | — | | | $ | 3,117,779 | |
| Direct contracting revenue | | — | | | 320,002 | | | — | | | 320,002 | |
| Service revenue | | 70 | | | 25,203 | | | — | | | 25,273 | |
| Investment income | | 6,301 | | | (57,152) | | | — | | | (50,851) | |
| Total unaffiliated revenue | | 2,964,706 | | | 447,497 | | | — | | | 3,412,203 | |
| Affiliated revenue | | — | | | 595,587 | | | (595,587) | | | — | |
| Total segment revenue | | 2,964,706 | | | 1,043,084 | | | (595,587) | | | 3,412,203 | |
| Operating income (loss) | | (336,624) | | | (88,443) | | | — | | | (425,067) | |
| | | | | | | | |
| Depreciation and amortization | | $ | 12,073 | | | $ | 14,197 | | | $ | — | | | $ | 26,270 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | | Bright
HealthCare | | NeueHealth | | Eliminations | | Consolidated |
| Premium revenue | | $ | 1,865,684 | | | $ | 37,033 | | | $ | — | | | $ | 1,902,717 | |
| Direct contracting revenue | | — | | | — | | | — | | | — | |
| Service revenue | | 90 | | | 20,433 | | | — | | | 20,523 | |
| Investment income | | 2,404 | | | 62,754 | | | — | | | 65,158 | |
| Total unaffiliated revenue | | 1,868,178 | | | 120,220 | | | — | | | 1,988,398 | |
| Affiliated revenue | | — | | | 42,633 | | | (42,633) | | | — | |
| Total segment revenue | | 1,868,178 | | | 162,853 | | | (42,633) | | | 1,988,398 | |
| Operating income (loss) | | (140,179) | | | 58,301 | | | — | | | (81,878) | |
| | | | | | | | |
| Depreciation and amortization | | $ | 6,940 | | | $ | 4,836 | | | $ | — | | | $ | 11,776 | |
As a percentage of our total consolidated revenue, premium revenues and direct contracting revenues from CMS were 33%35% and 25%31% for the three months ended March 31,June 30, 2022 and 2021, respectively, whichrespectively. For the six months ended June 30, 2022 and 2021 premium revenues and direct contracting revenues from CMS were 34% and 28%, respectively. The revenues from CMS are included in premium revenue of our Bright 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 13. INCOME TAXES
Income tax was an expense was $3.2of $2.9 million and $1.2benefit of $19.5 million for the three months ended March 31,June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, income tax was an expense of $6.1 million and benefit of $18.3 million, respectively. The impact from income taxes varies from the federal statutory rate of 21.0% due to state income taxes, changes in the valuation allowance for deferred tax assets and adjustments for permanent differences. For the three months ended March 31,June 30, 2022, the expense largely relates to amortization of originating goodwill from asset acquisitions and estimated state income taxes attributable to income earned in separate filing states without state net operating loss carryforwards. For the three and six months ended March 31,June 30, 2021, the expensebenefit largely relates to adjustments to the valuation allowance for federal and state deferred tax assets, as well as the effect of deferred taxes recorded as part of business combination accounting for the Universal Care, Inc. (d.b.a. Brand New Day), THNM, Zipnosis, and THNMCentral Health Plan of California acquisitions.
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 March 31,June 30, 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
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
supported by reversals of existing cumulative temporary differences. Any federal tax benefit generated from losses in 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 14. REDEEMABLE NONCONTROLLING INTEREST
Redeemable noncontrolling interests in our subsidiaries whose redemption is outside of our control are classified as temporary equity. The following table provides details of our redeemable noncontrolling interest activity for the three and six months ended March 31,June 30, 2022 and 2021 (in thousands):
| | | Three Months Ended
March 31, | | 2022 | | 2021 |
| 2022 | | 2021 | |
| Balance at beginning of period | $ | 128,407 | | | $ | 39,600 | | |
| Balance at January 1 | | Balance at January 1 | $ | 128,407 | | | $ | 39,600 | |
| (Losses) earnings attributable to noncontrolling interest | | (Losses) earnings attributable to noncontrolling interest | (2,681) | | | 288 | |
| Measurement adjustment | | Measurement adjustment | 17,285 | | | 329 | |
| Balance at March 31 | | Balance at March 31 | $ | 143,011 | | | $ | 40,217 | |
| Earnings attributable to noncontrolling interest | Earnings attributable to noncontrolling interest | (2,681) | | | 288 | | Earnings attributable to noncontrolling interest | 3,625 | | | 640 | |
| Tax distributions to noncontrolling interest holders | | Tax distributions to noncontrolling interest holders | (1,894) | | | — | |
| Measurement adjustment | Measurement adjustment | 17,285 | | | 329 | | Measurement adjustment | 19,712 | | | 155 | |
| Balance at end of period | $ | 143,011 | | | $ | 40,217 | | |
| Balance at June 30 | | Balance at June 30 | $ | 164,454 | | | $ | 41,012 | |
NOTE 15. DIRECT CONTRACTING
Beginning January 1, 2022, we began participating in CMS’ DC Model with 2 DCEs participating through the global risk arrangement and assuming full risk for the total cost of care of aligned beneficiaries. As part of our participation in the DC Model, we are guaranteeing the performance of our care network of participating and preferred providers. The intention of the DC Model is to enhance the quality of care for Medicare FFS beneficiaries while reducing the administrative burden, supporting a focus on complex, chronically ill patients, and encouraging physician organizations that have not typically participated in Medicare FFS programs to serve Medicare FFS beneficiaries.
Key components of the financial agreement for the 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 DCE’s performance year expenditures. This comparison will be used to calculate shared savings and shared losses. The Performance Year Benchmark is established at the beginning of the performance year utilizing prospective trend estimates and is subject to retrospective trend adjustments, if warranted, before the Financial Reconciliation.
•Risk-Sharing Arrangements: Used in determining the percent of savings and losses that 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 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.
Bright Health Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. 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 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 measure the shared savings or loss and adjust the performance benchmark and thus the remaining performance obligation if we are in a probable shared loss position. The performance year benchmark is our best estimate of our obligation as we are unable to estimate the potential shared savings or loss due to the “stop-loss arrangement”, risk corridor components of the agreement, and a number of variables including but not limited to risk ratings and benchmark trends that could have an inestimable impact on estimated future payments.
There were no financial statement impacts of the performance guarantee at March 31,June 30, 2021 or for the three-monththree and six-month period then ended. The tables below include the financial statement impacts of the performance guarantee at March 31,June 30, 2022 and for the three-monththree and six-month period then ended (in thousands):
| | | | | |
| March 31,June 30, 2022 |
Direct contracting performance year receivable (1)(2) | $ | 638,641396,104 | |
Direct contracting performance year obligation(2)(3) | 533,537310,603 | |
(1) We estimate there to be $115.1$95.3 million in out-of-network claims incurred by beneficiaries aligned to our DCE but not reported as of March 31,June 30, 2022; this is included in medical costs payable on the Condensed Consolidated Balance Sheets.
(2) In May 2022, we received an updated benchmark from CMS resulting in the reduction of both our Direct contracting performance year receivable and obligation by $97.6 million.
(3) 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 |
Amortization of Direct contracting performance year receivable | $ | 75,127 | |
Amortization of Direct contracting performance year obligation | 182,797 | |
Direct contracting revenue | 182,797 | |
| | | | | | | | | | | |
| Three Months Ended
June 30, 2022 | | Six Months Ended
June 30, 2022 |
| Amortization of Direct contracting performance year receivable | $ | 156,808 | | | $ | 231,935 | |
| Amortization of Direct contracting performance year obligation | 164,404 | | | 347,201 | |
| Direct contracting revenue | 137,205 | | | 320,002 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes and the “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and Bright Health Group, Inc.’sour audited consolidated financial statements and the accompanying notes as well as the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Form 10-K.10-K and our Form 10-Q for the quarterly period ended March 31, 2022. 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 aligning the best local resources in healthcare delivery with the financing of care we can drive a superior consumer experience, optimize clinical outcomes, reduce systemic waste, and lower costs. We are a healthcare company building a national Integrated System of Care in close partnership with our Care Partners. Our differentiated approach is built on alignment, focused on the consumer, and powered by technology. Bright Health Group consists of two reportable segments: NeueHealth and Bright HealthCare:
NeueHealth. Our healthcare enablement and technology business, NeueHealth, is developing the next generation, integrated healthcare system. NeueHealth aims to significantly reducesreduce the friction and current lack of coordination between payors and providers to enable a truly consumer-centric healthcare experience. As of MarchJune 2022, NeueHealth delivers high-quality virtual and in-person clinical care through ourits approximately 75 owned primary care clinics within itsan integrated care delivery system. Through thosethese risk-bearing clinics, NeueHealth maintains over 570,000555,000 unique patient relationships as of March 31,June 30, 2022, over 530,000approximately 500,000 of which are served through value-based arrangements, across multiple payors.
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 1.11.0 million consumers through its various offerings, serving consumers across multiple product lines in 17 states. Bright HealthCare’s customers include commercial health plans across 16 states, which serve overapproximately 1.0 million individuals, as well as MA products in 6 states, which serve over 120,000 lives and generally focus on higher risk, special needs populations.
COVID-19 Update
The ongoing COVID-19 pandemic, including its effect on the macroeconomic environment, and the response of 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, somecertain new variants have emerged that appear more transmissible and more resistant to current vaccines. Some individuals have also 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 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.
For the three months ended March 31, 2022 and 2021, the impact of COVID-19 increased our MCR by 310 basis points and 410 basis points, respectively, reflecting an increase in medical costs of $58.4 million and $34.8 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.
For the three months ended June 30, 2022 and 2021, the impact of COVID-19 increased our MCR by 130 basis points and 320 basis points, respectively, reflecting an increase in medical costs of $20.0 million and $33.6 million, respectively. For the six months ended June 30, 2022 and 2021, the impact of COVID-19 increased our MCR by 230 basis points and 360 basis points, respectively, reflecting an increase in medical costs of $78.5 million and $68.4 million, respectively.
Business Update
Our mission – Making Healthcare Right. Together. – is built on the belief that by connecting and aligning the best local resources in healthcare delivery with the financing of care, we can deliver better outcomes at a lower cost for all consumers.
We had a strong start toIn the year since we became a public company, our business has matured in scale, diversification, capabilities, and continued to deliver substantial growth.consistency in performance. We have reached significantachieved scale and are maturing as a business; 2022 will be focused on optimizingacross some of the Company and executing on our strategic initiatives. We have made investments to position Bright HealthCare as a differentiated competitor in states with significant addressablelargest markets in both the Commercial marketplace andcountry, specifically 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 maturing and improving, and we continue to 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 percentageWe continue to demonstrate diversification across both our Commercial and growing Medicare Advantage business. We have significantly grown our NeueHealth business, while demonstrating the differentiated performance of our Fully Aligned Care Model. In addition to that growth, we have made substantial progress on improving our underlying operating performance, developing our proprietary BiOS technology, and driving integration between our Bright HealthCare and NeueHealth businesses. These pieces together all drive key points of differentiation for Bright Health Group.
In the second quarter of 2022, we continued to deliver top-line growth, while making significant progress on our Fully Aligned Model and our operational improvements. We delivered strong growth in our core markets while effectively managing medical costs across all of our markets. Our second quarter of 2022 revenue increase is driven by year-over-year member growth, as we increased to approximately 970,000 Commercial membership that was new to us in 2022 was consistent with our expectations at 56.1%, meaningfully lower than 2021 due to strong renewal ratesconsumers and lower overall impact from new market entries. Bright HealthCare’sapproximately 120,000 Medicare Advantage business producedconsumers. Our consolidated revenues increased 41.5% year over year growth, both organic and through acquisition, now serving over 120,000 consumers. We 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$1.6 billion. On a segment basis, Bright HealthCare business while it is also becoming a meaningful contributorrevenue increased 33.6% year over year to our overall results.$1.4 billion, and NeueHealth revenue increased to $422.1 million, compared to $114.3 million in the prior year.
We have made meaningful progressDuring the second quarter, we also continued to deliver on the following specificfocused actions to drive improved year-over-year results:and operational improvements we previously laid out. For example:
1.•Net Pricing ActionThrough our medical cost management efforts, we are achieving cost savings in Core Markets:line with our expectations, and we are experiencing lower COVID costs to this point in 2022. Overall, utilization across our business is lower and has been stable through the second quarter, We took pricing actions forare also seeing the majoritybenefits of a larger percentage of our 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 we continue on our path to profitability.being retained from last year.
2.•Unit Cost ReductionsOur risk adjustment performance is improved this year due to the larger retained member base, a more stable Special Enrollment Period and Medical Cost Management Initiatives:our operational improvements. In Florida, for example, our internal data shows we are achieving an approximately 25% improvement in risk adjustment on a per-member basis. We 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 improvementhave also made improvements to our year-over-year improvementmember engagement efforts in Adjusted EBITDA.
3.Risk Adjustment Actions: Our high-performing local Care Partner networks were better prepared in 2022 for our strong growth, which allowed us2022. We have attributed members more quickly to attribute members to owned and affiliated 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,affiliate care providers, and the significant investments we made in data and operational capabilities, helps ensure we are identifying members with complex health conditions who would benefit from care interventions earlier. Importantly, we are doing this for members in both our Commercial and Medicare Advantage plans. Our efforts around identifying higher-risk members supports our patient outreach, allowing us to better direct members to in-network care, as well as helping us to accurately capturingcapture the risk of the patient population we serve.
4.•ClaimsOur technology development and Clinical Platform Stabilization: We launched all of ouroperational capabilities have advanced in 2022. Our new market membership on our newPrism claims administration platform in January 2022. The new claims platform ismanagement and Panorama platforms are performing well and covers nearly one thirdallowing us to achieve our target benchmarks for prompt pay, aged claims and appropriate denials. While the claims platform in our legacy markets continues to require more manual work, we made progress on claims processing in these markets and continued to bring down the median age of claims during the first half of 2022.
•We are also upgrading our provider facing systems, adding more automated and electronic processes for Care Providers, which we believe increases provider satisfaction, makes our business more efficient and drives better site of care selection, which should help lower medical costs.
We believe the operational improvements we’ve made in 2022 set us up well as we look out to 2023. We expect to continue our 2022 efforts on medical cost management, including implementing new contracts that reflect the scale of our Commercial membership.business, driving lower medical costs for consumers. We expect further improvement in our engagement with members and accurately capturing the risk coding of these members across our markets. We also added resourcesexpect to our legacy outsourced claims platform, andbenefit from the markets we are seeing improvementsentered in the performance of that system. We continue to expect that2022 going into their second year, where we will transition the remainder ofhave significantly more data on our Commercial members, to the 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 to have all of our Commercial membership on Panorama by 2023.
5.improvement in the accuracy of risk adjustment. We’ve driven an improvement in the MCR in both our Commercial and Medicare Advantage business in 2022 and expect to continue to improve our performance in 2023. We are Addressing Talent and Cost Structure: We remain disciplinedalso expect to drive further profitability in our Direct Contracting business in the new ACO Reach program, building 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.performance in 2022.
We view the market as being in a disciplined pricing environment heading into 2023 that supports the positive pricing actions we have taken. These pricing actions take into account our underlying unit cost structure, medical management initiatives, and our objective to move our business closer to our targeted long-term margins. Overall, we do not expect these pricing actions to meaningfully alter our competitive positioning in the aggregate, and we are positive on the potential consumer and enrollment benefits of the Advanced Premium Tax Credit subsidies extension in the proposed Inflation Reduction Act of 2022. We will also continue to focus on markets whereadvance our Fully Aligned Care Model can deliver differentiated results, where we can get to sufficient scale, and where we believe we can deliver ondrive medical cost benefits from the combined strength of our financial targets. We are focusing our Commercial business to offer Individual and Family Plans in 10 states where we believe we can drive differentiated value through our Fully Aligned Care Model. We believe these decisions place us in the best position to achieve long-term success for our members and Care Partners. These states have a substantial addressable market at approximately 50% of the Commercial Marketplace consumers. We have meaningful scale in Florida, Texas, and North Carolina, and growth opportunities with strong Care Partner relationships in 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 for Enterprise Adjusted EBITDA breakeven in 2024.
Bright HealthCare will be exiting theand NeueHealth businesses. The net result of pricing next year across both 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 revenue in 2023 and 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.
We believe we will continue to 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 continuecombined with our medical cost efforts, are expected to grow the NeueHealth care deliverydrive improvement in gross margin 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.improve profitability.
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,June 30, 2022 and 2021.
| | | As of March 31, | | As of June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Bright HealthCare Consumers Served | Bright HealthCare Consumers Served | | | | Bright HealthCare Consumers Served | | | |
Commercial(1) | Commercial(1) | 1,040,000 | | | 480,000 | | Commercial(1) | 970,000 | | | 550,000 | |
| Medicare Advantage | Medicare Advantage | 120,000 | | | 60,000 | | Medicare Advantage | 120,000 | | | 110,000 | |
| | NeueHealth Patients | NeueHealth Patients | | NeueHealth Patients | |
| Value-based Care Patient Lives | Value-based Care Patient Lives | 530,000 | | | 30,000 | | Value-based Care Patient Lives | 500,000 | | | 40,000 | |
(1) Commercial plans include IFP and employer plans.
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 operational, clinical, technological and administrative functional area needs that will require further investment to support expected future consumer growth.
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
March 31, |
| ($ in thousands) | 2022 | | 2021 |
| Net Loss | $ | (180,629) | | | (24,545) | |
Adjusted EBITDA(1) | $ | (74,830) | | | (13,827) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Net Loss | $ | (251,330) | | | (43,723) | | | $ | (431,959) | | | (68,268) | |
Adjusted EBITDA(1) | $ | (194,860) | | | (93,766) | | | $ | (269,690) | | | (107,593) | |
(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, any impairment of intangible assets, adjusted for the impact of acquisition and financing-related transaction costs, share-based compensation, changes in the fair value of contingent consideration,equity securities, changes in the fair value of equity securities,contingent consideration, contract termination costs and restructuring costs. Adjusted EBITDA has been presented in this Quarterly Report as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP, because we believe it assists management and investors in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA is useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management uses Adjusted EBITDA to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.
Adjusted EBITDA is not a recognized term under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, this measure is not intended to be a measure of free cash flow available for management’s discretionary use as we do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of this measure has limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentation of this measure may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
The following table provides a reconciliation of net loss to Adjusted EBITDA for the periods presented:
| | | Three Months Ended
March 31, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in thousands) | ($ in thousands) | 2022 | | 2021 | ($ in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Net loss | Net loss | $ | (180,629) | | | $ | (24,545) | | Net loss | $ | (251,330) | | | $ | (43,723) | | | $ | (431,959) | | | $ | (68,268) | |
| Interest expense | Interest expense | 1,193 | | | 546 | | Interest expense | 337 | | | 4,142 | | | 1,530 | | | 4,688 | |
| Income tax expense (benefit) | Income tax expense (benefit) | 3,240 | | | 1,166 | | Income tax expense (benefit) | 2,904 | | | (19,464) | | | 6,144 | | | (18,298) | |
| Depreciation and amortization | Depreciation and amortization | 13,041 | | | 4,581 | | Depreciation and amortization | 13,229 | | | 7,195 | | | 26,270 | | | 11,776 | |
| Impairment of intangible assets | Impairment of intangible assets | 6,720 | | | — | | Impairment of intangible assets | — | | | — | | | 6,720 | | | — | |
Transaction costs (a) | Transaction costs (a) | 111 | | | 2,020 | | Transaction costs (a) | 299 | | | 3,130 | | | 410 | | | 5,150 | |
Share-based compensation expense (b) | Share-based compensation expense (b) | 32,921 | | | 5,176 | | Share-based compensation expense (b) | 20,220 | | | 13,878 | | | 53,141 | | | 19,054 | |
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 equity securities (c) | 16,183 | | | (58,511) | | | 57,151 | | | (62,754) | |
Change in fair value of contingent consideration (d) | Change in fair value of contingent consideration (d) | — | | | 1,472 | | Change in fair value of contingent consideration (d) | — | | | (413) | | | — | | | 1,059 | |
Contract termination costs (e) | Contract termination costs (e) | 741 | | | — | | Contract termination costs (e) | 500 | | | — | | | 1,241 | | | — | |
Restructuring costs (f) | Restructuring costs (f) | 6,864 | | | — | | Restructuring costs (f) | 2,798 | | | — | | | 9,662 | | | — | |
| Adjusted EBITDA | Adjusted EBITDA | $ | (74,830) | | | $ | (13,827) | | Adjusted EBITDA | $ | (194,860) | | | $ | (93,766) | | | $ | (269,690) | | | $ | (107,593) | |
(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 unit award grants, which can vary from period to period based on a number of factors, including the timing, quantity and grant date fair value of the awards.
(c)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.
(e)Represents amounts paid for early termination of existing vendor 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.
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 six months ended March 31,June 30, 2022 and 2021.
| | ($ in thousands) | ($ in thousands) | Three Months Ended
March 31, | ($ in thousands) | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| Condensed Consolidated Statements of Income (loss) and operating data: | Condensed Consolidated Statements of Income (loss) and operating data: | 2022 | | 2021 | Condensed Consolidated Statements of Income (loss) and operating data: | 2022 | | 2021 | | 2022 | | 2021 |
| | Revenue: | Revenue: | | Revenue: | |
| Premium revenue | Premium revenue | $ | 1,680,450 | | $ | 860,631 | Premium revenue | $ | 1,437,329 | | $ | 1,042,086 | | $ | 3,117,779 | | $ | 1,902,717 |
| Direct contracting revenue | Direct contracting revenue | 182,797 | | — | Direct contracting revenue | 137,205 | | — | | 320,002 | | — |
| Service revenue | Service revenue | 12,428 | | 8,438 | Service revenue | 12,845 | | 12,085 | | 25,273 | | 20,523 |
| Investment income (loss) | Investment income (loss) | (40,100) | | 5,489 | Investment income (loss) | (10,751) | | 59,669 | | (50,851) | | 65,158 |
| Total revenue | Total revenue | 1,835,575 | | 874,558 | Total revenue | 1,576,628 | | 1,113,840 | | 3,412,203 | | 1,988,398 |
| Operating expenses | Operating expenses | | Operating expenses | |
| Medical costs | Medical costs | 1,580,596 | | 684,570 | Medical costs | 1,398,166 | | 904,630 | | 2,978,762 | | 1,589,200 |
| Operating costs | Operating costs | 418,918 | | 208,240 | Operating costs | 413,320 | | 261,060 | | 832,238 | | 469,300 |
| Depreciation and amortization | Depreciation and amortization | 13,041 | | 4,581 | Depreciation and amortization | 13,229 | | 7,195 | | 26,270 | | 11,776 |
| Total operating expenses | Total operating expenses | 2,012,555 | | 897,391 | Total operating expenses | 1,824,715 | | 1,172,885 | | 3,837,270 | | 2,070,276 |
| Operating loss | Operating loss | (176,980) | | (22,833) | Operating loss | (248,087) | | (59,045) | | (425,067) | | (81,878) |
| Interest expense | Interest expense | 1,193 | | 546 | Interest expense | 337 | | 4,142 | | 1,530 | | 4,688 |
| Other income | Other income | (784) | | — | Other income | 2 | | — | | (782) | | — |
| Loss before income taxes | Loss before income taxes | (177,389) | | (23,379) | Loss before income taxes | (248,426) | | (63,187) | | (425,815) | | (86,566) |
| Income tax expense | Income tax expense | 3,240 | | 1,166 | Income tax expense | 2,904 | | (19,464) | | 6,144 | | (18,298) |
| Net loss | Net loss | (180,629) | | (24,545) | Net loss | (251,330) | | (43,723) | | (431,959) | | (68,268) |
| Net earnings attributable to non-controlling interest | Net earnings attributable to non-controlling interest | (14,605) | | (617) | Net earnings attributable to non-controlling interest | (23,336) | | (795) | | (37,941) | | (1,412) |
| Series A preferred stock dividend accrued | Series A preferred stock dividend accrued | (8,938) | | — | Series A preferred stock dividend accrued | (9,461) | | — | | (18,399) | | — |
| Net loss attributable to Bright Health Group, Inc. common shareholders | Net loss attributable to Bright Health Group, Inc. common shareholders | $ | (204,172) | | $ | (25,162) | Net loss attributable to Bright Health Group, Inc. common shareholders | $ | (284,127) | | $ | (44,518) | | $ | (488,299) | | $ | (69,680) |
| Adjusted EBITDA | Adjusted EBITDA | $ | (74,830) | | $ | (13,827) | Adjusted EBITDA | $ | (194,860) | | $ | (93,766) | | $ | (269,690) | | $ | (107,593) |
Medical Cost Ratio (1) | Medical Cost Ratio (1) | 84.8% | | 79.5% | Medical Cost Ratio (1) | 88.8% | | 86.8% | | 86.6% | | 83.5% |
Operating Cost Ratio (2) | Operating Cost Ratio (2) | 22.8% | | 23.8% | Operating Cost Ratio (2) | 26.2% | | 23.4% | | 24.4% | | 23.6% |
(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 revenues increased by $961.0$462.8 million, or 109.9%41.5%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021, which was driven by premium revenue due to an increase of approximately 620,000340,000 Bright HealthCare consumers and over 500,000460,000 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$137.2 million of the increase in total revenue. The increases in premium revenue and Direct Contractingcontracting revenue were partially offset by an investment loss for the three months ended March 31,June 30, 2022, as a result of $41.0$16.2 million of unrealized lossesloss from investments in equity securities.securities, compared to an unrealized gain of $58.5 million in the prior-year period.
Total revenues increased by $1.4 billion, or 71.6%, for the six months ended June 30, 2022 as compared to the same period in 2021. This increase is driven by increases in Bright HealthCare consumers and value-based care patient lives, as well as $320.0 million of Direct contracting revenue. The increases in premium revenue and Direct contracting revenue were partially offset by an investment loss for the six months ended June 30, 2022, as a result of $57.2 million of unrealized loss from investments in equity securities, compared to an unrealized gain of $62.8 million in the prior-year period.
Medical costs increased by $896.0$493.5 million, or 130.9%54.6%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. The increase in medical costs was driven by an increase in consumers through both organic growth in
consumers and inorganic growth attributable to the acquisitionsacquisition of CHP and Centrum. Medical costs incurred associated with beneficiaries aligned to our DCEs also contributed to the increase. Medical costs increased by $1.4 billion, or 87.4%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in medical costs was driven by consistent factors with the three months ended June 30, 2022 with additional impact from the acquisitions of CHP and THNM, which were acquired on April 1, 2021 and March 31, 2021, respectively.
Our MCR of 84.8%88.8% for the three months ended March 31,June 30, 2022 increased 530200 basis points compared to the same period in 2021. Our MCR included a 310130 basis point and a 410320 basis point unfavorable impact from COVID-19 costs for the three months ended March 31,June 30, 2022 and 2021, respectively. In addition, our MCR was impacted by Direct Contracting revenue recorded at a 96.6%97.9% MCR, which increased our MCR by 13090 basis points. Our MCR of 86.6% for the six months ended June 30, 2022 increased 310 basis points compared to the same period in 2021. Our MCR included a 230 basis point and a 360 basis point unfavorable impact from COVID-19 costs for the six months ended June 30, 2022 and 2021, respectively. In addition, our MCR was impacted by Direct Contracting revenue recorded at a 97.2% MCR, which increased our MCR by 110 basis points.
Operating costs increased by $210.7$152.3 million, or 101.2%58.3%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. The increase in operating costs was primarily due to recording $36.8 million of premium deficiency reserve (“PDR”) expense and a $75.0$27.3 million increase in compensation and benefit costs driven by increases in employees, a $27.7$6.3 million increase in share-based compensation costs and $6.9$2.4 million of restructuring severance costs as part of a workforce reduction in 2022. In addition, operating costs from new market entry and consumer growth, as well as marketing and selling expenses contributed to the year-over-year increase in operating costs. The three and six months ended June 30, 2022 also include a net increase of $36.8 million of premium deficiency reserve expense due to expected future losses in certain markets in 2022 in our Bright HealthCare segment. Operating costs increased by $362.9 million or 77.3% for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in operating costs was driven by consistent factors with the three months ended June 30, 2022. Operating costs for the threesix months ended March 31,June 30, 2022, also include a $6.7 million impairment of intangible assets.
Our operating cost ratio of 22.8%26.2% for the three months ended March 31,June 30, 2022, decreased 100increased 280 basis points compared to the same period in 2021. Our operating cost ratio of 24.4% for the six months ended June 30, 2022 increased 80 basis points compared to the same period in 2021. The decreaseincrease in both 2022 periods was primarily due to recording $36.8 million PDR expense in the three and six months ended June 30, 2022 and the unrealized loss on investments in equity securities compared to unrealized gains in the same periods in 2021. Excluding PDR and unrealized gains and losses on equity securities, our operating costs ratio decreased due to operating costs increasing at a slower rate than the increased premium revenues earned due toas a result of 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.grow.
Depreciation and amortization increased by $8.5$6.0 million, or 83.9%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021, primarily due to the $7.0$4.1 million of amortization expense resulting from intangible assets acquired in the Centrum CHPacquisition, for which there was no comparable amount in the three months ended June 30, 2021. Depreciation and Zipnosis acquisitions,amortization increased by $14.5 million, or 123.1%, for the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to $8.2 million of amortization expense resulting from intangible assets acquired in the Centrum acquisition, for which there were no comparable amounts in the six months ended June 30, 2021, as well as $2.7 million of amortization of intangibles acquired in the CHP and Zipnosis acquisitions, for which there were only comparable amounts in the three months ended March 31,June 30, 2021. Both 2022 periods also experienced an increase in depreciation expense compared to the same periods in 2021 primarily due to depreciation related to capitalized software projects completed in the past year.
Interest expense was $1.2$0.3 million and $0.5$4.1 million for the three months ended March 31,June 30, 2022 and 2021, respectively, which was due to interest on the Credit Agreement we entered into in March 2021. Interest expense for the six months ended June 30, 2022 and 2021 was $1.5 million and $4.7 million, respectively.
Income tax expense was $3.2$2.9 million and $6.1 million for the three and six months ended March 31, 2022.June 30, 2022, respectively. For the three and six months ended March 31,June 30, 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 and six months ended March 31,June 30, 2021, the income tax expense was $1.2a benefit of $19.5 million and $18.3 million, respectively, which waswas due to an adjustmentadjustments to the valuation allowance for federal and state deferred tax impactassets, as well as the effect of goodwill and intangible assets acquireddeferred taxes recorded as part of business combination accounting for the Brand New Day, Zipnosis, THNM, and THNMCHP acquisitions.
| | | | | | | | | | | |
| Bright HealthCare | | | |
| ($ 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 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Bright HealthCare | | | | | | | |
| ($ in thousands) | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| Statement of income (loss) and operating data: | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| Bright HealthCare: | | | | | | | |
| Commercial revenue | $ | 945,274 | | | $ | 683,943 | | | $ | 2,108,498 | | | $ | 1,304,999 | |
| Medicare Advantage revenue | 419,594 | | | 339,906 | | | 849,907 | | | 560,775 | |
| Investment income | 5,433 | | | 1,158 | | | 6,301 | | | 2,404 | |
| Total revenue | 1,370,301 | | | 1,025,007 | | | 2,964,706 | | | 1,868,178 | |
| Operating expenses: | | | | | | | |
| Medical costs | 1,220,897 | | | 894,059 | | | 2,544,621 | | | 1,569,115 | |
| Operating costs | 372,972 | | | 242,329 | | | 744,636 | | | 432,302 | |
| Depreciation and amortization | 6,034 | | | 4,583 | | | 12,073 | | | 6,940 | |
| Total operating expenses | 1,599,903 | | | 1,140,971 | | | 3,301,330 | | | 2,008,357 | |
| Operating loss | $ | (229,602) | | | $ | (115,964) | | | $ | (336,624) | | | $ | (140,179) | |
| Medical Cost Ratio (MCR) | 89.5 | % | | 87.3 | % | | 86.0 | % | | 84.1 | % |
Commercial revenue increased by $542.2$261.3 million, or 87.3%38.2%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. Commercial revenue increased by $803.5 million, or 61.6%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in revenues in both 2022 periods, compared to 2021, was driven by an increase in consumer lives of approximately 560,000420,000 due to organic growth and entry into new markets in 2022 – particularly entry into Texas, which isTexas. These increases were partially offset by a $562.4 million increase in risk adjustment payable in the three months ended June 30, 2022, which included a $93.1 million increase in risk adjustment based on expected final settlement of the 2021 risk adjustment payable, as well as an increase in risk adjustment payable.payable related to 2022.
Medicare Advantage revenue increased by $209.4$79.7 million, or 94.8%23.4%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. The threeincrease was driven by favorable premium rates and an increase in consumer lives of approximately 10,000 due to organic growth. Medicare Advantage revenue increased by $289.1 million, or 51.6%, for the six months ended March 31,June 30, 2022 as compared to the same period in 2021. The six months ended June 30, 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.rates and organic consumer growth.
Medical costs increased by $648.7$326.8 million or 96.1%36.6%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. For the three months ended March 31,June 30, 2022 and 2021, the impact of COVID-19 increased our medical costs $20.0 million and $33.6 million, respectively. Medical costs increased by $975.5 million, or 62.2%, for the six months ended June 30, 2022 as compared to the same period in 2021. For the six months ended June 30, 2022 and 2021, the impact of COVID-19 increased our medical costs $58.4$78.5 million and $34.8$68.4 million, respectively. The remaining increase in the 2022 periods is due to an approximately 65.2% increase in consumers, primarily in our Commercial business, partially offset by favorable medical
cost rates. The three and six months ended June 30, 2022 include $53.3 million of favorable medical costs related to 2021, as well as favorable medical cost rates related to 2022. In addition, the six months ended June 30, 2022 included six months of medical costs from our acquisition of CHP, partially offset by favorablecompared to the same period in 2021, which included three months of medical cost rates in our Commercial business.costs from CHP.
Our MCR of 83.1%89.5% for the three months ended March 31,June 30, 2022 increased 290220 basis points compared to the same period in 2021. Our MCR for the three months ended March 31,June 30, 2022 included a 370130 basis point unfavorable impact from COVID-19 costs. Our MCR for the three months ended March 31,June 30, 2021 included a 410320 basis point unfavorable impact from COVID-19 costs. Our MCR of 86.0% for the six months ended June 30, 2022 increased 190 basis points compared to the same period in 2021. Our MCR included a 230 basis point and a 360 basis point unfavorable impact from COVID-19 costs for the six months ended June 30, 2022 and 2021, respectively. The increase in MCR isin both 2022 periods compared to 2021, was primarily due to an increase in risk adjustment payable.payable in our Commercial business.
Operating costs increased by $181.7$130.6 million, or 95.6%53.9%, for the three months ended March 31,June 30, 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. The three and six months ended June 30, 2022 also include a net increase of $36.8 million of premium deficiency reserve expense due to expected future losses in certain markets in 2022 in our Bright HealthCare segment. In addition, we experienced increases in operating costs from new market entry and increased marketing and selling expenses. Operating costs for the six months ended June 30, 2022 increased by $312.3 million or 72.2% as compared to the same period in 2021. The increase in operating costs was driven by consistent factors with the three months ended March 31,June 30, 2022 also includewith additional impact from a $6.7 million impairment of intangible assets.
Depreciation and amortization increased by $3.7$1.5 million, or 31.7%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. The increase was due to an increase in depreciation expense primarily due to depreciation related to capitalized software projects completed in the past year. Depreciation and amortization expenseincreased by $5.1 million, or 74.0%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase was due to $2.4 million of $2.6 million resulting from intangible assetsamortization of intangibles acquired in the CHP acquisition, on April 1, 2021, for which there are nowere only comparable amounts in the three months ended March 31, 2021.June 30, 2021, as well as an increase in depreciation expense consistent with the three months ended June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| NeueHealth | | | | | | | |
| ($ in thousands) | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| Statement of income (loss) and operating data: | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| NeueHealth: | | | | | | | |
| Premium revenue | $ | 276,460 | | | $ | 36,172 | | | $ | 731,462 | | | $ | 64,846 | |
| Direct contracting revenue | 137,205 | | | — | | | 320,002 | | | — | |
| Service revenue | 24,651 | | | 19,631 | | | 48,772 | | | 35,253 | |
| Investment income (loss) | (16,184) | | | 58,511 | | | (57,152) | | | 62,754 | |
| Total revenue | 422,132 | | | 114,314 | | | 1,043,084 | | | 162,853 | |
| Operating expenses | | | | | | | |
| Medical costs | 381,387 | | | 28,415 | | | 1,006,381 | | | 47,897 | |
| Operating costs | 52,035 | | | 26,368 | | | 110,949 | | | 51,819 | |
| Depreciation and amortization | 7,195 | | | 2,612 | | | 14,197 | | | 4,836 | |
| Total operating expenses | 440,617 | | | 57,395 | | | 1,131,527 | | | 104,552 | |
| Operating income (loss) | $ | (18,485) | | | $ | 56,919 | | | $ | (88,443) | | | $ | 58,301 | |
| Medical Cost Ratio (MCR) | 92.2 | % | | 78.6 | % | | 95.7 | % | | 73.9 | % |
| | | | | | | | | | | |
| NeueHealth | | | |
| ($ in thousands) | Three Months Ended
March 31, |
| Statement of income (loss) and operating data: | 2022 | | 2021 |
| | | |
| NeueHealth: | | | |
| Premium revenue | $ | 455,002 | | | $ | 28,674 | |
| Direct contracting revenue | 182,797 | | | — | |
| Service revenue | 24,121 | | | 15,622 | |
| Investment income (loss) | (40,968) | | | 4,243 | |
| Total revenue | 620,952 | | | 48,539 | |
| Operating expenses | | | |
| Medical costs | 624,994 | | | 19,482 | |
| Operating costs | 58,914 | | | 25,451 | |
| Depreciation and amortization | 7,002 | | | 2,224 | |
| Total operating expenses | 690,910 | | | 47,157 | |
| Operating income (loss) | $ | (69,958) | | | $ | 1,382 | |
| Medical Cost Ratio (MCR) | 98.0 | % | | 67.9 | % |
Premium revenue increased by $426.3$240.3 million, or 664.3%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. Premium revenue increased by $666.6 million, or 1028.0%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in premium revenue for the three and six months ended June 30, 2022 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$137.2 million and $320.0 million for the three and six months ended March 31, 2022.June 30, 2022, respectively. This revenue was attributable to the alignment of beneficiaries to our DCE entities, which numbered approximately 49,00047,000 at March 31,June 30, 2022. We received updated benchmark data from CMS during the second quarter of 2022, which resulted in a sequential decrease in Direct contracting revenue in the second quarter of 2022 compared to the first quarter of 2022. See Note 15, Direct Contracting, for additional information regarding our remaining performance obligation based on the most recent benchmark data.
Service revenue increased by $8.5$5.0 million, or 54.4%25.6%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. Service revenue increased by $13.5 million, or 38.3%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in service revenue in both 2022 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 acquisition of Zipnosis on March 31, 2021 also contributed to the year-over-year increase in service revenue.
We experienced a $41.0$16.2 million investment loss for the three months ended March 31,June 30, 2022, compared to investment income of $4.2$58.5 million in the three months ended March 31,June 30, 2021. For the six months ended June 30, 2022 and 2021 we experienced a $57.2 million investment loss and $62.8 million investment income, respectively. The investment income and loss in both periods was due to unrealized gains and losses on equity securities.
Medical costs were $625.0$381.4 million for the three months ended March 31,June 30, 2022, an increase of $605.5$353.0 million as compared to the same period in 2021, which was primarily driven by an increase in patient lives as a result of the Centrum acquisition, new market expansion and our participation in Direct Contracting beginning in January 2022. MCR was 98.0%92.2% for the three months ended March 31,June 30, 2022, compared to 67.9%78.6% for the three months ended March 31,June 30, 2021. The increase was primarily due to higher MCRs in new markets where we do not have prior history, as well as a higher MCR for our DCEs of 96.6%97.9%. Medical costs for the six months ended June 30, 2022 were $1.0 billion, an increase of $958.5 million as compared to the same period in 2021. The increase in medical costs was driven by consistent factors with the three months ended June 30, 2022. MCR was 95.7% for the six months ended June 30, 2022, compared to 73.9% for the six months ended June 30, 2021. The increase in MCR was driven by consistent factors with the three months ended June 30, 2022 including a higher MCR for our DCEs of 97.2%.
Operating costs increased by $33.5$25.7 million, or 131.5%97.3%, for the three months ended March 31,June 30, 2022 as compared to the same period in 2021. Operating costs increased by $59.1 million, or 114.1%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in both 2022 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 Centrum acquisition.
Depreciation and amortization increased by $4.8$4.6 million for the three months ended March 31,June 30, 2022 as compared to the same period in 2021, which2021. Depreciation and amortization increased by $9.4 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in both 2022 periods was primarily due to amortization expense of $4.4$4.1 million and $8.2 million for the three and six months ended June 30, 2022, respectively, resulting from intangible assets acquired as part of the Centrum acquisition, which 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. We have historically funded our operations and acquisitions primarily through the sale of stock, including the issuance of Series A Preferred Stock in January 2022, which generated cash proceeds of $750.0 million, as well as through the issuance of common stock in June 2021 in connection with our initial public offering, which generated cash proceeds of $887.3 million.
We expect to continue to incur operating losses for the foreseeable future. We believe that without any future financing, our current resources are insufficient to satisfy our obligations as they become due within one year after the date that the financial statements are issued. Our current lack of financial resources raises substantial doubt as to our ability to continue as a going concern.
In addition to our current capital needs, we regularly evaluate our future capital needs to support our future growth plans and other strategic opportunities that may arise. We may seek funds through borrowings or through additional rounds of financing, including private or public equity offerings. Our longer-term future capital requirements and ability to raise additional capital will depend on many forward-looking factors, including:
•investor confidence in our ability to continue as a going concern,
•our ability to continue executing on cost saving measures previously described, and
•our ability to successfully improve our profitability.
Our expected primary short-term uses of cash for our regulated insurance entities include ongoing disbursements for claims payments, the Direct Contracting performance year obligation, 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 and redeemable noncontrolling interest.
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 related to administrative services agreements with the parent company. The Company declared no dividends from the regulated insurance entities to the parent company during the threesix months ended March 31,June 30, 2022 and 2021. The regulated legal entities are required to hold certain minimum levels of risk-based capital and surplus to satisfy regulatory requirements. As of March 31,June 30, 2022 and December 31, 2021, the amounts held in risk-based capital and surplus at regulated insurance legal entities was in excess of the minimum requirements, except for twothree states where we are currently 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 for the foreseeable 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 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 serve, focusing our growth on NeueHealth, carefully managing expenses, and potentially increasing our use of quota share reinsurance. We continue to evaluate our future capital needs; however, 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.
Credit Agreement
We have a $350.0 million Credit Agreement, which matures on February 28, 2024. The Credit Agreement contains a covenant that requires the Company to maintain a total debt to capitalization ratio of (a) 0.25 to 1.00. The Credit Agreement also contains a covenant that require us to maintain a minimum liquidity of $150.0 million. As of March 31,June 30, 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.
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,June 30, 2022, we had $46.1 million of outstanding, undrawn letters of credit under the Credit Agreement, and $303.9which reduce the amount available to borrow.
In July 2022, we borrowed $153.9 million on the Credit Agreement at an effective annual interest rate of remaining availability thereunder.8.32%.
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 March 31,June 30, 2022, we had $1,505.5 million$1.4 billion in cash and cash equivalents, $692.5$833.9 million in short-term investments and $733.5$861.7 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 March 31,June 30, 2022, we had non-regulated cash and cash equivalents of $284.7$74.0 million, short-term investments of $80.5$64.3 million and no long-term investments.
As of March 31,June 30, 2022, we had regulated insurance entity cash and cash equivalents of $1,220.8 million,$1.4 billion, of which $1.2$2.7 million was restricted, short-term investments of $612.0$769.6 million, of which $4.4$3.5 million was restricted, and long-term investments of $733.5$861.7 million, of which $3.0$2.4 million was restricted.
Cash Flows
The following table presents a summary of our cash flows for the periods shown: | | | Three Months Ended
March 31, | | Six Months Ended
June 30, |
| ($ in thousands) | ($ in thousands) | 2022 | | 2021 | ($ in thousands) | 2022 | | 2021 |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 484,757 | | | $ | 343,603 | | Net cash provided by operating activities | $ | 726,664 | | | $ | 497,146 | |
| Net cash used in investing activities | Net cash used in investing activities | (633,127) | | | (56,275) | | Net cash used in investing activities | (951,585) | | | (368,221) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 592,738 | | | 200,234 | | Net cash provided by financing activities | 591,259 | | | 889,023 | |
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 444,368 | | | 487,562 | | Net increase in cash and cash equivalents | 366,338 | | | 1,017,948 | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 1,061,179 | | | 488,371 | | 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 | $ | 1,505,547 | | | $ | 975,933 | | Cash and cash equivalents at end of period | $ | 1,427,517 | | | $ | 1,506,319 | |
Operating Activities
During the threesix months ended March 31,June 30, 2022, net cash provided by operating activities increased by $141.2$229.5 million compared to the three-monthsix-month period ended March 31,June 30, 2021, primarily driven by the increase in consumer growth driving the increased risk adjustment and medical cost payables, as well as accounts payables and other liabilities, partially offset by an increase in our net loss.loss and a decrease in our accounts payable and other liabilities. We expect to pay $1.0 billion during the three months ending September 30, 2022 to settle our 2021 risk adjustment liability due to CMS.
Investing Activities
During the threesix months ended March 31,June 30, 2022, net cash used in investing activities increased by $576.9$583.4 million compared to the three-monthsix-month period ended March 31,June 30, 2021. The increase was primarily attributable to a $593.9$788.9 million increase in purchases of investments, net of proceeds from sales, paydowns and maturities of 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$210.2 million decrease in cash used for acquisitions compared to the threesix months ended March 31,June 30, 2021.
Financing Activities
During the threesix months ended March 31,June 30, 2022, net cash provided by financing activities increaseddecreased by $392.5$297.8 million compared to the threesix months ended March 31,June 30, 2021, primarily drivendue to a decrease in cash provided by $750equity financings. During the six-month period ended June 30, 2022, we received $747.5 million of net proceeds from the issuance of Series A Preferred Stock in January 2022, offset by $2.52022; whereas, we received net proceeds of $887.3 million of cash paid for issuance costs. This increase was partially offset byfrom the repaymentsale of our common stock in our initial public offering during the six-month period ended June 30, 2021. In addition, we repaid $155.0 million of outstanding borrowings under the Credit Agreement on January 4, 2022, subsequent toduring the issuance of Series A Preferred Stock. The threesix months ended March 31, 2021 also included $200.0 million of cash from borrowings under our Credit Facility.June 30, 2022.
Critical Accounting Policies and Estimates
The critical accounting policies that reflect our significant judgements and estimates used in the preparation of our condensed consolidated financial statements include those described in the 2021 Form 10-K and the Form 10-Q for the quarterly period ended March 31, 2022 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”
Other than described below, which is due to our participation in the DC Model beginning on January 1, 2022, there There have been no material changes to our critical accounting policies and estimates for the period ended March 31,June 30, 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 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, 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 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.
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. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies and other factors outside of our control. Assuming a hypothetical and immediate 1% increase in interest rates across the entire U.S. Treasury curve at March 31,June 30, 2022, the aggregate market value decrease to our regulated and unregulated portfolios would be approximately $18.6$22.5 million.
ITEM 4. CONTROLS AND PROCEDURES
Limitations on Effectiveness of Controls and 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 and 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 March 31,June 30, 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 our 2021 Form 10-K, we previously identified a material weakness 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 March 31,June 30, 2022, we continue to have a material weakness in IFP third-party claims processing. Since the identification of this material weakness, we have been expanding the comprehensiveness of our pre-pay and post-pay claims quality assurance procedures and datamining capabilities designed to enable targeted identification of potential claims payment discrepancies or other process gaps. Additionally, over the course of 2022, we willhave established review procedures for certain claims that go through repricing but do not get repriced, to determine if additional action needs to be improvingtaken to ensure claims are processed as in-network or out-of-network.We also have a provider data (e.g.,improvement initiative underway, to address known issues with how provider roster data) anddata is being managed end-to-end. Among other objectives, the processesfocus of updatingthis initiative is to address provider data issues that data, both of which have contributed to the identified claims processing errors.
Changes in Internal Control over Financial Reporting
Other than the material weakness remediation actions discussed above, there 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
WeOther than the matters described in Note 11, Commitments and Contingencies, we are not presently a party to any litigation the outcomes of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition.
Item 1A. Risk Factors
This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our 2021 Form 10-K and our other filings with the SEC. ThereSEC. Except as set forth below, there have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our 2021 Form 10-K, except and Form 10-Q for the following risk factor, which supplements the “Risk Factors” section in our 2021 Form 10-K.
Our expansion into Direct Contracting presents new risks to our business.quarterly period ended March 31, 2022.
We expanded our business into CMS’ new Direct Contracting model (“DC Model”) in January 2022, enabling us to target a larger market opportunity, the Medicare FFS market, which is the largest segment of Medicare. As such, our Direct Contracting business is in the early stages of development, and we are subject to the risks inherent to the launch 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 new program, and that it may require us to, at least initially, divert management attention and other resources from our existing businesses. In connection with our expansion into Direct Contracting, we are 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 predict or foresee. Ascontinue as a new advanced payment model, CMMI is constantly evaluatinggoing concern if we do not obtain additional financing in 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
We have a significant impact onhistory of operating losses and our current lack of financial resources to meet future obligations raises substantial doubt as to our ability to carry outcontinue as a going concern. Therefore, our business. Similarly, whileability to continue as a going concern is highly dependent upon us obtaining additional financing. Our current plan is to obtain additional equity financing; however, such additional capital may not be available to us on acceptable terms on a timely basis, or at all. If adequate funds are not available, or if the Direct Contracting program is 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 would need to reevaluate our Medicare FFS strategic options, which in turn could reduce the return on our investments and negatively impactterms of potential funding sources are unfavorable, our business financial condition, resultsand our ability to develop would be harmed. Furthermore, any new equity we issue may result in the dilution of operations and future prospects.
.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
On January 3, 2022, we issued 750,000 shares of our Series A Preferred Stock for an aggregate purchase price of $750.0 million, or $1,000 per share to certain subsidiaries of Cigna Corporation and certain affiliates of 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 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 securities issued in this transaction.None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
EXHIBIT INDEX
| | | | | | | | |
Exhibit
Number | | Description |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 10.1 | | |
10.2†* | | |
| 31.1 | | |
| 31.2 | | |
| 32.1 | | |
| 32.2 | | |
| 101 | | The following financial information from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2022, filed with the SEC on MayAugust 12, 2022, formatted in Inline Extensible Business Reporting Language (“iXBRL”) |
| 104 | | Cover Page Interactive Data File (formatted as iXBRL and embedded within Exhibit 101) |
| | |
* Filed herewith.
† Management contract or compensatory plan or arrangement.herewith
(1) The certifications in 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.
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: MayAugust 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) |