NOTE 8. NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the three and six months ended June 30 (in thousands, except for per share amounts): | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|-------- ...

Risk Adjustment: We record adjustments for changes to the risk adjustment balances for individual policies in premium revenue. The risk adjustment program adjusts premiums based on the demographic factors and health status of each consumer as derived from current-year medical diagnoses as reported throughout the year. Under the risk adjustment program, a risk score is assigned to each covered consumer to determine an average risk score at the individual and small-group level by legal entity in a particular ...

PART I [Business](index=8&type=section&id=Item%201.%20Business) Bright Health Group operates technology-enabled Consumer Care and California senior managed care, exiting IFP and non-California MA markets to focus on aging and underserved populations - Bright Health Group operates through two reportable segments: Consumer Care (value-driven care delivery) and Bright HealthCare (delegated senior managed care in California)[466](index=466&type=chunk) - The company has exited the Affordable Care Act Marketplace, ceasing IFP product coverage and ending Medicare Advantage insurance outside of California at the end of 2022 to focus on aging and underserved populations in Florida, Texas, and California[468](index=468&type=chunk) Segment Overview as of December 31, 2022 | Segment | Description | Key Metrics | | :--- | :--- | :--- | | **Consumer Care** | Value-driven care delivery managing risk with external payors | Operates 74 managed and affiliated risk-bearing clinics. Maintained over 579,000 unique patient relationships, with ~530,000 under value-based arrangements | | **Bright HealthCare** | Delegated senior managed care business in California | Offers Medicare Advantage plans to ~125,000 lives | | **Bright HealthCare - Commercial (Discontinued)** | Commercial health plans | Served over 1.0 million individuals. Ceased coverage at the end of 2022 | - The company's growth strategy includes increasing membership in existing markets, expanding its care delivery footprint, taking on more population health risk, and participating in government programs like ACO Reach[543](index=543&type=chunk)[544](index=544&type=chunk)[545](index=545&type=chunk) [Competition](index=12&type=section&id=Competition) The company faces intense competition in both Consumer Care and Bright HealthCare segments from provider enablement companies, medical groups, national insurers, and regional payors - The Consumer Care business competes with MSOs, IPAs, and primary care providers such as Agilon Health, Inc., Cano Health, Inc., ChenMed LLC, Oak Street Health, Inc., and OptumHealth[18](index=18&type=chunk) - The Bright HealthCare business faces competition from large national insurers like Aetna, Anthem, Humana, and UnitedHealthcare, as well as regional payors like Blue Cross Blue Shield licensees and Kaiser Permanente[19](index=19&type=chunk) [Government Regulation](index=13&type=section&id=Government%20Regulation) The company operates in a heavily regulated healthcare and insurance industry, subject to federal and state laws including HIPAA, ACA, state insurance regulations, and anti-fraud statutes - The business is governed by extensive federal, state, and local laws, including those related to the healthcare industry, insurance, and data privacy (HIPAA)[27](index=27&type=chunk)[28](index=28&type=chunk) - As an insurance holding company, it is subject to state laws that restrict intercompany transactions and dividend payments from insurance subsidiaries. For example, New York law limits dividends to be paid out of earned surplus and requires regulatory approval for amounts exceeding certain thresholds[46](index=46&type=chunk) - Certain insurance subsidiaries failed to meet mandatory risk-based capital requirements as of December 31, 2022, making them subject to supervision orders under state insurance laws[47](index=47&type=chunk) - The company's operations are significantly impacted by the Affordable Care Act (ACA), which dictates standards for benefits, pricing, and minimum medical loss ratios. The Inflation Reduction Act extended enhanced Advance Premium Tax Credits (APTCs) through 2025, which affects the individual market[51](index=51&type=chunk)[52](index=52&type=chunk) - The business is subject to federal and state anti-kickback laws, the Stark Law, and the False Claims Act, which regulate financial arrangements and prohibit fraudulent claims to government healthcare programs[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including going concern doubts, restructuring disruptions, operational challenges, a history of losses, regulatory changes, intense competition, potential NYSE delisting, and material weaknesses in internal controls - The company has a history of operating losses, including a net loss from continuing operations of **$638 million** for the year ended December 31, 2022. These factors, along with a breach of a minimum liquidity covenant in its Credit Agreement in Q1 2023, raise substantial doubt about its ability to continue as a going concern[90](index=90&type=chunk)[91](index=91&type=chunk)[270](index=270&type=chunk) - In October 2022, the company announced a major restructuring to focus on its aligned care model in Florida, Texas, and California, and to exit the IFP and non-California MA markets. This restructuring involves workforce reductions and may disrupt business operations[94](index=94&type=chunk)[96](index=96&type=chunk) - The company received a notice from the NYSE on December 6, 2022, for non-compliance with the minimum average closing price of **$1.00 per share**, posing a risk of delisting[372](index=372&type=chunk)[373](index=373&type=chunk) - Material weaknesses in internal control over financial reporting were identified for the years ended December 31, 2021 and 2022. The 2022 weakness relates to a decreased focus on performing certain control activities for the IFP business following the decision to exit that market[315](index=315&type=chunk)[324](index=324&type=chunk)[328](index=328&type=chunk) - A significant portion of revenue depends on Medicare Advantage risk adjustment programs. Inaccurate capture of patient health data (RAF scores) can materially impact revenue and subject the company to CMS audits and potential penalties under the False Claims Act[202](index=202&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) - As of December 31, 2022, approximately **92%** of the company's consumers were in California, Florida, and Texas, concentrating risk related to local economic conditions, competition, and regulation in these states[156](index=156&type=chunk) [Properties](index=60&type=section&id=Item%202.%20Properties) The company leases 13 corporate offices and 82 medical offices across three states, currently assessing facility needs as part of its restructuring plan - The company leases **13 corporate offices**, including its headquarters in Minneapolis, Minnesota, and **82 properties** for medical offices and clinics in three states[417](index=417&type=chunk) - As part of its restructuring, the company is assessing its facility needs and may sublet or terminate leases for redundant locations[403](index=403&type=chunk) [Legal Proceedings](index=61&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 17 of the Notes to Consolidated Financial Statements - Details on legal proceedings are provided by reference to Note 17 in the Financial Statements section of the report[405](index=405&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=62&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under "BHG", has never paid dividends, and has seen significant value decline since its 2021 IPO, with a recent $175 million Series B Preferred Stock private placement - The company's common stock is traded on the New York Stock Exchange under the symbol **"BHG"**[4](index=4&type=chunk) - The company has never declared or paid dividends and does not expect to in the foreseeable future, anticipating that all earnings will be used to support operations and finance growth[6](index=6&type=chunk) Stock Performance Comparison ($100 Initial Investment) | Date | Bright Health Group | S&P 500 Index | S&P Health Care Index | | :--- | :--- | :--- | :--- | | 6/24/2021 | $100.00 | $100.00 | $100.00 | | 12/31/2021 | $20.67 | $112.50 | $113.51 | | 12/31/2022 | $3.91 | $92.13 | $111.30 | - On October 17, 2022, the company sold **175,000 shares** of Series B Convertible Perpetual Preferred Stock for an aggregate price of **$175.0 million** in a private placement exempt from registration under the Securities Act[11](index=11&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=65&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, Bright Health Group transitioned to focus on Consumer Care and California MA, discontinuing commercial plans; total revenue grew 59.4% to $2.4 billion, but a $638 million net loss and liquidity concerns raise substantial doubt about its going concern ability - In October 2022, the company announced a strategic shift to focus on aging and underserved populations in specific markets, leading to the discontinuation of its commercial health plan business, which is now reported as discontinued operations[346](index=346&type=chunk)[496](index=496&type=chunk) Consolidated Results of Operations (Continuing Operations) | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Total revenue** | **$2,412,030** | **$1,513,033** | **$514,887** | | Total operating costs | $3,034,278 | $1,856,660 | $685,270 | | **Operating loss** | **($622,248)** | **($343,627)** | **($170,383)** | | **Net loss from continuing operations** | **($637,965)** | **($323,110)** | **($161,222)** | | Loss from discontinued operations, net of tax | ($721,915) | ($855,255) | ($87,220) | | **Net loss** | **($1,359,880)** | **($1,178,365)** | **($248,442)** | - The **59.4% increase** in total revenue for 2022 was largely due to **$654.1 million** from the new Direct Contracting business and a **$374.6 million** increase in premium revenue from organic growth and acquisitions[525](index=525&type=chunk) - The company's liquidity is a significant concern. Management stated that existing cash and investments may not be sufficient to meet obligations for the next twelve months, and these conditions raise substantial doubt about the company's ability to continue as a going concern[1335](index=1335&type=chunk) [Results of Operations by Segment](index=77&type=section&id=Results%20of%20Operations%20by%20Segment) In 2022, Bright HealthCare premium revenue grew 27.4% to $1.65 billion, Consumer Care revenue increased to $1.79 billion, and the discontinued Commercial segment saw 59.2% premium growth to $4.0 billion but incurred significant losses Bright HealthCare (Continuing Operations) Performance | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Premium revenue** | **$1,652,045** | **$1,297,273** | | Total segment revenue | $1,652,455 | $1,297,193 | | **Operating loss** | **($173,834)** | **($169,107)** | Consumer Care (Continuing Operations) Performance | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Total segment revenue** | **$1,788,607** | **$461,174** | | Direct Contracting revenue | $654,087 | $0 | | **Operating loss** | **($315,744)** | **($114,921)** | Bright HealthCare – Commercial (Discontinued Operations) Performance | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Premium revenue** | **$3,998,622** | **$2,512,384** | | **Operating loss** | **($720,241)** | **($854,529)** | | Medical Cost Ratio (MCR) | 93.4% | 105.9% | [Liquidity and Capital Resources](index=82&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, the company held $1.9 billion in cash and $1.1 billion in investments, but restricted access and a Q1 2023 liquidity covenant breach raise going concern doubts, despite 2022 preferred stock financings totaling $925 million - As of December 31, 2022, the company held **$1.9 billion** in cash and cash equivalents and **$1.14 billion** in short- and long-term investments[609](index=609&type=chunk) - The company breached the minimum liquidity covenant of its Credit Agreement in Q1 2023 and entered into a temporary waiver period lasting until April 30, 2023[611](index=611&type=chunk)[872](index=872&type=chunk) - In 2022, the company raised capital through two preferred stock financings: **$750.0 million** from Series A in January and **$175.0 million** from Series B in October[902](index=902&type=chunk)[878](index=878&type=chunk) [Financial Statements and Supplementary Data](index=89&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements received an unqualified auditor's opinion with a going concern emphasis, highlighting critical audit matters like IBNR, ACA risk adjustment, and goodwill impairment, and detailing significant acquisitions and the commercial business discontinuation - The independent auditor's report from Deloitte & Touche LLP issued an unqualified opinion on the financial statements but included a paragraph expressing substantial doubt about the company's ability to continue as a going concern[627](index=627&type=chunk)[628](index=628&type=chunk) - Critical Audit Matters identified by the auditor include: the Incurred but not Reported (IBNR) claim liability, the Affordable Care Act (ACA) risk adjustment liability, and the valuation of Goodwill[629](index=629&type=chunk)[1355](index=1355&type=chunk) - The company completed several acquisitions between 2020 and 2021, including Universal Care, Inc. (BND), Premier Medical Associates (PMA), Central Health Plan of California (CHP), and Centrum, significantly increasing goodwill and intangible assets[515](index=515&type=chunk)[516](index=516&type=chunk)[519](index=519&type=chunk)[520](index=520&type=chunk) - In October 2022, the company decided to exit the Commercial marketplace, which has been classified as discontinued operations. This resulted in significant restructuring charges of **$50.7 million** and impairment charges for goodwill (**$4.1 million**) and intangible assets (**$6.7 million**) within discontinued operations for 2022[1469](index=1469&type=chunk)[810](index=810&type=chunk)[1364](index=1364&type=chunk) [Controls and Procedures](index=144&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of December 31, 2022, due to a material weakness in internal control over financial reporting related to decreased focus on IFP business controls, leading to an adverse auditor opinion - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to a material weakness in internal control over financial reporting[1004](index=1004&type=chunk) - A material weakness was identified in the control activities component of the COSO framework. This was attributed to a decreased focus on performing control activities for the IFP business after the decision was made to exit the market[1006](index=1006&type=chunk)[1030](index=1030&type=chunk) - The independent registered public accounting firm, Deloitte & Touche LLP, issued an adverse opinion on the Company's internal control over financial reporting as of December 31, 2022[1011](index=1011&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=62&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) The company's executive team is led by CEO G. Mike Mikan, with a 12-member Board transitioning to annual elections by 2024, comprising mostly independent directors across key committees, and adhering to a Code of Conduct Executive Officers (as of March 6, 2023) | Name | Age | Position | | :--- | :--- | :--- | | G. Mike Mikan | 51 | Chief Executive Officer, President and Director | | Catherine R. Smith | 59 | Chief Financial and Administrative Officer | | Jeff Cook | 52 | Chief Operating Officer | | Jeff Craig | 40 | General Counsel and Corporate Secretary | - The Board of Directors currently consists of **12 members** and is structured into three classes, with a plan to transition to an annually elected board by the 2024 annual meeting[549](index=549&type=chunk)[1019](index=1019&type=chunk) - The Board has three standing committees: Audit, Compensation and Human Capital, and Nominating and Corporate Governance[1060](index=1060&type=chunk) - The Board has affirmatively determined that all directors are independent under NYSE rules, with the exception of CEO G. Mike Mikan and co-founder Robert J. Sheehy[774](index=774&type=chunk) [Executive Compensation](index=156&type=section&id=Item%2011.%20Executive%20Compensation) The company's pay-for-performance executive compensation includes base salary, AIP, and equity awards, with CEO Mikan's 2022 total compensation at $10.0 million, and features stock ownership guidelines and a clawback policy 2022 Summary Compensation Table | Name | Position | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | G. Mike Mikan | CEO | 1,300,000 | 1,690,000 | 3,249,999 | 3,249,236 | 503,934 | 9,993,169 | | Cathy Smith | CFO & CAO | 650,000 | 585,000 | 1,400,000 | 1,399,671 | 14,780 | 4,049,451 | | Jeff Cook | COO | 300,000 | 540,000 | 2,250,000 | - | 6,100 | 3,096,100 | - The 2022 Annual Incentive Plan (AIP) performance factor was set at **100% of target**, despite performance against metrics suggesting 130%, in light of the company's significant business transition and failure to meet certain metrics[1141](index=1141&type=chunk) - The company maintains stock ownership guidelines requiring the CEO to hold shares equal to **five times base salary** and other executives to hold **three times base salary**[1150](index=1150&type=chunk) - Non-employee directors receive an annual cash retainer of **$80,000** and an annual RSU award valued at **$175,000**, with additional retainers for committee chairs and members[1261](index=1261&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=176&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of March 1, 2023, beneficial ownership is concentrated, with New Enterprise Associates owning 47.2%, Bessemer Venture Partners 13.5%, StepStone Group 6.9%, and all directors and executive officers collectively owning 58.4% of common stock Beneficial Ownership as of March 1, 2023 | Holder | Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | New Enterprise Associates and affiliated funds | 368,001,007 | 47.2% | | Bessemer Venture Partners and affiliated funds | 85,998,211 | 13.5% | | StepStone Group LP and affiliated funds | 43,517,440 | 6.9% | | All directors and executive officers as a group (15 persons) | 476,295,925 | 58.4% | [Certain Relationships and Related Transactions, and Director Independence](index=179&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) In October 2022, the company sold Series B Preferred Stock to affiliates of major investors, with whom certain directors are related, and maintains a formal policy for approving related person transactions, with most directors deemed independent - In October 2022, the company entered into an Investment Agreement to sell Series B Preferred Stock to purchasers including affiliates of New Enterprise Associates, Bessemer Venture Partners, and StepStone Group LP, with which certain directors are affiliated[770](index=770&type=chunk)[771](index=771&type=chunk) - The company has a formal written policy requiring Board or committee approval for any related person transaction exceeding **$120,000**[773](index=773&type=chunk) - The Board has determined that each director, other than G. Mike Mikan and Robert J. Sheehy, qualifies as independent under NYSE listing standards[774](index=774&type=chunk) [Principal Accounting Fees and Services](index=181&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) For FY2022, Bright Health Group paid Deloitte & Touche LLP $3.81 million, primarily for audit fees ($3.74 million) and tax fees ($74,830), with the Audit Committee pre-approving all auditor services Fees Billed by Deloitte & Touche LLP | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $3,737,356 | $3,243,831 | | Audit-Related Fees | $0 | $490,021 | | Tax Fees | $74,830 | $60,375 | | **Total** | **$3,812,186** | **$3,794,227** | - The Audit Committee has a policy that requires advance approval of all audit and permissible non-audit services provided by the independent registered public accounting firm[567](index=567&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=182&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits, including corporate governance documents, financing agreements, compensation plans, auditor consent, and CEO/CFO certifications - This section includes the consolidated financial statements, notes, and the Report of Independent Registered Public Accounting Firm[742](index=742&type=chunk) - A list of exhibits filed with the report is provided, including key corporate governance documents, debt and equity financing agreements, and executive compensation plans[748](index=748&type=chunk)[749](index=749&type=chunk) - Schedule I, the Condensed Financial Information of the Registrant (Parent Company Only), is included as a financial statement schedule[747](index=747&type=chunk)

Table of Contents 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fro ...

Table of Contents 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 (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 Delaware 47-4991296 (State or other jurisdicti ...

Table of Contents 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, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |--------------------------------------------------------------------------------------------------------------|----------------------------------------------- ...

PART I [Item 1. Business](index=8&type=section&id=Item%201.%20Business) Bright Health Group integrates healthcare financing and delivery through its NeueHealth and Bright HealthCare segments, leveraging local partnerships and proprietary technology [Business Overview](index=8&type=section&id=Business%20Overview) The company operates through its NeueHealth and Bright HealthCare segments to align local healthcare delivery with care financing - The company is structured into two main business segments: **NeueHealth** and **Bright HealthCare**[17](index=17&type=chunk) - The core strategy involves integrating three pillars: Delivery of Care, Financing of Care, and Optimization of Care via the **BiOS technology platform**[18](index=18&type=chunk)[19](index=19&type=chunk) [Our Business Segments](index=12&type=section&id=Our%20Business%20Segments) NeueHealth focuses on care delivery and provider enablement, while Bright HealthCare provides insurance plans to over 727,000 consumers Key Operational Metrics (as of Dec 31, 2021) | Metric | NeueHealth | Bright HealthCare | | :--- | :--- | :--- | | **Partners/Consumers** | 260,000+ Care Partners | 727,000+ Consumers | | **Clinics/Markets** | 180 Managed & Affiliated Clinics | 99 Markets in 14 States | | **Patients/Lives** | 200,000+ Unique Patients | 611,000+ Commercial Lives | | | 175,000+ Value-Based Patients | 117,000 Medicare Advantage Lives | - NeueHealth serves multiple customer segments, including Bright HealthCare, external payors, affiliated providers, and government programs like **ACO REACH**[46](index=46&type=chunk)[47](index=47&type=chunk) [Competition](index=18&type=section&id=Competition) The company faces intense competition from provider enablement companies, medical groups, large national insurers, and newer market entrants - NeueHealth's competitors include MSOs, IPAs, and primary care providers such as **Agilon Health, Inc., Cano Health, Inc., and OptumHealth**[83](index=83&type=chunk) - Bright HealthCare's competitors include large national insurers like **Aetna and UnitedHealthcare**, regional payors, and recent entrants like **Alignment Healthcare and Oscar Health**[84](index=84&type=chunk) [Government Regulation](index=19&type=section&id=Government%20Regulation) The business operates in a heavily regulated industry subject to comprehensive federal and state laws, including HIPAA, ACA, and CMS guidelines - The business is subject to the **Health Insurance Portability and Accountability Act (HIPAA)**, which governs the use and disclosure of protected health information[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - State insurance regulations require the company to maintain minimum statutory capital levels, including **risk-based capital (RBC)**, which were met as of December 31, 2021[102](index=102&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - The **Patient Protection and Affordable Care Act (ACA)** significantly impacts business operations, including rules on benefits and medical loss ratios[110](index=110&type=chunk)[111](index=111&type=chunk) - The company is subject to federal fraud and abuse laws, including the **Anti-Kickback Statute, the Stark Law, and the False Claims Act (FCA)**[123](index=123&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks related to its business model, rapid growth, history of net losses, regulatory changes, and financial controls [Risks Related to Our Business](index=29&type=section&id=Risks%20Related%20to%20Our%20Business) Key business risks include a history of net losses, operational strains from rapid growth, reliance on technology, and geographic concentration - The company has incurred net losses each year since inception, with a **net loss of $1.2 billion** for the year ended December 31, 2021, and may not achieve profitability[172](index=172&type=chunk) - **Rapid growth** has placed significant demands on management and resources and has outpaced the capacity of some third-party vendors[169](index=169&type=chunk)[170](index=170&type=chunk) - The ongoing **COVID-19 pandemic** has adversely affected and may continue to affect business and results, with risks including increased cost of care and operational disruptions[175](index=175&type=chunk)[176](index=176&type=chunk) - As of December 31, 2021, membership is geographically concentrated, with approximately **83% of consumers in Florida, California, North Carolina, and Colorado**[190](index=190&type=chunk) - The company relies on third-party vendors for critical functions, and a **material weakness was identified in 2021** related to claims processing by a third-party provider[215](index=215&type=chunk) [Risks Related to Legal Proceedings and Governmental Regulations](index=50&type=section&id=Risks%20Related%20to%20Legal%20Proceedings%20and%20Governmental%20Regulations) The company is exposed to significant regulatory risks from potential changes to the ACA and Medicare, non-compliance penalties, and a pending class action lawsuit - Approximately **62% of revenue** for the year ended December 31, 2021, was derived from health plans subject to the ACA[288](index=288&type=chunk) - Failure to comply with healthcare laws like the **Anti-Kickback Statute, Stark Law, and False Claims Act** could result in substantial penalties and exclusion from government programs[303](index=303&type=chunk)[304](index=304&type=chunk)[306](index=306&type=chunk) - A **putative securities class action lawsuit** was filed against the company and certain officers on January 6, 2022, alleging materially false and misleading statements[325](index=325&type=chunk) [Risks Related to our Financial Statements](index=58&type=section&id=Risks%20Related%20to%20our%20Financial%20Statements) Financial statement risks include complex accounting estimates, a material weakness in internal controls, and potential impairment of goodwill and intangible assets - A **material weakness was identified** for the year ended December 31, 2021, related to inaccurate claims processing for the IFP business by a third-party service provider[344](index=344&type=chunk)[348](index=348&type=chunk) - Material weaknesses identified in 2020 and Q1 2021 were **remediated as of December 31, 2021**[345](index=345&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk) - **Goodwill and intangible assets accounted for approximately 33% of total assets** as of December 31, 2021, and are at risk of impairment[351](index=351&type=chunk)[352](index=352&type=chunk) [Item 2. Properties](index=64&type=section&id=Item%202.%20Properties) The company leases all of its corporate and medical facilities, including eleven corporate offices and 74 medical properties for its NeueHealth segment - The company leases **eleven corporate offices** across the U.S. and **74 properties** for its NeueHealth medical offices and clinics[382](index=382&type=chunk) [Item 3. Legal Proceedings](index=64&type=section&id=Item%203.%20Legal%20Proceedings) The company is defending a putative securities class action lawsuit filed in January 2022 and reports no other material contingent liabilities - A **putative securities class action lawsuit** was filed against the company on January 6, 2022, alleging materially false and misleading statements regarding its business and operations[325](index=325&type=chunk)[767](index=767&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=66&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE, it does not pay dividends, and it recently completed a $750 million private placement of preferred stock - The company's common stock trades on the NYSE under the symbol **'BHG'**[393](index=393&type=chunk) - The company has **never declared dividends** and does not plan to in the foreseeable future[395](index=395&type=chunk) - On January 3, 2022, the company completed a **$750 million private placement** of Series A Convertible Perpetual Preferred Stock[399](index=399&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=68&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew 233.7% to $4.0 billion in 2021, but the net loss widened to $1.2 billion as the Medical Cost Ratio increased to 101.3% [Results of Operations](index=79&type=section&id=Results%20of%20Operations) Revenue grew 233.7% in 2021, but a faster rise in medical costs led to a significant increase in operating loss and a deteriorated MCR of 101.3% Consolidated Results of Operations (2019-2021) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Total revenue** | $4,029,389 | $1,207,320 | $280,673 | | **Medical costs** | $3,953,674 | $1,047,300 | $224,387 | | **Operating loss** | $(1,198,156) | $(257,603) | $(125,337) | | **Net loss** | $(1,178,365) | $(248,442) | $(125,337) | | **Adjusted EBITDA** | $(1,080,906) | $(238,912) | $(121,091) | | **Medical Cost Ratio (MCR)** | 101.3% | 88.7% | 82.4% | - The MCR increase in 2021 was driven by a **530 basis point unfavorable impact from COVID-19 costs** and a 90 basis point unfavorable impact from non-COVID prior period development[479](index=479&type=chunk) - Operating costs increased by 202.5% to $1.24 billion in 2021, including a **$102.8 million premium deficiency reserve expense**[480](index=480&type=chunk) [Segment Results](index=81&type=section&id=Segment%20Results) In 2021, the Bright HealthCare segment generated a $1.11 billion operating loss, while the NeueHealth segment produced a $87.0 million operating loss Bright HealthCare Segment Performance (2021 vs 2020) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | **Total revenue** | $3,813,636 | $1,181,013 | | **Medical costs** | $3,766,897 | $1,047,300 | | **Operating loss** | $(1,111,171) | $(248,896) | NeueHealth Segment Performance (2021 vs 2020) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | **Total revenue** | $493,179 | $37,147 | | **Medical costs** | $432,318 | $0 | | **Operating loss** | $(86,985) | $(8,707) | [Liquidity and Capital Resources](index=84&type=section&id=Liquidity%20and%20Capital%20Resources) The company held $1.1 billion in cash at year-end 2021, with financing activities providing $1.04 billion primarily from its IPO Cash and Investments (as of Dec 31) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,061.2 | $488.4 | | Short-term investments | $193.8 | $499.9 | | Long-term investments | $675.2 | $175.2 | Summary of Cash Flows (Year Ended Dec 31) | (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $82,059 | $(57,238) | $(8,208) | | Net cash used in investing activities | $(552,892) | $(689,742) | $(94,643) | | Net cash from financing activities | $1,043,641 | $712,441 | $424,060 | - On January 3, 2022, the company closed a **$750.0 million preferred stock financing** and used proceeds to repay $155.0 million on its credit facility[525](index=525&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=89&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited consolidated financial statements, independent auditor's reports, and detailed notes for fiscal years 2019-2021 [Report of Independent Registered Public Accounting Firm](index=90&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor's report provides an unqualified opinion and identifies four critical audit matters related to key accounting estimates and goodwill valuation - The auditor identified the **Incurred but not Reported (IBNR) claim liability of $660 million** as a critical audit matter due to significant management assumptions[562](index=562&type=chunk)[563](index=563&type=chunk) - The **ACA Risk Adjustment liability of $931 million** was identified as a critical audit matter because of significant management judgment[565](index=565&type=chunk)[566](index=566&type=chunk) - The **Premium Deficiency Reserve (PDR) of $103 million** was deemed a critical audit matter due to significant forecasting assumptions[567](index=567&type=chunk)[568](index=568&type=chunk) - **Goodwill, with a balance of $839 million**, was identified as a critical audit matter because its impairment testing relies on significant management estimates[570](index=570&type=chunk)[571](index=571&type=chunk) [Consolidated Financial Statements](index=95&type=section&id=Consolidated%20Financial%20Statements) The company ended 2021 with $3.60 billion in assets and reported a net loss attributable to common shareholders of $1.18 billion Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | **Total Assets** | $3,598,339 | $1,810,802 | | Cash and cash equivalents | $1,061,179 | $488,371 | | Goodwill | $835,140 | $263,035 | | **Total Liabilities** | $2,324,812 | $593,859 | | Medical costs payable | $817,975 | $249,777 | | Risk adjustment payable | $931,170 | $187,777 | | **Total Shareholders' Equity (Deficit)** | $1,145,120 | $(503,672) | Consolidated Income Statement Highlights (Year ended Dec 31) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | **Total revenue** | $4,029,389 | $1,207,320 | | **Operating loss** | $(1,198,156) | $(257,603) | | **Net loss attributable to common shareholders** | $(1,184,862) | $(248,442) | [Notes to Consolidated Financial Statements](index=100&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, business combinations, and financial statement components, including statutory capital and surplus levels - The company completed several acquisitions in 2021, including **Centrum for $296.2 million** and **Central Health Plan (CHP) for $271.7 million**[655](index=655&type=chunk)[661](index=661&type=chunk)[666](index=666&type=chunk) - **Medical costs payable increased to $817.9 million** at year-end 2021 from $249.8 million in 2020, with the IBNR portion growing to $681.4 million[704](index=704&type=chunk)[705](index=705&type=chunk) - As of December 31, 2021, regulated insurance entities held **$398.5 million in statutory capital and surplus**, exceeding the required minimum of $290.0 million[750](index=750&type=chunk) [Item 9A. Controls and Procedures](index=136&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls were not effective as of year-end 2021 due to a new material weakness in internal control - A **material weakness was identified** for the year ended December 31, 2021, because claims for the IFP business were processed inaccurately by a third-party[775](index=775&type=chunk) - Due to this material weakness, the CEO and CFO concluded that **disclosure controls and procedures were not effective** as of December 31, 2021[772](index=772&type=chunk) - The company has **remediated previously identified material weaknesses** related to the Brand New Day acquisition and common stock valuation[777](index=777&type=chunk)[779](index=779&type=chunk)[781](index=781&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=138&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors and corporate governance is incorporated by reference from the company's 2022 proxy statement - Information required by this item will be included in the definitive proxy statement for the **2022 Annual Meeting of Shareholders** and is incorporated by reference[787](index=787&type=chunk) [Item 11. Executive Compensation](index=138&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the company's 2022 proxy statement - Information required by this item will be included in the definitive proxy statement for the **2022 Annual Meeting of Shareholders** and is incorporated by reference[788](index=788&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=139&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details securities authorized under equity compensation plans, with further ownership information incorporated by reference Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 99,595,339 | $1.84 | 11,326,129 | PART IV [Item 15. Exhibits, Financial Statement Schedules](index=140&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section contains the list of financial statements, financial statement schedules, and exhibits filed with the **Annual Report**[794](index=794&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) Unaudited statements show significant growth in assets and revenue driven by acquisitions, alongside widening net losses and a strengthened balance sheet post-IPO [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets doubled to $3.6 billion and shareholders' equity turned positive to $1.9 billion, driven by acquisitions and the IPO Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$3,575,095** | **$1,810,802** | | Cash and cash equivalents | $956,189 | $488,371 | | Goodwill | $842,301 | $263,035 | | **Total Liabilities** | **$1,507,862** | **$593,859** | | Medical costs payable | $685,045 | $249,777 | | Risk adjustment payable | $548,352 | $187,777 | | **Total Shareholders' Equity (Deficit)** | **$1,937,204** | **($503,672)** | [Condensed Consolidated Statements of Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)) Revenue grew significantly for Q3 and the nine-month period, but net losses widened substantially due to higher operating costs Statement of Income (Loss) Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$1,078,657** | **$352,120** | **$3,067,055** | **$847,542** | | Premium revenue | $1,020,233 | $345,426 | $2,922,950 | $827,135 | | **Operating Loss** | **($296,281)** | **($59,256)** | **($378,159)** | **($93,772)** | | **Net Loss** | **($296,722)** | **($59,256)** | **($364,990)** | **($84,610)** | | **Basic & Diluted Loss Per Share** | **($0.48)** | **($0.43)** | **($1.19)** | **($0.62)** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations and financing increased significantly, driven by the IPO, resulting in a $467.8 million net increase in cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $233,114 | $11,339 | | Net cash used in investing activities | ($653,128) | ($528,830) | | Net cash provided by financing activities | $887,832 | $687,714 | | **Net increase in cash and cash equivalents** | **$467,818** | **$170,223** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the IPO, major acquisitions boosting goodwill, segment performance, and a material weakness in internal controls - On June 28, 2021, the company completed its IPO, receiving **net proceeds of $887.3 million** after deducting underwriting discounts and commissions[22](index=22&type=chunk) - The company completed several acquisitions in 2021: **Centrum for $296.2M**, **Central Health Plan (CHP) for $271.7M**, **True Health New Mexico (THNM) for $3.4M**, and **Zipnosis for $69.8M**[28](index=28&type=chunk)[34](index=34&type=chunk)[38](index=38&type=chunk) - **Goodwill increased from $263.0 million** at year-end 2020 **to $842.3 million** as of September 30, 2021, with acquisitions contributing $580.9 million to the balance[66](index=66&type=chunk) - For Q3 2021, the **Bright HealthCare segment had an operating loss of ($303.3) million** on $995.6 million in revenue, while the **NeueHealth segment had operating income of $7.0 million** on $222.8 million in revenue[90](index=90&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue growth was driven by a 247% increase in consumers, though MCR rose due to COVID-19, while IPO proceeds bolstered liquidity - **Bright HealthCare consumers grew to over 720,000** as of September 30, 2021, a **247% increase** from the prior year, while NeueHealth served over 170,000 patients under value-based arrangements[141](index=141&type=chunk) - The **Medical Cost Ratio (MCR) for Q3 2021 was 103.0%**, an increase of 1,290 basis points from Q3 2020, driven by a **540 basis point impact from COVID-19** costs and a **900 basis point impact from risk adjustment pressures**[162](index=162&type=chunk) - The company's **IPO in June 2021 generated $887.3 million in net proceeds**, strengthening liquidity and enabling the repayment of $200 million in debt and funding of the Centrum acquisition[134](index=134&type=chunk)[135](index=135&type=chunk) [Business Overview](index=30&type=section&id=Business%20Overview) The company operates through two segments: NeueHealth for care delivery and Bright HealthCare for insurance products - NeueHealth delivers virtual and in-person clinical care through **44 owned primary care clinics** and maintains over 200,000 unique patient relationships, with over **170,000 served through value-based arrangements**[105](index=105&type=chunk) - Bright HealthCare provides health benefits to **over 720,000 consumers**, including approximately 607,000 in commercial plans and 114,000 in Medicare Advantage products across 14 states[109](index=109&type=chunk)[110](index=110&type=chunk) [COVID-19 Update](index=35&type=section&id=COVID-19%20Update) The pandemic increased medical costs by $55.6 million in Q3 2021, leading to a 540 basis point unfavorable impact on MCR Financial Impact of COVID-19 | Period | Medical Cost Increase | MCR Impact (Basis Points) | | :--- | :--- | :--- | | Q3 2021 | $55.6 million | +540 bps | | Nine Months 2021 | $124.0 million | +420 bps | [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Q3 revenue grew 206% to $1.08 billion, but a higher Medical Cost Ratio of 103.0% resulted from increased medical costs Key Performance Ratios | Ratio | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Medical Cost Ratio (MCR) | 103.0% | 90.1% | 90.3% | 81.6% | | Operating Cost Ratio | 28.7% | 27.7% | 25.4% | 30.8% | - The increase in **Q3 2021 MCR** was primarily due to **COVID-19 related costs** and a **$134.0 million unfavorable change in estimate for risk adjustment**, of which $89.3 million related to the first half of 2021[160](index=160&type=chunk)[162](index=162&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) The IPO provided $887.3 million in net proceeds, boosting cash to $956.2 million and ensuring liquidity for the next twelve months - As of September 30, 2021, the company had **$956.2 million in cash and cash equivalents**, $331.7 million in short-term investments, and $681.9 million in long-term investments[190](index=190&type=chunk) - The company **repaid the $200.0 million principal balance** outstanding under its revolving credit agreement following the IPO and has no borrowings outstanding as of September 30, 2021[187](index=187&type=chunk) - Management expects to incur operating losses and negative cash flows for the foreseeable future but believes **existing cash will be sufficient for the next twelve months**[186](index=186&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate changes affecting its investment portfolio, with net unrealized gains decreasing - The company is exposed to financial market risk, primarily from **changes in interest rates** impacting its investment portfolio[199](index=199&type=chunk) - The **net unrealized gain** on the investment portfolio was **$0.2 million** at September 30, 2021, down from $2.4 million at December 31, 2020[200](index=200&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to a material weakness at a subsidiary, with remediation efforts underway - The CEO and CFO concluded that **disclosure controls and procedures were not effective** as of September 30, 2021[202](index=202&type=chunk) - The ineffectiveness is due to a **material weakness in internal control** over financial reporting at the Brand New Day subsidiary[203](index=203&type=chunk) - Remediation steps are underway, including enhancing controls, hiring additional resources, and **migrating Brand New Day's financial systems to Bright Health's ERP platform** in Q3 2021[203](index=203&type=chunk)[204](index=204&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - The company is **not presently a party to any material legal proceedings**[206](index=206&type=chunk) [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) Risk factors were updated to include security incidents following a data breach at a subsidiary in October 2021 - A **new risk factor was added** to address security incidents, data loss, and IT disruptions[208](index=208&type=chunk) - In October 2021, the subsidiary **True Health New Mexico experienced a data security incident**; an investigation is substantially complete and authorities have been notified[212](index=212&type=chunk)[214](index=214&type=chunk) [Unregistered Sale of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sale%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the issuance of 4.4 million shares for an acquisition and the use of $880.6 million in net IPO proceeds - Issued **4,388,811 shares of common stock** on July 1, 2021, in connection with the acquisition of Centrum, exempt from registration under Section 4(a)(2) of the Securities Act[217](index=217&type=chunk) - **Net IPO proceeds of $880.6 million** were used to repay **$200.0 million in debt**, fund the **$222.4 million cash portion of the Centrum acquisition**, and for general corporate purposes[218](index=218&type=chunk)

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Bright Health Group's unaudited Q2 2021 consolidated financial statements, notes, management's discussion, market risk, and controls [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This item presents the unaudited condensed consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flow statements with notes [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time **Balance Sheet Highlights (in thousands):** | Metric | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Total Assets | $3,599,778 | $1,810,802 | | Cash and Cash Equivalents | $1,506,319 | $488,371 | | Total Liabilities | $1,408,740 | $593,859 | | Total Shareholders' Equity (Deficit) | $2,150,026 | $(503,672) | - Total Assets increased by **98.8%** from **$1,810,802 thousand** at December 31, 2020, to **$3,599,778 thousand** at June 30, 2021[7](index=7&type=chunk) - Total Shareholders' Equity (Deficit) shifted from a deficit of **$(503,672) thousand** to an equity of **$2,150,026 thousand**, primarily due to the IPO and preferred stock conversion[7](index=7&type=chunk) [Condensed Consolidated Statements of Income (Loss) (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)%20(Unaudited)) This section presents the company's financial performance over specific periods, detailing revenues, expenses, and net income or loss **Income Statement Highlights (in thousands, except per share data):** | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $1,113,840 | $296,856 | $1,988,398 | $495,422 | | Operating Loss | $(59,045) | $(27,236) | $(81,878) | $(34,516) | | Net Loss | $(43,723) | $(18,074) | $(68,268) | $(25,354) | | Basic and Diluted Loss Per Share | $(0.28) | $(0.13) | $(0.46) | $(0.19) | - Total Revenue for the three months ended June 30, 2021, increased by **275.2%** to **$1,113,840 thousand** from **$296,856 thousand** in the prior-year period[9](index=9&type=chunk) - Net Loss for the three months ended June 30, 2021, increased by **141.9%** to **$(43,723) thousand** from **$(18,074) thousand** in the prior-year period[9](index=9&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) This section details the company's comprehensive income or loss, including net loss and other comprehensive income or loss components **Comprehensive Income (Loss) Highlights (in thousands):** | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(43,723) | $(18,074) | $(68,268) | $(25,354) | | Other Comprehensive (Loss) Income | $(851) | $2,384 | $(1,893) | $3,335 | | Comprehensive Loss | $(44,574) | $(15,690) | $(70,161) | $(22,019) | - Comprehensive Loss for the three months ended June 30, 2021, increased to **$(44,574) thousand** from **$(15,690) thousand** in the prior-year period[12](index=12&type=chunk) - Other Comprehensive (Loss) Income shifted from an income of **$2,384 thousand** in Q2 2020 to a loss of **$(851) thousand** in Q2 2021[12](index=12&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)%20(Unaudited)) This section outlines changes in the company's stockholders' equity or deficit, reflecting transactions with owners and comprehensive income **Shareholders' Equity (Deficit) Changes (in thousands):** | Metric | Balance at January 1, 2021 | Balance at June 30, 2021 | | :-------------------- | :------------------------- | :----------------------- | | Redeemable Preferred Stock Amount | $1,681,015 | $0 | | Common Stock Amount | $14 | $63 | | Additional Paid-In Capital | $9,877 | $2,735,099 | | Accumulated Deficit | $(515,989) | $(585,669) | | Total Shareholders' Equity (Deficit) | $(503,672) | $2,150,026 | - Total Shareholders' Equity (Deficit) significantly increased from a deficit of **$(503,672) thousand** at January 1, 2021, to an equity of **$2,150,026 thousand** at June 30, 2021[14](index=14&type=chunk) - The conversion of preferred stock to common stock resulted in a reclassification of **$1,815,959 thousand** from redeemable preferred stock to common stock and additional paid-in capital[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section presents the company's cash inflows and outflows from operating, investing, and financing activities over specific periods **Cash Flow Highlights (in thousands):** | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $497,146 | $87,044 | | Net Cash Used in Investing Activities | $(368,221) | $(452,127) | | Net Cash Provided by Financing Activities | $889,023 | $211,331 | | Net Increase (Decrease) in Cash and Cash Equivalents | $1,017,948 | $(153,752) | | Cash and Cash Equivalents at End of Period | $1,506,319 | $369,158 | - Net cash provided by operating activities increased by **$410.1 million** for the six months ended June 30, 2021, compared to the prior-year period[18](index=18&type=chunk) - Net cash provided by financing activities increased significantly by **$677.7 million**, primarily driven by **$887.3 million** in IPO proceeds[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the figures presented in the condensed consolidated financial statements, covering significant accounting policies, business combinations, investments, and other financial details [NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) This note details the company's mission, recent corporate actions like a stock split and IPO, preferred stock conversion, and financial statement preparation basis - Effected a **1-for-3 stock split** on June 2, 2021, retroactively adjusting all share and per share amounts[21](index=21&type=chunk) - Completed an Initial Public Offering (IPO) on June 28, 2021, issuing **51,350,000 shares** at **$18.00 per share**, generating **$887.3 million** in net proceeds[22](index=22&type=chunk) - All outstanding preferred stock converted into **427,897,381 shares** of common stock immediately prior to the IPO closing[24](index=24&type=chunk) [NOTE 2. BUSINESS COMBINATIONS](index=11&type=section&id=NOTE%202.%20BUSINESS%20COMBINATIONS) This note details significant acquisitions like Centrum, CHP, THNM, and Zipnosis, outlining purchase consideration, asset/liability allocation, and strategic rationale - Acquired **75%** of Centrum Medical Holdings, LLC on July 1, 2021, for **$306.2 million** (cash and common stock), recognizing **$233.0 million** in goodwill[28](index=28&type=chunk)[31](index=31&type=chunk) - Acquired Central Health Plan of California, Inc. (CHP) on April 1, 2021, for **$271.7 million** (cash and Series E preferred stock), recognizing **$236.0 million** in goodwill[34](index=34&type=chunk)[37](index=37&type=chunk) - Acquired True Health New Mexico, Inc. (THNM) and Zipnosis, Inc. on March 31, 2021, for **$3.4 million** and **$70.3 million** respectively, recognizing goodwill of **$4.7 million** for THNM and **$62.8 million** for Zipnosis[39](index=39&type=chunk)[42](index=42&type=chunk) [NOTE 3. INVESTMENTS](index=17&type=section&id=NOTE%203.%20INVESTMENTS) This note summarizes the company's investment securities, including fixed maturity and equity, detailing amortized cost, fair value, and unrealized gains/losses **Investment Securities (in thousands) as of June 30, 2021:** | Security Type | Amortized Cost | Carrying Value | | :-------------------------------- | :------------- | :------------- | | Cash equivalents | $344,084 | $344,084 | | Total available-for-sale securities | $804,280 | $805,312 | | Total held-to-maturity securities | $8,168 | $8,168 | | Total investments | $1,156,532 | $1,157,564 | - As of June 30, 2021, **705 investment positions** were in an unrealized loss position, primarily due to interest rate increases, which are deemed temporary[55](index=55&type=chunk) - Recognized an unrealized gain of **$58.5 million** (Q2 2021) and **$62.8 million** (YTD 2021) in investment income from equity securities purchased on April 1, 2021[58](index=58&type=chunk) [NOTE 4. FAIR VALUE MEASUREMENTS](index=19&type=section&id=NOTE%204.%20FAIR%20VALUE%20MEASUREMENTS) This note describes fair value measurements for assets and liabilities, categorized by input observability (Level 1, 2, 3), and details contingent consideration changes **Fair Value Measurements (in thousands) as of June 30, 2021:** | Asset/Liability | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------------- | :------ | :------ | :------ | :------ | | Total assets at fair value | $469,203 | $438,995 | $0 | $908,198 | | Contingent consideration | $0 | $0 | $6,775 | $6,775 | - The contingent consideration liability of **$6,775 thousand** is measured using Level 3 inputs based on a formulaic multiple of forecasted 2023 EBITDA[63](index=63&type=chunk)[65](index=65&type=chunk) - The fair value of the contingent consideration liability increased by **$1,059 thousand** for the six months ended June 30, 2021[65](index=65&type=chunk) [NOTE 5. GOODWILL AND INTANGIBLE ASSETS](index=21&type=section&id=NOTE%205.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note details changes in goodwill by segment and summarizes definite-lived intangible assets, including their gross carrying amount, accumulated amortization, and useful lives - Goodwill increased to **$565,020 thousand** at June 30, 2021, from **$263,035 thousand** at December 31, 2020, primarily due to acquisitions[7](index=7&type=chunk)[67](index=67&type=chunk) **Goodwill by Segment (in thousands):** | Segment | Balance at December 31, 2020 | Acquisitions | Balance at June 30, 2021 | | :-------------------- | :--------------------------- | :----------- | :----------------------- | | Bright HealthCare | $197,886 | $240,776 | $437,044 | | NeueHealth | $65,149 | $62,827 | $127,976 | | Total | $263,035 | $303,603 | $565,020 | - Amortization expense relating to intangible assets for the six months ended June 30, 2021, was **$10.0 million**, up from **$1.8 million** in the prior-year period[70](index=70&type=chunk) [NOTE 6. MEDICAL COSTS PAYABLE](index=22&type=section&id=NOTE%206.%20MEDICAL%20COSTS%20PAYABLE) This note details changes in medical costs payable, including amounts incurred and paid for current and prior years, and breaks down components like unpaid claims and IBNR **Medical Costs Payable Activity (in thousands):** | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Medical costs payable - January 1 | $249,777 | $44,804 | | Total incurred | $1,604,806 | $365,744 | | Total paid | $1,381,681 | $343,260 | | Medical costs payable - June 30 | $565,620 | $185,950 | - Medical costs payable increased to **$565,620 thousand** at June 30, 2021, from **$249,777 thousand** at January 1, 2021[72](index=72&type=chunk) - Incurred but not reported (IBNR) claims accounted for **$468,409 thousand** of total medical costs payable at June 30, 2021[74](index=74&type=chunk) [NOTE 7. SHORT-TERM BORROWINGS](index=23&type=section&id=NOTE%207.%20SHORT-TERM%20BORROWINGS) This note describes the company's **$350.0 million** revolving credit agreement, its amendment, maturity extension, and the repayment of outstanding borrowings using IPO proceeds - Entered into a **$350.0 million** revolving credit agreement on March 1, 2021[75](index=75&type=chunk) - The Credit Agreement was amended on August 2, 2021, to adjust the Qualified IPO proceeds requirement and debt to capitalization ratio, and its maturity date was extended to February 28, 2024, on August 4, 2021[75](index=75&type=chunk)[177](index=177&type=chunk) - The **$200.0 million** principal balance outstanding under the revolving credit agreement was repaid using IPO proceeds, resulting in no outstanding borrowings as of June 30, 2021[75](index=75&type=chunk) [NOTE 8. SHARE-BASED COMPENSATION](index=23&type=section&id=NOTE%208.%20SHARE-BASED%20COMPENSATION) This note details the company's share-based compensation plans, including the 2016 Incentive Plan and the new 2021 Omnibus Plan, and reports on stock option and PSU activity and expense - The 2021 Omnibus Incentive Plan was adopted in May 2021, authorizing **42.0 million shares**, with **27.3 million** available for future issuance as of June 30, 2021[77](index=77&type=chunk) - Share-based compensation expense for the six months ended June 30, 2021, was **$19.1 million**, significantly up from **$2.2 million** in the prior-year period[78](index=78&type=chunk) - **14.7 million** Performance-based Restricted Stock Units (PSUs) were granted to executive leadership, with **$116.9 million** of unrecognized compensation expense expected to be recognized over three years[82](index=82&type=chunk)[83](index=83&type=chunk) [NOTE 9. NET LOSS PER SHARE](index=25&type=section&id=NOTE%209.%20NET%20LOSS%20PER%20SHARE) This note presents the computation of basic and diluted net loss per share attributable to common stockholders, and lists potentially dilutive securities excluded due to their anti-dilutive effect **Net Loss Per Share (in thousands, except per share amounts):** | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to Bright Health Group, Inc. common shareholders | $(44,518) | $(18,074) | $(69,680) | $(25,354) | | Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted | 160,942 | 135,801 | 150,616 | 135,719 | | Net loss per share attributable to common stockholders, basic and diluted | $(0.28) | $(0.13) | $(0.46) | $(0.19) | - Basic and diluted net loss per share attributable to common shareholders for the six months ended June 30, 2021, was **$(0.46)**, compared to **$(0.19)** in the prior-year period[84](index=84&type=chunk) - **72,219 thousand** stock options were excluded from the computation of diluted net loss per share for the six months ended June 30, 2021, due to their anti-dilutive effect[85](index=85&type=chunk) [NOTE 10. COMMITMENTS AND CONTINGENCIES](index=25&type=section&id=NOTE%2010.%20COMMITMENTS%20AND%20CONTINGENCIES) This note states that as of June 30, 2021, there were no material known contingent liabilities or legal proceedings that would have a material adverse effect on the company's business - No material known contingent liabilities existed as of June 30, 2021, and December 31, 2020[86](index=86&type=chunk) - The company is not a party to any litigation whose outcomes would individually or collectively have a material adverse effect on its business, operating results, cash flows, or financial condition[196](index=196&type=chunk) [NOTE 11. SEGMENTS AND GEOGRAPHIC INFORMATION](index=26&type=section&id=NOTE%2011.%20SEGMENTS%20AND%20GEOGRAPHIC%20INFORMATION) This note provides financial information for the company's two reportable segments, Bright HealthCare and NeueHealth, detailing their revenue and operating income (loss) **Segment Revenue (in thousands):** | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Bright HealthCare | $1,025,007 | $291,260 | $1,868,178 | $483,002 | | NeueHealth | $114,314 | $8,338 | $162,853 | $17,869 | | Consolidated Total | $1,113,840 | $296,856 | $1,988,398 | $495,422 | **Segment Operating Income (Loss) (in thousands):** | Segment | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Bright HealthCare | $(115,964) | $(25,054) | $(140,179) | $(31,164) | | NeueHealth | $56,919 | $(2,182) | $58,301 | $(3,352) | | Consolidated Total | $(59,045) | $(27,236) | $(81,878) | $(34,516) | - NeueHealth's operating income shifted from a loss of **$(2,182) thousand** in Q2 2020 to an income of **$56,919 thousand** in Q2 2021[88](index=88&type=chunk) [NOTE 12. INCOME TAXES](index=27&type=section&id=NOTE%2012.%20INCOME%20TAXES) This note explains the income tax benefit recognized, primarily due to the release of valuation allowance from new deferred tax liabilities related to intangible assets acquired in business combinations - Income tax benefit was **$19.5 million** for the three months ended June 30, 2021, and **$18.3 million** for the six months ended June 30, 2021[93](index=93&type=chunk) - The benefit was primarily attributable to the release of valuation allowance in connection with new deferred tax liabilities recorded on identifiable intangibles as part of business combination accounting[93](index=93&type=chunk) - A valuation allowance is recorded for deferred tax assets to the extent they cannot be supported by reversals of existing cumulative temporary differences, limiting the net effect of 2021 losses on the income tax provision[94](index=94&type=chunk) [NOTE 13. REDEEMABLE NONCONTROLLING INTEREST](index=27&type=section&id=NOTE%2013.%20REDEEMABLE%20NONCONTROLLING%20INTEREST) This note details the activity in redeemable noncontrolling interest for the six months ended June 30, 2021, including earnings attributable to noncontrolling interest and measurement adjustments - Redeemable noncontrolling interest increased to **$41,012 thousand** at June 30, 2021, from **$39,600 thousand** at January 1, 2021[95](index=95&type=chunk) - Earnings attributable to noncontrolling interest for the six months ended June 30, 2021, totaled **$928 thousand**[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operations, liquidity, and capital resources, covering business segments, performance drivers, IPO, acquisitions, and COVID-19 impact [Business Overview](index=28&type=section&id=Business%20Overview) Bright Health Group transforms healthcare by integrating care delivery, financing, and optimization through NeueHealth and Bright HealthCare, focusing on consumer experience - Bright Health Group's mission is 'Making Healthcare Right. Together.' by connecting local healthcare delivery resources with care financing[97](index=97&type=chunk) - NeueHealth, the healthcare enablement and technology segment, works with over **235,000 care provider partners** and serves over **200,000 unique patients** (nearly **170,000 value-based**) through **44 owned primary care clinics**[99](index=99&type=chunk) - Bright HealthCare, the healthcare financing and distribution segment, serves approximately **663,000 consumers** across commercial (**553,000**) and Medicare Advantage (**110,000**) plans in **14 states** and **99 markets**[103](index=103&type=chunk)[104](index=104&type=chunk) [Key Factors Affecting Our Performance](index=29&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) Performance is driven by Bright HealthCare's membership growth, risk adjustment, and medical cost management, plus NeueHealth's value-based care and operating efficiencies - Bright HealthCare's revenue growth is dependent on its ability to grow membership and retain consumers, particularly during annual and special enrollment periods[106](index=106&type=chunk) - Accurate capture of risk adjustment data is critical for premium revenue from IFP products and MA plans, as determined by CMS models[108](index=108&type=chunk) - Effective management of medical costs and Medical Cost Ratio (MCR) relies on driving in-network utilization through Care Partners and managing seasonal medical expense patterns[109](index=109&type=chunk)[110](index=110&type=chunk) - NeueHealth's performance is tied to its ability to identify and align with high-performing care delivery partners and to effectively deliver and enable high-quality, value-based care[111](index=111&type=chunk)[112](index=112&type=chunk) [Components of Our Results of Operations](index=30&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section details revenue sources (premiums, service, investment income) and operating costs (medical, operating, depreciation & amortization), explaining their contribution to financial results - Revenue is generated from premiums (Bright HealthCare IFP/MA, NeueHealth value-based), service revenue (NeueHealth fee-for-service, network services), and investment income[115](index=115&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - Operating costs include medical costs (provider reimbursements, drugs, benefits, reinsurance, quality incentives) and operating costs (employee compensation, vendor fees, marketing, regulatory costs)[123](index=123&type=chunk)[124](index=124&type=chunk) - Operating costs are expected to increase in absolute amounts but decrease as a percentage of revenue in the long-term due to scaling efficiencies[124](index=124&type=chunk) [Initial Public Offering](index=33&type=section&id=Initial%20Public%20Offering) The company completed its IPO on June 28, 2021, selling **51,350,000 shares** at **$18.00 per share**, generating **$887.3 million** in net proceeds, used to repay debt, fund the Centrum acquisition, and for general corporate purposes - IPO closed on June 28, 2021, with **51,350,000 common shares** sold at **$18.00 per share**, yielding **$887.3 million** in net proceeds[127](index=127&type=chunk) - Net proceeds were used to repay a **$200.0 million** revolving credit facility, fund the Centrum acquisition, and for general corporate purposes[128](index=128&type=chunk) - Immediately prior to the IPO, all **167,731,830 outstanding preferred shares** converted into **427,897,381 common shares**, reclassifying **$1.8 billion** from redeemable preferred stock to common stock and additional paid-in capital[127](index=127&type=chunk) [COVID-19 Update](index=33&type=section&id=COVID-19%20Update) COVID-19 impacted the business, initially decreasing utilization then increasing medical costs due to longer stays and variants, raising MCR by **320 basis points** in Q2 2021 and **360 basis points** in H1 2021 - Initially experienced decreased medical utilization in Q2 2020 due to deferred care, but utilization returned to normal levels with adverse financial impacts from increased average length of stays[131](index=131&type=chunk) **COVID-19 Impact on Medical Cost Ratio (MCR):** | Period | MCR Increase (basis points) | Medical Costs Increase (in millions) | | :----- | :-------------------------- | :----------------------------------- | | Q2 2021 | 320 | $33.6 | | Q2 2020 | 220 | $6.4 | | H1 2021 | 360 | $68.4 | | H1 2020 | 130 | $6.4 | - The duration and severity of the pandemic, including the emergence of new variants, continue to pose uncertainty for business disruption and financial impact[132](index=132&type=chunk) [Business Update](index=34&type=section&id=Business%20Update) Bright Health Group reported strong Q2 2021 results, demonstrating significant growth in both Bright HealthCare consumers (up **220%** to **663,000**) and NeueHealth value-based care patients (up **700%** to **170,000**), with total revenue increasing by **275.2%** to **$1.1 billion** - Total revenue for Q2 2021 was **$1.1 billion**, an increase of **$817.0 million** (**275.2%**) compared to the prior-year period, driven by organic membership growth and acquisitions[135](index=135&type=chunk) - Bright HealthCare served nearly **663,000 consumers** at the end of Q2 2021, a **220.0%** increase from approximately **207,000 members** at year-end 2020[136](index=136&type=chunk) - NeueHealth directly manages care for approximately **170,000 value-based care patients** through **44 owned primary care clinics**, representing over **700% growth** from Q2 2020[137](index=137&type=chunk) - The company is building a single technology platform, DocSquad, to connect consumers and patients to personalized care teams, and plans to expand Bright HealthCare products into **four new states** in 2022[137](index=137&type=chunk) [Key Metrics and Non-GAAP Financial Measures](index=36&type=section&id=Key%20Metrics%20and%20Non-GAAP%20Financial%20Measures) The company tracks key metrics like Bright HealthCare Consumers Served and NeueHealth Value-based Care Patients, and uses Adjusted EBITDA as a non-GAAP measure to assess core operating performance **Key Metrics as of June 30:** | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Bright HealthCare Consumers Served | | | | Commercial | 552,759 | 153,083 | | Medicare Advantage | 110,066 | 54,141 | | NeueHealth Value-based Care Patient Lives | 42,305 | 19,419 | **Adjusted EBITDA Reconciliation (in thousands):** | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(43,723) | $(18,074) | $(68,268) | $(25,354) | | Adjusted EBITDA | $(35,255) | $(23,248) | $(44,839) | $(27,104) | - Adjusted EBITDA is defined as net loss excluding interest expense, income taxes, depreciation and amortization, acquisition/financing-related transaction costs, share-based compensation, and changes in the fair value of contingent consideration[142](index=142&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) The company experienced substantial revenue growth in Q2 and H1 2021, driven by increased Bright HealthCare consumers and acquisitions, but medical costs also rose significantly, leading to an increased Medical Cost Ratio (MCR) **Consolidated Financial Performance (in thousands):** | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $1,113,840 | $296,856 | $1,988,398 | $495,422 | | Medical Costs | $904,630 | $233,180 | $1,589,200 | $363,795 | | Operating Costs | $261,060 | $88,827 | $469,300 | $163,271 | | Medical Cost Ratio | 86.8% | 80.1% | 83.5% | 75.5% | | Operating Cost Ratio | 23.4% | 29.9% | 23.6% | 33.0% | - Total revenues increased by **$817.0 million** (**275.2%**) for the three months ended June 30, 2021, driven by a **219.6%** increase in Bright HealthCare consumers and **$203.6 million** from acquisitions[149](index=149&type=chunk) - Medical costs increased by **$671.5 million** (**288.0%**) for the three months ended June 30, 2021, due to consumer growth, acquisitions, and COVID-19 impacts (**320 basis points** unfavorable MCR)[151](index=151&type=chunk)[152](index=152&type=chunk) - Operating costs increased by **$172.2 million** (**193.9%**) for the three months ended June 30, 2021, but the operating cost ratio improved by **650 basis points** to **23.4%** due to leverage from increased premium revenues[154](index=154&type=chunk)[155](index=155&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by existing cash, a **$350.0 million** revolving credit agreement (now repaid with IPO proceeds), and **$887.3 million** from its recent IPO, with management expecting sufficient resources for the next twelve months despite anticipated operating losses - As of June 30, 2021, the company had **$1.5 billion** in cash and cash equivalents, **$283.3 million** in short-term investments, and **$633.0 million** in long-term investments[181](index=181&type=chunk) - The **$887.3 million** net proceeds from the June 2021 IPO were used to repay the **$200.0 million** revolving credit facility and fund the Centrum acquisition[173](index=173&type=chunk)[177](index=177&type=chunk) - Net cash provided by operating activities increased by **$410.1 million** for the six months ended June 30, 2021, compared to the prior-year period[185](index=185&type=chunk) - Management expects to incur operating losses and negative cash flows from operations for the foreseeable future due to expansion but believes existing cash and IPO proceeds are sufficient for the next twelve months[175](index=175&type=chunk) [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section refers to critical accounting policies and estimates from the Prospectus, confirming no material changes have occurred - There have been no material changes to the critical accounting policies and estimates as compared to those disclosed in the Prospectus[188](index=188&type=chunk) [Recently Adopted Accounting Pronouncements](index=44&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) No recently issued or adopted accounting pronouncements had, or are expected to have, a material impact on the company's financial position, operations, or cash flows - No recently issued and not yet adopted or adopted accounting pronouncements had, or are expected to have, a material impact on the consolidated financial position, results of operations, or cash flows[27](index=27&type=chunk)[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risk from changes in interest rates, which affect investment income and interest expense, with a net unrealized gain position of **$1.0 million** at June 30, 2021 - The company's pretax earnings are subject to market risk due to changes in interest rates, impacting investment income and interest expense[190](index=190&type=chunk) - Net unrealized gain position was **$1.0 million** at June 30, 2021, compared to **$2.4 million** at December 31, 2020[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of June 30, 2021, due to a previously reported material weakness in Brand New Day's internal control over financial reporting, with remediation efforts underway - Disclosure controls and procedures were not effective as of June 30, 2021, due to a material weakness in internal control over financial reporting[192](index=192&type=chunk) - A material weakness was identified in Brand New Day's internal control over financial reporting[193](index=193&type=chunk) - Remediation steps include centralizing accounting, enhancing controls, hiring additional resources, and migrating Brand New Day's financial activities to Bright Health's ERP system in Q3 2021[194](index=194&type=chunk) - Despite the material weakness, the condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows[192](index=192&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity security sales, IPO proceeds, and a list of exhibits [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, operating results, cash flows, or financial condition - The company is not a party to any litigation that would individually or collectively have a material adverse effect on its business, operating results, cash flows, or financial condition[196](index=196&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section refers to previously disclosed risk factors in the company's Prospectus, confirming no material changes - There have been no material changes to the risk factors disclosed under the heading 'Risk Factors' in the company's Prospectus[197](index=197&type=chunk) [Item 2. Unregistered Sale of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sale%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item details the unregistered sales of various series of preferred stock and common stock options, as well as the use of proceeds from the company's initial public offering (IPO), which generated **$880.6 million** in net proceeds - The company granted or issued various unregistered securities, including Series C, D, and E preferred stock to accredited investors, and stock options/common stock under the 2016 Equity Plan[198](index=198&type=chunk) - On June 28, 2021, **427,897,381 shares** of common stock were issued upon conversion of all outstanding preferred stock[200](index=200&type=chunk) - The IPO generated **$880.6 million** in net proceeds from the sale of **51,350,000 common shares**, which were used to repay a **$200.0 million** revolving credit facility and fund the **$232.4 million** Centrum acquisition[202](index=202&type=chunk)[204](index=204&type=chunk) [Item 3. Defaults upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[206](index=206&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[206](index=206&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) The company reported no other information - No other information was reported[206](index=206&type=chunk) [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, incentive plans, and certifications - Exhibits include the Ninth Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, 2021 Omnibus Incentive Plan, and Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[207](index=207&type=chunk)