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Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

BHG

New York Stock Exchange

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer			o			Accelerated filer			x
Non-accelerated filer			o			Smaller reporting company			x
Emerging growth company			o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes  ☐    No  x

As of November 2, 2023, the registrant had 7,982,087 shares of common stock, $0.0001 par value per share, outstanding.

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements made in this Quarterly Report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements, and should be evaluated as such. Forward-looking statements include any statement or information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies, and our operational and financial outlook, estimates, projections, and guidance. These statements often include words such as “anticipate,” “expect,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “projections,” “should,” “might,” “may,” “will,” “ensure” and other similar expressions. Such forward-looking statements are subject to various risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Factors that might materially affect such forward-looking statements include: our ability to continue as a going concern; our ability to comply with the terms of our credit facilities, including financial covenants, both during and after any applicable waiver period, and/or obtain any additional waivers of any terms of our credit facilities to the extent required; our ability to sell our Medicare Advantage business in California on acceptable terms, including our ability to receive the proceeds thereof in a manner that would alleviate our current financial position; the failure to satisfy or obtain a waiver of any closing condition in our agreement to sell our Medicare Advantage business in California to Molina Healthcare, Inc. (the “Molina Purchase Agreement”); our ability to comply with the terms of the Molina Purchase Agreement; whether our credit facilities will satisfy our working capital needs pending the closing of our sale of our Medicare Advantage business in California; our ability to comply with the terms of the risk adjustment repayment agreements; our ability to obtain any additional short or long term debt or equity financing needed to operate our business; our ability to quickly and efficiently wind down our Individual and Family Plan (“IFP”) businesses and Medicare Advantage (“MA”) businesses outside of California, including by satisfying liabilities of those businesses when due and payable; potential disruptions to our business due to our corporate restructuring and resulting headcount reduction; our ability to accurately estimate and effectively manage the costs relating to changes in our business offerings and models; a delay or inability to withdraw regulated capital from our subsidiaries; a lack of acceptance or slow adoption of our business model; our ability to retain existing consumers and expand consumer enrollment; our and our Care Partners’ abilities to obtain and accurately assess, code, and report risk adjustment factor scores; our ability to contract with care providers and arrange for the provision of quality care; our ability to accurately estimate our medical expenses, effectively manage our costs and claims liabilities or appropriately price our products and charge premiums; our ability to obtain claims information timely and accurately; the impact of the ongoing COVID-19 pandemic on our business and results of operations; the risks associated with our reliance on third-party providers to operate our business; the impact of modifications or changes to the U.S. health insurance markets; our ability to manage the growth of our business; our ability to operate, update or implement our technology platform and other information technology systems; our ability to retain key executives; our ability to successfully pursue acquisitions and integrate acquired businesses; the occurrence of severe weather events, catastrophic health events, natural or man-made disasters, and social and political conditions or civil unrest; our ability to prevent and contain data security incidents and the impact of data security incidents on our members, patients, employees and financial results; our ability to comply with requirements to maintain effective internal controls; our ability to adapt to the new risks associated with our expansion into ACO Realizing Equity, Access, and Community Health (“ACO REACH”); and the other factors set forth under the heading “Risk Factors” in this Quarterly Report, Bright Health Group’s Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023, that were filed with the United States Securities and Exchange Commission (the “SEC”) on May 10, 2023 and August 9, 2023, respectively, and Bright Health Group’s Annual Report on Form 10-K for the year ended December 31, 2022, that was filed with the SEC on March 16, 2023 (“2022 Form 10-K”) and our other filings with the SEC.

The preceding list is not intended to be an exhaustive list of all of the factors that might affect our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Other sections of this Quarterly Report may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

You should not rely upon forward-looking statements as predictions of future events. Our forward-looking statements speak only as of the date of this Quarterly Report and, although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in such forward-looking statements will be achieved or occur at all. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in our expectations.

(in thousands)

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

Basis of Presentation: The condensed consolidated financial statements include the accounts of Bright Health Group, Inc. and all subsidiaries and controlled companies. All intercompany balances and transactions are eliminated upon consolidation. The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. We have omitted certain footnote disclosures that would substantially duplicate the disclosures in our audited consolidated financial statements, unless the information contained in those disclosures materially changed or is required by GAAP. As such, the condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2022 included in our Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for fair presentation of the interim financial statements.

Discontinued Operations: Having met the criteria for “held for sale,” we have reflected amounts relating to Bright HealthCare, comprised of the California Medicare Advantage business, as a disposal group classified as held for sale and included as part of discontinued operations in accordance with Accounting Standards Codification (“ASC”) 205-20. The combined assets are valued at the lower of their carrying amount or fair value, net of costs to sell and included as current assets on the Company’s condensed consolidated balance sheet. Assets classified as held for sale are not depreciated. However, interest attributable to the liabilities associated with assets classified as held for sale and other related expenses continue to be accrued. Bright HealthCare is no longer included in the segment reporting following the reclassification to discontinued operations. Refer to Note 15 for further discussion of our discontinued operations inclusive of Bright HealthCare and Bright HealthCare - Commercial.

Use of Estimates: The preparation of our condensed consolidated financial statements in conformance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Our most significant estimates include medical costs payable, ACO REACH performance year receivable and obligation, shared savings and shared losses for our capitation contracts, and valuation and impairment of goodwill and other intangible assets. Actual results could differ from these estimates.

Going Concern: The condensed consolidated financial statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has a history of operating losses, and we generated a net loss of $805.2 million for the nine months ended September 30, 2023. Additionally, the Company experienced negative operating cash flows primarily related to our discontinued Bright HealthCare – Commercial segment for the nine months ended September 30, 2023, requiring additional cash to be infused to satisfy statutory capital requirements. The Company settled in cash $1.5 billion of 2022 related risk adjustment obligations in September 2023, and entered into repayment agreements for an aggregate amount of $380 million with the Centers for Medicare & Medicaid Services’ (“CMS”) with respect to the unpaid amount of risk adjustment obligations. The amount owing under the repayment agreements is due 18 months from September 15, 2023 and bears interest at a rate of 11.5% per annum. The Company intends to use a portion of the proceeds from the pending sale of its California Medicare Advantage business to pay certain remaining amounts due under the repayment agreements. The Company’s IFP discontinued operations will also continue to experience negative cash flows through the fourth quarter of 2023 as it pays out the remaining inventory of medical claims.

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

On August 4, 2023, the Company entered into a Credit Agreement (as amended, supplemented, restated or otherwise modified from time to time, the “New Credit Agreement”), among the Company, NEA 18 Venture Growth Equity, L.P. (“NEA”) and the lenders from time to time party thereto (together with NEA and each of their respective successors and assigns, the “Lenders”), to provide for a credit facility pursuant to which, among other things, the lenders have provided $60.0 million delayed draw term loan commitments. The Company may borrow delayed draw term loans under such commitments at any time and from time to time on or prior to the date that is nine months after the effective date of the New Credit Agreement, subject to the satisfaction or waiver of customary conditions. Borrowings under the New Credit Agreement accrue interest at a rate per annum of 15.00%, payable quarterly in arrears at the Company’s election, subject to limitations set forth in the Fourth Waiver (defined below) in respect of cash payments under the New Credit Agreement, either in cash or “in kind” by adding the amount of accrued interest to the principal amount of the outstanding loans under the New Credit Agreement. The New Credit Agreement contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to make certain restricted payments, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates, change its business or make investments. The New Credit Agreement constitutes the Bridge Financing referred to in the Third Waiver.

In connection with the New Credit Agreement, on August 4, 2023, the Company and the Lenders entered into a warrantholders agreement setting forth the rights and obligations of the Company and the Lenders as holders (in such capacity, the “Holders”) of the warrants to acquire shares of Common Stock at an exercise price of $0.01 per share (the “Warrants”), and providing for the issuance of the Warrants to purchase up to 1,656,789 shares of Common Stock.

On October 2, 2023, the Company, NEA, as the existing lender (the “Existing Lender”), and California State Teachers’ Retirement System, as an incremental lender (the “New Lender”), entered into Incremental Amendment No. 1 (“Incremental Amendment No. 1”) to the New Credit Agreement (as amended by Incremental Amendment No. 1, the “Amended Credit Agreement”) to provide for a term loan commitment increase in an aggregate principal amount of $6.4 million (the “Commitment Increase”) by the New Lender under the Amended Credit Agreement. Loans under the Commitment Increase will have the same terms as loans under the original term loan commitments provided by the Existing Lender.

In connection with Incremental Amendment No. 1, on October 2, 2023, the Company and the New Lender entered into a

warrantholders agreement setting forth the rights and obligations of the Company and the New Lender as a holder of Warrants,

and providing for the issuance of the Warrants to purchase up to 176,724 shares of Common Stock. The fair value of the warrants is recognized as a liability on the condensed consolidated balance sheets as of the reporting period. See Note 6, Common Stock Warrants for more information.

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

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

In response to these conditions, management has implemented a restructuring plan to reduce capital needs and our operating expenses in the future to drive positive operating cash flow and increase liquidity. The Company’s Bright HealthCare - Commercial business exited the ACA marketplace at the end of the 2022 plan year. In addition to our market exits, management is in the process of executing upon additional restructuring activities, which include reducing our workforce, exiting excess office space, and terminating or restructuring contracts. The Company closed on a $175.0 million capital raise in October 2022 to fund our continuing operations as further described in Note 8, Redeemable Convertible Preferred Stock. On June 30, 2023, the Company entered into the Molina Purchase Agreement to sell its California Medicare Advantage business, which consists of Brand New Day and Central Health Plan, for total purchase consideration of $600.0 million, subject to regulatory approval and other closing conditions. The closing of this transaction is expected to occur by the first quarter of 2024. Further, as described above, the Company entered into the New Credit Agreement on August 4, 2023, and borrowed a total of $50.0 million as of September 30, 2023. Subsequent to September 30, 2023 we borrowed an additional $8.2 million under the Amended Credit Agreement.

In the event the Company is unable to execute the sale of the California Medicare Advantage business, obtain additional financing or take other management actions, among other potential consequences, the Company forecasts we will be unable to satisfy our obligations. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

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

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

All shares and per share information has been retroactively adjusted following the effective date of the reverse stock split to reflect the reverse stock split for all periods presented in future filings.

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

Recently Issued and Adopted Accounting Pronouncements: There are no accounting pronouncements that were recently issued and not yet adopted or adopted since our audited consolidated financial statements were issued that had, or are expected to have, a material impact on our consolidated financial position, results of operations, or cash flows.

Correction of prior period financial statements: As previously reported, subsequent to the issuance of the condensed consolidated financial statements for the three and nine month period ended September 30, 2022, we identified an error in the accounting for gross versus net revenue recognition conclusion from certain value-based care arrangements, impacting continuing operations, and an error in the data used to account for our Risk Adjustment Factor-related (“RAF”) premiums and medical costs, impacting discontinued operations. As a result of the gross versus net revenue recognition error, capitated revenue and medical costs of continuing operations have been reduced by $44.5 million and $157.7 million for the three and nine months ended September 30, 2022, respectively. As a result of the RAF data error, loss from discontinued operations and net loss increased by $10.8 million for the three and nine month period ended September 30, 2022. As of September 30, 2022 there were corresponding decreases of $17.9 million in current assets of discontinued operations and $7.2 million in current liabilities of discontinued operations on the condensed consolidated balance sheets. The impact on net loss, current assets of discontinued operations and current liabilities of discontinued operations had corresponding impacts on condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of changes in redeemable preferred stock and shareholders’ equity (deficit) and condensed consolidated statements of cash flows.

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

NOTE 2. RESTRUCTURING CHARGES

In October 2022, we announced our decision to further focus our business on our Fully Aligned Care Model, our Care Delivery and Care Solutions segments, and that we will no longer offer commercial plans through Bright HealthCare, or Medicare Advantage products outside of California in 2023. As a result of these strategic changes, we announced and have taken actions to restructure the Company’s workforce and reduce expenses based on our updated business model.

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

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

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

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

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

For the periods ended September 30, 2023 and December 31, 2022, Care Solutions had no assigned goodwill. Due to the decline in our stock price and market capitalization, we fully impaired the Care Delivery assigned goodwill during the period ended September 30, 2023. We estimated the fair values of the reporting units using a combination of discounted cash flows and comparable market multiples, which include assumptions about a wide variety of internal and external factors.

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

For the three and nine months ended September 30, 2023, there were no impairments of the definite-lived intangible assets. For the three and nine months ended September 30, 2022, we recognized $42.6 million of impairment expense of definite-lived intangible assets.

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

Amortization expense relating to intangible assets for the three months ended September 30, 2023 and 2022 was $2.9 million and $6.2 million, respectively and amortization expense for the nine months ended September 30, 2023 and 2022 was $8.8 million and $18.6 million, respectively. Estimated amortization expense relating to intangible assets for the remainder of 2023 and for each of the next five full years ending December 31 is as follows (in thousands):

The following table shows the components of the change in medical costs payable for the nine months ended September 30, 2023 and 2022 (in thousands):

Medical costs payable attributable to prior years increased by $0.9 million and decreased by $2.7 million for the nine months ended September 30, 2023 and 2022, respectively. Medical costs payable estimates are adjusted as additional information regarding claims becomes known; there were no significant changes to estimation methodologies during the periods.

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

Medical costs payable are primarily related to the current year.

We have a $350.0 million revolving credit agreement with a syndicate of banks (the “Credit Agreement”), which matures on February 28, 2024. As of September 30, 2023 and December 31, 2022 we had $303.9 million borrowed under the Credit Agreement at a weighted-average effective annual interest rate of 10.42%, which remains outstanding as of September 30, 2023. Refer to Note 10, Commitments and Contingencies for more information on the undrawn letters of credit of $30.7 million under the Credit Agreement, which reduce the amount available to borrow.

On June 29, 2023, the Company entered into a second amended and restated limited waiver and consent (the “Third Waiver”) under the Credit Agreement, which amended and restated the amended and restated limited waiver and consent entered into by the Company under the Credit Agreement on April 28, 2023 (the “Second Waiver”), which previously amended and restated that certain limited waiver and consent entered into by the Company under the Credit Agreement on February 28, 2023 (the “Original Waiver”). The Third Waiver amended the Second Waiver and the Original Waiver by, among other things, extending the temporary waiver of compliance with the minimum liquidity covenant set forth in Section 11.12.2 of the Credit Agreement, which spanned from January 25, 2023 to June 30, 2023 under the Original Waiver and the Existing Waiver, to January 25, 2023 to August 29, 2023 (the “Extended Waiver Period”).

The Third Waiver also, among other things, added covenants (a) requiring the Company to deliver by July 17, 2023, an agreed term sheet for the Bridge Financing to support the Company’s ongoing operating cash needs through December 31, 2023 and, by July 31, 2023 (extended to August 4, 2023), definitive documentation for the Bridge Financing and an updated budget of the Company, (b) prohibiting the incurrence of certain types of debt and (c) requiring the Company not to request any interest period for any term SOFR borrowing other than a one-month interest period.

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

On August 4, 2023, we entered into the New Credit Agreement, a $60.0 million credit agreement with NEA, which matures on December 31, 2025. As of September 30, 2023, we had $50.0 million borrowed under the New Credit Agreement at a weighted-average effective interest rate of 15.00%, which remains outstanding as of September 30, 2023.

On October 2, 2023, the Company, the Existing Lender, and the New Lender, entered into Incremental Amendment No. 1 to the New Credit Agreement (as amended by Incremental Amendment No. 1, the “Amended Credit Agreement”) to provide for a term loan commitment increase in an aggregate principal amount of $6.4 million (the “Commitment Increase”) by the New Lender under the Amended Credit Agreement. Loans under the Commitment Increase will have the same terms as loans under the original term loan commitments provided by the Existing Lender.

In connection with the New Credit Agreement, on August 4, 2023, the Company and the Lenders entered into a warrantholders agreement setting forth the rights and obligations of the Company and the Lenders as holders (in such capacity, the “Holders”) of Warrants and providing for the issuance of the Warrants. In connection with Incremental Amendment No. 1, on October 2, 2023, the Company and the New Lender entered into a warrantholders agreement setting forth the rights and obligations of the Company and the New Lender as a holder of Warrants, and providing for the issuance of the Warrants. See Note 6, Common Stock Warrants for additional information.

On August 4, 2023, we entered into a warrantholders agreement (the “NEA Warrantholders Agreement”) with NEA 18 Venture Growth Equity, L.P. and the lenders from time to time party thereto, setting forth the rights and obligations of the Company and the lenders as holders of the warrants to acquire shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. We established a warrant liability of $25.1 million on this date, representing the 1.7 million warrants available to be issued under the NEA Warrantholders Agreement at a fair market value of $15.12 (closing share price on August 4th, 2023 minus the $0.01 exercise price); the warrant liability is reported within Other current liabilities. The warrants do not contain any exercise contingencies and expire on the fifth anniversary of the first closing date.

We account for our common stock warrants at the time of inception as derivatives, utilizing ASC 815, by recording a liability equal to the warrants’ fair market value that is marked to market at the end of each period. Per the terms of the NEA Warrantholders Agreement, the market value is calculated as the ending stock price less the $0.01 exercise price. As we draw on the available funds, warrants are issued; warrants will remain classified as a liability and be fair valued each period until they are exercised by the warrantholder.

Upon exercise, we relieve the associated liability into additional paid in capital at the fair value of the warrants on the date of exercise, classifying the exercised warrants as equity.

During the three and nine months ended September 30, 2023, we drew $50.0 million on the New Credit Agreement, and issued a total of 1.4 million warrants. As of September 30, 2023 no issued warrants have been exercised and 0.3 million warrants remain available to be issued under the Warrantholders Agreement. For the three and nine months ended September 30, 2023, Warrant expense was $9.9 million. There was no equivalent liability and activity for the three and nine month period ended September 30, 2022.

On October 2, 2023, the Company and the New Lender entered into a warrantholders agreement setting forth the rights and obligations of the Company and the New Lender as a holder of the warrants to acquire shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of the warrants. As of September 30, 2023, no warrant liability has been established applicable to this agreement.

The Company classifies its warrant liability as Level 2 fair value because they are valued using observable, unadjusted quoted prices in active markets. See Note 15, Discontinued Operations for the full definition of Level 1, Level 2, and Level 3 fair values.

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.

The 2021 Incentive Plan was adopted by our Board of Directors on May 21, 2021 and approved by our stockholders on May 25, 2021 and June 5, 2021. The 2021 Incentive Plan allows the Company to grant stock options, RSAs, RSUs, stock appreciation rights, other equity based awards, and cash based incentive awards to certain employees, consultants and non-employee directors. There are 1.7 million shares of common stock authorized for issuance under the 2021 Incentive Plan. As of September 30, 2023, a total of 0.3 million shares of common stock were available for future issuance under the 2021 Incentive Plan.

We recognized share-based compensation expense of $65.6 million and $77.3 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss).

The Board of Directors, or the Compensation and Human Capital Committee of the Board of Directors, as applicable, determines the exercise price, vesting periods and expiration date at the time of the grant. Stock options granted prior to the third quarter of 2021 generally vest 25% at one year from the grant date, then ratably over the next 36 months with continuous employee service. Stock options granted after the beginning of the third quarter of 2021 generally vest ratably over three years. Option grants generally expire 10 years from the date of grant.

There were no options granted during the nine months ended September 30, 2023.

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

We recognized share-based compensation expense related to stock options of $27.4 million for the nine months ended September 30, 2023, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At September 30, 2023, there was $37.0 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 1.4 years.

RSUs represent the right to receive shares of our common stock at a specified date in the future and generally vest over a three-year period, except for Board of Director grants which generally vest one year from the date of grant. The fair value of RSUs is determined based on the closing market price of our common stock on the date of grant.

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

We recognized share-based compensation expense related to RSUs of $20.8 million for the nine months ended September 30, 2023, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). As of September 30, 2023, there was $36.8 million of unrecognized compensation expense related to the RSU grants, which is expected to be recognized over a weighted-average period of 1.6 years.

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

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

We recognized share-based compensation expense related to PSUs of $17.4 million for the nine months ended September 30, 2023, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At September 30, 2023, there was $18.6 million of unrecognized compensation expense related to the PSU grant, which is expected to be recognized over a weighted-average period of 0.7 years.

On January 3, 2022, we issued 750,000 shares of Series A Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $750.0 million, or $1,000 per share.

The Series A Preferred Stock ranks senior to the shares of the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock has an initial liquidation preference of $1,000 per share, which shall increase by accumulated quarterly dividends that are not paid in cash (“compounded dividends”). Holders of the Series A Preferred Stock are entitled to a dividend at the rate of 5.0% per annum, accruing daily and payable quarterly in arrears and subject to certain adjustments, as set forth in the Certificate of Designations. Dividends will be payable in cash, by increasing the amount of liquidation preference (compounded dividends) with respect to a share of Series A Preferred Stock, or any combination thereof, at the sole discretion of the Company. The Series A Preferred Stock had accrued compounded dividends of $67.7 million and $37.9 million as of September 30, 2023 and December 31, 2022, respectively.

The Series A Preferred Stock will be convertible at the option of the holders into (I) the number of shares of common stock equal to the quotient of (a) the sum of (x) the liquidation preference (reflecting increases for compounded dividends) plus (y) the accrued dividends with respect to each share of Series A Preferred Stock as of the applicable conversion date divided by (b) the conversion price (initially approximately $364.00 per share and approximately $292.30 per share subsequent to the issuance of warrants during the quarter ended September 30, 2023) as of the applicable conversion date plus (II) cash in lieu of fractional shares, subject to certain anti‑dilution adjustments. At any time after January 3, 2025, if the closing price per share of Common Stock on the New York Stock Exchange was greater than 175% of the then effective Conversion Price for (x) each of at least twenty (20) trading days in any period of thirty (30) consecutive trading days and (y) the last trading day immediately before the Company provides the holders with notice of its election to convert all of the Series A Preferred Stock into the relevant number of shares of common stock, the Company may elect to convert all of the Series A Preferred Stock into the relevant number of shares of common stock.

Under the Certificate of Designations, holders of the Series A Preferred Stock are entitled to vote with the holders of the common stock on an as‑converted basis, solely with respect to (i) a change of control transaction (to the extent such change of control transaction is submitted to a vote of the holders of the common stock) or (ii) the issuance of capital stock by the Company in connection with an acquisition by the Company (to the extent such issuance is submitted to a vote of the holders of the common stock), subject to certain restrictions. Holders of the Series A Preferred Stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Series A Preferred Stock, authorizations or issuances by the Company of securities that are senior to the Series A Preferred Stock, increases or decreases in the number of authorized shares of Preferred Stock, and issuances of shares of the Series A Preferred Stock after January 3, 2022.

At any time following January 3, 2027, the Company may redeem all of the Series A Preferred Stock for a per share amount in cash equal to: (i) the sum of (A) the liquidation preference (reflecting increases for compounded dividends) thereof plus (B) all accrued dividends as of the applicable redemption date, multiplied by (ii) (A) 105% if the redemption occurs at any time prior to January 3, 2029 and (B) 100% if the redemption occurs at any time on or after January 3, 2029. Upon certain change of control events involving the Company, the holders of the Series A Preferred Stock may, at such holder’s election, convert their shares of Series A Preferred Stock into common stock at the then‑current conversion price or require the Company to purchase all or a portion of such holder’s shares of Preferred Stock that have not been so converted at a purchase price per share of Preferred Stock, payable in cash, equal to the greater of (I) (A) if the change of control effective date occurs at any time prior to January 3, 2029, the product of 105% multiplied by the sum of (x) the liquidation preference of such share of Series A Preferred Stock (reflecting increases for compounded dividends) plus (y) the accrued dividends in respect of such share of Series A Preferred Stock as of the change of control purchase date and (B) if the change of control effective date occurs on or after January 3, 2029, the sum of (x) the liquidation preference (reflecting increases for compounded dividends) of such share of Series A Preferred Stock plus (y) the accrued dividends in respect of such share of Series A Preferred Stock as of the change of control purchase date and (II) the consideration that would have been payable in connection with such change of control if such share of Series A Preferred Stock had been converted into Common Stock immediately prior to the change of control.

On October 17, 2022, we issued 175,000 shares of Series B Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $175.0 million, or $1,000 per share.

The Series B Preferred Stock ranks senior to the shares of the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock has an initial liquidation preference of $1,000 per share, which shall increase by compounded dividends. Holders of the Series B Preferred Stock are entitled to a dividend at the rate of 5.0% per annum, accruing daily and payable quarterly in arrears and subject to certain adjustments, as set forth in the Certificate of Designations. Dividends will be payable in cash, by increasing the amount of liquidation preference (compounded dividends) with respect to a share of Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company. The Series B Preferred Stock had accrued compounded dividends of $8.5 million and $1.8 million as of September 30, 2023 and December 31, 2022, respectively.

The Series B Preferred Stock will be convertible at the option of the holders into (I) the number of shares of common stock equal to the quotient of (a) the sum of (x) the liquidation preference (reflecting increases for compounded dividends) plus (y) the accrued dividends with respect to each share of Series B Preferred Stock as of the applicable conversion date divided by (b) the conversion price (initially approximately $113.60 per share and approximately $101.85 per share subsequent to the issuance of warrants during the quarter ended September 30, 2023) as of the applicable conversion date plus (II) cash in lieu of fractional shares, subject to certain anti‑dilution adjustments. At any time after October 17, 2025, if the closing price per share of common stock on the NYSE was greater than 287% of the then effective Conversion Price for (x) each of at least twenty (20) trading days in any period of thirty (30) consecutive trading days and (y) the last trading day immediately before the Company provides the holders with notice of its election to convert all of the Series B Preferred Stock into the relevant number of shares of common stock, the Company may elect to convert all of the Series B Preferred Stock into the relevant number of shares of common stock.

Under the Certificate of Designations, holders of the Series B Preferred Stock are entitled to vote with the holders of the common stock on an as‑converted basis, solely with respect to (i) a change of control transaction (to the extent such change of control transaction is submitted to a vote of the holders of the common stock) or (ii) the issuance of capital stock by the Company in connection with an acquisition by the Company (to the extent such issuance is submitted to a vote of the holders of the common stock), subject to certain restrictions. Holders of the Series B Preferred Stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Series B Preferred Stock, authorizations or issuances by the Company of securities that are senior to the Series B Preferred Stock, increases or decreases in the number of authorized shares of Preferred Stock, and issuances of shares of the Series B Preferred Stock after October 17, 2022.

At any time following October 17, 2027, the Company may redeem all of the Series B Preferred Stock for a per share amount in cash equal to: (i) the sum of (A) the liquidation preference (reflecting increases for compounded dividends) thereof plus (B) all accrued dividends as of the applicable redemption date, multiplied by (ii) (A) 105% if the redemption occurs at any time prior to October 17, 2029 and (B) 100% if the redemption occurs at any time on or after October 17, 2029. Upon certain change of control events involving the Company, the holders of the Series B Preferred Stock may, at such holder’s election, convert their shares of Series B Preferred Stock into common stock at the then‑current conversion price or require the Company to purchase all or a portion of such holder’s shares of Preferred Stock that have not been so converted at a purchase price per share of Preferred Stock, payable in cash, equal to the greater of (I) (A) if the change of control effective date occurs at any time prior to October 17, 2029, the product of 105% multiplied by the sum of (x) the liquidation preference of such share of Series B Preferred Stock (reflecting increases for compounded dividends) plus (y) the accrued dividends in respect of such share of Series B Preferred Stock as of the change of control purchase date and (B) if the change of control effective date occurs on or after October 17, 2029, the sum of (x) the liquidation preference (reflecting increases for compounded dividends) of such share of Series B Preferred Stock plus (y) the accrued dividends in respect of such share of Series B Preferred Stock as of the change of control purchase date and (II) the consideration that would have been payable in connection with such change of control if such share of Series B Preferred Stock had been converted into common stock immediately prior to the change of control.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the three and nine months ended September 30 (in thousands, except for per share amounts):

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect for the nine months ended September 30 (in thousands):

Legal proceedings: In the normal course of business, we could be involved in various legal proceedings such as, but not limited to, the following: lawsuits alleging negligence in care or general liability, violation of regulatory bodies’ rules and regulations, or violation of federal and/or state laws.

On January 6, 2022, a putative securities class action lawsuit was filed against us and certain of our officers and directors in the Eastern District of New York. The case is captioned Marquez v. Bright Health Group, Inc. et al., 1:22-cv-00101 (E.D.N.Y.). The lawsuit alleges, among other things, that we made materially false and misleading statements regarding our business, operations, and compliance policies, which in turn adversely affected our stock price. An amended complaint was filed on June 24, 2022, which expands on the allegations in the original complaint and alleges a putative class period of June 24, 2021 through March 1, 2022. The amended complaint also adds as defendants the underwriters of our initial public offering. The Company has served a motion to dismiss the amended complaint, which has not yet been ruled on by the court.

We are vigorously defending the Company in the above actions, but there can be no assurance that we will be successful in any defense.

Based on our assessment of the facts underlying the claims and the degree to which we intend to defend the Company in these matters, the amount or range of reasonably possible losses, if any, cannot be estimated. We have not accrued for any potential loss as of September 30, 2023 and December 31, 2022 for these actions.

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

Factors used to determine our reportable segments include the nature of operating activities, economic characteristics, existence of separate senior management teams and the type of information used by the Company’s Chief Operating Decision Maker (“CODM”) to evaluate its results of operations. We have identified two operating segments within our continuing operations based on our primary product and service offerings: Care Delivery and Care Solutions. The Care Delivery and Care Solutions segments were new starting in the second quarter of 2023 and were formerly reported together within the aggregated Consumer Care segment. The updates to our reportable segments conform with the Company’s CODM’s view of our ongoing operations.

Care Delivery and Care Solutions, which make up our value-driven Consumer Care business that manages risk in partnership with external payors, aim to significantly reduce the friction and current lack of coordination between payors by delivering on our Fully Aligned Care Model with multiple payors. The following is a description of the types of products and services from which the two reportable segments of our continuing operations derive their revenues:

Care Delivery: Provides care services in our clinics with wrap around care management and care coordination activities for those members where we take full or partial risk. As of September 30, 2023, Care Delivery provides virtual and in-person clinical care through its 72 owned primary care clinics within an integrated care delivery system. Through these risk-bearing clinics and our affiliated network of care providers, our Care Delivery segment serves approximately 330,000 consumers. Care Delivery customers include external payors, third party administrators, affiliated providers and direct-to-government programs.

Care Solutions: Our provider enablement business that facilitates care coordination activities through the use of population health tools including technology, data analytics, care and utilization management, and clinical solutions and care teams to support patients. As of September 30, 2023, Care Solutions has approximately 62,000 members attributed to its REACH ACO’s.

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

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