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 on Form 10-Q 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 on Form 10-Q 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.
Current liabilities of discontinued operations (Note 16)
339,576
699,758
Current liabilities of held-for-sale operations (Note 15)
4,976
—
Risk share payable to deconsolidated entity
123,981
123,981
Warrant liability
22,252
13,971
Other current liabilities
90,235
79,856
Total current liabilities
872,438
1,391,257
Long-term borrowings
120,252
66,400
Other liabilities
16,616
22,441
Total liabilities
1,009,306
1,480,098
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests
117,876
88,908
Redeemable Series A preferred stock, $0.0001 par value; 750,000 shares authorized in 2024 and 2023; 750,000 shares issued and outstanding in 2024 and 2023
747,481
747,481
Redeemable Series B preferred stock, $0.0001 par value; 175,000 shares authorized in 2024 and 2023; 175,000 shares issued and outstanding in 2024 and 2023
172,936
172,936
Shareholders’ equity (deficit):
Common stock, $0.0001 par value; 3,000,000,000 shares authorized in 2024 and 2023; 8,284,485 and 8,053,576 shares issued and outstanding in 2024 and 2023, respectively
1
1
Additional paid-in capital
3,100,990
3,056,027
Accumulated deficit
(4,439,807)
(4,307,849)
Accumulated other comprehensive loss
—
(122)
Treasury Stock, at cost, 31,526 shares at September 30, 2024, and December 31, 2023, respectively
(12,000)
(12,000)
Total shareholders’ equity (deficit)
(1,350,816)
(1,263,943)
Total liabilities, redeemable noncontrolling interests, redeemable preferred stock and shareholders’ equity (deficit)
$
696,783
$
1,225,480
See accompanying Notes to Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization: NeueHealth, Inc. and subsidiaries (collectively, “NeueHealth,” “we,” “our,” “us,” or the “Company”) was founded in 2015 to transform healthcare. NeueHealth is a value-driven, consumer-centric healthcare company committed to making high-quality, coordinated healthcare accessible and affordable to all populations. We believe we can reduce the friction and current lack of coordination in today’s healthcare system by uniquely aligning the interests of payors and providers to enable a seamless, consumer-centric healthcare experience that drives value for all.
We have two market facing segments: NeueCare and NeueSolutions. NeueCare is our value-driven care delivery business that manages risk in partnership with external payors and serves all populations across The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (“ACA”) Marketplace, Medicare, and Medicaid. NeueSolutions is our provider enablement business that includes a suite of technology, services, and clinical care solutions that empower providers to thrive in performance-based arrangements.
Basis of Presentation: The condensed consolidated financial statements include the accounts of NeueHealth, 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, 2023 included in our Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). The accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for fair presentation of the interim financial statements.
Centrum Transaction: Subsequent to September 30, 2024, we entered into a Unit Purchase Agreement dated October 29, 2024, among our wholly owned subsidiary Medical Practice Holding Company, LLC, RRD Healthcare, LLC (“RRD”), the Company, Centrum Medical Holdings, LLC (“Centrum”) and the other parties named therein, pursuant to which, we purchased RRD’s equity in Centrum for total consideration of $101.8 million, comprised of $30.0 million in cash, a credit of $7.8 million in previous distributions to RRD as the noncontrolling interest holder and a secured promissory note with a principal of $64.0 million (“Centrum Promissory Note”) (such equity purchase and related transactions, the “Centrum Transaction”). The Centrum Promissory Note is due on October 29, 2028 and bears a cash interest rate of 6% per annum, payable monthly. Upon the close of the Centrum Transaction, NeueHealth fully owns Centrum.
In connection with the Centrum Transaction, the Company will make payment of $8.0 million to the P Unit Holders of RRD (as define in Note 9. Commitments and Contingencies), generally payable by October 29, 2028, bearing cash interest at a rate of 6% per annum.
Amended 2023 Credit Agreement and 2024 NEA Warrantholders Agreement: As described in further detail in Note 5 Borrowings and Common Stock Warrants (“Note 5”), on April 8, 2024 we entered into an amendment increasing the amount available to borrow under the 2023 Credit Agreement (as defined in Note 5) by $30.0 million. In conjunction with this amendment, we entered into the 2024 NEA Warrantholders Agreement (as defined in Note 5) setting forth the rights and obligations of the NEA Lenders (as defined in Note 5) as holders of the warrants to acquire up to 1,113,563 shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. Additionally, the 2023 Credit Agreement was amended on June 21, 2024, in conjunction with the execution of the Hercules Credit Agreement (defined below), to change the maturity date to be August 31, 2028.
Hercules Credit Agreement and Warrantholders Agreement:As described in further detail in Note 5, on June 21, 2024, the Company entered into a loan and security agreement (the “Hercules Credit Agreement”), among the Company, Hercules Capital, Inc. (“Hercules”), certain affiliates of Hercules (together with Hercules, the “Lenders”) and other parties thereto to provide for a credit facility pursuant to which, among other things, Hercules has provided up to four tranches of term loans in an aggregate principal amount of $150.0 million, which mature on June 1, 2028. The Hercules Credit Agreement has four
Notes to Condensed Consolidated Financial Statements
(Unaudited)
tranches with funding milestones that must be met to access the tranche’s funds; refer to Note 5 for detailed descriptions of each tranche and corresponding milestones. In conjunction with the execution of the Hercules Credit Agreement, on June 21, 2024, we entered into warrant agreements with each of the Lenders (the “Hercules Warrantholders Agreement”), setting forth the rights and obligations of the Company and the Lenders as holders of the warrants to acquire an aggregate of 1,250,000 shares of Common Stock at an exercise price of $0.01 per share.
Held-for-Sale Operations: During the quarter ended June 30, 2024, we committed to a plan to sell AssociatesMD Medical Group, Inc. (“AMD”), which met the criteria to be classified as held for sale under ASC 360-10 Property, Plant, and Equipment. As a result, the major classes of assets and liabilities of AMD are now presented separately on the balance sheet within current assets of held-for-sale operations and current liabilities of held-for-sale operations. The results of AMD’s operations remain included in continuing operations and are detailed in full at Note 15 Held-for-Sale Operations.
Sale of California Medicare Advantage Business:On June 30, 2023, the Company entered into a definitive agreement with Molina Healthcare, Inc. (“Molina”) to sell its California Medicare Advantage business to Molina, which consisted of Universal Care, Inc. d/b/a Brand New Day, a California corporation (“BND”) and Central Health Plan of California, Inc., a California corporation (“CHP”) (the “Molina Purchase Agreement”). Effective as of January 1, 2024, this transaction was consummated for an aggregate purchase price of $500.0 million subject to certain contingencies adjustments relating to Tangible Net Equity (“TNE”). Upon completion of the sale, the Bright HealthCare reporting unit of our discontinued operations was no longer included in our operations. Refer to Note 16 Discontinued Operations for discussion of the transaction.
Debt Payoff: On December 27, 2023, we entered into an agreement regarding our revolving credit agreement with JPMorgan Chase Bank, N.A. (the “Agent”) and a syndicate of banks (the “2021 Credit Agreement”) providing that, upon closing of the sale of our California Medicare Advantage business, and payments for debt and interest of $274.6 million to the Agent and $24.1 million to the issuers of letters of credit outstanding under the 2021 Credit Agreement, all liabilities of the Company under the 2021 Credit Agreement would be terminated (other than those under the outstanding letters of credit that remained outstanding thereafter) (collectively, the “Termination”). These amounts were paid on January 2, 2024, and on that date the Termination occurred.
We evaluated this amendment to the 2021 Credit Agreement in accordance with ASC 470-60 Troubled Debt Restructuring and ASC 470-50 Debt - Modification and Extinguishments. The evaluation for troubled debt restructuring includes assessing both qualitative and quantitative factors such as whether the creditor granted a concession and if the Company is experiencing financial difficulties. Our quantitative analysis consisted of comparing the cash paid as part of the Payoff Condition to the total amount of outstanding indebtedness immediately prior to the payoff. Given the Company is experiencing financial difficulties, and the lenders granted a concession by accepting total payments of $298.6 million for the remaining balance of the principal and interest due, we accounted for the transaction as a troubled debt restructuring and recognized a total gain of $30.3 million from the debt settlement.
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, provider risk share arrangements, third-party payor risk share arrangements, and valuation and impairment of 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 $102.2 million for the nine months ended September 30, 2024. Additionally, the Company experienced negative operating cash flows for the nine months ended September 30, 2024. Certain of the Company’s insurance subsidiaries have material risk adjustment program obligations remaining related to the Company’s discontinued commercial insurance business, totaling $274.9 million, as noted further in Note 16. The subsidiaries entered into repayment agreements with the Centers for Medicare & Medicaid Services (”CMS”) with respect to the unpaid obligations which are due March 15, 2025.
As described in Note 5, Borrowings and Common Stock Warrants, in April 2024 the Company entered into an amendment to our existing 2023 Credit Agreement, which allows the Company to borrow an additional $30.0 million under the agreement.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
We drew the remaining $10.0 million available on this facility on October 1, 2024. In June 2024, we entered into a loan and security agreement with Hercules Capital, Inc. for term loans in an aggregate principal amount of up to $150.0 million. We drew $30.0 million of this facility in June 2024. Access to the remaining tranches of this facility is subject to several terms and conditions outside of management’s control.
Cash and investment balances held at regulated insurance entities are subject to regulatory restrictions and can only be accessed through dividends declared to the non-regulated parent company or through reimbursements from administrative services agreements with the parent company. The regulated legal entities are required to hold certain minimum levels of risk-based capital and surplus to meet regulatory requirements. As noted further in Note 16, Discontinued Operations, we are out of compliance with the minimum levels for certain of our regulated insurance legal entities. In certain of our other regulated insurance legal entities, we hold surplus levels of risk-based capital, and as we complete the wind-down exercise related to these entities over the nexttwo years, we expect to recapture through dividends and final liquidation actions the remaining cash positions of these entities.
We believe that the existing cash and investments will not be sufficient to satisfy our anticipated cash requirements for the next twelve months following the date the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions, management continues to implement plans to drive positive operating cash flow and achieve the requirements in the existing agreements to access additional liquidity. However, the Company may not fully collect the contingent consideration associated with the sale of the California Medicare Advantage business, may not be able to access other tranches of the new loan and security agreement with Hercules Capital, Inc., and may not be able to recapture through dividends additional cash from its regulated insurance entities, as these matters are all subject to conditions that are not fully within the Company’s control. In the event the Company is unable to access this additional liquidity or take other management actions, among other potential consequences, the Company forecasts that it will be unable to satisfy its 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 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.
Operating Costs: Our operating costs, by functional classification for the three and nine months ended September 30, 2024 and 2023, are as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Compensation and fringe benefits
$
46,586
$
45,685
$
143,971
$
146,722
Professional fees
6,273
15,126
19,342
34,745
Technology expenses
3,374
5,442
10,311
16,509
General and administrative expenses
7,287
5,129
25,157
19,719
Marketing and selling expenses
174
258
598
1,462
Other operating expenses
381
892
1,735
2,540
Total operating costs
$
64,075
$
72,532
$
201,114
$
221,697
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.
NOTE 2. RESTRUCTURING CHARGES
In October 2022, we announced our decision to further focus our business on our Fully Aligned Care Model, our NeueCare and NeueSolutions 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.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Restructuring charges by reportable segment and corporate for the periods ended September 30 were as follows (in thousands):
Three Months Ended September 30, 2024
NeueCare
NeueSolutions
Corporate & Eliminations
Total
Employee termination benefits
$
—
$
—
$
—
$
—
Long-lived asset impairments
—
—
—
—
Contract termination and other costs
—
—
—
—
Total continuing operations
$
—
$
—
$
—
$
—
Three Months Ended September 30, 2023
NeueCare
NeueSolutions
Corporate & Eliminations
Total
Employee termination benefits
$
—
$
—
$
5,153
$
5,153
Long-lived asset impairments
—
—
—
—
Contract termination and other costs
130
—
(2)
128
Total continuing operations
$
130
$
—
$
5,151
$
5,281
Nine Months Ended September 30, 2024
NeueCare
NeueSolutions
Corporate & Eliminations
Total
Employee termination benefits
$
—
$
—
$
181
$
181
Long-lived asset impairments
—
—
—
—
Contract termination and other costs
—
—
—
—
Total continuing operations
$
—
$
—
$
181
$
181
Nine Months Ended September 30, 2023
NeueCare
NeueSolutions
Corporate & Eliminations
Total
Employee termination benefits
$
—
$
—
$
5,774
$
5,774
Long-lived asset impairments
—
—
880
880
Contract termination and other costs
130
—
83
213
Total continuing operations
$
130
$
—
$
6,737
$
6,867
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, 2024 were as follows (in thousands):
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Employee termination benefits are recorded within Other current liabilities while contract termination costs are recorded within Accounts payable.
NOTE 3. INTANGIBLE ASSETS
The gross carrying value and accumulated amortization for definite-lived intangible assets were as follows (in thousands):
September 30, 2024
December 31, 2023
Gross Carrying Amount
Accumulated Amortization
Gross Carrying Amount
Accumulated Amortization
Customer relationships
$
68,770
$
27,063
$
80,021
$
26,144
Trade names
40,900
9,055
48,361
9,000
Total
$
109,670
$
36,118
$
128,382
$
35,144
For the nine months ended September 30, 2024, there was $11.4 million of impairments to definite-lived intangible assets. There were no impairments to definite-lived intangible assets for the three months ended September 30, 2024. The current year impairment was a result of classifying AMD as held-for-sale, resulting in a write-down of the business’ carrying value to the fair value as approximated by the expected sale price. There were no impairments to definite-lived intangible assets for the equivalent periods in 2023.
We are continuously evaluating whether events or changes in circumstances indicate that an intangible asset may not be recoverable including an adverse change in the extent in which an intangible asset is used, 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, 2024 and 2023 was $2.5 million and $2.9 million, respectively, and amortization expense for the nine months ended September 30, 2024 and 2023 was $8.3 million and $8.8 million, respectively.Estimated amortization expense relating to intangible assets for the remainder of 2024 and for each of the next five full years ending December 31 is as follows (in thousands):
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4. MEDICAL COSTS PAYABLE
The following table shows the components of the change in medical costs payable for the nine months ended September 30, 2024 and 2023 (in thousands):
September 30,
2024
2023
Medical costs payable - January 1
$
157,903
$
116,021
Incurred related to:
Current year
569,062
737,306
Prior year
(11,814)
912
Total incurred
557,248
738,218
Paid related to:
Current year
465,384
584,240
Prior year
126,102
100,221
Total paid
591,486
684,461
Medical costs payable - September 30
$
123,665
$
169,778
Medical costs payable attributable to prior years decreased by $11.8 million and increased by $0.9 million for the nine months ended September 30, 2024 and 2023, 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. Medical costs payable as of September 30, 2024 are primarily related to the current year.
The table below details the components making up the medical costs payable as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
December 31, 2023
Claims unpaid
456
—
Payables due to CMS (1)
18,526
—
Provider incentive payable
7,762
2,367
Incurred but not reported (IBNR)
96,921
155,536
Total medical costs payable
$
123,665
$
157,903
(1) Payables due to CMS primarily relate to out-of-network claims the Company is required to pay as a result of our ACO REACH Care Partner, Babylon, filing for bankruptcy.
NOTE 5. BORROWINGS AND COMMON STOCK WARRANTS
Short-term Borrowings and Troubled Debt Restructuring: In March 2021, we entered into a $350.0 million revolving credit agreement with JPMorgan Chase Bank, N.A. and a syndicate of banks, which was set to mature on February 28, 2024.
On December 27, 2023, we entered into an agreement regarding our 2021 Credit Agreement with the Agent providing that upon closing of the sale of our California Medicare Advantage business, and payments of $274.6 million to the Agent and $24.1 million to the issuers of letters of credit outstanding under the 2021 Credit Agreement, all liabilities of the Company under the 2021 Credit Agreement would be terminated (other than those under the outstanding letters of credit that remained
Notes to Condensed Consolidated Financial Statements
(Unaudited)
outstanding thereafter) (collectively, the “Termination”). These amounts were paid on January 2, 2024, and on that date the Termination occurred and we had no outstanding borrowings under the 2021 Credit Agreement.
As of September 30, 2024 and December 31, 2023 we had $0.0 million and $303.9 million, respectively, borrowed under the 2021 Credit Agreement at a weighted-average effective annual interest rate of 5.00%. As of September 30, 2024, the letters of credit outstanding under the 2021 Credit Agreement with a principal balance of $4.9 million are collateralized at 105% of the principal balance and reported as restricted cash included in cash and cash equivalents on the Condensed Consolidated Balance Sheet.
Upon occurrence of the Termination, we recognized a gain on troubled debt restructuring of $30.3 million. For the nine months ended September 30, 2024, the gain on troubled debt restructuring resulted in a decrease of basic and diluted loss per share of $3.69. There was no gain on troubled debt restructuring for the nine months ended September 30, 2023.
Long-term Borrowings:
2023 Credit Agreement: On August 4, 2023, the Company entered into a credit agreement (as amended, supplemented, restated or otherwise modified from time to time, the “2023 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, which initially matured on December 31, 2025.
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 an amendment (“Incremental Amendment No. 1”) to the 2023 Credit Agreement to provide for a term loan commitment increase in an aggregate principal amount of $6.4 million by the New Lender under the 2023 Credit Agreement. Loans under Incremental Amendment No. 1 have the same terms as loans under the original term loan commitments provided by the Existing Lender.
On April 8, 2024, the Company and NEA, New Enterprise Associates 17, L.P., New Enterprise Associates 16, L.P. and New Enterprise Associates 15, L.P. (collectively, the “NEA Lenders”) entered into an amendment (“Incremental Amendment No. 2”) to the 2023 Credit Agreement to provide for a term loan commitment increase in an aggregate principal amount of up to $30.0 million by the NEA Lenders. Loans under Incremental Amendment No. 2 have the same terms as loans under the original term loan commitments provided by NEA.
On June 21, 2024, in conjunction with closing on the Hercules Credit Agreement, the Company entered into an amendment (“Amendment No. 3”) to the 2023 Credit Agreement (as amended to date, the “Amended 2023 Credit Agreement”) to modify the maturity date of the 2023 Credit Agreement to be August 31, 2028, 91 days subsequent to the maturity of the Hercules Credit Agreement.
As we drew on the increased term loan commitment of the 2023 Credit Agreement in conjunction with the execution of the 2024 NEA Warrantholder’s Agreement a warrant asset was established for the all the warrants available to be issued at the fair value of the warrants on the close date of $6.8 million; upon issuing warrants the corresponding portion of the asset will be recorded as a discount on debt and amortized over the remaining term of the debt. The warrant asset is presented in prepaids and other current assets on the Condensed Consolidated Balance Sheets. With the issuance of warrants in conjunction with our draw on the 2023 Credit Agreement, $4.6 million of the warrant asset was recorded as a discount on debt. As of September 30, 2024, the warrant asset related to the 2023 Credit Agreement was $2.3 million. The warrant asset is presented in prepaids and other current assets on the Condensed Consolidated Balance Sheets.
The $4.6 million discount on debt is presented as a direct deduction from the carrying amount of the related debt on the balance sheet. The discount on debt is amortized over the term of the credit agreement using the effective interest rate method using an effective interest rate of 16.14%; the expense is recognized within interest expense on the condensed consolidated statements of income (loss). As of September 30, 2024, the unamortized discount was $4.1 million; amortization for the nine months ended September 30, 2024 was $0.5 million. There was no equivalent discount on debt as of December 31, 2023 and there was no amortization of discount on debt for the periods ended September 30, 2023.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of September 30, 2024 and December 31, 2023, we had $86.4 million and $66.4 million, respectively, borrowed under the 2023 Credit Agreement at a weighted-average effective interest rate of 16.14%; an additional $10.0 million is available to be borrowed under the 2023 Credit Agreement. Subsequent to September 30, 2024, we borrowed an additional $10.0 million under the 2023 Credit Agreement; as of the date of this report there are no available borrowings under this agreement.
We elected to satisfy interest payments through the issuance of additional debt with quarterly paid-in-kind (“PIK”) interest payments. The total amount of PIK interest added to the principal balance of the Amended 2023 Credit Agreement was $12.6 million as of September 30, 2024. The non-cash financing activity related to PIK interest for the nine months ended September 30, 2024 is disclosed as a supplemental item in the statement of cash flows.
Hercules Credit Agreement: On June 21, 2024, the Company entered into a loan and security agreement (the “Hercules Credit Agreement”), among the Company, Hercules Capital, Inc. (“Hercules”) and the other parties thereto to provide for a credit facility pursuant to which, among other things, Hercules has provided up to four tranches of term loans in an aggregate principal amount of $150.0 million, which mature on June 1, 2028. The four tranches are as follows:
Tranche 1: $30,000,000 term loan at closing on June 21, 2024
Tranche 2: up to $25,000,000 term loan that will be available from November 10 – December 31, 2024. The Company’s ability to draw on Tranche 2 is subject to the following funding milestone: (i) the Company has achieved the “Consolidation Condition” or the “2025 Stars Condition” (each as defined in the Hercules Credit Agreement), and (ii) there has been no material adjustments to the expected payment amount of the “Consolidation and Adjustment Escrow Amount” after giving effect to the “CHP Enrollee Adjustment”, if any (each as defined in the Hercules Credit Agreement); in each case, based upon written evidence provided to, reviewed and approved by Hercules in its reasonable discretion.
Tranche 3: up to $45,000,000 term loan that will be available from February 15 – September 15, 2025. The Company’s ability to draw on Tranche 3 is subject to the following funding milestone: (i) the Company has satisfied in full the “CMS Settlement” and the “ACO REACH Deficit Obligation” (each as defined in the Hercules Credit Agreement), and (ii) after giving effect to the aforementioned clause (i) and the draw down in full of the available “Tranche 3 Advances”, the loan parties maintain “Qualified Cash” (as defined in the Hercules Credit Agreement) in an amount greater than or equal to $22,500,000; in each case, based upon written evidence provided to, reviewed and approved by Hercules in its reasonable discretion.
Tranche 4: up to $50,000,000 term loan that was available commencing on the June 21, 2024 closing date and ending on June 1, 2027.
We elected to satisfy a portion of the interest payments through the issuance of additional debt with monthly PIK interest payments. The total amount of PIK interest added to the principal balance of the Hercules Credit Agreement was $0.2 million as of September 30, 2024.
As of September 30, 2024, we had $30.0 million borrowed under the Hercules Credit Agreement at an effective interest rate of 18.71%. As the debt was issued in conjunction with the warrantholder’s agreements the fair value of the warrants on the close date, a warrant asset was established for the all the warrants available to be issued at the fair value of the warrants on the close date of $6.4 million; upon issuing warrants the corresponding portion of the asset will be recorded as a discount on debt and amortized over the remaining term of the debt. The warrant asset is presented in prepaids and other current assets on the Condensed Consolidated Balance Sheets. With the issuance of warrants in conjunction with our draw on the 2023 Credit Agreement, $1.2 million of the warrant asset was recorded as a discount on debt. As of September 30, 2024, the warrant asset related to the Hercules Credit Agreement was $5.3 million. The warrant asset is presented in prepaids and other current assets on the Condensed Consolidated Balance Sheets.
Deferred financing costs related to the issuance of the Hercules Credit Agreement amounted to approximately $3.9 million. Both the $1.2 million discount on debt and the deferred financing costs are presented as a direct deduction from the carrying amount of the related debt on the balance sheet. Both the discount on debt and the deferred financing costs are amortized over the term of the credit agreement using the effective interest rate method. The discount on debt and deferred financing costs are amortized using the effective interest rate of 18.71%; the expense is recognized within interest expense on the condensed
Notes to Condensed Consolidated Financial Statements
(Unaudited)
consolidated statements of income (loss). As of September 30, 2024, the unamortized discount was $1.1 million and unamortized deferred financing costs was $3.7 million. The amortization of the discount on debt and deferred financing costs for the three and nine months ended September 30, 2024 was $0.1 million.and $0.2 million, respectively. There was no equivalent discount on debt as of and for the periods ended September 30, 2023.
Centrum Promissory Note: Subsequent to September 30, 2024, in connection with the Centrum Transaction, we issued the Centrum Promissory Note in a principal amount of $64.0 million bearing a cash interest rate of 6% per annum, payable monthly. It is due on October 29, 2028 and all or any portion may be prepaid at any time without penalty or premium. The Centrum Promissory Note is secured by second priority liens on substantially all assets of the Company and its subsidiaries.
Common Stock Warrants:
2023 Warrantholders Agreement: 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 on our Condensed Consolidated Balance Sheets. The warrants do not contain any exercise contingencies and expire on the fifth anniversary of the first closing date.
On October 2, 2023, we entered into a warrantholders agreement (the “CalSTRS Warrantholders Agreement” and together with the “NEA Warrantholders Agreement,” the “2023 Warrantholders Agreements”) with the New Lender, 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 increased the warrant liability by $1.0 million on this date, representing the 0.2 million warrants available to be issued under the CalSTRS Warrantholders Agreement at a fair market value of $5.80 (closing share price on October 2, 2023 minus the $0.01 exercise price). The warrants do not contain any exercise contingencies and expire on the fifth anniversary of the first closing date.
2024 NEA Warrantholders Agreement: On April 8, 2024, the Company and the NEA Lenders entered into a warrantholders agreement (“2024 NEA Warrantholders Agreement”) setting forth the rights and obligations of the Company and the NEA Lenders as holders of the warrants to acquire up to 1,113,563 shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. Warrants under the 2024 NEA Warrantholder’s Agreement have the same terms as warrants issued under the original Warrantholder’s Agreement executed on August 4, 2023. We established a warrant liability of $6.8 million on this date, representing the 1.1 million warrants available to be issued under the 2024 NEA Warrantholders Agreement at a fair market value of $6.14 (closing share price on April 8, 2024 minus the $0.01 exercise price). The warrants do not contain any exercise contingencies and expire five years from the date the initial warrants are issued under the 2024 NEA Warrantholder’s Agreement.
Hercules Warrantholders Agreements: On June 21, 2024, we entered into warrant agreements (the “Hercules Warrantholders Agreements”) with Hercules and the lenders from time-to-time party to the Hercules Credit Agreement, setting forth the rights and obligations of the Company and the lenders as holders of the warrants to acquire an aggregate of 1,250,000 shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. The warrants may be settled with cash or net settlement in shares at the determination of the warrantholders. We established a warrant liability of $6.4 million on this date, representing the 1.3 million warrants available to be issued under the Hercules Warrantholders Agreements at a fair market value of $5.14 (closing share price on June 21, 2024 minus the $0.01 exercise price). The warrants do not contain any exercise contingencies and expire on the seventh anniversary of the closing date.
We account for our common stock warrants at the time of inception as derivatives, utilizing ASC 815 Derivatives and Hedging, 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 Warrantholders Agreements, 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 issued under the 2023 Warrantholders Agreement and 2024 NEA Warrantholders Agreement will remain classified as a liability and be fair valued each period until they are exercised by the warrant holder. 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. Warrants under the Hercules Warrantholders Agreements
Notes to Condensed Consolidated Financial Statements
(Unaudited)
will remain classified as a liability and be fair valued each period until the shares issuable thereunder are issued to the warrantholder. Upon issuance, we relieve the associated liability into additional paid-in capital at the fair value of the warrants on the date of issuance, classifying the issued warrants as equity.
The following table shows the components of the change in warrant liability for the nine months ended September 30, 2024 (in thousands):
Fair Value
Balance at January 1, 2024
$
13,971
Newly executed Warrantholders Agreement
13,262
Antidilutive issuances (1)
212
Change in fair value of outstanding warrants
(4,036)
Warrants issued and classified as equity instruments
(1,157)
Balance at September 30, 2024
$
22,252
(1) The 2023 Warrantholders Agreement and 2024 NEA Warrantholders Agreement contain a Dilutive Issuance provision providing for additional warrants to be issued upon the issuance of warrants with a market price lower than that of August 29, 2023, in the case of the 2023 Warrantholders Agreement, and April 30, 2024, in the case of the 2024 NEA Warrantholders Agreement. For the three and nine months ended September 30, 2024 an additional 41,158 warrants were issued under the 2023 Warrantholders Agreement and 2024 NEA Warrantholders Agreement. The warrants were granted at a fair market value of $5.14 (closing share price on June 21, 2024 minus the $0.01 exercise price).
As of September 30, 2024 and December 31, 2023 the warrant liability was $22.3 million and $14.0 million, respectively. For the three and nine months ended September 30, 2024, we had warrant expense of $0.5 million and warrant income of $3.8 million, respectively. There was $9.9 million of warrant expense for the three and nine months ended September 30, 2023.
As of September 30, 2024 no issued warrants have been exercised. The table below summarizes the number of warrants that remain available to be issued under each of the Warrantholders Agreements as of September 30, 2024:
2023 Warrantholders Agreement
—
2024 NEA Warrantholders Agreement
371,188
Hercules Warrantholders Agreements
1,025,000
Subsequent to September 30, 2024, 371,188 warrants were issued under the 2024 NEA Warrantholders Agreement in connection with the draw of an additional $10.0 million under the 2023 Credit Agreement. As of the date of this report, there are no warrants available to be issued under the 2024 Warrantholders 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 16, Discontinued Operations for the full definition of Level 1, Level 2, and Level 3 fair values.
NOTE 6. SHARE-BASED COMPENSATION
2016 Incentive Plan
The Company adopted its 2016 Stock Incentive Plan (the “2016 Incentive Plan”) in March 2016. The 2016 Incentive Plan allowed for the Company to grant stock options, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”) to certain employees, consultants and non-employee directors. The 2016 Incentive Plan was initially adopted on March 25, 2016, and most recently amended in December 2020. Following the effectiveness of our 2021 Omnibus Plan (the “2021 Incentive Plan”), no further awards will be granted under the 2016 Incentive Plan. However, all outstanding awards granted under the 2016 Incentive Plan will continue to be governed by the existing terms of the 2016 Incentive Plan and the applicable award agreements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2021 Incentive Plan
The 2021 Incentive Plan was adopted by our Board of Directors on May 21, 2021 and approved by our stockholders on May 25, 2021 and June 5, 2021. The 2021 Incentive Plan allows the Company to grant stock options, RSAs, RSUs, stock appreciation rights, other equity-based awards, and cash-based incentive awards to certain employees, consultants and non-employee directors. The 2021 Incentive Plan was most recently amended in May 2024. As of September 30, 2024 there are 4.4 million shares of common stock authorized for issuance under the 2021 Incentive Plan and a total of 0.8 million shares of common stock were available for future issuance under the 2021 Incentive Plan.
Share-Based Compensation Expense
We recognized share-based compensation expense of $56.2 million and $65.6 million for the nine months ended September 30, 2024 and 2023, respectively, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss).
Stock Options
The Board of Directors, or the Compensation and Human Capital Committee of the Board of Directors, as applicable, determines the exercise price, vesting periods and expiration date at the time of the grant. Stock options granted prior to the third quarter of 2021 generally vest 25% at one year from the grant date, then ratably over the next 36 months with continuous employee service. Stock options granted after the beginning of the third quarter of 2021 generally vest ratably over three years. Option grants generally expire 10 years from the date of grant.
There were no options granted during the nine months ended September 30, 2024.
The activity for stock options for the nine months ended September 30, 2024 is as follows (in thousands, except exercise price, weighted average contractual life, and aggregate intrinsic value):
Shares
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life (In Years)
Aggregate Intrinsic Value
Outstanding at January 1, 2024
633
$
138.33
5.2
$
213
Granted
—
—
Exercised
—
—
Forfeited
(4)
175.73
Expired
(135)
157.08
Outstanding at September 30, 2024
494
$
132.93
4.7
$
124
We recognized share-based compensation expense related to stock options of $19.6 million for the nine months ended September 30, 2024, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At September 30, 2024, there was $8.6 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 0.4 years.
Restricted Stock Units
RSUs represent the right to receive shares of our common stock at a specified date in the future and generally vest over a three-year period, except for Board of Director grants which generally vest one year from the date of grant. The fair value of RSUs is determined based on the closing market price of our common stock on the date of grant.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes RSU award activity for the nine months ended September 30, 2024 (in thousands, except weighted average grant date fair value):
Number of RSUs
Weighted Average Grant Date Fair Value
Unvested RSUs at January 1, 2024
776
$
53.32
Granted
2,535
6.24
Vested
(230)
45.37
Forfeited
(53)
42.70
Unvested RSUs at September 30, 2024
3,028
$
14.68
We recognized share-based compensation expense related to RSUs of $18.6 million for the nine months ended September 30, 2024, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). As of September 30, 2024, there was $18.2 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.
Performance-based Restricted Stock Units (“PSUs”)
In connection with our initial public offering, 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, 2024 (in thousands, except weighted average grant date fair value):
Number of PSUs
Weighted Average Grant Date Fair Value
Unvested PSUs at January 1, 2024
131
$
744.00
Granted
—
—
Forfeited
(13)
744.02
Unvested PSUs at September 30, 2024
118
$
744.01
We recognized share-based compensation expense related to PSUs of $12.6 million for the nine months ended September 30, 2024, which is included in operating costs in the Condensed Consolidated Statements of Income (Loss). At September 30, 2024, there was no unrecognized compensation expense related to the PSU grant as the minimum service period was achieved in June 2024. The PSUs will expire 1.4 years after September 30, 2024 if the predetermined stock price goals are not achieved.
Liability Classified Share-based Award
In May 2024, the Company granted share-based awards to certain employees. These awards provide the option for settlement in either cash or shares, at the discretion of the Company. However, based on our ongoing assessment, we are unable to conclude that it is probable that the settlement will occur in shares, leading to the classification of these awards as liabilities. The awards are tied to the achievement of our 2024 Annual Incentive Plan performance measures, with a maximum payout of 100% of target. The awards, if any, shall be paid, upon Committee approval, at such time the Committee will determine whether the awards will be paid in cash or shares.
These awards are initially measured at fair value on the grant date and subsequently remeasured at each reporting date until settlement. The remeasurement of the liability at each reporting date impacts the Company’s financial statements through adjustments to share-based compensation expense. The liability will be derecognized upon settlement, with any difference
Notes to Condensed Consolidated Financial Statements
(Unaudited)
between the final settlement amount and the remeasured liability amount recognized in the income statement. The fair value of the liability-classified awards is derived from the targeted bonus amount, which represents the expected payout if performance targets are met. This amount is adjusted for estimated forfeitures to account for the probability that some awards will not vest due to employee turnover or failure to meet performance criteria.
The total compensation cost, presented within operating costs on the Condensed Consolidated Statements of Income (Loss), recognized for these liability-classified awards for the three and nine months ended September 30, 2024 was $3.0 million and $5.4 million. This expense is recognized ratably over the vesting period of nine months. There was no expense for the three and nine months ended September 30, 2023.
The following table provides a reconciliation of the beginning and ending balances of the share-based payment liability (in thousands):
Fair Value
Balance at January 1, 2024
$
—
Fair value of awards granted (ratable expense recognized to date)
5,422
Balance at September 30, 2024
$
5,422
As of September 30, 2024, the liability for these awards was remeasured at fair value, resulting in a recognized liability of $5.4 million. The changes in fair value of the liability were recognized as share-based compensation expense in the income statement. The liability for these awards is included within other current liabilities on the Condensed Consolidated Balance Sheets. There was no liability as of December 31, 2023.
As of September 30, 2024 the estimated unrecognized expense of the liability classified share-based award is $2.8 million to be recognized over the remainder of the year.
NOTE 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Pursuant to the Certificate of Designations designating the shares of our Series A Convertible Perpetual Preferred Stock and the Certificate of Designations designating the shares of our Series B Convertible Perpetual Preferred Stock (collectively, the “Preferred Stock”) each of which we filed with the Secretary of State of the State of Delaware (together, the “Certificate of Designations”), the Preferred Stock ranks senior to our shares of 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 is convertible into common stock and is entitled to an initial liquidation preference, in each case subject to certain limitations outlined in the Certificates of Designations.
Series A Convertible Preferred Stock
On January 3, 2022, we issued 750,000 shares of Series A Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $750.0 million, or $1,000 per share.
The Series A Preferred Stock ranks senior to the shares of the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock has an initial liquidation preference of $1,000 per share, which shall increase by accumulated quarterly dividends that are not paid in cash (“compounded dividends”). Holders of the Series A Preferred Stock are entitled to a dividend at the rate of 5.0% per annum, accruing daily and payable quarterly in arrears and subject to certain adjustments, as set forth in the Certificate of Designations. Dividends will be payable in cash, by increasing the amount of liquidation preference (compounded dividends) with respect to a share of Series A Preferred Stock, or any combination thereof, at the sole discretion of the Company. The Series A Preferred Stock had accrued compounded dividends of $109.4 million and $78.0 million as of September 30, 2024 and December 31, 2023, 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)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the conversion price (initially approximately $364.00 per share and approximately $266.21 per share subsequent to the issuance of all warrants prior to the nine months ended September 30, 2024) 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.
Series B Convertible Preferred Stock
On October 17, 2022, we issued 175,000 shares of Series B Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $175.0 million, or $1,000 per share.
The Series B Preferred Stock ranks senior to the shares of the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Preferred Stock has an initial liquidation preference of $1,000 per share, which shall increase by compounded dividends. Holders of the Series B Preferred Stock are entitled to a dividend at the rate of 5.0% per annum, accruing daily and payable quarterly in arrears and subject to certain adjustments, as set forth in the Certificate of Designations. Dividends will be payable in cash, by increasing the amount of liquidation preference (compounded dividends) with respect to a share of Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company. The Series B Preferred Stock had accrued compounded dividends of $17.8 million and $10.8 million as of September 30, 2024 and December 31, 2023, 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 $92.76 per share subsequent to the issuance of all warrants prior to the nine months ended September 30, 2024) as of the applicable conversion date plus (II) cash in lieu of
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 nine months ended September 30 (in thousands, except for per share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Loss from continuing operations, net noncontrolling interests and accrued preferred stock dividends
$
(56,117)
$
(578,514)
$
(127,721)
$
(717,946)
Loss from discontinued operations
(14,358)
(67,843)
(42,662)
(240,321)
Net loss attributable to NeueHealth, Inc. common shareholders
$
(70,475)
$
(646,357)
$
(170,383)
$
(958,267)
Weighted-average number of shares outstanding used to compute net loss per share attributable to common stockholders, basic and diluted
8,282
7,977
8,205
7,945
Basic and diluted loss per share attributable to NeueHealth, Inc. common shareholders
Continuing operations
$
(6.78)
$
(72.52)
$
(15.57)
$
(90.36)
Discontinued operations
$
(1.73)
$
(8.51)
$
(5.20)
$
(30.25)
Net loss per share attributable to common stockholders, basic and diluted
$
(8.51)
$
(81.03)
$
(20.77)
$
(120.61)
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):
Nine Months Ended September 30,
2024
2023
Redeemable convertible preferred stock (as converted to common stock)
5,307
4,599
Issued and outstanding common stock warrants
2,842
1,381
Stock options to purchase common stock
494
673
Restricted stock units
3,028
1,056
Total
11,671
7,709
If the liability classified share-based award, as described in Note 6. Share-Based Compensation, is settled in shares in lieu of a cash settlement additional, potentially dilutive securities, will be issued. Until the determination is made, the number of outstanding potentially dilutive securities is not determinable or estimable.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Legal proceedings: In the normal course of business, we could be involved in various legal proceedings such as, but not limited to, the following: lawsuits alleging negligence in care or general liability, violation of regulatory bodies’ rules and regulations, or violation of federal and/or state laws.
On January 6, 2022, a putative securities class action lawsuit was filed against us and certain of our officers and directors in the Eastern District of New York. The case is captioned Marquez v. Bright Health Group, Inc. et al., 1:22-cv-00101 (E.D.N.Y.). The lawsuit alleges, among other things, that we made materially false and misleading statements regarding our business, operations, and compliance policies, which in turn adversely affected our stock price. An amended complaint was filed on June 24, 2022, which expands on the allegations in the original complaint and alleges a putative class period of June 24, 2021 through March 1, 2022. The amended complaint also adds as defendants the underwriters of our initial public offering. The
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Company served a motion to dismiss the amended complaint. On November 1, 2024, the court issued a memorandum and order and entered judgement granting the motion to dismiss in full. Plantiff’s deadline to file a notice of appeal is December 2, 2024.
Based on our assessment of the facts underlying the claims, the degree to which we intend to defend the Company in this matter, if needed, and the court’s ruling, 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, 2024 and December 31, 2023 for these actions.
Profit sharing award: In June 2021, upon our acquisition of Centrum Medical Holdings, LLC. (“Centrum”) the noncontrolling interest holder granted profit-sharing awards to certain members of Centrum’s management team. The outstanding awards are connected to the exercise of the 2026 Put/Call Events (as defined in the Centrum Purchase Agreement) and is contingent upon the achievement of the Centrum specific EBITDA calculation for the year ending December 31, 2025 surpassing a predetermined hurdle (the “Performance Metric”). As the noncontrolling interest holder is considered to be an economic interest holder of NeueHealth, if the Performance Metric is achieved, the Company will incur compensation costs associated with the profit-sharing award that will have an offsetting impact in net income (loss) from continuing operations attributable to noncontrolling interests on our condensed consolidated statements of income (loss). As of September 30, 2024, no compensation cost has been recognized as we do not believe it is probable the Performance Metric will be achieved. This expectation is based on current performance projections; however, the actual compensation cost we will be required to recognize may vary depending on actual performance outcomes.
We will continue to monitor and assess the probability of the Performance Metric being achieved at each reporting period. Any future recognition of compensation cost will be disclosed in the financial statements as it becomes probable that the performance metric will be met.
Subsequentto September 30, 2024, in connection with the Centrum Transaction, we will pay $8.0 million to the P Unit Holders payable by October 29, 2028, bearing cash interest at a rate of 6% per annum.
Other commitments: As of September 30, 2024, we had letters of credit unrelated to the 2021 Credit Agreement of $16.5 million, as well as surety bonds of $19.7 million. On our Condensed Consolidated Balance Sheets, $33.7 million of the cash and cash equivalents and $8.8 million of the short-term investments is restricted as collateral to our undrawn letters of credit and surety bonds.
NOTE 10. SEGMENTS AND GEOGRAPHIC INFORMATION
Factors used to determine our reportable segments include the nature of operating activities, economic characteristics, existence of separate senior management teams and the type of information used by the Company’s 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: NeueCare and NeueSolutions. The NeueCare and NeueSolutions 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.
NeueCare and NeueSolutions, 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:
NeueCare: 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, 2024, NeueCare provides virtual and in-person clinical care through its 74 owned primary care clinics within an integrated care delivery system. Through these risk-bearing clinics and our affiliated network of care providers, our NeueCare segment serves approximately 404,000 consumers. NeueCare customers include external payors, third party administrators, affiliated providers and direct-to-government programs.
NeueSolutions: 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, 2024, NeueSolutions has approximately 43,000 value-based care consumers attributed to
Notes to Condensed Consolidated Financial Statements
(Unaudited)
its REACH ACO’s and 119,000 enablement services lives representing members attributed to NeueHealth by provider partner groups that are outside of the NeueHealth owned network.
The Company’s accounting policies for reportable segment operations are consistent with those described in Note 2, Summary of Significant Accounting Policies, in our 2023 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, 2024 and 2023 (in thousands):
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Nine Months Ended September 30, 2024
NeueCare
NeueSolutions
Corporate & Eliminations
Consolidated
Capitated revenue
$
196,805
$
—
$
—
$
196,805
ACO REACH revenue
—
471,090
—
471,090
Service revenue
28,433
6,924
—
35,357
Investment income
486
—
281
767
Total unaffiliated revenue
225,724
478,014
281
704,019
Affiliated revenue
8,751
—
(8,751)
—
Total segment revenue
234,475
478,014
(8,470)
704,019
Operating income (loss)
20,340
(8,367)
(89,966)
(77,993)
Depreciation and amortization
9,753
—
2,291
12,044
Bad debt expense
—
16
(2)
14
Restructuring charges
—
—
181
181
Goodwill impairment
—
—
—
—
Intangible asset impairment
11,411
—
—
11,411
Nine Months Ended September 30, 2023
NeueCare
NeueSolutions
Corporate & Eliminations
Consolidated
Capitated revenue
$
159,683
$
—
$
—
$
159,683
ACO REACH revenue
—
676,845
—
676,845
Service revenue
29,711
1,676
—
31,387
Investment income
—
—
16
16
Total unaffiliated revenue
189,394
678,521
16
867,931
Affiliated revenue
6,487
—
(6,487)
—
Total segment revenue
195,881
678,521
(6,471)
867,931
Operating income (loss)
(373,094)
(27,868)
(130,099)
(531,061)
Bad debt expense
639
22,415
—
23,054
Depreciation and amortization
9,470
—
4,801
14,271
Restructuring charges
130
—
6,737
6,867
Goodwill impairment
401,385
—
—
401,385
Intangible asset impairment
—
—
—
—
For all periods presented, all of our long-lived assets were located in the United States, and all revenues were earned in the United States. We do not include asset information by reportable segment in the reporting provided to the CODM.
NOTE 11. INCOME TAXES
Income tax was an expense of $2.8 million and a benefit of $3.4 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, income tax was an expense of $3.3 million and a benefit of $3.0 million, respectively. The impact from income taxes varies from the federal statutory rate of 21.0% due to state income taxes, changes in the valuation allowance for deferred tax assets and adjustments for permanent differences. For the three and nine months ended September 30, 2024, the expense largely relates to estimated state income taxes attributable to income earned in separate filing states without state net operating loss carryforwards and in combined filing states that restrict which entities within the group may use specific net operating loss carryforwards. For the three and nine months ended September 30, 2023, the benefit largely relates to the removal of the accrued amortization of originating goodwill from asset acquisitions due to goodwill impairment and estimated state income taxes attributable to income earned in separate filing states without state net operating loss carryforwards.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
We assess whether sufficient future taxable income will be generated to permit the use of deferred tax assets. This assessment includes consideration of the cumulative losses incurred over the three-year period ended September 30, 2024. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for future earnings. On the basis of this evaluation, we have recorded a valuation allowance for deferred tax assets to the extent that they cannot be supported by reversals of existing cumulative temporary differences. Any federal tax benefit generated from losses in 2024 is expected to require an offsetting adjustment to the valuation allowance for deferred tax assets, and thus have no net effect on the income tax provision.
NOTE 12. REDEEMABLE NONCONTROLLING INTEREST
Redeemable noncontrolling interests in our subsidiaries whose redemption is outside of our control are classified as temporary equity. The following table provides details of our redeemable noncontrolling interest activity for the three and nine months ended September 30, 2024 and 2023 (in thousands):
2024
2023
Balance at January 1
$
88,908
$
219,758
Earnings attributable to noncontrolling interest
4,227
1,421
Distribution to noncontrolling interest holders
(1,884)
(1,805)
Measurement adjustment
7,510
4,129
Balance at March 31
$
98,761
$
223,503
(Loss) earnings attributable to noncontrolling interest
(531)
3,139
Distribution to noncontrolling interest holders
4,174
(3,147)
Measurement adjustment
1,463
21,066
Balance at June 30
$
103,867
$
244,561
Earnings attributable to noncontrolling interest
5,062
3,211
Distribution to noncontrolling interest holders
(3,040)
(4,045)
Measurement adjustment
11,987
83,536
Balance at September 30
$
117,876
$
327,263
NOTE 13. ACO REACH
We participate in the CMS ACO REACH Model with three REACH ACOs participating through the global risk arrangement and assuming full risk for the total cost of care of aligned beneficiaries. As part of our participation in the ACO REACH Model, we are guaranteeing the performance of our care network of participating and preferred providers. The intention of the ACO REACH Model is to enhance the quality of care for Medicare FFS beneficiaries while reducing the administrative burden, supporting a focus on complex, chronically ill patients, and encouraging physician organizations that have not typically participated in Medicare FFS programs to serve Medicare FFS beneficiaries.
Key components of the financial agreement for the ACO REACH Model include:
•Performance Year Benchmark: The target amount for Medicare expenditures on covered services (Medicare Part A and B) furnished to a REACH ACO’s aligned beneficiaries during a performance year. The Performance Year Benchmark will be compared to the REACH ACO’s performance year expenditures. This comparison will be used to calculate shared savings and shared losses. The Performance Year Benchmark is established at the beginning of the performance year utilizing prospective trend estimates and is subject to retrospective trend adjustments, if warranted, before the Financial Reconciliation.
•Risk-Sharing Arrangements: Used in determining the percent of savings and losses that REACH ACOs are eligible to receive as shared savings or may be required to repay as shared losses.
•Financial Reconciliation: The process by which CMS determines shared savings or shared losses by comparing the calculated total benchmark expenditures for a given REACH ACO’s aligned population to the actual expenditures of
Notes to Condensed Consolidated Financial Statements
(Unaudited)
that REACH ACO’s aligned beneficiaries over the course of a performance year that includes various risk-mitigation options such as stop-loss reinsurance and risk corridors.
•Risk-Mitigation Options: For the 2024 Performance Year, all of our REACH ACOs elected to participate in a “stop-loss arrangement”. For the 2023 Performance Year, two of our REACH ACOs elected to participate in a “stop-loss arrangement” offered by CMS, while one REACH ACO elected third-party coverage. The “stop-loss arrangement” and third-party coverage are designed to reduce the financial uncertainty associated with high-cost expenditures of individual beneficiaries. Additionally, CMS has created a mandatory risk corridor program that allocates the REACH ACO’s shared savings and losses in bands of percentage thresholds, after a deviation of greater than 25.0% of the Performance Year Benchmark.
Performance Guarantees
Through our participation in the ACO REACH Model, we determined that our arrangements with the providers of our REACH ACO beneficiaries require us to guarantee their performance to CMS. At the beginning of the performance year, we recognized the ACO REACH estimated performance year obligation and receivable for the duration of the performance year. This receivable and obligation are measured at an amount equivalent to the estimated Performance Year Benchmark per CMS that is representative of the expected Medicare expenditures for beneficiaries aligned to our REACH ACOs. As we fulfill our obligation, we amortize the guarantee on a straight-line basis for the amount that represents the completed portion of the performance obligation. The receivable is reduced as we receive payments from CMS for in-network claims or receive CMS reporting detailing out-of-network claims paid by CMS on behalf of our aligned beneficiaries. At the end of each reporting period, we estimate both in-network claims and out-of-network claims incurred by beneficiaries aligned to our REACH ACOs but not yet reported and record a reserve for the estimated amount which is included in medical costs payable on the Condensed Consolidated Balance Sheets. For each performance year, the final consideration due to the REACH ACOs by CMS (shared savings) or the consideration due to CMS by the REACH ACOs (shared loss) is reconciled in the year following the performance year. On a periodic basis CMS adjusts the estimated Performance Year Benchmark based upon revised trend assumptions and changes in attributed membership. CMS will also estimate the shared savings or loss for the REACH ACO on a quarterly basis based upon the estimated Performance Year Benchmark, changes to membership, payments made to the REACH ACO for in-network claims, out-of-network claims paid on behalf of the REACH ACO and various other assumptions including incurred but not reported reserves. The estimated Performance Year Benchmark is our best estimate of our obligation as we are unable to estimate the potential shared savings or loss due to the “stop-loss arrangement”, risk corridor components of the agreement, and a number of variables including but not limited to risk ratings and benchmark trends that could have an inestimable impact on estimated future payments.
The tables below include the financial statement impacts of the performance guarantee at September 30, 2024 and December 31, 2023 and for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands):
September 30, 2024
December 31, 2023
ACO REACH performance year receivable(1)
$
261,215
$
115,878
ACO REACH performance year obligation
161,855
—
(1) As of September 30, 2024, we estimate there to be in-network and out-of-network claims incurred by beneficiaries aligned to our REACH ACOs but not reported of $96.9 million related to performance year 2024; this is included in medical costs payable on the Condensed Consolidated Balance Sheets.
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Amortization of ACO REACH performance year receivable(1)
$
160,526
$
223,363
$
502,085
$
648,334
Amortization of ACO REACH performance year obligation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) The amortization of the ACO REACH performance year receivable includes $115.9 million and $99.2 million related to the amortization of the prior year receivable for the nine months ended September 30, 2024 and 2023, respectively.
(2) ACO REACH revenue is reflective of a $14.5 million reduction relating to the 2023 performance year.
For the nine months ended September 30, 2024 and 2023, respectively, there is $1.6 million and $1.2 million reported within ACO REACH revenue on the Condensed Consolidated Statements of Income (Loss), that is related to our NeueCare clinics that are participating providers within our REACH ACOs. This revenue is presented gross in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts With Customers (“ASC 606”).
NOTE 14. DECONSOLIDATION OF BRIGHT HEALTHCARE INSURANCE COMPANY OF TEXAS
On November 29, 2023, BHIC-Texas (the “Deconsolidated Entity”) was placed into liquidation and the Texas Department of Insurance was appointed as receiver. The Deconsolidated Entity’s financial results are included in the Company’s consolidated results through November 28, 2023, the day prior to the date of the receivership. However, under ASC 810, consolidation of a majority-owned subsidiary is precluded where control of the subsidiary does not rest with the majority owners. Once the Texas Department of Insurance was appointed as receiver of BHIC-Texas we concluded the Company no longer controlled the subsidiary, and we deconsolidated BHIC-Texas as of that date.
The deconsolidation of BHIC-Texas resulted in certain related party balances that had previously been eliminated upon consolidation to become liabilities of the Company. In 2022, BHIC-Texas entered into a risk share contract with a different NeueHealth affiliate, whereby losses incurred at BHIC-Texas over a specified medical loss ratio target were transferred from BHIC-Texas to the affiliated entity. On November 29, 2023 the accrued loss of BHIC-Texas related to the risk share contract was $124.0 million. Upon deconsolidation of BHIC-Texas, this liability is required to be recorded as risk share payable to deconsolidated entity on the Consolidated Balance Sheet. The corresponding receivable on BHIC-Texas was included in our carrying value evaluation described below.
The table below presents the balance sheet of BHIC-Texas on November 29, 2023, the date the Deconsolidated Entity was placed into receivership.
Cash and cash equivalents
$
60,560
Prepaids and other current assets
1,522
Risk Share Receivable
123,981
Total Assets
$
186,063
Accounts payable
$
135
Medical costs payable
3,283
Other current liabilities
1,523
Risk adjustment payable
89,638
Total Liabilities
94,579
Additional paid-in capital
204,753
Accumulated deficit
(113,269)
Total Equity
91,484
Total Liabilities and Equity
$
186,063
Under ASC 810, Consolidation, this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value. Upon deconsolidation, the Company valued its investment in BHIC-Texas to be $91.5 million, which is equivalent to the Deconsolidated Entity's carrying value. Upon valuing the investment in BHIC-Texas we assessed the current expected credit loss associated with the underlying receivables; as a result of our analysis we recorded a full valuation allowance on the investment due to uncertainties related to the collection of the risk share receivable.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 15. HELD-FOR-SALE OPERATIONS
During the quarter ended June 30, 2024, we committed to a plan to sell AMD, which met the criteria to be classified as held-for-sale as outlined in ASC 360-10, Property, Plant, and Equipment. The sale is expected to be completed within the next twelve months.
As of September 30, 2024, the major classes of assets and liabilities of AMD are presented separately in the Condensed Consolidated Balance Sheets as follows (in thousands):
Cash and cash equivalents
$
475
Accounts receivable
5,512
Prepaids and other current assets
121
Current assets of held-for-sale operations
$
6,108
Medical costs payable
461
Accounts payable
216
Other current liabilities
4,299
Current liabilities of held-for-sale operations
$
4,976
The results of operations for AMD’s operations are reported within the results of our continuing operations in the condensed consolidated statements of income (loss). AMD’s operations are reported within our NeueCare segment. The operations classified as held-for-sale are as follows (in thousands):
Three Months Ended September 30, 2024
Nine Months Ended September 30, 2024
Revenue:
Capitated revenue
$
1,796
$
7,526
Service revenue
2,630
8,014
Unaffiliated revenue
4,426
15,540
Affiliated revenue
380
1,403
Total revenue of held-for-sale operations
4,806
16,943
Operating expenses:
Medical costs
1,970
5,944
Operating costs
5,280
19,337
Impairment of intangible assets
—
11,411
Depreciation and amortization
—
989
Total operating expenses from held-for-sale operations
7,250
37,681
Operating loss from held-for-sale operations
$
(2,444)
$
(20,738)
NOTE 16. DISCONTINUED OPERATIONS
In April 2023, we announced that we were exploring strategic alternatives for our California Medicare Advantage business, the Bright HealthCare reporting segment, with the focus on a potential sale. At that time, we met the criteria for “held for sale,” in accordance with ASC 205-20. This represents a strategic shift that will have a material impact on our business and financial results. As such, we have reflected amounts relating to Bright HealthCare as a disposal group as part of discontinued operations. On June 30, 2023, the Company entered into the Molina Purchase Agreement to sell its California Medicare Advantage business, which consisted of BND and CHP. On December 13, 2023, the Company, Molina, Bright Health Company of California, Inc. (“BHCC”), CHP, and BND amended the Molina Purchase Agreement, pursuant to which, the parties agreed to
Notes to Condensed Consolidated Financial Statements
(Unaudited)
amend the total purchase consideration to $500.0 million subject to certain contingencies and TNE adjustments. The transaction was consummated on January 1, 2024.
In October 2022, we announced that we will no longer offer commercial plans through our Bright HealthCare - Commercial segment in 2023. As a result, we exited the Commercial marketplace effective December 31, 2022. We determined this exit represented a strategic shift that will have a material impact on our business and financial results that requires presentation as discontinued operations.
While we are no longer offering plans in the Commercial marketplace as of December 31, 2022, we will continue to be involved in the states where we formerly operated in, as we support run out activities of medical claims incurred in the 2022 plan year and perform other activities necessary to wind down our operations in each state. We are substantially complete with medical claim payments as of the end of 2023, and we will continue to make remaining medical claim payments and payments towards the remaining risk adjustment obligations through 2024 and into 2025.
Our discontinued operations are also inclusive of our DocSquad business that was sold in March 2023; this is presented within the column labeled Other in the tables below.
The discontinued operations presentation has been retrospectively applied to all prior periods presented.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents cash flows from operating and investing activities for discontinued operations for the nine months ended September 30, 2024 and 2023 (in thousands):
Nine Months Ended September 30,
2024
2023
Cash used in operating activities - discontinued operations
$
(76,065)
$
(2,310,771)
Cash provided by investing activities - discontinued operations
199,507
1,145,441
Assets and liabilities of discontinued operations were as follows (in thousands):
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 2023
Bright HealthCare - Commercial
Bright HealthCare
Total
Assets
Current assets:
Cash and cash equivalents
$
159,769
$
128,212
$
287,981
Short-term investments
9,163
20,218
29,381
Accounts receivable, net of allowance
1,430
51,929
53,359
Prepaids and other current assets
7,838
114,532
122,370
Property, equipment and capitalized software, net
—
17,954
17,954
Intangible assets, net
—
138,982
138,982
Goodwill
—
172,543
172,543
Current assets of discontinued operations
178,200
644,370
822,570
Total assets of discontinued operations
$
178,200
$
644,370
$
822,570
Liabilities
Current liabilities:
Medical costs payable
$
31,881
$
272,138
$
304,019
Accounts payable
25,648
7,719
33,367
Risk adjustment payable
291,146
—
291,146
Other current liabilities
28,045
43,181
71,226
Current liabilities of discontinued operations
376,720
323,038
699,758
Total liabilities of discontinued operations
$
376,720
$
323,038
$
699,758
California Medicare Advantage Sale:On June 30, 2023, the Company entered into a definitive agreement with Molina to sell its California Medicare Advantage business, which consisted of BND and CHP, for total purchase consideration of $600.0 million, subject to regulatory approval and other closing conditions. Subsequently, on December 13, 2023 we announced that we entered an amendment (the “Amendment”) with Molina which reduced the purchase price of our California Medicare Advantage business from $600.0 million to $500.0 million. The $500.0 million purchase price included $167.3 million of purchase price adjustments subject to contingencies and adjustments relating to TNE (in thousands):
Consolidation and Adjustment Escrow Amount (1)
$
100,000
TNE deficit at closing(1)
57,326
Indemnity Escrow Amount (2)
10,000
Total consideration subject to contingencies at closing
$
167,326
(1) Molina obtained regulatory approval of the consolidation of BND into CHP, however, the final Consolidation and Adjustment Escrow Amount remains subject to certain other purchase price adjustments including further potential TNE deficit deterioration, the financial amount of which is still under review between the Company and Molina.
(2) For 18 months post-closing date, the Company will indemnify Molina against and are liable to Molina for any and all losses incurred by Molina resulting from breach or inaccuracy of warranties and representations made, breach or failure to perform any covenant of the Molina Purchase Agreement, among others. As the Indemnity Escrow Amount is subject to these conditions for 18 months post close, the Company will only recognize this amount in the fair value of consideration
Notes to Condensed Consolidated Financial Statements
(Unaudited)
received at the point those 18 months have passed, on July 1, 2025. The amount recognized will be that equal to the $10.0 million Indemnity Escrow Amount less any agreed upon or finally adjudicated losses as of July 1, 2025.
As the conditions surrounding collection of total consideration remain subject to contingencies that are largely outside of the Company’s control, we have not recorded any contingent consideration receivable as of September 30, 2024.
At the time of the sale, our investment in the California MA business was calculated as follows (in thousands):
Total assets (1)
$
647,254
Total liabilities
(323,038)
Investment in California MA Business
$
324,216
(1) Total assets of the California MA business at the time of the sale are inclusive of $2.9 million unsettled intercompany receivable that was eliminated at consolidation. NeueHealth has recorded the corresponding payable within other current liabilities of our continuing operations as of September 30, 2024.
The company recorded no gain or loss associated with the sale of the California Medicare Advantage business (in thousands):
Sale price of California MA Business
$
500,000
Less: Portion of sale price subject to contingencies
(167,326)
Less: Investment in California MA Business
(324,216)
Less: Transactions costs contingent on closing of sale
(8,458)
Gain or loss on sale of California MA Business
$
—
Upon the close of the sale, we ceased having a controlling financial interest over BND and CHP and have not retained any investments in the former subsidiaries. Molina is not a related party and subsequent to the close of the sale BND and CHP are no longer considered related parties to the Company.
Revenue Recognition: 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 market in a state. Additionally, an average risk score is determined for the entire subject population for each market in each state. Settlements are determined on a net basis by legal entity and state and are made in the middle of the year following the end of the contract year. Each health insurance issuer’s average risk score is compared to the state’s average risk score. Risk adjustment is subject to audit by the U.S. Department of Health and Human Services (“HHS”), which could result in future payments applicable to benefit years.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Restructuring Charges: As a result of the 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 within our discontinued operations for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Employee termination benefits
$
32
$
451
$
234
$
3,628
Long-lived asset impairments
—
—
—
7,429
Contract termination and other costs
—
12
(106)
(977)
Total discontinued operations restructuring charges
$
32
$
463
$
128
$
10,080
Restructuring accrual activity recorded by major type for the nine months ended September 30, 2024 was as follows (in thousands):
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Employee termination benefits are recorded within Other current liabilities of discontinued operations while contract termination costs are recorded within Accounts payable of discontinued operations.
Fixed Maturity Securities: Available-for-sale securities within our discontinued operations are reported at fair value as of September 30, 2024 and December 31, 2023. Held-to-maturity securities are reported at amortized cost as of September 30, 2024 and December 31, 2023. The following is a summary of our investment securities (in thousands):
September 30, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Carrying
Value
Cash equivalents
$
95,832
$
7
$
—
$
95,839
Held to maturity:
U.S. government and agency obligations
6,892
—
—
6,892
Corporate obligations
111
—
—
111
Total held-to-maturity securities
7,003
—
—
7,003
Total investments
$
102,835
$
7
$
—
$
102,842
December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Carrying
Value
Cash equivalents
$
150,939
$
—
$
—
$
150,939
Available for sale:
U.S. government and agency obligations
1,557
—
(100)
1,457
Corporate obligations
615
—
(11)
604
Certificates of deposit
19,653
—
—
19,653
Mortgage-backed securities
951
—
(63)
888
Total available-for-sale securities
22,776
—
(174)
22,602
Held to maturity:
U.S. government and agency obligations
6,503
1
(59)
6,445
Certificates of deposit
334
—
—
334
Total held-to-maturity securities
6,837
1
(59)
6,779
Total investments
$
180,552
$
1
$
(233)
$
180,320
We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases. At each reporting period, we evaluate securities
Notes to Condensed Consolidated Financial Statements
(Unaudited)
for impairment when the fair value of the investment is less than its amortized cost. We evaluated the underlying credit quality and credit ratings of the issuers, noting no significant deterioration since purchase.
Fair Value Measurements: Certain assets and liabilities are measured at fair value in the condensed consolidated financial statements or have fair values disclosed in the notes to the condensed consolidated financial statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets or quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument see Note 19 to the audited consolidated financial statements included in our 2023 Form 10-K.
As of September 30, 2024, investments and cash equivalents within our discontinued operations were comprised of $101.0 million and $1.8 million with fair value measurements of Level 1 and Level 2, respectively. As of December 31, 2023, the investments and cash equivalents within our discontinued operations were comprised of $157.8 million and $22.6 million with fair value measurements of Level 1 and Level 2, respectively. All investments and cash equivalents within our discontinued operations is classified as restricted.
Medical Costs Payable:The table below details the components making up the medical costs payable within current liabilities of discontinued operations (in thousands):
Bright HealthCare - Commercial
September 30, 2024
December 31, 2023
Claims unpaid
$
9,569
$
14,500
Claims adjustment expense liability
227
2,382
Incurred but not reported (IBNR)
3,385
14,999
Total medical costs payable of discontinued operations
$
13,181
$
31,881
Risk Adjustment: In September 2023, our insurance subsidiaries in Colorado, Florida, Illinois and Texas entered into repayment agreements with CMS with respect to the unpaid amount of their risk adjustment obligations for an aggregate amount of $380.2 million (the "Repayment Agreements"). The amount owed under the Repayment Agreements is due March 15, 2025 and bears interest at a rate of 11.5% per annum. Additionally, in May 2024, CMS communicated the results of its “Summary Report of 2022 Benefit Year Risk Adjustment Validation (HHS-RADV) Adjustments to Risk Adjustment State Transfers” which indicated the Company had an additional risk adjustment obligation of $10.6 million, which was paid in September 2024. The remaining amount due relating to the risk adjustment Repayment Agreements, our risk adjustment payable liability was $274.9 million and $291.1 million as of September 30, 2024 and December 31, 2023, respectively.
Restricted Capital and Surplus: Our regulated insurance legal entities are required by statute to meet and maintain a minimum level of capital as stated in applicable state regulations, such as risk-based capital requirements. These balances are monitored regularly to ensure compliance with these regulations. For the period ended September 30, 2024, we are out of compliance with the minimum levels for certain of our regulated insurance legal entities.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 17. SUBSEQUENT EVENTS
Subsequent to September 30, 2024, we borrowed an additional $10.0 million under the 2023 Credit Agreement and issued a total of 371,188 warrants under the 2024 NEA Warrantholders Agreement.
Subsequent to September 30, 2024, on October 29, 2024, we completed the Centrum Transaction, in which, we purchased RRD’s equity in Centrum for total consideration of $101.8 million, comprised of $30.0 million in cash, a credit of $7.8 million in previous distributions to RRD as the noncontrolling interest holder and the Centrum Promissory Note with a principal of $64.0 million due on October 29, 2028 bearing a cash interest rate of 6% per annum.
We have evaluated the events and transactions that have occurred through the date at which the condensed consolidated financial statements were issued. Except as stated above, no additional events or transactions have occurred that may require adjustment to the condensed consolidated financial statements or disclosure.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes and the “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the accompanying notes as well as the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Form 10-K. Unless the context otherwise indicates or requires, the terms “we”, “our”, and the “Company” as used herein refer to NeueHealth, Inc. and its consolidated subsidiaries.
Business Overview
NeueHealth, Inc. was founded in 2015 to transform healthcare. Although the business has evolved, our commitment to making high-quality, coordinated healthcare accessible and affordable to all populations remains unchanged. NeueHealth consists of two reportable segments within our continuing operations: NeueCare and NeueSolutions. Additionally, we have one reportable segment in our discontinued operations: Bright HealthCare - Commercial.
NeueCare. Our value-driven care delivery business that manages risk in partnership with external payors and serves all populations across the ACA Marketplace, Medicare, and Medicaid. NeueCare aims to significantly reduce the friction and current lack of coordination between payors and providers to enable a truly consumer-centric healthcare experience. As of September 30, 2024, NeueCare delivers high-quality in-person and virtual clinical care through its 74 owned primary care clinics within an integrated care delivery system. Through these risk-bearing clinics and our affiliated network of care providers, NeueCare maintained approximately 404,000 consumers, inclusive of 347,000 value-based consumers and 57,000 fee-for-service consumers.
NeueSolutions. Our provider enablement business that includes a suite of technology, services, and clinical care solutions that empower providers to thrive in performance-based arrangements. As of September 30, 2024, NeueSolutions had approximately 43,000 value-based care consumers attributed to its REACH ACOs and 119,000 enablement services lives.
Bright HealthCare - Commercial. Included in our discontinued operations, our Commercial healthcare financing and distribution business focused on commercial plans. In October 2022, we announced that we would no longer offer commercial health plans effective at the end of 2022.
Business Update
NeueHealth delivered its strongest financial performance to date in the third quarter, driving Adjusted EBITDA profitability for the third consecutive quarter. Both our NeueCare and NeueSolutions business segments continued delivering value for consumers, providers, and payors across the healthcare industry driving our Adjusted EBITDA profitability in the Third Quarter. Looking ahead, we believe our strong performance through the third quarter provides a solid foundation to continue to advance our value-driven, consumer-centric care model, positioning NeueHealth for continued success and growth in 2025.
Growth areas we are focusing on in the future include continuing to diversify and grow our consumer base across all product categories, including the ACA Marketplace, Medicare, and Medicaid, driving capital-efficient growth in existing and new markets by leveraging the strong relationships we have formed with our payor partners, and growing our relationships with a diverse set of providers, no matter where they are on their path to participating in performance-based arrangements.
On October 30, we announced that we acquired full ownership of Centrum Health, one of our value-driven clinic brands. This simplifies our corporate structure, streamlining operations to support our ongoing focus on advancing our value-driven, consumer-centric care model. We are pleased to announce this transaction as it further supports our belief in our Centrum Health clinics and their ability to create a more coordinated, seamless healthcare experience for all consumers.
Overall, we believe we are well-positioned to finish 2024 on a strong note, and we are focused on continuing the positive momentum we have generated through the end of the year and beyond. We believe we have established a solid foundation to
continue to advance our model, grow the consumers we serve, and deepen our relationships with payor and provider partners as we make high-quality healthcare accessible and affordable for all.
Key Metrics and Non-GAAP Financial Measures
In addition to our GAAP financial information, we use several operating and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. The following table includes two key metrics used to measure our performance: approximate consumers and patients served as of September 30, 2024 and 2023.
As of September 30,
2024
2023
Value-Based Consumers served
390,000
355,000
Enablement Services Lives
119,000
31,000
Value-Based Care Consumers
Value-based care consumers are consumers attributed to providers contracted under various value-based care delivery models in which the responsibility for control of an attributed patient’s medical care is transferred, in part or wholly, to our NeueHealth owned or affiliated medical groups. We believe growth in the number of value-based care consumers is a key indicator of the performance of our NeueHealth business. It also informs our management of the operational, clinical, technological and administrative functional area needs that will require further investment to support expected future patient growth and effective medical management practices. We saw a year over year increase in value-based care consumers of approximately 35,000 consumers; driven by an increase of 55,000 value-based care consumers through our third-party payor relationships, partially offset by a decline of approximately 20,000 ACO REACH lives. Our focus is to continue to grow the number of value-based care consumers through third-party payor relationships.
Enablement Services Lives
Enablement services lives are members attributed to NeueHealth by provider partner groups that are outside of the NeueHealth owned network. We bring the people, process, and technology platforms necessary to manage the administrative support for these value-based and risk arrangement members, on behalf of our provider partners. As a result of the value we drive, we ended the quarter with approximately 119,000 enablement services lives under contract within those organizations.
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands)
2024
2023
2024
2023
Loss from continuing operations before income taxes
$
(23,214)
$
(482,690)
(56,309)
(567,933)
Adjusted EBITDA(1)
$
9,396
$
3,431
$
17,015
$
5,911
(1)See “Non-GAAP Financial Measures” below for reconciliations to the most directly comparable financial measures calculated in accordance with GAAP and related disclosures.
Non-GAAP Financial Measures
Adjusted EBITDA
We define Adjusted EBITDA as Net Loss excluding loss from discontinued operations, interest expense, income taxes, depreciation and amortization, transaction costs, share-based and other long-term compensation expense, gains on troubled debt restructuring, changes in the fair value of equity securities and derivatives,restructuring and contract termination costs, held-
for-sale operations, losses related to the bankruptcy of contractual counterparties, impairment of goodwill and long-lived assets, and the tax effect of all such items. Adjusted EBITDA has been presented in this Quarterly Report on Form 10-Q as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP, because we believe it assists management and investors in comparing our operating performance across reporting periods ona consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA is useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management uses Adjusted EBITDA to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.
Adjusted EBITDA is not a recognized term under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, this measure is not intended to be a measure of free cash flow available for management’s discretionary use as we do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentation of this measure has limitations as an analytical tool and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentation of this measure may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
The following table provides a reconciliation of net loss to Adjusted EBITDA for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands)
2024
2023
2024
2023
Net loss
$
(40,365)
$
(547,148)
$
(102,240)
$
(805,236)
Loss from Discontinued Operations
14,358
67,843
42,662
240,321
EBITDA adjustments from continuing operations
Interest expense
5,413
10,041
12,453
26,998
Income tax (benefit) expense
2,793
(3,385)
3,269
(3,018)
Depreciation and amortization (h)
3,504
3,621
11,055
12,783
Transaction costs (a)
1,213
8,941
3,178
18,889
Share-based and other long-term incentive compensation expense (b)
16,387
16,515
56,250
65,611
Gain on troubled debt restructuring (c)
—
—
(30,311)
—
Change in fair value of warrant liability (d)
459
9,874
(3,826)
9,874
Restructuring and contract termination costs (e)
—
5,281
181
6,867
Held-for-sale operations (f)
2,444
2,722
20,738
3,696
ACO REACH care partner bankruptcy (g)
3,190
27,741
3,475
27,741
Impairment of goodwill and long-lived assets (h)
—
401,385
131
401,385
EBITDA adjustments from continuing operations
$
35,403
$
482,736
$
76,593
$
570,826
Adjusted EBITDA
$
9,396
$
3,431
$
17,015
$
5,911
(a)Transaction costs include accounting, tax, valuation, consulting, legal and investment banking fees directly relating to financing initiatives and acquisitions or dispositions. These costs can vary from period to period and impact comparability, and we do not believe such transaction costs reflect the ongoing performance of our business.
(b)Represents non-cash compensation expense related to stock option and restricted stock unit award grants, which can vary from period to period based on several factors, including the timing, quantity and grant date fair value of the
awards. Also includes estimated compensation expense that the Company has the option to pay in cash or shares of $3.0 million and $5.4 million for the three and nine months ended September 30, 2024, respectively, which is a 2024-only deviation from the long-term incentive award plan.
(c)Beginning in the first quarter of 2024, Adjusted EBITDA excludes the impact of gains on troubled debt restructuring. The comparable periods in 2023 have been recast to exclude these impacts.
(d)Represents the non-cash change in the fair value of the warrant liability established for warrants included in our financing arrangements, which are remeasured at fair value each reporting period.
(e)Restructuring and contract termination costs represent severance costs as part of a workforce reduction, amounts paid for early termination of leases, and impairment of certain long-lived assets primarily relating to our decision to exit the Commercial business for the 2023 plan year.
(f)Beginning in the second quarter of 2024, Adjusted EBITDA excludes the impact of our operations classified as held-for-sale. For the three and nine months ended September 30, 2024, no intangible asset impairment expense and $11.4 millionof intangible asset impairment expense was incurred, respectively, as a result of classifying operations as held-for-sale. The comparable periods in 2023 have been recast to exclude these impacts.
(g)Represents the costs expected to be incurred as a result of one of our ACO REACH care partners filing for bankruptcy; includes the full allowance established for the outstanding receivable and ongoing costs incurred to manage and provide service to members attributed to the care partner that would have otherwise been reimbursed prior to the care partner’s bankruptcy.
(h)Adjustment has been updated to remove the impact of our held-for-sale operations that are adjusted for in their entirety as described in (f).
The following table summarizes our unaudited Condensed Consolidated Statements of Income (Loss) data and other financial information for the three and nine months ended September 30, 2024 and 2023.
($ in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
Condensed Consolidated Statements of Income (loss) and operating data:
2024
2023
2024
2023
Revenue:
Capitated revenue
$
71,334
$
60,371
$
196,805
$
159,683
ACO REACH revenue
149,477
200,044
471,090
676,845
Service revenue
11,666
8,978
35,357
31,387
Investment income
456
6
767
16
Total revenue
232,933
269,399
704,019
867,931
Operating expenses:
Medical costs
182,693
226,438
557,248
731,718
Operating costs
64,075
72,532
201,114
221,697
Bad debt expense
3
22,421
14
23,054
Restructuring charges
—
5,281
181
6,867
Intangible assets impairment
—
—
11,411
—
Goodwill impairment
—
401,385
—
401,385
Depreciation and amortization
3,504
4,117
12,044
14,271
Total operating expenses
250,275
732,174
782,012
1,398,992
Operating loss
(17,342)
(462,775)
(77,993)
(531,061)
Interest expense
5,413
10,041
12,453
26,998
Warrant expense (income)
459
9,874
(3,826)
9,874
Gain on troubled debt restructuring
—
—
(30,311)
—
Loss from continuing operations before income taxes
(23,214)
(482,690)
(56,309)
(567,933)
Income tax expense (benefit)
2,793
(3,385)
3,269
(3,018)
Net loss from continuing operations
(26,007)
(479,305)
(59,578)
(564,915)
Loss from discontinued operations, net of tax (including loss on disposal of $991)
(14,358)
(67,843)
(42,662)
(240,321)
Net Loss
(40,365)
(547,148)
(102,240)
(805,236)
Net income from continuing operations attributable to noncontrolling interests
(17,049)
(86,747)
(29,718)
(116,502)
Series A preferred stock dividend accrued
(10,667)
(10,178)
(31,383)
(29,834)
Series B preferred stock dividend accrued
(2,394)
(2,284)
(7,042)
(6,695)
Net loss attributable to NeueHealth, Inc. common shareholders
$
(70,475)
$
(646,357)
$
(170,383)
$
(958,267)
Adjusted EBITDA
$
9,396
$
3,431
$
17,015
$
5,911
Operating Cost Ratio (1)
27.5
%
26.9
%
28.6
%
25.5
%
(1)Operating Cost Ratio is defined as operating costs divided by total revenue.
Total revenues decreased by $36.5 million, or 13.5%, for the three months ended September 30, 2024 and $163.9 million or 18.9% for the nine months ended September 30, 2024 as compared to the same periods in 2023. These decreases were primarily driven by a decrease of approximately 20,000 beneficiaries aligned to our REACH ACOs resulting in decreased ACO REACH revenue of $50.6 million and $205.8 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023, respectively. These decreases were offset by increases in our capitated revenue of $11.0 millionand$37.1 millionfor the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The increase in capitated revenue is a result of increased membership through our third-party payor contracts as compared to the three and nine months ended September 30, 2023.
Medical costs decreased by $43.7 million, or 19.3%, for the three months ended September 30, 2024 as compared to the same period in 2023. Medical costs decreased by $174.5 million or 23.8%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The decrease in medical costs was primarily driven by a decrease in beneficiaries aligned to our REACH ACOs.
Operating costs decreased by $8.5 million, or 11.7%, for the three months ended September 30, 2024 as compared to the same period in 2023. Operating costs decreased by $20.6 million, or 9.3%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The decrease in operating costs was primarily due to a decrease in professional fees incurred in the 2024 periods as compared to the 2023 periods; specifically, in 2023 we incurred transaction costs as we worked towards the sale of the California Medicare Advantage business while in 2024 there was no equivalent activity.
Our operating cost ratio of 27.5%and 28.6% for the three and nine months ended September 30, 2024, increased 60and310 basis points, respectively, compared to the same periods in 2023. The increase is driven by the decrease in revenue due to a decline in our ACO REACH aligned beneficiaries outweighing the decreases in our operating costs that have continued to decrease as part of our restructuring efforts.
For the nine months ended September 30, 2024 we recognized $11.4 million in impairments of intangible assets as a result of classifying AMD as held-for-sale. In our held-for-sale analysis we concluded the carrying value of the AMD disposal group exceeded its estimated fair value set equivalent to an expected sale price; as such we fully impaired all long-lived assets. We recognized no impairments of intangible assets for the three months ended September 30, 2024. There was no equivalent activity for the three and nine months ended September 30, 2023.
Depreciation and amortization decreased by $0.6 million and $2.2 million for the three and nine months ended September 30, 2024 as compared to the same period in 2023, respectively. The decrease is primarily driven by a corresponding decrease in property and equipment assets as well as intangible assets.
Interest expense decreased $4.6 millionand$14.5 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023, respectively. The decrease is primarily due to the payoff of the 2021 Credit Agreement in January 2024.
We recognized warrant expense of $0.5 millionand warrant income of $3.8 million for the three and nine months ended September 30, 2024 as compared to a warrant expense of $9.9 million for the three and nine months ended September 30, 2023. This is a result of the 2023 Warrantholders Agreement executed in conjunction with the 2023 Credit Agreement. In the third quarter of 2023 we recognized the expense for the warrants available to be issued under the 2023 Warrantholders Agreement executed in conjunction with the 2023 Credit Agreement. In 2024, we continued to fair value the warrants available to be issued under the 2023 Warrantholders Agreement as well as the warrantholders agreements executed in conjunction with the Commitment Increase of the Amended 2023 Credit Agreement and the Hercules Credit Agreement in the second quarter of 2024.
Income tax was an expense of $2.8 million and a benefit of $3.4 million for the three months ended September 30, 2024 and 2023, respectively. Income tax was an expense of $3.3 million and a benefit of $3.0 million for the nine months ended September 30, 2024 and 2023, respectively. The impact from income taxes varies from the federal statutory rate of 21% due to state income taxes, changes in the valuation allowance for deferred tax assets and adjustments for permanent differences. For
the nine months ended September 30, 2024, the expense largely relates to estimated state income taxes attributable to income earned in separate filing states without state net operating loss carryforwards and in combined filing states that restrict which entities within the group may use specific net operating loss carryforwards.
Loss from discontinued operations decreased by $53.5 million and $197.7 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The decrease is primarily driven by the sale of the California Medicare Advantage business that occurred in January 2024, significantly decreasing our total discontinued operations. Additionally, the decrease is attributable to being more than a year into the runout of our Commercial business as of September 30, 2024 compared to only nine months into runout as of September 30, 2023.
NeueCare
($ in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
Statement of income (loss) and operating data:
2024
2023
2024
2023
Revenue:
Capitated revenue
$
71,334
$
60,371
$
196,805
$
159,683
Service revenue
9,100
8,245
28,433
29,711
Investment income
465
—
486
—
Total unaffiliated revenue
$
80,899
$
68,616
$
225,724
$
189,394
Affiliated revenue
2,968
(1,482)
8,751
6,487
Total segment revenue
$
83,867
$
67,134
$
234,475
$
195,881
Operating expenses
Medical costs
$
31,820
$
20,883
$
92,835
$
64,325
Operating costs
32,871
32,329
100,136
93,026
Bad debt expense
—
8
—
639
Restructuring charges
—
130
—
130
Intangible assets impairment
—
—
11,411
—
Goodwill impairment
—
401,385
—
401,385
Depreciation and amortization
2,746
3,160
9,753
9,470
Total operating expenses
67,437
457,895
214,135
568,975
Operating income (loss)
$
16,430
$
(390,761)
$
20,340
$
(373,094)
NeueCare’s capitated revenue increased by $11.0 million or 18.2% for the three months ended September 30, 2024 as compared to the same period in 2023. NeueCare’s capitated revenue increased by $37.1 million, or 23.2%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase was a result of increased membership through our third-party payor contracts as compared to the three and nine months ended September 30, 2023.
NeueCare’s service revenue increased $0.9 million for the three months ended September 30, 2024 as compared to the same period in 2023. The increase in NeueCare’s service revenue for the three months ended September 30, 2024 was primarily driven by an increase in fee-for-service contracts in the current period for our Centrum subsidiary where these contracts were negligible for Centrum in 2023. NeueCare’s service revenue decreased $1.3 million for the nine months ended September 30, 2024 as compared to the same period in 2023. The decrease in NeueCare’s service revenue for the nine months ended September 30, 2024 was primarily driven by a change in our estimated implicit price concessions for our fee-for-service contracts to reflect more current collection trends.
NeueCare’s investment income increased by $0.5 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The investment income in the current year is attributable to a financial guarantee with a third-party payor invested in a certificate of deposit; there were no equivalent investments in the same periods in 2023.
Affiliated revenue increased by $4.5 million and $2.3 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 due to fluctuations in ACO surplus at our owned providers.
NeueCare’s medical costs increased by $10.9 million for the three months ended September 30, 2024 as compared to the same period in 2023. NeueCare’s medical costs increased by $28.5 million for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase is primarily a result of increases in our value-based care lives through third-party payor contracts including increases of $2.6 million and $7.8 million in provider capitation paid to our affiliate partners for the three and nine months ended September 30, 2024, respectively.
Operating costs for the NeueCare segment increased $0.5 million and $7.1 million for the three and nine months ended September 30, 2024, respectively, as compared to the same period in 2023. The increase is primarily driven by higher payroll expense to support the increase in value-based care lives attributed to third-party payor contracts.
For the nine months ended September 30, 2024 we recognized $11.4 million in impairments of intangible assets as a result of classifying AMD as held-for-sale. In our held-for-sale analysis we concluded the carrying value of the AMD disposal group exceeded its estimated fair value set equivalent to an expected sale price; as such we fully impaired all long-lived assets. We recognized no impairments of intangible assets for the three months ended September 30, 2024. There was no equivalent activity for the three and nine months ended September 30, 2023.
NeueCare’s depreciation and amortization remained relatively flat for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The $0.4 million decrease over the three-month period is a result of a decrease in intangible asset amortization expense recognized in the third quarter of 2024 due to the AMD intangibles impairment in the second quarter of 2024. The $0.3 million increase for the nine-month period is primarily due to the decrease in the estimated useful lives for certain fixed assets at our clinic locations. NeueCare’s operating income is inclusive of AMD’s net loss of $2.4 million and $20.7 million for the three and nine months ended September 30, 2024, respectively.
NeueSolutions
($ in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
Statement of income (loss) and operating data:
2024
2023
2024
2023
Revenue:
ACO REACH revenue
$
149,477
$
200,044
$
471,090
$
676,845
Service revenue
2,566
733
6,924
1,676
Total segment revenue
152,043
200,777
478,014
678,521
Operating expenses
Medical Costs
153,840
204,017
473,163
673,891
Operating Costs
4,030
3,702
13,202
10,083
Bad debt expense
5
22,413
16
22,415
Total operating expenses
157,875
230,132
486,381
706,389
Operating income (loss)
$
(5,832)
$
(29,355)
$
(8,367)
$
(27,868)
NeueSolutions’s ACO REACH revenue decreased $50.6 million, or 25.3% for the three months ended September 30, 2024 compared to the same period in 2023. NeueSolutions’s ACO REACH revenue decreased $205.8 millionor 30.4%for the nine months ended September 30, 2024 compared to the same period in 2023. This decrease is attributable to a decrease of approximately 20,000 beneficiaries aligned to our REACH ACOs as of September 30, 2024 compared to the same period in 2023. See Note 13, ACO REACH, for additional information regarding our remaining performance obligation based on the most recent benchmark data.
NeueSolutions’s service revenue increased $1.8 millionand$5.2 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The increase in service revenue was driven by revenue from our enablement services contracts.
NeueSolutions’s medical costs decreased by $50.2 million and$200.7 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. This decrease is attributable to a decrease of approximately 20,000 beneficiaries aligned to our REACH ACOs as of September 30, 2024 compared to the same period in 2023.
NeueSolutions’s operating costs increased by $0.3 millionand$3.1 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. These increases were driven by the additional compensation and technology expenses supporting the growing business and increased membership.
NeueSolutions’s bad debt expense decreased by $22.4 million for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The decrease in bad debt expense was primarily driven by one of our ACO REACH care partners filing for bankruptcy in the third quarter of 2023 and a full allowance being established on the corresponding receivables with no equivalent activity in the same periods of 2024.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. Our expected primary uses on a short-term and long-term basis are for geographic and service offering expansion, acquisitions, and other general corporate purposes. We have historically funded our operations and acquisitions primarily through the sale of preferred stock and sales of our common stock.
We believe that the existing cash and investments will not be sufficient to satisfy our anticipated cash requirements for the next twelve months following the date the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. In response to these conditions, management continues to implement plans to drive positive operating cash flow and achieve the conditions in the existing agreements to access additional liquidity. However, the Company may not fully collect the contingent consideration associated with the sale of the California Medicare Advantage business, may not be able to access other tranches of the new loan and security agreement with Hercules Capital, Inc., and may not be able to recapture through dividends additional cash from its regulated insurance entities, as these matters are all subject to conditions that are not fully within the Company’s control. In the event the Company is unable to access this additional liquidity or take other management actions, among other potential consequences, the Company forecasts that it will be unable to satisfy its 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.
In addition to our current capital needs, we regularly evaluate our future capital needs to support our future growth plans and other strategic opportunities that may arise. We may seek funds through borrowings or through additional rounds of financing, including private or public equity offerings. Our longer-term future capital requirements and ability to raise additional capital will depend on many forward-looking factors, including:
•investor confidence in our ability to continue as a going concern,
•our ability to continue executing on cost saving measures previously described, and
•our ability to successfully improve our profitability.
Our expected primary short-term uses of cash include the purchase of the remaining equity interest of Centrum Medical Holdings, LLC (“Centrum”), risk adjustment payable principal and interest and ongoing run out disbursements for medical claims and provider settlements related to our regulated insurance entities, the ACO REACH performance year obligation, and other general and administrative costs. Our long-term cash requirements primarily include operating lease obligations, redeemable noncontrolling interest and ongoing general and administrative expenses.
Cash and investment balances held at regulated insurance entities are subject to regulatory restrictions and can only be accessed through dividends declared to the non-regulated parent company, pending regulatory approval, or through reimbursements
related to administrative services agreements with the parent company. The Company declared $28.2 million of dividends from the regulated insurance entities to the parent company during the nine months ended September 30, 2024 and no dividends from the regulated insurance entities to the parent company for the nine months ended September 30, 2023.
The regulated legal entities are required to hold certain minimum levels of risk-based capital and surplus to satisfy regulatory requirements. As of September 30, 2024, we were out of compliance with the minimum levels for certain of our regulated insurance legal entities within our Bright HealthCare-Commercial segment.
Indebtedness
In March 2021, we entered into a $350.0 million revolving credit agreement with JPMorgan Chase Bank, N.A. (the “Agent”) and a syndicate of banks (the “2021 Credit Agreement”), which was set to mature on February 28, 2024. On January 2, 2024, the Termination (as defined below) occurred and, as of that date we had no outstanding borrowings on the Credit Agreement.
On December 27, 2023, we entered into an agreement regarding our 2021 Credit Agreement with the Agent providing that upon closing of the sale of our California Medicare Advantage business, and payments of $274.6 million to the Agent and $24.1 million to the issuers of letters of credit outstanding under the 2021 Credit Agreement, all liabilities of the Company under the 2021 Credit Agreement would be terminated (other than those under the outstanding letters of credit that remained outstanding thereafter) (collectively, the “Termination”). These amounts were paid on January 2, 2024, and on that date the Termination occurred, and we had no outstanding borrowings under the 2021 Credit Agreement.
On August 4, 2023, the Company entered into a Credit Agreement (as amended, supplemented, restated or otherwise modified from time to time, the “2023 Credit Agreement”), among the Company, 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 2023 Credit Agreement, subject to the satisfaction or waiver of customary conditions. Borrowings under the 2023 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 (as defined below) in respect of cash payments under the 2023 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 2023 Credit Agreement. The 2023 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.
In connection with the 2023 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, the Existing Lender, and California State Teachers’ Retirement System, as an incremental lender (the “New Lender”), entered into Incremental Amendment No. 1 to the 2023 Credit Agreement to provide for a commitment increase by the New Lender under the 2023 Credit Agreement. Loans under Incremental Amendment No. 1 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. See Note 5, Borrowings and Common Stock Warrants, for additional information regarding the 2023 Credit Agreement, Incremental Amendment No. 1 and the Warrantholders Agreement.
On April 8, 2024, the Company and NEA, New Enterprise Associates 17, L.P., New Enterprise Associates 16, L.P. and New Enterprise Associates 15, L.P. (collectively, the “NEA Lenders”) entered into Incremental Amendment No. 2 (“Incremental Amendment No. 2”) to the 2023 Credit Agreement to provide for a term loan commitment increase in an aggregate principal
amount of up to $30.0 million by the NEA Lenders under the 2023 Credit Agreement. Loans under Incremental Amendment No. 2 of the 2023 Credit Agreement have the same terms as loans under the original term loan commitments provided by NEA.
On June 21, 2024, in conjunction with closing on the Hercules Credit Agreement (as defined below), the Company entered into an amendment (“Amendment No. 3”) to the 2023 Credit Agreement (as amended to date, the “Amended 2023 Credit Agreement”) to modify the maturity date of the 2023 Credit Agreement to be August 31, 2028, 91 days subsequent to the maturity of the Hercules Credit Agreement.
As of September 30, 2024, we had $86.4 millionof long-term borrowings under the Amended 2023 Credit Agreement. Subsequent to September 30, 2024, we borrowed an additional $10.0 million under the Amended 2023 Credit Agreement (as defined; as of the date of this report there are no available borrowings under the Amended 2023 Credit Agreement.
In connection with Incremental Amendment No. 2, on April 8, 2024, the Company and the NEA Lendersentered into a warrantholders agreement setting forth the rights and obligations of the Company and the NEA Lenders as holders of the warrants to acquire up to 1,113,563 shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. See Note 5, Borrowings and Common Stock Warrants, for additional information regarding the 2023 Credit Agreement, Incremental Amendment No. 2 and the Warrantholders Agreement.
On June 21, 2024, the Company entered into a loan and security agreement (the “Hercules Credit Agreement”), among the Company and Hercules Capital, Inc. (“Hercules”) to provide for a credit facility pursuant to which, among other things, Hercules has provided up to four tranches of term loans in an aggregate principal amount of $150.0 million, which mature on June 1, 2028. The four tranches are as follows:
Tranche 1: $30,000,000 term loan at closing.
Tranche 2: up to $25,000,000 term loan that will be available from November 10 – December 31, 2024. The Company’s ability to draw on Tranche 2 is subject to the following funding milestone: (i) the Company has achieved the “Consolidation Condition” or the “2025 Stars Condition” (each as defined in the Hercules Credit Agreement), and (ii) there has been no material adjustments to the expected payment amount of the “Consolidation and Adjustment Escrow Amount” after giving effect to the “CHP Enrollee Adjustment”, if any (each as defined in the Hercules Credit Agreement); in each case, based upon written evidence provided to, reviewed and approved by Hercules in its reasonable discretion.
Tranche 3: up to $45,000,000 term loan that will be available from February 15 – September 15, 2025. The Company’s ability to draw on Tranche 3 is subject to the following funding milestone: (i) the Company has satisfied in full the CMS Settlement and the ACO REACH Deficit Obligation (each as defined in the Hercules Credit Agreement), and (ii) after giving effect to the aforementioned clause (i) and the draw down in full of the available Tranche 3 Advances, the Loan Parties maintain Qualified Cash (as defined in the Hercules Credit Agreement) in an amount greater than or equal to $22,500,000; in each case based upon written evidence provided to, reviewed and approved by Hercules in its reasonable discretion.
Tranche 4: up to $50,000,000 term loan that was available commencing on the June 21, 2024 closing date and ending on June 1, 2027.
In connection with executing the Hercules Credit Agreement, on June 21, 2024, the Company and each of the lenders under the Hercules Credit Agreement entered into warrant agreements setting forth the rights and obligations of the Company and such lenders as holders of the warrants to acquire up to an aggregate of 1,250,000 shares of Common Stock at an exercise price of $0.01 per share, and providing for the issuance of warrants. See Note 5, Borrowings and Common Stock Warrants, for additional information regarding the Hercules Credit Agreement and the Hercules Warrantholders Agreement.
The 2023 Warrantholders Agreement and 2024 NEA Warrantholders Agreement contain a Dilutive Issuance provision providing for additional warrants to be issued in the event of issuance of warrants with a market price lower than that of August 29, 2023, in the case of the 2023 Warrantholders Agreement, and April 30, 2024, in the case of the 2024 NEA Warrantholders
Agreement. For the three and nine months ended September 30, 2024 an additional 41,158 warrants were issued under the 2023 Warrantholders Agreement and 2024 NEA Warrantholders Agreement resulting from the issuance of 225,000 warrants under the Hercules Warrantholders Agreements on June 21, 2024. Subsequent to September 30, 2024, an additional 371,188 warrants were issued under the 2024 NEA Warrantholders Agreement; as of the date of this report no warrants are available to be issued under the 2024 NEA Warrantholders Agreement.
As of September 30, 2024, we had letters of credit unrelated to the 2021 Credit Agreement of $16.5 million, as well as surety bonds of $19.7 million. On our Condensed Consolidated Balance Sheets, $33.7 million of the cash and cash equivalents and $8.8 million of short-term investments are restricted as collateral to our undrawn letters of credit and surety bonds.
Subsequent to September 30, 2024, on October 29, 2024, we entered into a Unit Purchase Agreement among our wholly owned subsidiary Medical Practice Holding Company, LLC, RRD Healthcare, LLC (“RRD”), the Company, Centrum and the other parties named therein, pursuant to which, we issued a secured promissory note with a principal of $64.0 million (“Centrum Promissory Note”). The Centrum Promissory Note is due on October 29, 2028 and bears a cash interest rate of 6% per annum, payable monthly.
Preferred Stock Financing
On January 3, 2022, we issued 750,000 shares of the Series A Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $750.0 million. We used a portion of the proceeds to repay in full our $155.0 million of outstanding borrowings under the 2021 Credit Agreement on January 4, 2022.
On October 17, 2022, we issued 175,000 shares of the Series B Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $175.0 million.
For additional information on the Series A and Series B Preferred Stock, see Note 7, Redeemable Convertible Preferred Stock, in our condensed consolidated financial statements of this Quarterly Report on Form 10-Q.
Cash and Investments
As of September 30, 2024, we had $226.4 million in cash and cash equivalents and $15.8 million in short-term investments across our continuing and discontinued operations. As of September 30, 2024, we had no long-term investments across our continuing and discontinued operations.
As of September 30, 2024, we had non-regulated cash and cash equivalents of $110.3 million. As of September 30, 2024, we had $8.8 millionnon-regulated short-term and no non-regulated long-term investments. Of the $110.3 million non-regulated cash and cash equivalents, $33.7 million is restricted as collateral to our letters of credit and surety bonds. The entirety of the $8.8 million non-regulated short-term investments is restricted as collateral to our financial guarantees.
As of September 30, 2024, we had regulated insurance entity cash and cash equivalents of $116.1 million and short-term investments of $7.0 million. As of September 30, 2024, we had no regulated insurance entity long-term investments.
The following table presents a summary of our cash flows for the periods shown:
Nine Months Ended September 30,
($ in thousands)
2024
2023
Net cash used in operating activities
$
(98,823)
$
(2,395,319)
Net cash provided by investing activities
189,230
1,145,441
Net cash (used in)/provided by financing activities
(239,274)
41,005
Net decrease in cash and cash equivalents
$
(148,867)
$
(1,208,873)
Cash and cash equivalents at beginning of period
$
375,280
$
1,932,290
Cash and cash equivalents at end of period
$
226,413
$
723,417
Operating Activities
During the nine months ended September 30, 2024, net cash used in operating activities decreased by $2.3 billion compared to the nine-month period ended September 30, 2023, primarily a result of being further into the run out of our Commercial operations at September 30, 2024 compared to September 30, 2023. More specifically, in the third quarter of 2023, we settled a substantial portion of our risk adjustment payable related to our BHC-Commercial business while we continued to make payments towards our CMS Repayment Agreement; they are presently in a much lesser value than the payment that occurred in 2023.
Investing Activities
During the nine months ended September 30, 2024, net cash provided by investing activities decreased by $956.2 million compared to the nine-month period ended September 30, 2023. During the nine-month period ended September 30, 2023 we sold a significant majority of our investment holdings to cover remaining liabilities of our run out operations for the Commercial business including our risk adjustment payable. During the nine months ended September 30, 2024, we did not have equivalent investment activity as the majority of our investment portfolio was liquidated in 2023. The cash provided by investing activities during the nine months ended September 30, 2024 is primarily attributable to the net proceeds received for the sale of our California Medicare Advantage business that closed effective January 1, 2024; there was not equivalent activity during the prior year. The liquidated investment portfolios in 2023 were more substantial than the net proceeds received for the sale of our California Medicare Advantage business in 2024.
Financing Activities
During the nine months ended September 30, 2024, net cash used in financing activities increased by $280.3 million compared to the nine months ended September 30, 2023. This fluctuation is a result of the payoff of our short-term debt using a portion of the proceeds from the sale of our California Medicare Advantage business during the nine months ended September 30, 2024. Additionally, during the nine months ended September 30, 2024, we had net proceeds from long term borrowings of $42.1 million. During the nine months ended September 30, 2023, we had net proceeds from borrowings on the 2023 Credit Agreement of $50.0 million; there were no equivalent debt payoff activities during this period.
Critical Accounting Policies and Estimates
As of September 30, 2024, there had been no material changes to the critical accounting policies and estimates used in the preparation of our condensed consolidated financial statements as described in the 2023 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”
For a description of recently issued accounting pronouncements, see Note 1, Organization and Basis of Presentation, in our condensed consolidated financial statements of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
As disclosed in our 2023 Form 10-K, in 2022 we identified a material weakness related to the control activities component of internal control over financial reporting, based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO framework”). Specifically, multiple deficiencies constituted a material weakness, in the aggregate, relating to deployment of control activities through internal control policies that establish what is expected and procedures that put policies into action. This material weakness remained as of December 31, 2023, as we were unable to conclude control activities consistently had sufficient time to demonstrate operational effectiveness.
For the quarter ended September 30, 2024,the Company continues to take action to support its ongoing efforts to remediate the material weakness. This includes working with control owners to refine control procedures to improve the design, consistency, timeliness and sufficiency of documentation supporting the performance and review of controls and/or significant or material transactions.
Changes in Internal Control over Financial Reporting
Other than the material weakness remediation actions discussed above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management continues to advance its remediation program to ensure that control deficiencies contributing to the material weakness are remediated.
Other than the matters described in Note 9, Commitments and Contingencies, we are not presently a party to any litigation the outcomes of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition.
Item 1A. Risk Factors
This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our 2023 Form 10-K and our other filings with the SEC. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
The following financial information from our Quarterly Report on Form 10-Q for the third quarter of fiscal 2024, filed with the SEC on November 7, 2024, formatted in Inline Extensible Business Reporting Language (“iXBRL”)
104
Cover Page Interactive Data File (formatted as iXBRL and embedded within Exhibit 101)
* Filed herewith
† Management contract or compensatory plan or arrangement.
(1) The certifications in Exhibits 32.1 and 32.2 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NEUEHEALTH, INC.
Dated: November 7, 2024
By:
/s/ G. Mike Mikan
Name:
G. Mike Mikan
Title:
Vice Chairman, President and Chief Executive Officer