SIGNIFY HEALTH, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

Note Regarding Forward-Looking Statements

We have made statements in this Quarterly Report on Form 10-Q, including matters
discussed under Part I, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, Part II, Item 1. Legal
Proceedings, Part II, Item 1A. Risk Factors, and in other sections of this
Quarterly Report on Form 10-Q, that are forward-looking statements. All
statements other than statements of historical fact included in this Quarterly
Report on Form 10-Q are forward-looking statements. These statements may be
preceded by, followed by or include the words "may," "might," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue," the negative of these terms and other comparable
terminology. These forward-looking statements, which are subject to risks,
uncertainties and assumptions about us, may include statements regarding the
Company's business operations, assets, valuations, financial conditions, results
of operations, future plans, strategies, and expectations, including statements
regarding the timing of the consummation of the Merger, our future financial
performance, our Episodes of Care Wind-down segment restructuring, our
anticipated growth strategies and anticipated trends in our business, our
ability to realize synergies in our businesses and our plans to expand our
investment in value-based payment programs and in our product portfolio. These
statements are only predictions based on 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, including those factors
discussed under Part II, Item 1A. Risk Factors and Part I, Item 1A. Risk Factors
of our 2021 Annual Report on Form 10-K.

Although we believe the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, level of activity,
performance or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of any of these forward-looking
statements. Some of the factors that could cause actual results to differ
materially from those expressed or implied by the forward-looking statements
include:

•the inability to complete the transactions contemplated by the Merger Agreement
due to the failure to satisfy the conditions to the completion of the Merger,
including that a governmental entity may prohibit, delay or refuse to grant
approval for the consummation of the Merger;

•risks related to disruption of management’s attention from business operations
due to the Merger;

•the effect of the announcement of the Merger on our relations with our
customers, results of operations and business generally;

•risk that the Merger will not be consummated in a timely manner, exceeding the
expected costs of the Merger;

•the occurrence of any event, change or other circumstances that could give rise
to the termination of the Merger Agreement;

•our ability to implement our plan to wind down our Episodes of Care Wind-down
segment and realize the anticipated cost savings and positive impact on 2023
earnings;

•the estimated costs associated with the Episodes of Care Wind-down
restructuring plan;

•the impact the Episodes of Care Wind-down restructuring plan will have on our
operations;

•the risk that our current revenue estimates under the BPCI-A program will be
significantly reduced due to the semiannual BPCI-A reconciliation from CMS;

•the risk that our current revenue estimates and savings rate under the MSSP ACO
program will be reduced;

•the COVID-19 pandemic and whether the pandemic will continue to subside in
2022;

•our dependence upon a limited number of key customers;

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•our dependence on certain key government programs;

•our failure to maintain and grow our network of high-quality providers;

•our failure to continue to innovate and provide services that are useful to
customers and achieve and maintain market acceptance;

•our limited operating history with certain of our solutions;

•our failure to compete effectively;

•the length and unpredictability of our sales cycle;

•failure of our existing customers to continue or renew their contracts with us;

•failure of service providers to meet their obligations to us;

•seasonality that may cause fluctuations in our sales, cash flows and results of
operations;

•our failure to achieve or maintain profitability;

•our revenue not growing at the rates they historically have, or at all;

•our failure to successfully execute on our growth initiatives, business
strategies, or operating plans;

•our failure to successfully launch new products;

•our failure to diversify sources of revenues and earnings;

•inaccurate estimates and assumptions used to determine the size of our total
addressable market;

•changes in accounting principles applicable to us;

•incorrect estimates or judgments relating to our critical accounting policies;

•our failure to effectively adapt to changes in the healthcare industry,
including changes in the rules governing Medicare or other federal healthcare
programs;

•our failure to adhere to complex and evolving governmental laws and
regulations;

•our failure to comply with current and future federal and state privacy,
security and data protection laws, regulations or standards;

•our employment of and contractual relationships with our providers subjecting
us to licensing or other regulatory risks, including recharacterization of our
contracted providers as employees;

•adverse findings from inspections, reviews, audits and investigations from
health plans or government agencies;

•inadequate investment in or maintenance of our operating platform and other
information technology and business systems;

•our ability to develop and/or enhance information technology systems and
platforms to meet our changing customer needs;

•higher than expected investments in our business, including, but not limited
to, investments in our technology and operating platform, which could reduce our
profitability;

•security breaches or incidents, loss or misuse of data, a failure in or breach
of our operational or security systems or other disruptions;

•disruptions in our disaster recovery systems or management continuity planning;

•our ability to obtain, maintain, protect and enforce our intellectual property;

•our dependence on distributions from Cure TopCo, our operating subsidiary, to
fund dividend payments, if any, and to pay our taxes and expenses, including
payments under the Tax Receivable Agreement ("TRA");

•the control certain equityholders have over us and our status as a controlled
company;

•our ability to realize any benefit from our organizational structure;

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•risk associated with acquiring other businesses including our ability to
effectively integrate the operations and technologies of the acquired
businesses, including Caravan Health;

•risks associated with an increase in our indebtedness or interest rates; and

•the other risk factors described under Part II, Item 1A. Risk Factors and in
Part I, Item 1A. Risk Factors of our 2021 Annual Report on Form 10-K.

All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the foregoing cautionary
statements. In addition, all forward-looking statements speak only as of the
date of this Quarterly Report on Form 10-Q. We undertake no obligations to
update or revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise other than as required under the
federal securities laws.

Overview

The following discussion of our financial condition and results of operations
should be read in conjunction with the Condensed Consolidated Financial
Statements and the related notes and other financial information included
elsewhere in this Quarterly Report on Form 10-Q. In addition to historical
consolidated financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs and
that involve risks and uncertainties. Our actual results may differ materially
from those discussed in the forward-looking statements as a result of various
factors, including those set forth in "Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2021 and Note Regarding
Forward-Looking Statements included in this Quarterly Report on Form 10-Q.

The following discussion contains references to periods prior to the
Reorganization Transactions that Signify Health, Inc. (referred to herein as
"we", "our", "us", "Signify Health" or the "Company") and Cure TopCo, LLC ("Cure
TopCo") entered into in connection with its initial public offering (the
"Reorganization Transactions"), which were effective February 12, 2021. Any
information related to periods prior to the Reorganization Transactions refer to
Cure TopCo and its consolidated subsidiaries and any information related to
periods subsequent to the Reorganization Transactions refer to Signify Health
and its consolidated subsidiaries, including Cure TopCo.

Signify Health is a leading healthcare platform that leverages advanced
analytics, proprietary technology and datasets, and nationwide healthcare
provider networks to create and power value-based payment programs. Our mission
is to build trusted relationships to make people healthier. Our customers
include health plans, governments, employers, health systems and physician
groups. We believe that we are a market leader in the value-based healthcare
payment industry offering a suite of total cost of care enablement services,
including, among others, in-home health evaluations ("IHEs") performed either
within the patient's home, virtually or at a healthcare provider facility,
diagnostic & preventive services, ACO enablement services, a provider enablement
platform, 340B referrals and return to home services. IHEs are health
evaluations performed by a clinician in the home to support payors'
participation in Medicare Advantage and other government-run managed care plans.
Our mobile network of providers completed evaluations for over 1.9 million
individuals participating in Medicare Advantage and other managed care plans in
2021. Our ACO enablement services involve our clients taking responsibility for
the cost of a patient's healthcare over the course of a year. These services
include, but are not limited to, population health software, analytics, practice
improvement, compliance, marketing, governance, surveys and licensing. The
overall objective of the services provided is to help the customer receive
shared savings. We believe that these core solutions have enabled us to become
integral to how health plans and healthcare providers successfully participate
in value-based payment programs, and that our platform lessens the dependence on
facility-centric care for acute and post-acute services and shifts more services
towards alternate sites and, most importantly, the home.

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Our solutions support value-based payment programs by aligning financial
incentives around outcomes, providing tools to health plans and healthcare
organizations designed to assess and manage risk and identify actionable
opportunities for improved patient outcomes, coordination and cost-savings.
Through our platform, we coordinate what we believe is a holistic suite of
clinical, social, and behavioral services to address an individual's healthcare
needs and prevent adverse events that drive excess cost. Our business model is
aligned with our customers, as we generate revenue when we successfully engage
members for our health plan customers and generate savings for our provider
customers.

On March 1, 2022, we acquired Caravan Health, Inc. ("Caravan Health"). Caravan
Health provides a broad range of value-based and shared savings models from
advanced primary care to total cost of care programs. We believe the acquisition
of Caravan Health will also position us to better to serve community hospitals,
physician practices and clinics.

On July 7, 2022, we announced our plans to exit our Episodes of Care business.
Our Caravan Health business will not be impacted. See "-Recent Developments in
2022 and Factors Affecting Our Results of Operations" below.

Recent Developments in 2022 and Factors Affecting Our Results of Operations

Below is a summary of recent developments and factors that impact results of
operations, including comparability to historical results of operations. As a
result of a number of factors, our historical results of operations may not be
comparable to our results of operations in future periods, and our results of
operations may not be directly comparable from period to period. For a complete
list of factors affecting our results of operations, refer to our 2021 Annual
Report on Form 10-K.

Pending Acquisition

On September 2, 2022, we entered into an Agreement and Plan of Merger (the
"Merger Agreement") with CVS Pharmacy, Inc., a Rhode Island corporation
("Parent"), and Noah Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Subsidiary"), pursuant to which, among other
things, Merger Subsidiary will merge with and into the Company and whereupon
Merger Subsidiary will cease to exist and the Company will be the surviving
corporation in the Merger (the "Surviving Corporation") and will continue as a
wholly-owned subsidiary of Parent (the "Merger").

As a result of the Merger, at the effective time of the Merger (the "Effective
Time"), each share of our class A common stock, par value $0.01 per share
("Class A Common Stock") (other than (i) common stock owned by the Company,
Parent or Merger Subsidiary or any subsidiary thereof and (ii) any shares of
Class A Common Stock and our class B common stock, par value $0.01 per share
("Class B Common Stock", and, together with "Class A Common Stock", "Company
Stock") owned by stockholders who properly exercise appraisal rights under
Delaware law), including each share of Class A Common Stock resulting from the
exchange of LLC Units (as defined below), outstanding immediately prior to the
Effective Time, shall be canceled and converted into the right to receive $30.50
per share in cash, without interest (such per-share consideration, the "Per
Share Consideration" and the aggregate consideration, the "Merger
Consideration").

Pursuant to the Merger Agreement, immediately prior to the Effective Time, in
accordance with the Merger Agreement, the Third Amended and Restated Limited
Liability Company Agreement of Cure TopCo LLC ("Cure TopCo"), dated as of
February 12, 2021 (the "Cure TopCo Amended LLC Agreement") and our certificate
of incorporation, (i) we will require each member of Cure TopCo (excluding the
Company and the Company Holding Subsidiary (as defined in the Merger Agreement),
but including Cure Aggregator, LLC) to effectuate a redemption
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of all of such Cure TopCo member's LLC Units (as defined in the Cure TopCo
Amended LLC Agreement) ("LLC Units"), pursuant to which such LLC Units will be
exchanged for shares of Class A Common Stock on a one-for-one basis in
accordance with the provisions of the Cure TopCo Amended LLC Agreement and the
Merger Agreement and (ii) each share of Class B Common Stock shall automatically
be canceled immediately upon the consummation of such redemptions, such that no
shares of Class B Common Stock will remain outstanding immediately prior to the
Effective Time.

Consummation of the Merger is subject to certain conditions, including, but not
limited to, (i) our receipt of the approval of the Merger Agreement by
stockholders holding a majority of the voting power of the outstanding shares of
Company Stock, (ii) the expiration or early termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
(iii) the absence of any law or order prohibiting or making illegal the
consummation of the Merger, (iv) the absence of any Material Adverse Effect (as
defined in the Merger Agreement) on the Company and (v) the TRA Amendment (as
defined below) being in full force and effect in accordance with its terms and
not having been amended, repudiated, rescinded, or modified. On October 31,
2022, stockholders holding a majority of the voting power of the outstanding
shares of Company Stock approved the Merger Agreement.

On September 19, 2022, each of the Company and Parent filed its respective
Notification and Report Form with the U.S. Department of Justice (the "DOJ") and
the U.S. Federal Trade Commission (collectively, the "Agencies") under the HSR
Act. On October 19, 2022, the Company and Parent each received a request for
additional information and documentary materials (collectively, the "Second
Request") from the DOJ in connection with the DOJ's review of the Merger. The
effect of the Second Request is to extend the waiting period imposed under the
HSR Act until the 30th day after substantial compliance by the Company and
Parent with the Second Request, unless the waiting period is terminated earlier
by the DOJ or extended by the parties to the Merger.

The Company has made customary representations and warranties in the Merger
Agreement and has agreed to customary covenants regarding the operation of the
business of the Company and its subsidiaries prior to the Effective Time.

The Merger Agreement contains certain termination rights for each of the Company
and Parent. Upon termination of the Merger Agreement in accordance with its
terms, under certain specified circumstances, the Company will be required to
pay Parent a termination fee in an amount equal to $228.0 million, including if
the Merger Agreement is terminated due to the Company accepting a superior
proposal or due to the Company's Board changing its recommendation to the
Company's stockholders to vote to approve the Merger Agreement.

The Merger Agreement further provides that Parent will be required to pay the
Company a termination fee in an amount equal to $380.0 million in the event the
Merger Agreement is terminated under certain specified circumstances and receipt
of antitrust approval has not been obtained by such time.

If the Merger is consummated, the Company will cease to be a publicly traded
company and will become a wholly owned subsidiary of Parent, and our common
stock will be delisted from the NYSE and deregistered under the Exchange Act.

We recorded approximately $9.2 million of transaction-related costs associated
with the pending merger primarily related to banker fees, professional services
fees and employee retention bonuses as transaction-related expenses in our
Consolidated Statement of Operations during the nine months ended September 30,
2022.

For more detail regarding the Merger Agreement, please see the Definitive Proxy
Statement filed by the Company with the SEC on September 30, 2022 (the
“Definitive Proxy Statement”). The foregoing description of the

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Merger Agreement does not purport to be complete and is subject to, and
qualified in its entirety by, the full text of the Merger Agreement, which was
filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company with
the SEC on September 6, 2022 and also attached as Annex A to the Definitive
Proxy Statement.

Episodes of Care Restructuring

On July 7, 2022, our Board approved a restructuring plan to wind down our
Episodes of Care segment. This decision was made in light of recent
retrospective trend calculations released by the Center for Medicare & Medicaid
Innovation that lowered target prices for episodes in the BPCI-A program, and
which we believe have made the program unsustainable. The total cost of the
restructuring plan is estimated to be approximately $25-$35 million and will
consist of severance and related employee costs, contract termination fees and
professional service fees as well as facility closure costs. We recorded
restructuring expenses of $16.7 million during the three months and nine months
ended September 30, 2022, We expect the majority of the restructuring plan
actions to be completed in 2022.

There are approximately $85 million of annualized direct Episodes of Care
Wind-down costs which will be eliminated. In addition, there are approximately
$60 million of annualized shared costs currently allocated to the Episodes of
Care Wind-down segment, of which we expect to eliminate approximately $30-$35
million in annualized costs by the end of 2022 as we wind down the Episodes of
Care business.

BPCI-A Reconciliation

During the second quarter of 2022, we received a semiannual BPCI-A
reconciliation from CMS. Within that reconciliation, CMS applied a negative
retrospective price adjustment to the benchmark prices against which savings are
measured for specific episodes under the BPCI-A program. Several BPCI-A
participants, including us, disputed the price adjustment. Our dispute was based
on independently collected price trend data that indicates a positive price
adjustment should be applied and corresponds with inflation in the medical
services industry. CMS subsequently recommended participants provide formal
evidence of the pricing errors. We responded to the request in July 2022, and
upon receipt of our submission of the calculation error notice, CMS deemed the
reconciliation period to remain open. As a result of the open reconciliation
period and our view that the information presented in the reconciliation was not
accurate, we did not change our revenue estimates upon receipt of the second
quarter semiannual reconciliation and awaited further resolution or clarity of
this matter.

In October 2022, we and other BPCI-A participants, received a memorandum from
CMS providing a general response to questions raised related to the
retrospective price adjustment as well as CMS' plans for the future of the
BPCI-A program. CMS indicated it had reviewed its own calculations and did not
find errors in how it applied them but at the same time acknowledged a lack of
transparency and the use of non-public data and proposed to make changes to the
pricing formulas in subsequent model years. Later in October 2022, we received
the required formal response to our calculation error notice submitted in July
2022, reiterating that following a comprehensive review and referencing the
aforementioned memorandum, CMS did not find any errors in its calculations. This
response indicates CMS deems the original semiannual reconciliation provided in
June 2022 to be correct. We are in the process of appealing this decision, which
will further delay CMS deeming the semiannual reconciliation final and the
related cash flows.

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Due to the formal response to our calculation error notice received from CMS in
October 2022 in regard to the most recent semiannual reconciliation, we revised
our revenue estimates related to the performance period included in that
reconciliation as well as the subsequent two open performance periods. As a
result, during the three months ended September 30, 2022, we recorded a reversal
of revenue previously recorded of $38.6 million, $18.7 million and $6.9 million
related to performance periods beginning in April 2021, October 2021 and April
2022, respectively. Additionally, we considered the negative trend factor
adjustment imposed by CMS in our revenue estimates for the three months ended
September 30, 2022. As a result of this negative adjustment, our revenue
estimates are lower than they would have otherwise been and certain customers
were in a negative overall revenue position for the performance period, and we
therefore recorded expense of approximately $1.3 million included in Service
expense for the three months ended September 30, 2022 on our Condensed
Consolidated Statement of Operations. Further changes in management's estimates,
including a potential reversal of previously recorded revenue, could occur based
on the outcome of the pending appeal process noted above and to the extent the
final remaining semiannual reconciliations receive additional pricing
adjustments.

Additionally, as a result of the change in estimates and our withdrawal from the
BPCI-A program, we reduced revenue by $12.2 million during the three months
ended September 30, 2022 related to administrative fee revenue recorded for
performance obligations satisfied in prior periods. As a result of the pricing
adjustments imposed by CMS and our planned exit from the BPCI-A program, it is
unlikely these amounts will be collected from the customers, as they generally
would be paid out of savings earned.

Since the final determination of the semiannual reconciliation is pending appeal
and we did not receive the formal response to our calculation error notice until
late October 2022, the recognition of accounts receivable for our Episodes of
Care Wind-down segment as of September 30, 2022 has not yet occurred. Estimated
revenue related to this reconciliation period continues to be included in
contract assets with corresponding shared savings expenses included in contract
liabilities on our Condensed Consolidated Balance Sheets as of September 30,
2022. Historically, we received a final reconciliation in the second quarter of
each year, thereby reducing the associated contract assets and recording
accounts receivable for the amounts to be collected and reducing the
corresponding contract liabilities and recording accounts payable for the
amounts to be paid. Accordingly, the net cash collections from the delayed
reconciliation, in addition to being significantly less than prior periods, will
also deviate from historical cash collection seasonality trends.

Separately, we have revised our estimates of the time it will take to
substantially complete our performance obligations from 13 months to 9 months
for the open performance period that began in April 2022 as a result of our
decision to wind down our Episodes of Care business. We expect our services and
underlying performance obligations to be substantially satisfied by the end of
2022. This shorter period of time to complete our performance obligations
resulted in approximately $1.8 million in additional revenue being recorded
during the three months ended September 30, 2022.

The results of the initial reconciliation received in the second quarter of 2022
and the subsequent decision to exit the Episodes of Care business were
determined to be an impairment triggering event for both long-lived intangible
assets, including capitalized software, and goodwill. As such, we performed an
asset recoverability test on the associated long-lived intangible assets and
concluded the recoverability test failed and the estimated fair value was de
minimis, resulting in a $66.7 million impairment of customer relationships and
$26.5 million impairment of acquired and capitalized software for the nine
months ended September 30, 2022. Additionally, we completed an assessment of the
goodwill of the Episodes of Care Wind-down reporting unit and determined the
carrying value exceeded the estimated fair value, resulting in a $426.7 million
goodwill impairment during the nine months ended September 30, 2022.
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Caravan Health Acquisition

On March 1, 2022, we completed the acquisition of Caravan Health for an initial
purchase price of approximately $250.0 million, subject to certain customary
adjustments, and included $190.0 million in cash and $60.0 million in our Class
A common stock, comprised of 4,726,134 shares at $12.5993 per share, which
represented the volume-weighted average price per share of our common stock for
the five trading days ending three business days prior to March 1, 2022. In
connection with and concurrently with the entry into the Caravan Health Merger
Agreement, we entered into support agreements with certain shareholders of
Caravan Health, pursuant to which such shareholders agreed that, other than
according to the terms of their respective support agreement, they will not,
subject to certain limited exceptions, transfer, sell or otherwise dispose of
any Signify shares for a period of up to five years following closing of the
merger. In addition to the initial purchase price, the transaction included
contingent additional payments of up to $50.0 million based on certain future
performance criteria of Caravan Health, which if such criteria are met, may be
paid in the second half of 2023. The fair value of the contingent consideration
as of the acquisition date was estimated to be approximately $30.5 million, and
was approximately $17.9 million as of September 30, 2022. The contingent
consideration is payable based on the achievement of certain performance
criteria, one of which is revenue. Both performance criteria must be achieved
for any payment to be due. During the three months ended September 30, 2022, the
estimated fair value of contingent consideration decreased as the likelihood of
the defined revenue criteria being achieved decreased primarily due to the lower
estimated revenue for 2022 due to new information received from CMS during the
three months ended September 30, 2022. See "-Results of Operations."

During the three months ended September 30, 2022, per the terms of the Caravan
Health Merger Agreement we calculated the final net working capital adjustment
to the initial purchase price resulting in an additional $0.9 million cash
consideration due to the sellers. This additional amount due is primarily
related to adjustments of the estimated contract assets based on the final
reconciliation received from CMS for the 2021 performance periods and updated
income tax estimates. We expect to pay the additional cash consideration in the
fourth quarter of 2022.

As part of the Caravan Health acquisition, we assigned preliminary values to the
assets acquired and the liabilities assumed based upon their fair values at the
acquisition date. We acquired $93.9 million of intangible assets, consisting
primarily of customer relationships of $69.8 million (10-year useful life),
acquired technology of $23.4 million (5-year useful life) and a tradename of
$0.7 million (3-year useful life), which we also expect will increase our
amortization expense in future periods. As a result of the Caravan Health
acquisition, we also recorded $199.7 million in goodwill, which represented the
amount by which the purchase price exceeded the fair value of the net assets
acquired.

Pro forma results of operations related to this acquisition have not been
presented as the acquisition did not meet the prescribed significance tests set
forth in Regulation S-X requiring such disclosure. The financial results of
Caravan Health have been included in our Condensed Consolidated Financial
Statements since the date of the acquisition. Due to the above factors, and in
particular the increase in amortization expense, our results of operations for
periods subsequent to the acquisition are not directly comparable to our results
of operations for the periods prior to the acquisition date.

Segment Realignment

Operating segments are components of an enterprise for which separate financial
information is available and evaluated regularly by our Chief Operating Decision
Maker in deciding how to allocate resources and in assessing financial
performance. On July 7, 2022, we announced our plans to exit our Episodes of
Care business, excluding
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Caravan Health, see "-Episodes of Care Restructuring" above. As a result of this
announcement and the underlying strategic shift of the business, the structure
of the internal organization changed in a manner that resulted in a new
composition of our reportable segments. The Caravan Health business and the
acquired solutions are now integrated with our overall business operations and
total cost of care solutions suite offered to customers. Furthermore, the
decision to exit our Episodes of Care business fundamentally altered the
economics of that business that we are in the process of winding down.
Therefore, management views our operating performance in two reportable
segments: Home & Community Services, which now includes the acquired Caravan
Health, and Episodes of Care Wind-down.

The change in our reportable segments described above did not impact prior year,
as we did not acquire Caravan Health until 2022.

IHE volume

During the three and nine months ended September 30, 2022, we completed and sent
to customers approximately 0.61 million and 1.80 million IHEs, including vIHEs,
respectively, compared to 0.49 million and 1.44 million IHEs in the three and
nine months ended September 30, 2021, respectively. In 2022, the higher IHE
volume was driven by increased customer demand partially offset during the three
months ended September 30, 2022 by certain vendor technology issues and to a
lesser extent severe weather.

Equity-based compensation expense

On March 1, 2022, our Board approved amendments to certain outstanding equity
award agreements, subject to performance-based vesting criteria. The equity
awards were amended with an effective date of March 7, 2022, and included
3,572,469 outstanding LLC Incentive Units and 817,081 outstanding stock options.
The amendments added an alternative two-year service-vesting condition to the
performance-vesting criteria, which, through the effective date of the
amendment, were considered not probable of occurring and, therefore, we had not
previously recorded any expense related to these awards. The amended equity
awards will now vest based on the satisfaction of the earlier to occur of 1) a
two year service condition, with 50% vesting in each of March 2023 and March
2024 or 2) the achievement of the original performance vesting criteria. As a
result of this amendment, which results in vesting that is considered probable
of occurring, we began to record equity-based compensation expense for these
amended equity awards in March 2022. The equity-based compensation expense
related to these amended awards is based on the fair value as of the effective
date of the amended equity awards and will be recorded over the two year service
period.

The total fair value on March 7, 2022, the amendment effective date, based on a
Black-Scholes value of $8.49, was $6.9 million for the March 2022 amended stock
options as described above, of which we recorded $2.0 million during the nine
months ended September 30, 2022. As a result of these amendments, there are no
longer any stock options outstanding that are subject only to performance-based
vesting conditions that are not probable of occurring.

The total fair value on the amendment date for the March 2022 amended LLC
Incentive Units was based on the closing stock price on the amendment date of
$14.19, resulting in total fair value of $50.7 million, of which we recorded
$13.6 million in equity-based compensation expense during the nine months ended
September 30, 2022. Subsequent to these amendments, as of September 30, 2022,
there are 1,329,280 LLC Incentive Units that remain outstanding that are subject
only to performance-based vesting conditions that are not probable of occurring.

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Additionally, in March 2022, our Board and the Compensation & Talent Committee
approved an annual long-term incentive plan equity grant (the "2022 Annual LTIP
Equity Grant") to certain employees. A total of 2,677,979 restricted stock units
and 4,059,520 stock options with an exercise price of $14.19 were granted as
part of this 2022 Annual LTIP Equity Grant. All awards granted as part of the
2022 Annual LTIP Equity Grant vest equally over four years. Total grant date
fair value related to the 2022 Annual LTIP Equity Grant was $68.8 million and
will be recorded as equity-based compensation expense over the four year service
period beginning in March 2022.

As a result of the March 2022 amendments to equity awards with performance-based
vesting criteria and the 2022 Annual LTIP Equity Grant, our total equity-based
compensation expense is expected to be significantly higher in 2022 and beyond
as compared to historical periods.

Adoption of new accounting pronouncement – Leases

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) which requires
lessees to recognize leases on the balance sheet by recording a right-of-use
asset and lease liability. We adopted this new guidance as of January 1, 2022
and applied the transition option, whereby prior comparative periods will not be
retrospectively presented in the consolidated financial statements. We elected
the package of practical expedients not to reassess prior conclusions related to
contracts containing leases, lease classification and initial direct costs and
the lessee practical expedient to combine lease and non-lease components for all
asset classes. We made a policy election to not recognize right-of-use assets
and lease liabilities for short-term leases for all asset classes. See Note 8
Leases to our Condensed Consolidated Financial Statements covered under Part I,
Item 1 of this Quarterly Report on Form 10-Q for further details.

Upon adoption on January 1, 2022, we recognized right-of-use assets and lease
liabilities for operating leases of $23.0 million and $35.6 million,
respectively. The difference between the right-of-use asset and lease liability
primarily represents the net book value of deferred rent and tenant improvement
allowances recognized as of December 31, 2021, which was adjusted against the
right-of-use asset upon adoption.

Non-controlling interest

The non-controlling interest ownership percentage changes as new shares of Class
A common stock are issued and LLC units are exchanged for our Class A common
stock. During the nine months ended September 30, 2022, the change in the
non-controlling interest percentage was primarily driven by the shares issued in
connection with the Caravan Health acquisition as well as exchanges of LLC units
into Class A common stock. As of September 30, 2022, we held approximately 75.6%
of Cure TopCo's outstanding LLC Units and the remaining LLC Units of Cure TopCo
are held by the Continuing Pre-IPO LLC Members.

Components of our results of operations

Components of results of operations including revenue, operating expenses and
other expense, net are described in our 2021 Annual Report on Form 10-K. Below
is an update to the components of results of operations.

Revenue

We have entered into EAR agreements and a separate letter agreement (the "EAR
Letter Agreement") with one of our customers in our Home & Community Services
segment. Revenue generated under the underlying customer contracts includes an
estimated reduction in the transaction price for IHEs associated with the
initial grant date fair value of the outstanding customer EAR agreements and EAR
Letter Agreement. The total grant date fair value of the outstanding EAR
agreements was $51.8 million and is being recorded against revenue over their
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respective performance periods, both of which end in December 2022. The grant
date fair value of the EAR Letter Agreement was estimated to be $76.2 million
and will be recorded as a reduction of revenue through June 30, 2026, coinciding
with the service period as follows: $6.3 million in 2022, $20.0 million in 2023,
$20.0 million in 2024, $19.9 million in 2025 and $10.0 million in 2026. See
"-Liquidity and capital resources-Customer Equity Appreciation Rights
Agreements."

Our subsidiary, Caravan Health, enters into contracts with customers to provide
multiple services around the management of the ACO model. These include, among
others, population health software, analytics, practice improvement, compliance,
marketing, governance, surveys and licensing. The overall objective of the
services provided is to help the customer receive shared savings from CMS.
Caravan Health enters into arrangements with customers wherein we receive a
contracted percentage of each customer's portion of shared savings if earned. We
recognize shared savings revenue as performance obligations are satisfied over
time, commensurate with the recurring ACO services provided to the customer over
a 12-month calendar year period. The shared savings transaction price is
variable, and therefore, we estimate an amount we expect to receive for each
12-month calendar year performance obligation period.

In order to estimate this variable consideration, management initially uses
estimates of historical performance of the ACOs. We consider inputs such as
attributed patients, expenditures, benchmarks and inflation factors. We adjust
our estimates at the end of each reporting period to the extent new information
indicates a change is warranted. We apply a constraint to the variable
consideration estimate in circumstances where we believe the data received is
incomplete or inconsistent, so as not to have the estimates result in a
significant revenue reversal in future periods. Although our estimates are based
on the information available to us at each reporting date, new and material
information may cause actual revenue earned to differ from the estimates
recorded each period. These include, among others, Hierarchical Conditional
Category ("HCC") coding information, quarterly reports from CMS with information
on the aforementioned inputs, unexpected changes in attributed patients and
other limitations of the program beyond our control. We receive final
reconciliations from CMS and collect the cash related to shared savings earned
annually in the third or fourth quarter of each year for the preceding calendar
year.

The remaining sources of Caravan Health revenue in our Home & Community Services
segment are recognized over time when, or as, the performance obligations are
satisfied and are primarily based on a fixed fee or per member per month fee.
Therefore, they do not require significant estimates and assumptions by
management.
See "-Critical accounting policies-Revenue recognition."

Results of operations for the three months ended September 30, 2022 and 2021

The following is a discussion of our consolidated results of operations for the
three months ended September 30, 2022 and 2021. A discussion of the results by
each of our two operating segments, Home & Community Services and Episodes of
Care Wind-down, follows the discussion of our consolidated results.
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The following table summarizes our results of operations for the periods
presented:

                                                      Three months ended September 30,                     % Change
                                                         2022                     2021                   2022 v 2021
                                                                (in millions)
Revenue                                          $            139.8          $      199.2                          (29.8) %
Operating expenses:
Service expense                                               123.3                 100.4                           22.9  %
Selling, general and administrative expense                    58.6                  65.8                          (10.9) %
Transaction-related expense                                     9.6                   2.9                          232.9  %
Restructuring expense                                          16.7                     -                                NM
Asset impairment                                                3.3                     -                                NM
Depreciation and amortization                                  14.7                  17.6                          (16.5) %
Total operating expenses                                      226.2                 186.7                           21.2  %
(Loss) income from operations                                 (86.4)                 12.5                         (793.0) %
Interest expense                                                6.0                   4.2                           44.8  %

Other expense (income)                                        181.1                 (27.4)                        (760.9) %
Other expense (income), net                                   187.1                 (23.2)                        (904.5) %
(Loss) income before income taxes                            (273.5)                 35.7                                NM
Income tax (benefit) expense                                  (48.5)                  6.4                                NM
Net (loss) income                                            (225.0)                 29.3                                NM

Net (loss) income attributable to
non-controlling interest                                      (66.0)                  9.1                                NM
Net (loss) income attributable to Signify
Health, Inc.                                     $           (159.0)         $       20.2                                NM



Revenue

Our total revenue was $139.8 million for the three months ended September 30,
2022, representing a decrease of $59.4 million, or 29.8%, from $199.2 million
for the three months ended September 30, 2021. This decrease was primarily
driven by a $97.8 million decrease in revenue from our Episodes of Care
Wind-down segment offset by a $38.4 million increase in revenue from our Home &
Community Services segment. See "-Segment results" below.

Operating expenses

Our total operating expenses were $226.2 million for the three months ended
September 30, 2022, representing an increase of $39.5 million, or 21.2%, from
$186.7 million for the three months ended September 30, 2021. This increase was
driven by the following:

•Service expense - Our total service expense was $123.3 million for the three
months ended September 30, 2022, representing an increase of $22.9 million, or
22.9%, from $100.4 million for the three months ended September 30, 2021. This
increase was primarily driven by expenses related to our network of providers,
which increased by $15.7 million, driven by overall higher IHE volume  .
Compensation-related expenses increased by $4.6 million primarily driven by
additional headcount including the incremental employees retained as part of the
Caravan Health acquisition and higher benefits expense. Equity-based
compensation expense increased by $0.7 million primarily due to additional
equity grants and the amendment of awards
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with performance-based vesting to include a time-based vesting condition. As a
result of the negative BPCI-A trend factor adjustment, certain customers were in
a negative overall revenue position for the performance period, and we therefore
recorded expense of approximately $1.3 million for the three months ended
September 30, 2022. Additionally, other variable costs increased $0.6 million
during the three months ended September 30, 2022 primarily driven by increased
IHE volume.

•Selling, general and administrative ("SG&A") expense - Our total SG&A expense
was $58.6 million for the three months ended September 30, 2022, representing a
decrease of $7.2 million, or 10.9%, from $65.8 million for the three months
ended September 30, 2021. This decrease was primarily driven by a gain of $17.5
million in the remeasurement of contingent consideration in 2022 related to
potential payments due upon the completion of certain performance targets in
connection with our acquisition of Caravan Health in March 2022. The estimated
fair value of the contingent consideration decreased primarily due to the lower
shared savings estimates for Caravan Health. Additionally, there was a decrease
of $3.8 million in professional fees and a decrease of $0.8 million in other
variable costs. These decreases were offset by an increase in equity-based
compensation expense, which was higher by $9.3 million primarily due to
additional equity grants and the amendment of awards with performance-based
vesting to include a time-based vesting condition. Compensation-related expenses
increased by $1.5 million due to additional headcount to support the overall
growth in our Home & Community Services business including the incremental
employees retained as part of the Caravan Health acquisition and higher benefits
costs. Additionally, information technology-related expenses, including
infrastructure and software costs increased $2.1 million, facilities-related
expense increased $1.5 million primarily due to the early exit of certain
locations in connection with our approved restructuring activities due to the
wind-down of our Episodes of Care business and employee travel and entertainment
expenses increased $0.5 million as COVID-19 imposed travel restrictions eased.

•Transaction-related expenses - Our total transaction-related expenses were $9.6
million for the three months ended September 30, 2022, representing an increase
of $6.7 million, or 232.9%, from $2.9 million for the three months ended
September 30, 2021. In 2022, the transaction-related expenses primarily related
to consulting, professional services expenses and employee related costs in
connection with the pending Merger and certain integration-related expenses,
including compensation expenses and consulting and other professional services
expenses, following the Caravan Health acquisition. In 2021, the
transaction-related expenses consisted primarily of consulting and other
professional services expenses incurred in connection with our IPO and general
corporate development activities, including potential acquisitions that did not
proceed.

•Restructuring expenses - Our total restructuring expenses were $16.7 million
for the three months ended September 30, 2022. We did not have any restructuring
expense for the three months ended September 30, 2021. The restructuring expense
in 2022 includes severance and related employee costs, contract termination fees
and professional services fees due to the wind-down of our Episodes of Care
business.

•Asset impairment - Our total asset impairment was $3.3 million for the three
months ended September 30, 2022. We did not record an asset impairment for the
three months ended September 30, 2021. The loss on asset impairment in 2022 was
related to our decision to end our community service offering and therefore the
carrying value of the underlying intangible assets exceeded the estimated fair
value as of September 30, 2022. The loss on asset impairment included a $0.3
million impairment of customer relationships and $3.0 million impairment of
acquired technology.

•Depreciation and amortization - Our total depreciation and amortization expense
was $14.7 million for the three months ended September 30, 2022, representing a
decrease of $2.9 million, or 16.5%, from $17.6
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million for the three months ended September 30, 2021. This decrease in
depreciation and amortization expense was primarily driven by a net decrease in
amortization expense of $3.5 million, primarily due to asset impairments over
the past year and certain intangible assets becoming fully amortized in 2021,
partially offset by additional capital expenditures related to
internally-developed software over the past year and the $93.9 million in
intangible assets acquired in connection with the Caravan Health acquisition in
March 2022. The decrease in amortization expense was partially offset by an
increase in depreciation expense of $0.6 million, primarily driven by additional
capital expenditures over the past year.

Other expense, net

Other expense, net total was $187.1 million expense for the three months ended
September 30, 2022, representing a decrease of $210.3 million from $23.2 million
in income for the three months ended September 30, 2021.

Interest expense was $6.0 million for the three months ended September 30, 2022,
representing an increase of $1.8 million from $4.2 million for the three months
ended September 30, 2021. This increase was primarily driven by higher overall
interest rates partially offset by the lower outstanding principal balance
following our June 2021 refinancing of the 2021 Credit Agreement.

Other (income) expense was $181.1 million expense for the three months ended
September 30, 2022, representing a decrease of $208.5 million from $27.4 million
in income for the three months ended September 30, 2021. This decrease was
primarily driven by the remeasurement of the fair value of the outstanding
customer EAR liabilities, which resulted in an unrealized loss of $182.6 million
for the three months ended September 30, 2022, representing a decrease of $209.9
million from income of $27.3 million for the three months ended September 30,
2021. The fair value of the outstanding customer EAR liabilities increased due
to our higher equity value and a revised estimate of time to liquidity as a
result of the pending Merger. This decrease was partially offset by a $1.4
million increase in interest income earned on higher excess cash balances and
rising interest rates during the three months ended September 30, 2022.

Income tax (benefit) expense
Income tax benefit was $48.5 million for the three months ended September 30,
2022, representing an increase of $54.9 million from $6.4 million income tax
expense for the three months ended September 30, 2021. The effective tax rate
for the three months ended September 30, 2022 was 17.7% compared to 18.0% for
the three months ended September 30, 2021. The effective tax rate in 2022 is
lower than the statutory federal and state income tax rate of approximately 25%
primarily due to nondeductible goodwill impairment and change in valuation
allowance.

Segment results

We evaluate the performance of each of our two operating segments based on
segment revenue and segment adjusted EBITDA. Service expense for each segment is
based on direct expenses associated with the revenue generating activities of
each segment. We allocate SG&A expenses to each segment primarily based on the
relative proportion of direct employees.

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The following table summarizes our segment revenue, segment adjusted EBITDA and
the percentage of total consolidated revenue and consolidated adjusted EBITDA,
respectively, for the periods presented:

                                                                    Three months ended September 30,                                    % Change
                                                2022               % of Total              2021              % of Total               2022 v 2021
                                                                             (in millions)
Revenue
Home & Community Services
Evaluations                                  $  202.3                    144.7  %       $ 167.1                     83.9  %                    21.1  %
Value-based Care Services                         4.6                      3.3  %             -                        -  %                       N.M.
Other                                             0.6                      0.4  %           2.0                      1.0  %                   (69.3) %
Total Home & Community Services
revenue                                         207.5                    148.4  %         169.1                     84.9  %                    22.8  %
Episodes of Care Wind-down
Episodes                                        (69.9)                   (50.0) %          27.8                     14.0  %                  (351.0) %
Other                                             2.2                      1.7  %           2.3                      1.2  %                    (3.6) %
Total Episodes of Care Wind-down
revenue                                         (67.7)                   (48.4) %          30.1                     15.1  %                  (324.4) %
Segment Adjusted EBITDA
Home & Community Services                        60.1                          NM          49.9                          NM                    20.6  %
Episodes of Care Wind-down                      (98.3)                         NM          (7.9)                         NM                         NM



Home & Community Services revenue was $207.5 million for the three months ended
September 30, 2022, representing an increase of $38.4 million, or 22.8%, from
$169.1 million for the three months ended September 30, 2021. This increase was
primarily driven by Evaluations revenue, which increased by $35.2 million. The
higher Evaluations revenue was driven by increased IHE volume and a slightly
lower proportion of IHEs conducted as vIHEs, which are performed at a lower
price per evaluation compared to in-person IHEs. Evaluations revenue included a
reduction associated with the grant date fair value of the outstanding customer
EARs and EAR Letter Agreement of $6.5 million and $5.0 million during the three
months ended September 30, 2022 and 2021, respectively. Revenue for Value-based
Care Services increased $4.6 million due to the Caravan Health acquisition in
March 2022. We recorded a $5.7 million reduction to Value-Based Care Services
revenue for the three months ended September 30, 2022 as we reduced our
estimates of shared savings for the 2022 plan year based on new information
received from CMS during the third quarter of 2022. The new data included
updated historical benchmarks that were lower than our expectations primarily
due to the lingering after effects of COVID-19 and updated spend information for
the fourth quarter of 2021 compared to the fourth quarter of 2020. The
inflationary trend CMS applies to the benchmark expenditures for ACOs in their
initial agreement period included a calculation of national and regional spend
for a twelve month period. When CMS initially reported the benchmark expenditure
data earlier this year, data from the fourth quarter of 2020 was used rather
than the fourth quarter of 2021 data, as the full year 2021 data was not yet
available. The historical benchmark expenditures are now locked for the existing
ACOs and will not be rebased until each ACO enters its next agreement period.
For ACOs originated in 2022, this means that the historical benchmark
expenditures will not be rebased until 2027. Other revenue decreased by $1.4
million, primarily due to a decrease in revenue from our biopharmaceutical
services which we exited in 2021 and standalone sales of our social determinants
of health community product.

Episodes of Care Wind-down revenue was $(67.7) million for the three months
ended September 30, 2022, representing a decrease of $97.8 million, from $30.1
million for the three months ended September 30, 2021. This decrease during the
three months ended September 30, 2022 was primarily driven by $97.7 million in
lower
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Episodes revenue due to the negative impact of CMS imposed pricing adjustments
resulting in lower estimates and the reversal of revenue previously recorded.
See "-Recent Developments in 2022 and Factors Affecting Our Results of
Operations -BPCI-A Reconciliation". Other revenue decreased $0.1 million in
2022, primarily driven by lower membership in our complex care management
services product offering.

Home & Community Services Adjusted EBITDA was $60.1 million for the three months
ended September 30, 2022, representing an increase of $10.2 million, or 20.6%,
from $49.9 million for the three months ended September 30, 2021. This increase
was primarily driven by the increase in revenue described above, partially
offset by higher operating expenses as a result of the variable costs associated
with increased volume, the acquisition of Caravan Health, and the investments to
support our growth and technology.

Episodes of Care Wind-down Adjusted EBITDA was a loss of $98.3 million for the
three months ended September 30, 2022, representing an increase of $90.4
million, or 1138.3%, from a loss of $7.9 million for the three months ended
September 30, 2021. This increase in the loss was primarily driven by the lower
Episodes revenue described above partially offset by the cost savings impact of
the Episodes of Care Wind-down restructuring.

Results of operations for the nine months ended September 30, 2022 and 2021

The following is a discussion of our consolidated results of operations for the
nine months ended September 30, 2022 and 2021. A discussion of the results by
each of our two operating segments, Home & Community Services and Episodes of
Care Wind-down, follows the discussion of our consolidated results.
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The following table summarizes our results of operations for the periods
presented:

                                                        Nine months ended September 30,                     % Change
                                                          2022                     2021                   2022 v 2021
                                                                 (in millions)
Revenue                                                        602.5                 592.0                            1.8  %
Operating expenses:
Service expense                                                365.5                 303.0                           20.7  %
Selling, general and administrative expense                    213.3                 188.0                           13.5  %
Transaction-related expense                                     14.5                   9.5                           52.0  %
Restructuring expense                                           16.7                     -                                NM
Asset impairment                                               523.2                     -                                NM
Depreciation and amortization                                   52.8                  51.6                            2.4  %
Total operating expenses                                     1,186.0                 552.1                          114.8  %
(Loss) income from operations                                 (583.5)                 39.9                                NM
Interest expense                                                14.6                  17.5                          (16.8) %
Loss on extinguishment of debt                                     -                   5.0                                NM
Other expense                                                  182.5                  43.6                          318.3  %
Other expense, net                                             197.1                  66.1                          198.2  %
Loss before income taxes                                      (780.6)                (26.2)                               NM
Income tax benefit                                             (49.3)                 (3.7)                               NM
Net loss                                          $           (731.3)         $      (22.5)                               NM
Net loss attributable to pre-Reorganization
period                                                             -                 (17.2)                               NM
Net loss attributable to non-controlling interest             (190.9)                 (2.3)                               NM
Net loss attributable to Signify Health, Inc.     $           (540.4)         $       (3.0)                               NM



Revenue

Our total revenue was $602.5 million for the nine months ended September 30,
2022, representing an increase of $10.5 million, or 1.8%, from $592.0 million
for the nine months ended September 30, 2021. This increase was primarily driven
by a $124.9 million increase in revenue from our Home & Community Services
segment offset by a $114.4 million decrease in revenue from our Episodes of Care
Wind-down segment. See "-Segment results" below.

Operating expenses

Our total operating expenses were $1,186.0 million for the nine months ended
September 30, 2022, representing an increase of $633.9 million, or 114.8%, from
$552.1 million for the nine months ended September 30, 2021. This increase was
driven by the following:

•Service expense - Our total service expense was $365.5 million for the nine
months ended September 30, 2022, representing an increase of $62.5 million, or
20.7%, from $303.0 million for the nine months ended September 30, 2021. This
increase was primarily driven by expenses related to our network of providers,
which increased by $35.4 million as compared to the nine months ended September
30, 2021, driven by the
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overall higher IHE volume as well as a higher mix of in-person IHEs compared to
vIHEs, which have a lower cost per evaluation. Compensation-related expenses
increased by $19.4 million, primarily driven by additional headcount, including
the incremental employees retained as part of the Caravan Health acquisition and
higher benefits expense. Equity-based compensation increased $1.1 million
primarily due to additional equity grants and the amendment of awards with
performance-based vesting to include a time-based vesting condition. As a result
of the negative BPCI-A trend factor adjustment, certain customers were in a
negative overall revenue position for the performance period, and we therefore
recorded expense of approximately $1.3 million for the nine months ended
September 30, 2022. Additionally, the following expenses increased during the
nine months ended September 30, 2022, primarily driven by the overall higher IHE
volume: $3.2 million in other variable costs; $1.5 million in the costs of
providing other diagnostic and preventive services, including certain laboratory
and testing fees; $1.0 million in member outreach services and other related
expenses, and $1.0 million in travel related costs. The impact of COVID-19 was
less in 2022, resulting in a decrease of approximately $1.4 million in
pandemic-related expenses during 2022 as compared to 2021, including lower costs
related to COVID-19 tests for our providers and lower costs for personal
protective equipment used by our providers while conducting IHEs.

•Selling, general and administrative ("SG&A") expense - Our total SG&A expense
was $213.3 million for the nine months ended September 30, 2022, representing an
increase of $25.3 million, or 13.5%, from $188.0 million for the nine months
ended September 30, 2021. This increase was primarily driven by equity-based
compensation which increased $23.2 million primarily due to additional equity
grants and the amendment of awards with performance-based vesting to include a
time-based vesting condition. Compensation-related expenses increased by $10.7
million due to additional headcount to support the overall growth in our
business including the incremental employees retained as part of the Caravan
Health acquisition and higher benefits costs. Additionally, information
technology-related expenses, including infrastructure and software costs
increased $4.9 million, employee travel and entertainment expenses increased
$2.7 million as COVID-19 imposed travel restrictions eased, facilities related
expenses increased $1.9 million primarily due to the early exit of certain
locations in connection with our approved restructuring activities due to the
wind-down of our Episodes of Care business and other variable costs increased
$1.2 million. These increases were offset by a decrease of $14.8 million in the
remeasurement of contingent consideration in 2022 related to potential payments
due upon the completion of certain performance targets in connection with our
acquisition of Caravan Health in March 2022. The estimated fair value of the
contingent consideration decreased primarily due to the lower Caravan Health
shared savings estimates. Professional service fees also decreased $4.5 million
in 2022.

•Transaction-related expenses - Our total transaction-related expenses were
$14.5 million for the nine months ended September 30, 2022, representing an
increase of $5.0 million, or 52.0%, from $9.5 million for the nine months ended
September 30, 2021. In 2022, the transaction-related expenses consisted
primarily of consulting, professional services expenses and employee related
costs in connection with the pending Merger and consulting and other
professional services incurred in connection with general corporate development
activities, including the Caravan Health acquisition. In addition,
transaction-related expenses in 2022 included certain integration-related
expenses, including compensation expenses and consulting and other professional
services expenses, following the Caravan Health acquisition. In 2021, the
transaction-related expenses consisted primarily of consulting and other
professional services, as well as compensation expenses, incurred in connection
with our IPO and general corporate development activities, including potential
acquisitions that did not proceed.

•Restructuring expenses - Our total restructuring expenses were $16.7 million
for the nine months ended September 30, 2022. We did not have any restructuring
expenses for the nine months ended September 30,
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2021. The restructuring expense in 2022 includes severance and related employee
costs, contract termination fees and professional services fees due to the
wind-down of our Episodes of Care business.

•Asset impairment - Our total asset impairment was $523.2 million for the nine
months ended September 30, 2022. We did not record an asset impairment for the
nine months ended September 30, 2021. The loss on asset impairment in 2022 was
primarily related to our Episodes of Care Wind-down segment as the carrying
value of the assets exceeded the estimated fair value. Additionally, we recorded
a loss on impairment in connection with the decision to end our community
service offering and therefore the carrying value of the underlying intangible
assets exceeded the estimated fair value as of September 30, 2022. The loss on
asset impairment included a goodwill impairment of $426.7 million, a $66.9
million impairment of customer relationships and $29.6 million impairment of
acquired and capitalized software.

•Depreciation and amortization - Our total depreciation and amortization expense
was $52.8 million for the nine months ended September 30, 2022, representing an
increase of $1.2 million, or 2.4%, from $51.6 million for the nine months ended
September 30, 2021. This increase in depreciation and amortization expense was
primarily driven by an increase in depreciation expense of $0.9 million,
primarily driven by additional capital expenditures over the past year.
Additionally, there was a net increase in amortization expense of $0.3 million,
primarily due to the $93.9 million in intangible assets acquired in connection
with the Caravan Health acquisition in March 2022 and additional capital
expenditures related to internally-developed software over the past year
partially offset by asset impairments over the past year and certain intangible
assets becoming fully amortized in 2021.

Other expense, net

Other expense, net total was $197.1 million for the nine months ended September
30, 2022, representing an increase of $131.0 million from $66.1 million for the
nine months ended September 30, 2021.

Interest expense was $14.6 million for the nine months ended September 30, 2022,
representing a decrease of $2.9 million from $17.5 million for the nine months
ended September 30, 2021. This decrease was primarily driven by the lower
outstanding term loan principal balance following our June 2021 refinancing of
the 2021 Credit Agreement partially offset by higher overall interest rates.

In 2021, we recorded a loss on extinguishment of debt of $5.0 million in
connection with the June 2021 refinancing of the 2021 Credit Agreement.

Other (income) expense was $182.5 million for the nine months ended September
30, 2022, representing an increase of $138.9 million from $43.6 million for the
nine months ended September 30, 2021. This increase was primarily driven by the
remeasurement of the fair value of the outstanding customer EAR liabilities,
which resulted in expense of $184.6 million for nine months ended September 30,
2022, representing an increase of $140.6 million from expense of $44.0 million
for the nine months ended September 30, 2021. The fair value of the outstanding
customer EAR liabilities increased due to our higher equity value and a revised
estimate of the time to liquidity as a result of the pending Merger. This
increase in net expense was partially offset by a $1.7 million increase in
interest income earned on higher excess cash balances and rising interest rates
during the nine months ended September 30, 2022.

Income tax benefit
Income tax benefit was $49.3 million for the nine months ended September 30,
2022, representing an increase of $45.6 million from an income tax benefit of
$3.7 million for the nine months ended September 30, 2021. The
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effective tax rate for the nine months ended September 30, 2022 was 6.3%
compared to 13.9% for the nine months ended September 30, 2021. The effective
tax rate in 2022 is lower than the statutory federal and state income tax rate
of approximately 25% primarily due to nondeductible goodwill impairment, impact
of non-controlling interest, and a change in valuation allowance.

Segment results

We evaluate the performance of each of our two operating segments based on
segment revenue and segment adjusted EBITDA. Service expense for each segment is
based on direct expenses associated with the revenue generating activities of
each segment. We allocate SG&A expenses to each segment primarily based on the
relative proportion of direct employees.

The following table summarizes our segment revenue, segment adjusted EBITDA and
the percentage of total consolidated revenue and consolidated adjusted EBITDA,
respectively, for the periods presented:

                                                                    Nine months ended September 30,                                     % Change
                                                2022               % of Total              2021              % of Total               2022 v 2021
                                                                             (in millions)
Revenue
Home & Community Services
Evaluations                                  $  595.5                     98.8  %       $ 490.6                     82.9  %                    21.4  %
Value-based Care Services                        24.4                      4.1  %             -                        -  %                         NM
Other                                             1.9                      0.3  %           6.3                      1.1  %                   (70.0) %
Total Home & Community Services
revenue                                         621.8                    103.2  %         496.9                     83.9  %                    25.2  %
Episodes of Care Wind-down
Episodes                                        (26.0)                    (4.3) %          88.5                     15.0  %                  (129.4) %
Other                                             6.7                      1.1  %           6.6                      1.1  %                     1.3  %
Total Episodes of Care Wind-down
revenue                                         (19.3)                    (3.2) %          95.1                     16.1  %                  (120.3) %
Segment Adjusted EBITDA
Home & Community Services                       189.9                          NM            146.8                       NM                    29.4  %
Episodes of Care Wind-down                     (120.5)                         NM         (15.8)                         NM                         NM



Home & Community Services revenue was $621.8 million for the nine months ended
September 30, 2022, representing an increase of $124.9 million, or 25.2%, from
$496.9 million for the nine months ended September 30, 2021. This increase was
primarily driven by Evaluations revenue, which increased by $104.9 million. The
higher Evaluations revenue was driven by increased IHE volume and a reduction in
the proportion of IHEs conducted as vIHEs, which are performed at a lower price
per evaluation compared to in-person IHEs. Evaluations revenue included a
reduction associated with the grant date fair value of the outstanding customer
EARs and EAR Letter Agreement of $19.5 million and $14.8 million during the nine
months ended September 30, 2022 and 2021, respectively. Revenue for Value-based
Care Services increased $24.4 million due to the Caravan Health acquisition.
Other revenue decreased by $4.4 million, primarily due to a decrease in revenue
from our biopharmaceutical services which we exited in 2021 and standalone sales
of our social determinants of health community product.

Episodes of Care Wind-down revenue was $(19.3) million for the nine months ended
September 30, 2022, representing a decrease of $114.4 million, from $95.1
million for the nine months ended September 30, 2021. This decrease during the
three months ended September 30, 2022, was primarily driven by a decrease of
$114.5 million
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in lower Episodes revenue due to the negative impact of CMS imposed pricing
adjustments resulting in lower savings estimates and the reversal of revenue
previously recorded. See "-Recent Developments in 2022 and Factors Affecting Our
Results of Operations -BPCI-A Reconciliation". Other revenue increased $0.1
million in 2022 primarily driven by higher membership in our complex care
management services product offering.

Home & Community Services Adjusted EBITDA was $189.9 million for the nine months
ended September 30, 2022, representing an increase of $43.1 million, or 29.4%,
from $146.8 million for the nine months ended September 30, 2021. This increase
was primarily driven by the increase in revenue described above partially offset
by higher operating expenses as a result of the variable costs associated with
increased volume, the acquisition of Caravan Health, and investments to support
our growth and technology.

Episodes of Care Wind-down Adjusted EBITDA was a loss of $120.5 million for the
nine months ended September 30, 2022, representing an increase in loss of $104.7
million, from a loss of $15.8 million for the nine months ended September 30,
2021. This increased loss was primarily driven by the lower Episodes revenue
described above, partially offset by the impact of the Episodes of Care
Wind-down restructuring.

Liquidity and capital resources

Liquidity describes our ability to generate sufficient cash flows to meet the
cash requirements of our business operations, including working capital needs to
meet operating expenses, debt service, acquisitions when pursued and other
commitments and contractual obligations. We consider liquidity in terms of cash
flows from operations and their sufficiency to fund our operating and investing
activities.

Our primary sources of liquidity are our existing cash and cash equivalents,
cash provided by operating activities and borrowings under our 2021 Credit
Agreement, including borrowing capacity under our Revolving Facility (as defined
below). As of September 30, 2022, we had unrestricted cash and cash equivalents
of $461.6 million. Our total indebtedness was $346.5 million as of September 30,
2022.

In June 2021, we entered into a credit agreement with a secured lender syndicate
(the "2021 Credit Agreement"). The 2021 Credit Agreement includes a term loan of
$350.0 million (the "2021 Term Loan") and a revolving credit facility (the
"Revolving Facility") with a $185.0 million borrowing capacity. See Part II,
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operation -Liquidity and capital resources -Indebtedness" in our 2021 Annual
Report on Form 10-K. As of September 30, 2022, we had available borrowing
capacity under the Revolving Facility of $172.8 million, as the borrowing
capacity is reduced by outstanding letters of credit of $12.2 million. In July
2022, S&P upgraded our corporate credit rating, which in accordance with the
terms of the 2021 Credit Agreement, reduced our applicable interest rate by 25
basis points, effective July 2022. However, rising interest rates have offset
this reduction.

Our principal liquidity needs are working capital and general corporate
expenses, debt service, capital expenditures, obligations under the Tax
Receivable Agreement, income taxes, acquisitions and other investments to help
achieve our growth strategy. In March 2022, we acquired Caravan Health, using
approximately $189.6 million in cash, net of the cash acquired from Caravan
Health. We expect to pay an additional $0.9 million to the sellers of Caravan
Health in the fourth quarter 2022 related to the working capital adjustment as
defined in the purchase agreement. In addition, we issued approximately
$60.0 million of our Class A common stock, comprised of 4,726,134 shares at
$12.5993 per share, which represented the volume-weighted average price per
share of our common stock for the five trading days ending three business days
prior to March 1, 2022. Under the terms of the Caravan Health Merger Agreement,
there could be a contingent payment made to the sellers of Caravan Health in
2023 of up to $50 million if certain milestones are achieved.

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Payment of the outstanding customer EAR liabilities would be triggered by the
consummation of the Merger, which we expect to occur within the next 12 months.
See "-Recent Developments in 2022 and Factors Affecting Our Results of
Operations -Pending Acquisition." As of September 30, 2022, the total estimated
fair value of the outstanding EAR agreements was $278.1 million.

Our capital expenditures for property and equipment to support growth in the
business were $6.5 million and $3.7 million for the nine months ended September
30, 2022 and 2021, respectively.

On July 7, 2022, our Board approved a restructuring plan to wind down our
Episodes of Care segment. See "-Recent Developments in 2022 and Factors
Affecting Our Results of Operations -Episodes of Care Wind-down Restructuring."
The total cost of the restructuring plan is estimated to be approximately
$25-$35 million and will consist of severance and related employee costs,
contract termination fees and professional service fees as well as facility
closure costs. We expect the majority of the restructuring plan actions to be
completed in 2022.

Our liquidity has historically fluctuated on a quarterly basis due to our
agreements with CMS under the BPCI-A program and will be further impacted due to
our planned exit of the BPCI-A program and wind down of our Episodes of Care
business. See "-Recent Developments in 2022 and Factors Affecting Our Results of
Operations -Episodes of Care Wind-down Restructuring and -Recent Developments in
2022 and Factors Affecting Our Results of Operations -BPCI-A Reconciliation."
Cash receipts generated under these contracts, which represents the majority of
revenue in our Episodes of Care Wind-down segment, are subject to a semiannual
reconciliation cycle, which historically occurred in the second and fourth
quarters of each year. Cash receipts under these contracts were typically
received in the quarter subsequent to the receipt of the reconciliation, or
during the first and third quarters of each year, which has and will continue to
cause our liquidity position to fluctuate from quarter to quarter until our exit
is complete when these will no longer be sources of cash. Due to our dispute of
the pricing adjustment in the semiannual reconciliation received from CMS during
the second quarter 2022 and now our appeal, the cash we typically would have
received in the third quarter 2022 has been delayed until CMS issues a final
reconciliation. Further, if we are not successful in our appeal of the
reconciliation results initially received in June 2022 from CMS and confirmed by
CMS in October 2022, we expect our cash receipts for the remaining semi-annual
reconciliation periods would be lower than we have received historically. See
"-Recent Developments in 2022 and Factors Affecting Our Results of Operations
-BPCI-A Reconciliation".

In addition, Caravan Health's participation in the CMS MSSP ACO program will
also result in fluctuations in liquidity from period to period, as this is a
calendar year program, with annual shared savings reconciled and distributed
approximately nine months after the calendar year program ends. For example, we
received the shared savings funds from CMS in the fourth quarter of 2022 related
to the 2021 ACO plan year and expect to receive the 2022 ACO plan year shared
savings in the third or fourth quarter of 2023.

Our Home & Community Services segment historically experienced seasonality
patterns in IHE volume as described in Part II, Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations -Factors affecting
our results of operations" in our 2021 Annual Report on Form 10-K. We did
experience a higher IHE volume during the second quarter of 2022 compared to the
first quarter 2022 and expect a historical seasonality trend to continue to
occur during 2022 with higher second half IHE volume, thus creating a
seasonality effect on liquidity. Additionally, liquidity in our Home & Community
Services segment was temporarily impacted by delayed collections during the
first half of 2022 from certain clients where we are experiencing significant
expansion. We experienced improved collections during the third quarter of 2022
as we worked with our clients to resolve some of the temporary delays.

In our Episodes of Care Wind-down segment, the negative price adjustments and to
a lesser extent the ongoing negative effects of the COVID-19 pandemic and CMS'
response to the pandemic, have impacted the semiannual
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reconciliations we receive and the subsequent cash receipts since late 2020. We
expect to receive lower cash payments from CMS for reconciliations received in
2022 as compared to the reconciliations received prior to the pandemic.
Additionally, in 2021, CMS announced a change to the period in which they will
pay funds related to expirations. This change resulted in a delayed payment for
one period, which had a temporary adverse impact on the cash received in the
first quarter of 2022 following the receipt of our semiannual reconciliation
during the fourth quarter of 2021. Further, as discussed in "-Recent
Developments in 2022 and Factors Affecting our Results of Operations-BPCI-A
Reconciliation" above, the semiannual reconciliation initially received in the
second quarter of 2022 was not deemed final as we have disputed and now appealed
the pricing calculation. Accordingly, the cash receipts, which we historically
would have received in the third quarter, have been delayed until CMS issues a
final reconciliation.

In the first quarter of 2022, we announced we are developing a technology center
in Galway, Ireland where we intend to employ software engineers and other
employees to support our operations in the United States. This will be our first
international expansion, which will require capital funding and expose us to
currency risk.

We believe that our cash flow from operations, capacity under our Revolving
Facility and available cash and cash equivalents on hand will be sufficient to
meet our liquidity needs for at least the next 12 months. We anticipate that to
the extent that we require additional liquidity, it will be funded through the
incurrence of additional indebtedness, the issuance of additional equity, or a
combination thereof. We cannot assure you that we will be able to obtain this
additional liquidity on reasonable terms, or at all. Additionally, our liquidity
and our ability to meet our obligations and fund our capital requirements are
also dependent on our future financial performance, which is subject to general
economic, financial and other factors that are beyond our control. See "-Item
1A. Risk factors." Accordingly, we cannot assure you that our business will
generate sufficient cash flow from operations or that future borrowings will be
available from additional indebtedness or otherwise to meet our liquidity needs.
If we decide to pursue one or more significant acquisitions, we may incur
additional debt or sell or issue additional equity to finance such acquisitions,
which could possibly result in additional expenses or dilution.

Comparative cash flows

The following table sets forth our cash flows for the periods indicated:

                                                                 Nine months ended September 30,
                                                                    2022                    2021
                                                                          (in millions)
Net cash provided by operating activities                   $            23.3          $      123.4
Net cash used in investing activities                                  (216.3)                (26.2)
Net cash (used in) provided by financing activities                      (0.2)                511.7

Net (decrease) increase in cash, cash equivalents and
restricted cash

                                                        (193.2)                608.9

Cash, cash equivalents and restricted cash – beginning of
year

                                                                    684.2                  77.0

Cash, cash equivalents and restricted cash – end of period $ 491.0 $ 685.9

Operating activities

Net cash provided by operating activities was $23.3 million in 2022, a decrease
of $100.1 million, compared to net cash provided by operating activities of
$123.4 million in 2021.

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Net loss was $731.3 million in 2022, as compared to a net loss of $22.5 million
in 2021. The increase in net loss was primarily due to the impairment of
goodwill and certain intangible assets related to our decision to wind down our
Episodes of Care segment restructuring and the reduced estimates of shared
savings revenue under the BPCI-A program partially offset by revenue growth in
our Home & Community Services segment. Non-cash items were $758.7 million in
2022 as compared to $120.5 million in 2021. The increase in non-cash net expense
items included in net loss was primarily driven by the impairment of goodwill
and certain intangible assets related to our Episodes of Care Wind-down segment
and the remeasurement of customer equity appreciation rights driven by changes
in relative value of our stock price in 2022 compared to 2021 as well as the
pending Merger.

Changes in operating assets and liabilities resulted in a cash decrease of $4.1
million in 2022, as compared to a cash increase of $27.3 million in 2021. The
change in operating assets and liabilities was primarily driven by a net
decrease in accounts receivable of $37.4 million in 2022 compared to a net
decrease in accounts receivable of $101.4 million in 2021. Accounts receivable
for our Home & Community Services segment increased $41.3 million in 2022
compared to a $48.7 million increase in 2021. The increase in accounts
receivable in 2022 was primarily driven by higher IHE volume in 2022.
Collections improved significantly in the third quarter of 2022 compared to
earlier in 2022. Accounts receivable for our Episodes of Care Wind-down segment
decreased $77.1 million in 2022 compared to a $150.1 million decrease in 2021.
The lower accounts receivable in the Episodes of Care Wind-down segment in 2022
as compared to 2021 was primarily driven by the impact of the dispute and
subsequent appeal of the semiannual BPCI-A reconciliation. As discussed in
"-Recent Developments in 2022 and Factors Affecting our Results of
Operations-BPCI-A Reconciliation" above, the semiannual reconciliation initially
received in the second quarter of 2022 was not deemed final as we disputed the
pricing calculation. Accordingly, no amounts related to this reconciliation
period were included in accounts receivable at September 30, 2022 and the cash
receipts, which we historically would have received in the third quarter of
2022, have been delayed until CMS issues a final reconciliation.

The net impact of changes in net contract assets and liabilities during 2022 was
a $7.8 million increase in cash flows as compared to a $39.6 million decrease in
cash flows in 2021. The decrease in net contract assets in 2022 was primarily
driven by the negative pricing adjustments imposed by CMS on the most recent
reconciliation for the BPCI-A program at the end of the second quarter of 2022,
changes in the estimate of variable consideration generated under the MSSP ACO
program partially offset by an increase in a contract asset related to variable
consideration for a customer in our Home & Community Services segment with a
discount over the contract term.

In 2022, we also funded approximately $6.3 million in the MSSP ACO repayment
mechanism on behalf of our customers in order to meet the funding deadlines
ahead of the return of certain funds from prior period repayment mechanisms. We
expect to receive this back from our customers by the end of 2022.

Accounts receivable, contract assets and contract liabilities fluctuate from
period to period as a result of periodically slower client collections,
particularly in our Home & Community Services segment as we and our clients
reconcile claims and resolve any temporary claims processing delays and the
results of the semiannual reconciliations in our Episodes of Care Wind-down
segment.

Investing activities

Net cash used in investing activities was $216.3 million in 2022, an increase of
$190.1 million, compared to net cash used in investing activities of $26.2
million in 2021. The primary use of cash from investing activities in 2022 was
the cash consideration, net of cash acquired, for the Caravan Health acquisition
of $190.5 million, which includes $0.9 million expected to be paid in the fourth
quarter of 2022. Capital expenditures for property and
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equipment were $6.5 million in 2022 compared to $3.7 million in 2021. The $2.8
million increase in capital expenditures for property and equipment was
primarily driven by computer equipment purchases. Capital expenditures for
internal-use software development were $19.0 million in 2022 compared to $17.1
million in 2021. The $1.9 million increase in capital expenditures for
internal-use software development was primarily driven by additional investments
in our technology platforms to support future growth. Investing activities also
included a $0.3 million equity investment in AloeCare Health in 2022 and a $5.0
million equity investment in Medalogix in 2021.

Financing activities

Net cash used in financing activities was $0.2 million in 2022, a decrease of
$511.9 million, compared to net cash provided by financing activities of $511.7
million in 2021. The use of cash in 2022 was primarily due to $6.7 million in
tax distributions on behalf of the non-controlling interest and scheduled
principal payments under our 2021 Credit Agreement of $2.6 million. Financing
activities also includes the proceeds of $9.6 million related to the issuance of
common stock in connection with the exercise of stock options in 2022.

The primary source of cash from financing activities in 2021 was $604.8 million
in net proceeds from our IPO after deducting underwriting discounts and
commissions and other issuance costs. Additionally, we received $2.7 million in
proceeds related to the issuance of common stock in connection with the exercise
of stock options. These cash inflows in 2021 were partially offset by the net
reduction in long-term debt of $61.5 million in connection with the June 2021
refinancing of our credit agreement as well as scheduled principal payments on
long-term debt of $1.0 million. Additionally, we paid approximately $9.2 million
in debt issuance costs in connection with the June 2021 refinancing, $13.1
million related to the completion of the first milestone associated with the
2020 PatientBlox acquisition and $10.4 million in tax distributions on behalf of
the non-controlling interest.

Customer Equity Appreciation Rights (“EAR”) Agreements

In each of December 2019 and September 2020, we entered into EAR agreements with
one of our customers. Pursuant to the agreements, certain revenue targets were
established for the customer to meet in the next three years. If they meet those
targets, they retain the EAR. If they do not meet such targets, they forfeit all
or a portion of the EAR. Each EAR agreement allows the customer to participate
in the future growth in the fair market value of our equity and can only be
settled in cash (or, under certain circumstances, in whole or in part with a
replacement agreement containing substantially similar economic terms as the
original EAR agreement) upon a change-in-control of us, other liquidity event,
or upon approval of our Board with the consent of New Mountain Capital subject
to certain terms and conditions. Each EAR will expire 20 years from the date of
grant, if not previously settled.

Pursuant to the terms of the EAR agreements, the value of the EARs will be
calculated as an amount equal to the non-forfeited portion of a defined
percentage (3.5% in the case of the December 2019 EAR and 4.5% in the case of
the September 2020 EAR) of the excess of (i) the aggregate fair market value of
the Reference Equity (as defined below) as of the applicable date of
determination over (ii) a base threshold equity value defined in each agreement.
Pursuant to the terms of each agreement, the "Reference Equity" is the Class A
common stock of the Company and the aggregate fair market value of the Reference
Equity will be determined by reference to the volume-weighted average trading
price of the Company's Class A common stock (assuming all of the holders of LLC
Units redeemed or exchanged their LLC Units for a corresponding number of newly
issued shares of Class A common stock) over a period of 30 calendar days. In
addition, following the IPO, the base threshold equity value set forth in each
agreement was increased by the aggregate offering price of the IPO.

On December 31, 2021, we entered into an amendment of the December 2019 EAR and
the September 2020 EAR (collectively, the "EAR Amendments"). The EAR Amendments
provide, among other things, that the customer may exercise any unexercised,
vested and non-forfeited portion of each EAR upon the sale of our Class A common
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stock by New Mountain Capital, our sponsor, subject to certain terms and
conditions. These terms and conditions include, among others, that the customer
has met its revenue targets under each EAR for 2022 and that New Mountain
Capital has sold our Class A common stock above a certain threshold as set forth
in each amendment. We have the option to settle any portion of the EARs so
exercised in cash or in Class A common stock, provided that the aggregate amount
of any cash payments do not exceed $25.0 million in any calendar quarter (with
any amounts exceeding $25.0 million to be paid in the following quarter or
quarters).

We and our customer also agreed to extend our existing commercial arrangements
through the middle of 2026 and established targets for the minimum number of
IHEs to be performed on behalf of the customer each year (the "Volume Targets").
The EAR Amendments did not result in any incremental expense as the fair value
at the time of modification did not exceed the fair value of the original
December 2019 EAR and September 2020 EAR immediately prior to the modification.
Accordingly, we will continue to recognize the original grant date fair value of
the 2019 EAR and 2020 EAR awards as a reduction to revenue.

We also entered into the EAR Letter Agreement with the customer that provides
that, in the event of a change in control of the Company or certain other
corporate transactions, and subject to achievement of the Volume Targets, if the
aggregate amount paid under the EARs prior to and in connection with such event
(the "Aggregate EAR Value") is less than $118.5 million, then the customer will
be paid the difference between $118.5 million and the Aggregate EAR Value. The
EAR Letter Agreement was determined to be a separate equity-linked instrument,
independent from the original EARs, as amended. The grant date fair value is
determined based on an option pricing model. Similar to the original EARs, we
will record the initial grant date fair value as a reduction to revenue over the
performance period. Estimated changes in fair market value will be recorded each
accounting period based on management's current assumptions related to the
underlying valuation approaches as other (income) expense, net on the Condensed
Consolidated Statement of Operations. The grant date fair value of the EAR
Letter Agreement was estimated to be $76.2 million and will be recorded as a
reduction of revenue through June 30, 2026, coinciding with the service period.
The EAR Letter Agreement was executed on December 31, 2021 and, therefore, there
was no material impact on our results of operations in 2021.

As of September 30, 2022, due to the change in control and liquidity provisions
of each EAR, cash settlement of the EARs is expected to occur following the
close of the pending Merger and will be paid based on the $30.50 per share
defined in the Merger Agreement. The grant date fair value of the December 2019
EAR was estimated to be $15.2 million and is being recorded as a reduction of
revenue through December 31, 2022, coinciding with the three-year performance
period. The grant date fair value of the September 2020 EAR was estimated to be
$36.6 million and is being recorded as a reduction of revenue through December
31, 2022, coinciding with the 2.5-year performance period. As of September 30,
2022, the total combined estimated fair market value of the EARs, as amended,
and EAR Letter Agreement was approximately $278.1 million.

Non-GAAP financial measures

Adjusted EBITDA and Adjusted EBITDA Margin are not measures of financial
performance under GAAP and should not be considered substitutes for GAAP
measures, including net income or loss, which we consider to be the most
directly comparable GAAP measure. Adjusted EBITDA and Adjusted EBITDA Margin
have limitations as analytical tools, and when assessing our operating
performance, you should not consider these non-GAAP financial measures in
isolation or as substitutes for net income or loss or other consolidated income
statement data prepared in accordance with GAAP. Other companies may calculate
Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting its
usefulness as a comparative measure.

We define Adjusted EBITDA as net (loss) income before interest expense, loss on
extinguishment of debt, income tax expense, depreciation and amortization and
certain items of income and expense, including asset
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impairment, other (income) expense, net, transaction-related expenses,
restructuring expenses, equity-based compensation, remeasurement of contingent
consideration, SEU expense and non-recurring expenses. We believe that Adjusted
EBITDA provides a useful measure to investors to assess our operating
performance because it eliminates the impact of expenses that do not relate to
ongoing business performance, and that the presentation of this measure enhances
an investor's understanding of the performance of our business.

Adjusted EBITDA is a key metric used by management and our Board to assess the
performance of our business. We believe that Adjusted EBITDA provides a useful
measure to investors to assess our operating performance because it eliminates
the impact of expenses that do not relate to ongoing business performance, and
that the presentation of this measure enhances an investor's understanding of
the performance of our business. We believe that Adjusted EBITDA Margin is
helpful to investors in measuring the profitability of our operations on a
consolidated level.

Our use of the terms Adjusted EBITDA and Adjusted EBITDA Margin may vary from
the use of similar terms by other companies in our industry and accordingly may
not be comparable to similarly titled measures used by other companies. Adjusted
EBITDA and Adjusted EBITDA Margin have important limitations as analytical
tools. For example, Adjusted EBITDA and Adjusted EBITDA Margin:

•do not reflect any cash capital expenditure requirements for the assets being
depreciated and amortized that may have to be replaced in the future;

•do not reflect changes in, or cash requirements for, our working capital needs;

•do not reflect the impact of certain cash charges resulting from matters we
consider not to be indicative of our core operations;

•do not reflect the interest expense or the cash requirements necessary to
service interest or principal payments on our debt; and

•do not reflect equity-based compensation expense and other non-cash charges;
and exclude certain tax payments that may represent a reduction in cash
available to us.

Adjusted EBITDA decreased by $80.2 million to a loss of $38.2 million for the
three months ended September 30, 2022 from income of $42.0 million for the three
months ended September 30, 2021. Adjusted EBITDA decreased by $61.6 million, or
(47.0)%, to $69.4 million for the nine months ended September 30, 2022 from
$131.0 million for the nine months ended September 30, 2021. The decrease in
both the three and nine months ended September 30, 2022 is primarily driven by
the decline in revenue in our Episodes of Care Wind-down segment as a result of
CMS decision to implement negative price trend adjustments, which we are
currently in the process of appealing.

We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue. We
believe that Adjusted EBITDA Margin is helpful to investors in measuring the
profitability of our operations on a consolidated basis. Adjusted EBITDA Margin
decreased to (27.3)% for the three months ended September 30, 2022 from 21.1%
for the three months ended September 30, 2021. Adjusted EBITDA Margin decreased
to 11.5% for the nine months ended September 30, 2022 from 22.1% for the nine
months ended September 30, 2021.

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The following table shows a reconciliation of net income (loss) to Adjusted
EBITDA for the periods presented:

                                         Three months ended September 30,               Nine months ended September 30,
                                             2022                  2021                    2022                     2021
                                                   (in millions)
Net (loss) income                      $      (225.0)         $      29.3          $           (731.3)         $     (22.5)
Interest expense                                 6.0                  4.2                        14.6                 17.5
Loss on extinguishment of debt                     -                    -                           -                  5.0
Income tax (benefit) expense                   (48.5)                 6.4                       (49.3)                (3.7)
Depreciation and amortization                   14.7                 17.6                        52.8                 51.6
Asset impairment(a)                              3.3                    -                       523.2                    -
Other expense (income), net(b)                 181.1                (27.4)                      182.5                 43.6
Transaction-related expenses(c)                  9.6                  2.9                        14.5                  9.5
Restructuring expenses(d)                       16.7                    -                        16.7                    -
Equity-based compensation(e)                    13.3                  3.7                        34.7                  9.5
Customer equity appreciation rights(f)           6.5                  5.0                        19.5                 14.8
Remeasurement of contingent
consideration(g)                               (17.5)                   -                       (12.6)                 2.2
SEU Expense(h)                                   0.6                  0.2                         0.9                  2.0
Non-recurring expenses(i)                        1.0                  0.1                         3.2                  1.5
Adjusted EBITDA                        $       (38.2)         $      42.0          $             69.4          $     131.0



(a) Asset impairment is primarily related to customer relationships, acquired
and capitalized software and goodwill which was impaired due to our decision to
wind down our Episodes of Care business which was triggered by the receipt of
the reconciliation from CMS in June 2022. See "-Recent Developments in 2022 and
Factors Affecting our Results of Operations -Episodes of Care Wind-down
Restructuring." Additionally, during the three months ended September 30, 2022,
we recorded an asset impairment of intangible assets related to assets acquired
in a 2019 acquisition that underlie our Signify Community platform that we
expect to no longer offer.
(b) Represents other non-operating (income) expense that consists primarily of
the quarterly remeasurement of fair value of the outstanding customer EARs and
EAR Letter Agreement as well as interest and dividends earned on cash and cash
equivalents.
(c) Represents transaction-related expenses that consist primarily of expenses
incurred in connection with acquisitions and other corporate development
activities, including the pending Merger and the Caravan Health acquisition and
related integration expenses as well as potential acquisitions that did not
proceed, strategic investments and similar activities. Expenses incurred in
connection with our IPO, which cannot be netted against proceeds, are also
included in transaction-related expenses in 2021.
(d) Represents restructuring expense related to the Episodes of Care Wind-down
due to our plans to exit the business. Restructuring expense includes severance
and related employee costs, contract termination fees and professional services
fees.
(e) Represents expense related to equity incentive awards, including incentive
units, stock options and RSUs, granted to certain employees, officers and
non-employee directors as long-term incentive compensation.
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We recognize the related expense for these awards ratably over the vesting
period or as achievement of performance criteria become probable.
(f) Represents the reduction of revenue related to the grant date fair value of
the customer EARs granted pursuant to the customer EAR agreements we entered
into in December 2019 and September 2020, as amended and the EAR Letter
Agreement we entered into in December 2021.
(g) Represents remeasurement of contingent consideration in 2022 related to
potential payments due upon completion of certain performance targets in
connection with the Caravan Health acquisition. In 2021, relates to potential
payments due upon completion of certain milestone events in connection with our
acquisition of PatientBlox.
(h) Represents compensation expense related to awards of SEUs subject to
time-based vesting. A limited number of SEUs were granted in 2020 and 2021 at
the time of the IPO; no future grants of SEUs will be made. Compensation expense
related to these awards is tied to the 30-trading day average price of our Class
A common stock, and therefore is subject to volatility and may fluctuate from
period to period until settlement occurs.
(i) Represents certain gains and expenses incurred that are not expected to
recur, including those associated with the closure of certain facilities,
one-time employee termination benefits and the early termination of certain
contracts as well as one-time expenses associated with the COVID-19 pandemic.

Contractual Obligations and Commitments

Our material cash requirements include non-cancelable purchase commitments,
lease obligations, debt and debt service, payments under the TRA and settlement
of the outstanding customer EARs, among others. As of September 30, 2022, there
have been no material changes from the contractual obligations and commitments
previously disclosed in our 2021 Annual Report on Form 10-K other than as
described below.

Effective April 1, 2022, we entered into a new lease agreement for a facility in
Galway, Ireland. The lease term is 15 years with an option to terminate after 10
years. It is not reasonably certain that we will not exercise the option to
terminate after 10 years; therefore, the total lease payments are expected to be
approximately $7.0 million over 10 years.

During the three months ended September 30, 2022, we executed an early
termination notice with one of our facility landlords, paying a penalty of $1.0
million. The early exit of the lease will result in approximately $1.8 million
lower lease payments over the original life of the lease through 2025.

The Merger Agreement contains certain termination rights, whereby we may be
obligated Parent a termination fee. See "-Recent Developments in 2022 and
Factors Affecting Our Results of Operations -Pending Acquisition". If the Merger
Agreement were terminated in accordance with its terms, under certain specified
circumstances, we may be required to pay Parent a termination fee in an amount
equal to $228.0 million, including if the Merger Agreement is terminated due to
our accepting a superior proposal or due to the Board changing its
recommendation to our stockholders to vote to approve the Merger Agreement.

Additionally, we have entered into agreements with certain banks that provide
that, upon closing of the Merger, we are obligated to pay an aggregate advisory
fee of approximately $78.4 million. If the Merger is not consummated, we are
obligated in certain circumstances to pay a breakage fee of approximately $36.6
million.

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Customer Equity Appreciation Rights

Based on the acquisition value of the pending Merger and our current stock
price, the value of the outstanding EAR agreements exceed the minimum value
established in the EAR Letter Agreement. As of September 30, 2022, the estimated
customer EAR liability was included in current liabilities on the Condensed
Consolidated Balance Sheets, reflecting our expectation that the Merger will
close within the next 12 months, which would result in payment of the EAR
liabilities. Upon closing of the Merger, we expect to make full payment of the
EAR liability, which was approximately $278.1 million as of September 30, 2022.

Amendment to Tax Receivable Agreement

The Company, Cure TopCo and certain other parties thereto have entered into a
Tax Receivable Agreement and LLC Agreement Amendment, dated as of September 2,
2022 (the "TRA Amendment") which (i) amends (x) the Tax Receivable Agreement
among the Company, Cure TopCo and certain other parties thereto and (y) the Cure
TopCo Amended LLC Agreement and (ii) provides for certain covenants regarding
tax reporting and tax-related actions.

The TRA Amendment provides for (i) the termination of all payments under the TRA
from and after the Effective Time of the Merger Agreement, (ii) the payment of
any amounts due under the TRA prior to the Effective Time (other than payments
resulting from an action taken by any party to the TRA after the date of the TRA
Amendment, which will be suspended), in accordance with the terms of the TRA,
which payments will be paid no earlier than 185 days following the filing of the
U.S. federal income tax return of the Company, (iii) a prohibition on the
Company terminating the TRA or accelerating obligations under the TRA after the
date of the TRA Amendment and (iv) the termination of the TRA effective as of
immediately prior to and contingent upon the occurrence of the Effective Time
(including termination of all of the Company's obligations thereunder and the
obligation to make any of the foregoing suspended payments). The TRA Amendment
also includes agreements among the parties thereto regarding the preparation of
tax returns and limits actions that may be taken by the Company, Cure TopCo and
certain of their controlled affiliates after the Effective Time.

The TRA Amendment also (i) suspends all tax distributions under the Cure TopCo
Amended LLC Agreement from and after the Effective Time, and (ii) provides that
from and after the Effective Time, no person or entity shall have any further
payment or other obligation under the TRA or any obligation to make or pay tax
distributions under the Cure TopCo Amended LLC Agreement.

In the event the Merger Agreement is terminated in accordance with its terms,
(i) the TRA Amendment will become null and void ab initio (provided that any
payments suspended as described above are required to be made), (ii) the TRA and
the Cure TopCo Amended LLC Agreement will continue in full force and effect as
if the TRA Amendment had never been executed (provided that any suspended
payments as described above are required to be made), and (iii) all of the
Company's obligations under the Cure TopCo Amended LLC Agreement will continue
in full force and effect as if the TRA Amendment had never been executed.

The foregoing description of the TRA Amendment does not purport to be complete
and is subject to, and qualified in its entirety by, the full text of the TRA
Amendment which was filed as Exhibit 99.2 to the Current Report on Form 8-K
filed by the Company with the SEC on September 6, 2022.

Off-balance sheet arrangements

Except for certain letters of credit entered into in the normal course of
business and the unconsolidated VIEs related to Caravan Health as described in
the Condensed Consolidated Financial Statements, we do not have any off-

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balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect on our financial condition, changes in financial
condition, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.

Critical accounting policies

The discussion and analysis of our financial condition and results of operations
is based upon our Condensed Consolidated Financial Statements, which have been
prepared in accordance with GAAP. The preparation of our financial statements
requires us to make judgments, estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses and related
disclosures of contingent assets and liabilities. We base these estimates on our
historical experience and various other assumptions that we believe to be
reasonable under the circumstances. Actual results experienced may vary
materially and adversely from our estimates. Revisions to estimates are
recognized prospectively. There have been no material changes, other than as
described below, to our critical accounting policies and estimates as compared
to the critical accounting policies and estimates described under Part II, Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our 2021 Annual Report on Form 10-K.

Revenue recognition

We recognize revenue as the control of promised services is transferred to our
customers and we generate all of our revenue from contracts with customers. The
amount of revenue recognized reflects the consideration to which we expect to be
entitled in exchange for these services. The measurement and recognition of
revenue requires us to make certain judgments and estimates.

We apply the five-step model to recognize revenue from customer contracts. The
five-step model requires us to (i) identify the contract with the customer, (ii)
identify the performance obligations in the contract, (iii) determine the
transaction price, including variable consideration to the extent that it is
probable that a significant future reversal will not occur, (iv) allocate the
transaction price to the respective performance obligations in the contract, and
(v) recognize revenue when, or as, we satisfy the performance obligation.

The unit of measure for revenue recognition is a performance obligation, which
is a promise in a contract to transfer a distinct or series of distinct goods or
services to the customer. A contract's transaction price is allocated to each
distinct performance obligation and recognized as revenue when, or as, the
performance obligation is satisfied.

Our customer contracts have either (1) a single performance obligation as the
promise to transfer services is not separately identifiable from other promises
in the contracts and is, therefore, not distinct; (2) a series of distinct
performance obligations; or (3) multiple performance obligations, most commonly
due to the contract covering multiple service offerings. For contracts with
multiple performance obligations, the contract's transaction price is allocated
to each performance obligation on the basis of the relative standalone selling
price of each distinct service in the contract.

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Home & Community Services

There have been no material changes to revenue recognition in our Home &
Community Services segment except that we reallocated our Caravan Health
business, which was previously included in our Episodes of Care Services
segment, to our Home & Community Services segment. Our subsidiary, Caravan
Health has multiple product and service offerings for customers around the
management of the ACO model. These include, but are not limited to, population
health software, analytics, practice improvement, compliance, marketing,
governance, surveys and licensing. The overall objective of the services
provided is to help the customer receive shared savings from CMS. Caravan Health
enters into arrangements with customers wherein we receive a contracted
percentage of each customer's portion of shared savings if earned. We recognize
shared savings revenue as performance obligations are satisfied over time,
commensurate with the recurring ACO services provided to the customer over a
12-month calendar year period. The shared savings transaction price is variable,
and therefore, we estimate an amount we expect to receive for each 12-month
calendar year performance obligation period.

In order to estimate this variable consideration, management initially uses
estimates of historical performance of the ACOs. We consider inputs such as
attributed patients, expenditures, benchmarks and inflation factors. We adjust
our estimates at the end of each reporting period to the extent new information
indicates a change is needed. We apply a constraint to the variable
consideration estimate in circumstances where we believe the data received is
incomplete or inconsistent, so as not to have the estimates result in a
significant revenue reversal in future periods. Although our estimates are based
on the information available to us at each reporting date, new and material
information may cause actual revenue earned to differ from the estimates
recorded each period. These include, among others, Hierarchical Conditional
Category ("HCC") coding information, quarterly reports from CMS with information
on the aforementioned inputs, unexpected changes in attributed patients and
other limitations of the program beyond our control. We receive final
reconciliations from CMS and collect the cash related to shared savings earned
annually in the third or fourth quarter of each year for the preceding calendar
year.

We recorded a $5.7 million reduction to value-based care services revenue for
the three months ended September 30, 2022 as we reduced our estimates of shared
savings for the 2022 plan year based on new information received from CMS during
the third quarter of 2022. The new data included updated historical benchmarks
that were lower than our expectations primarily due to the lingering after
effects of COVID-19 and updated spend information for the fourth quarter of 2021
compared to the fourth quarter of 2020. The inflationary trend CMS applies to
the benchmark expenditures for ACOs in their initial agreement period includes a
calculation of national and regional spend for a twelve month period. When CMS
initially reported the benchmark expenditure data earlier this year, data from
the fourth quarter of 2020 was used rather than the fourth quarter of 2021 data,
as the full year 2021 data was not yet available. The historical benchmark
expenditures are now locked for the existing ACOs and will not be rebased until
each ACO enters its next agreement period. For ACOs originated in 2022, this
means that the historical benchmark expenditures will not be rebased until 2027.

The remaining sources of Caravan Health revenue are recognized over time when,
or as, the performance obligations are satisfied and are primarily based on a
fixed fee or per member per month fee. Therefore, they do not require
significant estimates and assumptions by management.

Episodes of Care Wind-down

The episodes solutions we provide in our Episodes of Care Wind-down segment are
an integrated set of services which represent a single performance obligation in
the form of a series of distinct services. This performance obligation is
satisfied over time as the various services are delivered. We primarily offer
these services to customers under the BPCI-A program.
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Under the BPCI-A program, we recognize the revenue attributable to episodes
reconciled during each six-month episode performance measurement period over a
13-month performance obligation period that commences in the second or fourth
quarter of each year, depending on the relevant contract with our provider
partners. The 13-month performance obligation period begins at the start of the
relevant episodes of care and extends through the receipt or generation of the
semiannual reconciliation for the relevant performance measurement period, as
well as the provision and explanation of statements of performance to each of
our customers. The transaction price is 100% variable and therefore we estimate
an amount in which we expect to be entitled to receive for each six-month
episode performance measurement period over a 13-month performance obligation
period. Due to the recent announcement related to our planned exit from the
Episodes of Care business, during the third quarter 2022, we reevaluated the
13-month performance obligation period and shortened the open performance
obligation periods to end as of December 31, 2022, the date in which we expect
our services to be substantially provided.

For each partner agreement, the fees are generally twofold, an administrative
fee, which is based on a stated percentage of program size and is paid out of
savings, and a defined share of program savings or losses, if any. In order to
estimate this variable consideration, management estimates the expected program
size as well as the expected savings rate for each six-month period of episodes
of care. The estimate is performed both at the onset of each performance
measurement period based on information available at the time and at the end of
each reporting period. In making the estimate, we consider inputs such as the
overall program size which is defined by the historic cost multiplied by the
frequency of occurrence of defined episodes of care. Additionally, we estimate
savings rates by using data sources such as historical trend analysis together
with indicative data of the current volume of episodes.

We adjust our estimates at the end of each six-month performance measurement
period, generally in the second and fourth quarter each year, and may further
adjust at the end of each reporting period to the extent new information
indicates a change is needed. We apply a constraint to the variable
consideration estimate in circumstances where we believe the claims data
received is incomplete or inconsistent, so as not to have the estimates result
in a significant revenue reversal in future periods. Although our estimates are
based on the information available to us at each reporting date, several factors
may cause actual revenue earned to differ from the estimates recorded each
period. These include, among others, CMS-imposed restrictions on the definition
of episodes and benchmark prices, healthcare provider participation, the impacts
of the COVID-19 pandemic and other limitations of the program beyond our
control.

The following changes have been made to our revenue recognition and estimates
related to the semiannual BPCI-A reconciliation.

During the second quarter of 2022, we received a semiannual BPCI-A
reconciliation from CMS. Within that reconciliation, CMS applied a negative
retrospective price adjustment to the benchmark prices against which savings are
measured for specific episodes under the BPCI-A program. Several BPCI-A
participants, including us, disputed the price adjustment. Our dispute is based
on independently collected price trend data that indicates a positive price
adjustment should be applied and corresponds with inflation in the medical
services industry. CMS subsequently recommended participants provide formal
evidence of the pricing errors. We responded to the request in July 2022, and
upon receipt of our submission of the calculation error notice, CMS deemed the
reconciliation period to remain open. As a result of the open reconciliation
period and our view that the information presented in the reconciliation was not
accurate, we did not change our revenue estimates upon receipt of the second
quarter semiannual reconciliation and awaited further resolution or clarity of
this matter.

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In October 2022, we and other BPCI-A participants, received a memorandum from
CMS providing a general response to questions raised related to the
retrospective price adjustment as well as CMS' plans for the future of the
BPCI-A program. CMS indicated it had reviewed its own calculations and did not
find errors in how it applied them but at the same time acknowledged a lack of
transparency and the use of non-public data and proposed to make changes to the
pricing formulas in subsequent model years. Later in October 2022, we received
the required formal response to our calculation error notice submitted in July
2022, reiterating that following a comprehensive review and referencing the
aforementioned memorandum, CMS did not find any errors in its calculations. This
response indicates CMS deems the original semiannual reconciliation provided in
June 2022 to be correct. We are in the process of appealing this decision, which
ultimately will further delay CMS deeming the semiannual reconciliation final
and the related cash flows.

Due to the formal response to our calculation error notice received from CMS in
October 2022 in regard to the most recent semiannual reconciliation, we revised
our revenue estimates related to the performance period included in that
reconciliation as well as the subsequent two open performance periods. As a
result, during the three months ended September 30, 2022, we recorded a reversal
of revenue previously recorded of $38.6 million, $18.7 million and $6.9 million
related to performance periods beginning in April 2021, October 2021 and April
2022, respectively. Additionally, we considered the negative trend factor
adjustments imposed by CMS in our revenue estimates for the three months ended
September 30, 2022. As a result of this negative adjustment, our revenue
estimates are lower than they would have otherwise been and certain customers
were in a negative overall revenue position for the performance period, and we
therefore recorded expense of approximately $1.3 million included in Service
expense for the three months ended September 30, 2022 on our Condensed
Consolidated Statement of Operations. Further changes in management's estimates,
including a potential reversal of previously recorded revenue, could occur based
on the outcome of the pending appeal process noted above and to the extent the
final remaining semiannual reconciliations receive additional pricing
adjustments.

Additionally, as a result of the change in estimates and our withdrawal from the
BPCI-A program, we reduced revenue by $12.2 million during the three months
ended September 30, 2022 related to administrative fee revenue recorded for
performance obligations satisfied in prior periods. As a result of the pricing
adjustments imposed by CMS and our planned exit from the BPCI-A program, it is
unlikely these amounts will be collected from the customers, as they generally
would be paid out of future savings earned.

Since the final determination of the semiannual reconciliation is pending appeal
and we did not receive the formal response to our calculation error notice until
late October 2022, the recognition of accounts receivable for our Episodes of
Care Wind-down segment as of September 30, 2022 has not yet occurred. Estimated
revenue related to this reconciliation period continue to be included in
contract assets with corresponding shared savings expenses included in contract
liabilities on our Condensed Consolidated Balance Sheets as of September 30,
2022. Historically, we received a final reconciliation in the second quarter of
each year, thereby reducing the associated contract assets and recording
accounts receivable for the amounts to be collected and reducing the
corresponding contract liabilities and recording accounts payable for the
amounts to be paid. Accordingly, the net cash collections from the delayed
reconciliation, in addition to being significantly less than prior periods, will
also deviate from historical cash collection seasonality trends.

Separately, we have revised our estimates of the time it will take to
substantially complete our performance obligations from 13 months to 9 months
for the open performance period that began in April 2022 as a result of our
decision to wind down our Episodes of Care business. We expect our services and
underlying performance obligations to be substantially satisfied by the end of
2022. This shorter period of time to complete our performance obligations
resulted in approximately $1.8 million in additional revenue being recorded
during the three months ended September 30, 2022.

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Within our Episodes of Care Wind-down segment, we also generate revenue through
our non-BPCI-A Episodes of Care program. Similar to the BCPI-A program, revenues
under our non-BPCI-A Episodes of Care program are also driven by estimates of
program size and savings rate, subject to similar constraints as described
above. Completed episodes are retrospectively reconciled following semi-annual
performance periods.

The remaining sources of revenue in our Episodes of Care Wind-down segment are
recognized over time when, or as, the performance obligations are satisfied and
are primarily based on a fixed fee or per member per month fee. Therefore, they
do not require significant estimates and assumptions by management. See Note 6
Revenue Recognition.

Recent accounting pronouncements

For more information on recently issued accounting pronouncements, see Note 2 to
our Condensed Consolidated Financial Statements covered under Part I, Item 1 of
this Quarterly Report on Form 10-Q.

Emerging growth company status

We are an "emerging growth company" as defined in the JOBS Act of 2012. We will
remain an emerging growth company until the earlier of (1) the last day of our
fiscal year (a) following the fifth anniversary of the completion of our IPO,
(b) in which we have total annual gross revenue of at least $1.07 billion, or
(c) in which we are deemed to be a large accelerated filer, which means the
market value of our common stock that is held by non-affiliates exceeds $700.0
million as of the last business day of our most recently completed second fiscal
quarter, and (2) the date on which we have issued more than $1.0 billion in
non-convertible debt securities during the prior three-year period.

Pursuant to the JOBS Act, an emerging growth company is provided the option to
adopt new or revised accounting standards that may be issued by FASB or the SEC
either (i) within the same periods as those otherwise applicable to non-emerging
growth companies or (ii) within the same time periods as private companies. We
take advantage of the exemption for complying with new or revised accounting
standards within the same time periods as private companies. Accordingly, the
information contained herein may be different than the information you receive
from other public companies.

We also take advantage of some of the reduced regulatory and reporting
requirements of emerging growth companies pursuant to the JOBS Act so long as we
qualify as an emerging growth company, including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404(b)
of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our proxy statement and exemptions from the requirements of
holding non-binding advisory votes on executive compensation and golden
parachute payments.

Based on the market value of our common stock that is held by non-affiliates as
of June 30, 2022, the last business day of our most recently completed second
fiscal quarter, we expect we will become a large accelerated filer as of
December 31, 2022 and lose our emerging growth company status as of year end.
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