NeueHealth Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 6, 2024

There are 7 speakers on the call.

Operator

Good morning. My name is Drew, and I'll be your conference operator today. At this time, I would like to welcome everyone to the NueHealth Q4 2023 Earnings Conference Call. All lines have been placed on mute without any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I'll now turn the call over to our host, Emily Lombardi. You may now begin your conference.

Speaker 1

Good morning, and welcome to NueHealth's 4th Quarter 2023 Earnings Conference Call. As a reminder, this call is being recorded. Leading the call today are NueHealth's President and CEO, Mike Miken and CFO, Jay Matushek. Before we begin, we want to remind you that this call may contain forward looking statements under U. S.

Speaker 1

Federal Securities Laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the risk factors in our current and periodic reports we file with the SEC. Except as required by law, we undertake no obligation to revise or update any forward looking statements or information. This call will also reference non GAAP amounts and measurements.

Speaker 1

A reconciliation of the non GAAP to GAAP measures is available in the company's 4th quarter press release available on the company's Investor Relations page at investors. Newhealth.com. Information presented on this call is contained in the earnings release we issued this morning in our Form 8 ks dated March 6, 2024, and in the related presentation, each of which may be accessed from the Investor Relations page of the company's website. With that, I will now turn the conference over to NueHealth's Chief Executive Officer, Mike Meikhen.

Speaker 2

Good morning, everyone, and thank you for joining NueHealth's Q4 2023 earnings call. As previously announced in January, Bright Health Group adopted NueHealth as our corporate brand name to reflect our ongoing focus on a core and successful part of our company, our care delivery and provider enablement business. Today, we are pleased to announce strong Q4 and full year results in 2023 for NueHealth, laying a solid foundation for continued success in 2024. We believe new health is a business with much greater predictability and significantly less volatility as we expect to achieve adjusted EBITDA profitability in both our new care and new solution segments and at the enterprise level in 2024. Before we get into more detail on our 2023 financial performance, I would like to recognize the significant milestones we reached as a company to start the year.

Speaker 2

On January 1, 2024, we closed the sale of our California Medicare Advantage business, which consisted of Brand New Day and Central Health Plan to Molina. Concurrent with the close of the sale, we also announced that we made the final repayment on our amended credit facility with JPMorgan. This eliminated the company's secured debt. This was a significant step as it allows us to further focus on where we have proven to have the greatest impact through our value driven care delivery and provider enablement business. Although our business has evolved over the last few years, our core beliefs have not changed.

Speaker 2

Since our founding, we have been committed to uniquely aligning the interests of payers, providers and consumers to deliver a better health care experience for all. The health care industry continues to evolve and shift towards value based care. We believe our differentiated care model and ability to serve all populations in performance based arrangements puts us in a strong position to capture this growing opportunity in 2024 and beyond. On the call today, I'll start with a discussion of our 2 go forward business segments, new care and new solutions, and talk about why we are confident in the future of our differentiated value driven care model. Then I'll turn it over to Jay to provide additional details on our financial performance.

Speaker 2

Our new care segment is focused on delivering value driven consumer centric care through our own clinics and partnerships with affiliated providers. Our model is unique and we believe that when we tightly align the interests of stakeholders clinically, financially and through data and technology, we can drive differentiated value and deliver a truly personalized care experience that's tailored to meet the needs of each consumer. Nucare's positive momentum continued in the Q4, leading to strong full year results. Nucare segment adjusted EBITDA was $42,900,000 for 2023. Excluding the impact of the goodwill impairment we discussed in the Q3, Nucare delivered operating income of $32,000,000 for the full year and realized $169,700,000 of gross profit for the full year.

Speaker 2

In 2024, we expect to continue to drive growth in our new care segment, strengthening relationships with our existing payer partners, engaging in new payer partnerships and continuing to attract and retain consumers through our value driven model. We see our ability to effectively manage a diverse population mix, agnostic and product category as a key differentiator that will fuel future growth. In 2024, we expect to serve between 330,000 and 345,000 value based consumers through our owned and affiliated clinics, an increase of approximately 17% over 2023. Turning now to our New Solutions segment. This is our provider enablement business focused on partnering with independent providers and medical groups to enable them to succeed in performance based arrangements.

Speaker 2

New solutions also supports our new care business with care management, referral management and other population health tools and capabilities. This business reflects our core and overarching focus on aligning interests to maximize value for all and represents a significant growth opportunity as more providers look to enter risk bearing arrangements. We believe new solutions provides a strong platform for our company to continue to grow, enter new provider partnerships and manage a diverse population base. Specifically, we see growth opportunities to serve additional Medicaid consumers in partnership with federally qualified health centers and other provider groups. In our ATO Reach business, we encountered some headwinds that impacted our results in 2023, including Babylon's bankruptcy filing and the impacts of CMS adjustments to financial benchmarks, notably the coding intensity factor, which Jay will discuss more in a moment.

Speaker 2

Excluding these factors, our Reach ACOs delivered strong performance, in line with our expectations. For 2024, we reevaluated the participating providers in our ACOs and did not renew the contracts of certain underperforming groups. We also added new strategic provider partners more closely aligned with our goals. As a result, we expect overall margins to improve with greater insight into the returning population of Medicare beneficiaries we are managing and a more optimal partner mix. We are seeing strong growth opportunities on the provider enablement side of these solutions.

Speaker 2

During the Q4, we secured new partnerships with provider groups, increasing the lives we are serving to over 106,000. This growth is significant and shows the value providers see in our partnership and deep experience in managing diverse populations in performance based arrangements. We see our provider enablement and ACO reach businesses as complementary with each driving future growth opportunities for the other. I'll now hand it over to Jay to provide additional details on our Q4 and full year performance and our 2024 outlook.

Speaker 3

Thank you, Mike, and good morning, everyone. I'll start with a discussion of our Q4 performance and full year results for our consolidated new health business as well as each of our new care and new solutions segments. Then I'll provide an update on the wind down of our ACA insurance business and go over our balance sheet. Finally, I'll provide an overview of our 2024 outlook. Before I begin, I would like to note that I will be focusing on the 2023 financial results of our continuing new health business in each of our new care and new solutions segments.

Speaker 3

GAAP financials are included in our press release and 10 ks that will be filed in the coming month and contain results that include our discontinued operations. NU Health consolidated revenue for the Q4 was 292,900,000 dollars Full year consolidated revenue was $1,200,000,000 representing 55% growth year over year on a comparable basis. Our 4th quarter gross margin was $28,000,000 $164,200,000 for the full year. NewHealth adjusted EBITDA loss for the Q4 was $10,400,000 and full year adjusted EBITDA loss was 8,500,000 dollars When excluding the impact of non recurring bad debt write off in our new care segment as well as the impacts of the CMS benchmark adjustments in our ACO Reach business, new health adjusted EBITDA was approximately breakeven for the full year. In 2023, we drew the number of consumers we serve across our new care and new solutions segments considerably to 461,000, which represents growth of 294% over the prior year, excluding the consumer served in partnership with the former Bright Healthcare Commercial segment.

Speaker 3

In the new care segment, revenue was $71,300,000 in the 4th quarter and $267,200,000 for the full year, in line with expectations and resulting from increased attributed members to our clinics. We continue to be prudent on the level of risk we are taking in our contracts. We recognize that there's opportunity for greater revenue and margin expansion as we look to take on greater risk sharing and participate in more fully capitated models in the future. Operating costs were favorable for the full year with medical costs moderately higher. 4th quarter operating income was $3,700,000 with full year operating income of $32,000,000 excluding the goodwill impairment recognized in the 3rd quarter.

Speaker 3

Additionally, NuCare segment adjusted EBITDA was positive $42,900,000 for the full year. Through our clinics in 2023, we serve consumers across the ACA marketplace, Medicare and Medicaid totaling approximately 293,000 value based consumers. In 2024, we expect our new care segment to continue to drive growth and deliver differentiated value to providers, payers and consumers. This year, we will continue to focus on enhancing our value driven consumer centric care model, build upon longstanding relationships with existing payer partners, prioritize engagement and growth with new payers. Turning now to our new solutions segment.

Speaker 3

In 2023, performance in new solutions was largely driven by our ACO Reach business. We are now entering our 3rd year participating in ACO Reach and continuing to see strong alignment between the goals of the program and our commitment to aligning interest to make high quality healthcare more accessible and affordable. Through ACO REACH, we contract with CMS to assume the full performance risk of the Medicare fee for service beneficiaries aligned with our provider partners and contract separately with provider partners to share in the performance risk of their aligned beneficiaries. It's grown significantly over the years we participated in the program. In 2023, we partnered with 11 provider groups and over 3,000 affiliated providers to serve 62,000 Medicare beneficiaries across the country.

Speaker 3

New solutions revenue was $220,900,000 in the 4th quarter and $899,400,000 for the full year, in line with expectations. Operating costs were in line with expectations with medical costs higher for the full year. The new solutions segment operating loss was $14,600,000 for the 4th quarter with operating loss of $42,500,000 for the full year. As we mentioned in our Q3 earnings call, our new solutions results have been significantly impacted by our relationship with Babylon Medical Group within ACL Reach. Due to Babylon's bankruptcy, we established a reserve against our receivable in the 3rd quarter, creating a bad debt charge of $22,400,000 for the quarter.

Speaker 3

We also retained full responsibility for the deficit of their attributed members for the balance of 2023. This negatively impacted gross margin by $14,000,000 in 2023. In addition to Babylon, our ACO REACH performance was also negatively impacted by CMS benchmark revenue adjustments, most notably the coding intensity factor. New Solutions adjusted EBITDA for the full year was a loss of $6,000,000 which excludes the bad debt expense and the additional Babylon deficits as these are one time items that don't reflect the ongoing expectations for the business. Aside from Babylon, our REIT JACO has performed well and continued to be a source of stable top line growth.

Speaker 3

When excluding the Babylon impact, our new solutions segment revenue for the full year was $591,700,000 which represents a 49% increase over 2022 and full year operating loss was $6,000,000 excluding Babyla. In 2023, we served over 42,000 Medicare beneficiaries, a 50% growth over 2022, not including Babylon. In 2024, we have diligently vetted providers we partner with as part of the ACO Reach program based on historical performance relative to regional benchmarks. With a carefully selected group of high performing providers, we believe we are well positioned to drive strong performance in HCO REACH in 2024. This year we expect to serve 45,000 Medicare beneficiaries slightly above 2023 when excluding Babylon and expect revenue of between $690,000,000 $700,000,000 for the full year.

Speaker 3

As Mike mentioned, in addition to ACO Reach, our new solutions segment offers enablement services to both our own clinics and to independent providers and medical groups. We are starting 2024 with new provider partnerships in this part of our business serving over 106,000 consumers. We share Enablement business as a strong platform to expand our relationships with provider groups and leverage our expertise in managing all populations and performance based arrangements. Turning to the ACA Insurance business wind down. We continue to make significant progress in the wind down in the 4th quarter.

Speaker 3

As of today, we believe we are more than 99% complete on medical claims in the ACA insurance business. At the end of the Q4, our ACA insurance business had approximately 150,000,000 dollars in excess cash surplus after reserving for our expected medical costs and other anticipated wind down expenses, not including risk adjustment obligations due under our repayment agreements with CMS. Additionally, subject to adjustments and the conditions in the MA sale agreement, we expect to receive an additional $110,000,000 from escrow. We intend to use these funds if and when received to offset liabilities in our discontinued ACA insurance business such as the obligations under the CMS repayment agreements, which come due on or before March 14, 2025. Overall, we believe the remaining liability related to this business is substantially less and more certain heading into 2024.

Speaker 3

Now looking at our balance sheet. As of December 31, 2023, we had $411,000,000 in total cash and investments, including amounts in our regulated entities. Our non regulated cash and short term investments were $94,000,000 as of the end of Q4. As Mike mentioned earlier, we made the final repayment on our amended credit facility at the beginning of 2024, which eliminated our secured debt. To start off the year, we are in a significantly stronger capital position and we believe we are well positioned for the future.

Speaker 3

In 2024, we expect consolidated revenue of approximately 1,000,000,000 dollars Specifically, we expect between $310,000,000 $320,000,000 from our New Care segment and between $690,000,000 $700,000,000 from our New Solutions segment. We expect enterprise adjusted EBITDA to be between $15,000,000 $25,000,000 In 2024, we expect to serve between 475,500,000 consumers across both our new care and new solutions segments, serving between 330,000 340 5,000 value based consumers in our clinics and between 145,000 and 155,000 consumers in new solutions, including approximately 45,000 through ACO Reach. Finally, we expect our adjusted operating cost ratio to be between 15% 16%. As I mentioned earlier, it is important to note that there is substantial opportunity for revenue growth as we look to take on greater levels of risk sharing in our contracts. Considering the total number of lives we served in 2023, our total revenue opportunity is over 2,500,000,000 dollars In future, we will look for opportunities to take on greater risk sharing as appropriate.

Speaker 3

In 2024, we believe a few key factors will drive improved profitability. 1st, growth in consumers served, specifically through our clinics as well as through the enablement side of our new solutions segment. Our differentiated value driven model has proven to deliver strong consumer satisfaction scores and we expect to continue to attract and retain consumers in our clinics and through provider partnerships. 2nd, we expect to continue to build on longstanding relationships with our payer partners while also prioritizing growth with new payers as we continue to demonstrate differentiated performance in managing populations across the ACA marketplace, Medicare and Medicaid. 3rd, we expect to drive improved performance in ACO REACH by optimizing our partner portfolio and leveraging our past experience in the program to effectively manage the Medicare population.

Speaker 3

And finally, we are continuing to take steps to reduce operating expenses and right size our business for long term sustainable growth. We are confident in our go forward business and the value we will drive for stakeholders across the healthcare ecosystem. I'll now turn it back over to Mike for some closing remarks.

Speaker 2

Thank you, Jay. This is an exciting time for our company as we focus on our care delivery and provider enablement business, where we have proven to drive the greatest value for payers, providers and consumers. Our value driven consumer centric care model is unique and in combination with our ability to align the interest of key stakeholders clinically, financially and through data and technology, we believe we can transform healthcare and create a better experience for all. As the industry continues to shift towards value based care, we are well positioned to take the lead and we see significant future growth opportunities in both our new care and new solutions segments. I would like to thank the entire new health team for their continued hard work and dedication over the past year.

Speaker 2

I have great confidence in our people and the differentiated value driven care model we have built. Thank you for joining the call and for your interest in New Health. We'll now take the first question.

Operator

Thank you. We will now start today's Q and A session. I would just like to remind everyone that if you would like to ask a question, please press star followed by 1 on your telephone keypad. Our first question today comes from Joshua Raskin from Nephron Research. Your line is now open.

Operator

Please go ahead.

Speaker 4

Hi, thanks. Good morning. I wanted to start, I guess, just a balance sheet question. So first is, could you just confirm what the total actual proceeds from Molina were in early January? And then how much is pending in escrow?

Speaker 4

And what are the variables that, that escrow depends on?

Speaker 5

So the proceeds received from the Molina transaction in January were $390,000,000 What was the second question, Josh?

Speaker 4

How much is pending in escrow? And what are the what's the timing and what are the milestones for that to come in? What's the timing

Speaker 6

and what

Speaker 4

are the milestones for that to come in? Is that just claims and adjustments there?

Speaker 5

Yes. It's $110,000,000 $100,000,000 of it is tied to CMS pending approval of the consolidation of Brand New Day and Central Health plans age contract or if we achieve a 3 star in the Part D B and D business. So either way, either of those being achieved would be the return of the $100,000,000 The other $10,000,000 is related to indemnity and we expect the $100,000,000 to come in later this year, probably Q4 of 'twenty four and the $10,000,000 related to other indemnity items likely in early 2025 sometime.

Speaker 4

Okay, got you. All right. So you had $87,000,000 at the end of the year, you got the 3.90 dollars You paid off of the $390,000,000 you paid off the $304,000,000 and then you've got another $110,000,000 coming. And so I guess the last piece of the puzzle is what's cash flow from operations? If you're going to do, say, dollars 20,000,000 of EBITDA, what does that translate into cash flow from ops this year?

Speaker 5

It's about half. So we're free cash flow positive. But the way I kind of think about the capital position, Josh, is we've got as Jay mentioned, we've got about $90,000,000 at the end of the year of non regulated cash. We after you netted out from the gross proceeds and netted out the payments to the bank repayment transaction costs, we put $30 plus 1,000,000 on the balance sheet. So we started the year with about $120,000,000 of non regulated cash.

Speaker 5

As Jay mentioned, we've got about $150,000,000 of cash and surplus that we expect to get back from entities that were in the surplus position. And then we've got the $110,000,000 that we expect assuming CMS approves the consolidation from the Molina transaction. And so those are kind of the cash and capital that we are relying on today. And then offsetting that is the CMS repayment agreement, which is $290,000,000 which will be accruing interest depending on when we pay it down based on the surplus return, which we're working on right now. That's the obligation that remains out there.

Speaker 5

So we're in a meaningfully stronger cash capital position today and I feel good about the future.

Speaker 4

Yes, that's what I was getting at. 3.80 of total cash, 2.90 of total CMS repayment and free cash flow, let's call it $10,000,000 That's kind of the math that I was going with. So that's super helpful. And then I guess just more importantly, can you talk about ACL Reach and sort of the reevaluation of partners and sort of what gives you comfort that the existing partners are strong partners and that these are going to be positive income generators in 2024?

Speaker 5

Yes. I'll start and maybe I'll ask Thomas Orozco, who is our Executive Vice President and runs our day to day operations to maybe add in if he has something to add. But we've taken a detailed look at all of our provider partners. And let's start with a core set of our provider partners are our own and employed providers within our organization, and they perform very well. So we feel very confident that within our organization and our provider base that we've got strong performance that understand

Speaker 3

how to manage population risk, use our tools and

Speaker 5

foundation of those. Obviously, in 2022 and 2023, we had partnerships with the likes of Babylon, which unfortunately, while we weren't taking significant downside risk as a contractual matter, unfortunately, from a with them going bankrupt, we it came back to us in terms of their losses. And so that was a big impact. We don't have anywhere near that level of concentration. That was a big part of our ACO book of business.

Speaker 5

We will no longer take any that type of concentration risk going forward. So as we look to the future, we look to providers, as Jay said, where we can see historical performance strong against the benchmarks. And I don't know, Thomas, do you have anything to add to that?

Speaker 6

Yes. Thanks, Mike. And Josh, great question. I think Mike's point is the right one in terms of how we selected our partners going into 2020 4, their performance in 2023, which was favorable, new partners that we've added, I think we feel great in terms of network composition. But I think the piece that I'd highlight is how we're

Speaker 3

Reach program. I think

Speaker 6

this being our 3rd year, on the ACO Reach program. I think this being our 3rd year, just how we're coordinating those capabilities, how we're partnering with the providers just gives us a tremendous amount of confidence in terms of our performance and us being able to support their underlying performance. So I think the 3rd year models evolved network composition far more favorable and just the connectivity between us and our affiliate partners and how we're deploying key capabilities, I. E. Care management, chronic care management, patient engagement capabilities, I think is going to make all the difference.

Speaker 5

And Josh, I would just

Speaker 2

add that Sorry, one last.

Speaker 5

Josh, just one more add on to that. And just to be clear, while we believe in the ACO REACH program, we really view it as very much aligned with our provider enablement business. We're partnering with providers who are moving to managed care population risk, taking downside risk. And so it very much aligns with our business. And so we're excited about the long term prospects, but the critical element is to make sure you're partnering with providers who are committed to managing population risk.

Speaker 5

And so that's something that we've been very focused on. We're not focused on growth just for growth. We're focused on growth where we know we can not only provide high quality care, but provide it on a profitable basis.

Speaker 4

Yes, that makes sense. And if I could just sneak in one more, just on the exchanges, on the individual exchanges, I'm curious about utilization trends into the Q4 and whether you saw any increases in utilization towards the end of the year, if you're seeing anything in January or February in the run out of claims that would suggest that there's been some pickup in utilization?

Speaker 5

No, we really haven't, Josh. We've seen stable trends and we haven't seen anything. In the Medicare business, it's been noted that we saw some elevated trends, especially with elective procedures and outpatient care in the later part of the year, but that's stuff that we've seen typically in the Q4. So we don't have any noteworthy utilization changes in the Q4 and the ACA and the exchanges.

Speaker 4

Perfect. Thanks again. Thanks,

Operator

We have no further questions at this time. I'll now hand the call back over to Mike Mikan for any closing remarks.

Speaker 5

Great. Thanks for your interest in NueHealth, and we look forward to updating you again shortly. Thanks.

Operator

That concludes today's Newhouse earnings call. You may now disconnect your line.

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Key Takeaways

  • In January 2024, NueHealth closed the sale of its California Medicare Advantage business to Molina and fully repaid its secured debt, strengthening its balance sheet for a focused care delivery strategy.
  • For full year 2023, the New Care segment posted $42.9 million in adjusted EBITDA and $32 million in operating income, and it expects to serve 330,000–345,000 value-based consumers in 2024, a 17% increase.
  • The New Solutions segment, driven by ACO REACH, faced one-time headwinds from Babylon’s bankruptcy and CMS benchmark adjustments but, excluding these, delivered near break-even adjusted EBITDA and now serves over 106,000 lives through provider enablement partnerships.
  • NueHealth expects 2024 consolidated revenue of approximately $1 billion, an enterprise adjusted EBITDA of $15 million–$25 million, and total consumers served to reach 475,000 across both segments.
  • The company’s 2024 growth strategy centers on expanding value-based care partnerships, optimizing its ACO REACH provider mix, taking on greater risk-sharing contracts, and reducing operating expenses for sustainable profitability.
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Earnings Conference Call
NeueHealth Q4 2023
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