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spk00: Hello and welcome to the Bright Health Group U2 2023 Earnings Call. My name is Alex. I'll be coordinating the call today. I'll now hand it over to our host, Stephen Hagen, Investor Relations Director, to begin. Please go ahead.
spk01: Good morning and welcome to Bright Health Group's second quarter 2023 Earnings Conference Call. As a reminder, this call is being recorded. We in the call today are Bright Health Group's President and CEO, Mike Mikan, and CFO, Jay Matuszak. Before we begin, we want to remind you that this call may contain forward-looking statements under U.S. 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 measures. A reconciliation of the non-GAAP to GAAP measures is available in the company's second quarter press release, available on the company's investor relations page at investors.brighthealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning in our form 8K dated August 9th, 2023, which may be accessed from the investor relations page of the company's website. We announced on June 30th that we have entered into a definitive agreement to sell our California Medicare Advantage business. And as we were working through the regulatory approval and other closing conditions for the sale, We're not going to be conducting a Q&A session on this call. With that, I'll now turn the conference over to Bright Health Group Chief Executive Officer Mike Mykit.
spk03: Thank you, Stephen, and good morning, everyone. I'd like to begin by welcoming Jay Matuszak to his first earnings call as CFO of Bright Health Group. Jay has stepped into his new role at a pivotal moment in the company's history, and I can't be more pleased with how he has jumped in so far. And more importantly, for the wealth of knowledge and focus on execution Jay will bring as we continue our journey of transition. It goes without saying that Bright Health has gone through significant changes over the past few months. We have focused and simplified our business on what was core to Bright Health when it was founded, delivering personalized and affordable health care for aging and underserved consumers through our fully aligned care model. That focus and our mission of making healthcare right together does not change and is core to everything we do. We believe, and the results continue to demonstrate, when you connect the financing and delivery of care, you unlock the best outcomes. I'm excited to have Jay and I share with you the strong performance of our consumer care business through the second quarter and how we are positioning the business for the future. However, before I do, I wanted to note the key actions the board and management set out to accomplish when we announced the exit of the ACA insurance business at the end of 2022. First, focus and simplify our business. As I noted, Bright Health's core has always been the fully aligned care model and the belief that when you connect the financing and delivery of care, you get the best results. With the sale of the Medicare Advantage and discontinuation of ACA insurance businesses, the company will have a singular focus on value-driven care and the results we can drive with our aligned partners. Second, secure core external payer partners. While always an important part of our business, no longer having a captive insurance company accelerated the need to develop strong and deep partnerships with payers so that we can deliver and execute our model. The team has done a phenomenal job in, as I noted in the past, building and deepening relationships with some of the largest payers in the country. As Jay will discuss, we ended the second quarter serving 371,000 consumers through value-based arrangements, including approximately 65,000 through our REACH ACOs. We continue to build and expand on those relationships, as well as enter new ones like the provider agreement with Molina to serve Medicaid and ACA marketplace populations in Florida and Texas in 2024. These are all great partners that have millions of members where we can continue to expand value-based arrangements together. Third, demonstrate strong performance for those partners. While still early, with two quarters behind us, We are delivering results for our partners, and those results are coming through in our financials. As Jay will discuss, the consumer care business continued its solid performance in the second quarter, generating positive operating income in both consumer care segments. This positive segment operating income drove Bright Health to its first quarter of adjusted EBITDA profitability, a key milestone on our path to long-term profitable growth. We remain focused on delivering adjusted EBITDA profitability for the full year. Four, manage the liability for our discontinued operations. We have made substantial progress on the run-out of our ACA marketplace business, reaching approximately 95% claims completion as of June 30. We have also received the final details on the risk adjustment obligations by state. We believe that together the progress on the claims and risk adjustment means that our ultimate liability in the ACA marketplace business is much closer to a final outcome with the risks related to this business being much narrower at this point. Fifth, bolster the company's capital position. We announced on April 28th that we were exploring strategic alternatives for our California Medicare Advantage business. And on June 30th, we signed an agreement with Molina for them to acquire that business for $600 million. Earlier this week, we announced the company entered into a $60 million credit facility with NEA, along with a permanent waiver of default on our existing credit facility. Jay will discuss the details of this in a moment. But taken together, we believe these actions put the company in a strong capital position as we continue to execute against our transformation and our mission. And finally, as the team and I turn to the future, we couldn't be more excited about how the company is positioned and where it sits in today's healthcare landscape. We were pleased to report positive GAAP operating income in both care delivery and care solutions in the second quarter and the year-to-date period. The ongoing business at Bright Health is one of the largest providers of value-driven care in the country. As we've shown so far this year, through positive segment operating income and enterprise-adjusted EBITDA, we are focused on balancing risk and growth in the business and setting the company up for long-term profitable growth. I'll now hand it over to Jay to provide additional details on our second quarter performance and our updated outlook.
spk02: Thank you, Mike, and good morning, everyone. Start by briefly discussing our balance sheet. I'll then recap our second quarter results and provide a review of our 2023 outlook. Starting with our balance sheet, as of June 30th, 2023, we had $108.2 million in non-regulated liquidity, all of which was in cash and cash equivalents. We had approximately $2.2 billion of additional cash in short and long-term investments held by our regulated insurance subsidiaries. On our $350 million credit facility, outstanding borrowing was $303.9 million as of the end of Q2, and we had $30.7 million in undrawn letters of credit committed to support our REACH ACOs. We announced on August 7th that we secured a $60 million credit facility with one of our key investors, NEA. We also announced on August 7th that we entered into a permanent waiver of default of our $350 million credit facility with our banking partners. The $350 million credit facility expires in February 2024. These financing steps support our operating capital needs as we work through the pending close of the sale of the California Medicare Advantage business. We believe all the steps we've taken since the end of first quarter will significantly strengthen our balance sheet and are positioning the company for long-term capital efficient growth in our value-driven care model. Turning to the second quarter results, Wright Health Group revenue in the second quarter was $298 million. compared to $149.3 million in Q2 2022, 100% year-over-year growth. Q2 revenue reflects the results of our consumer care business as the Medicare Advantage business moved to discontinued operations who reported second quarter financials. As Mike mentioned earlier, the consumer care business continued to perform well in the second quarter, ending the quarter with 371,000 value-based consumers. This includes over 65,000 consumers in our REACH ACOs and more than 305,000 consumers in our clinics through our relationships with commercial payers. Both segments in the consumer care business performed well in the quarter. Care delivery revenue was $66.1 million in Q2, and this segment generated operating income of $11 million. Care solutions revenue, including our REACH ACOs, was $237.7 million, and operating income was $3 million. Total company growth profit in Q2 was $52.8 million, up meaningfully from $18.5 million in Q2 2022. Growth margin increased to 17.7% from 12.4% in the prior year. We also drove material operating cost leverage in the quarter, with our adjusted operating cost ratio decreasing to 18.3% in the second quarter, down from 39.4% in Q2 2022, or 35.5% when adjusted for investment losses in Q2 2022. A reconciliation of the adjusted operating cost ratio to the GAAP operating cost ratio is provided in our press release in the slides on our website. Our consolidated adjusted EBITDA for the quarter was positive $6.4 million, reflecting the solid segment operating income performance and corporate operating cost leverage. We were very pleased to report our first quarter of positive adjusted EBITDA, an important step toward our long-term profitability targets. Our discontinued operations reporting now includes the wind-down of our ACA marketplace insurance business, as well as our held-for-sale California Medicare Advantage business. We have made significant advancements with regards to the exit of the ACA marketplace. The final risk adjustment liability published by CMS was in line with our balance sheet accrual positioning, and we are prudently reserved for the run-out of claims, which is approximately 95% complete. We believe the remaining risk related to this business is very limited at this point. The California Medicare Advantage business has performed well on a year-to-date basis, and we remain very focused on delivering similar results in the second half. The medical cost ratio in the second quarter was 90.2%, in line with our expectations, and utilization remains stable. We found a great partner to purchase our California Medicare Advantage business and to continue to serve consumers. We are working through the regulatory approvals and closing conditions. with the transaction expected to close by early 2024. We have updated our full year 2023 outlook this morning, reflecting the movement of the California Medicare Advantage business to discontinued operations. We have narrowed our consumer care revenue outlook range, which is now also the outlook for our consolidated Bright Health Group enterprise revenue. We expect 2023 enterprise revenue between $1.15 and $1.2 billion. With our new segment reporting, we've added revenue guidance for each of our new segments to our outlook in the earnings slides. We are forecasting care delivery revenue for the full year between $250 and $275 million, and we are forecasting care solutions revenue for the full year between $900 and $925 million. One important note with regards to the revenue outlook for the year. When the business transitioned to providing care with external payer partners, we moved from full risk arrangements on ACA Marketplace consumers with our captive Bright Healthcare insurance partner to shared risk contracts with our now external payer partners. Over time, we expect to transition those contracts to total cost of care arrangements like we currently have in our Medicare Advantage business with gross revenue accounting treatment. Based on the value-based consumers served today, we believe we would recognize over $1 billion in additional revenue, which would more appropriately reflect the true scale of this business. Within consumer care, we continue to expect a total of 335,000 to 355,000 total value-based consumers at year end, including 60,000 from our REACH ACOs and 275,000 to 295,000 from our value-based relationships with other payers, including consumers in the ACA marketplace, Medicare Advantage, and Medicaid. We continue to expect enterprise-adjusted EBITDA profitability for the year. Our consumer care business performed very well in the first half of the year, supporting our positive outlook for the full year. We continue to see multiple opportunities for long-term growth, working with our key payer and provider partners, and serving a growing number of consumers through our value-driven care model. Now here's Mike for some final comments.
spk03: Thank you, Jay. We are pleased to deliver another strong quarter in the consumer care business, and I want to thank our team for their efforts as we position the company for long-term success. The addressable market for value-driven healthcare continues to grow and represents a very large long-term opportunity across multiple payer categories, including Medicare Advantage, Medicaid, and the ACA Marketplace. Our experience integrating health insurer functions into care delivery, including claims management, utilization management, and member enrollment, has allowed us to build a unique model in value-driven care. We have great growth potential in the value-driven marketplace as we continue to partner with payer partners and provider groups. As Stephen noted, given the pending regulatory approval of the sale of our California Medicare Advantage business, we won't be conducting a Q&A session today. We will look to update you as soon as possible on any developments. Thank you for joining the call and for your interest in our company.
spk00: Thank you for joining today's call. You may now disconnect your lines.
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