Participants

Emily Lombardi

Mike Mikan; Vice Chairman, CEO & President; NeueHealth, Inc.

Jay Matushak; CFO; NeueHealth, Inc.

Joshua Raskin; Analyst; Nephron Research LLC

Presentation

Operator

Good morning, everyone, and welcome to the new health Q1 2024 earnings call. My name is Drew, and I'll be the operator for today. (Operator Instructions)
And with that, I'll hand over to Emily Lombardi. Please go ahead when you are ready.

Emily Lombardi

Good morning, and welcome to Newhouse First Quarter 2024 earnings conference call. As a reminder, this call is being recorded. Leading the call today are new hubs, President and CEO, Mike Mike M & CFO, Jamie, to share.
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. Our pricing 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 filed 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 first quarter earnings release available on the company's Investor Relations page at investors dot Newhouse.com. Information presented on this call is contained in such earnings release that we issued this morning in our Form eight K dated May eighth, 2024, and then 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 new Hall, Chief Executive Officer, Mike May-Kin.

Mike Mikan

Good morning, everyone. And thank you for joining New Health's First Quarter 2024 earnings call. We are pleased to report strong first quarter results for new health, driven by continued momentum in both our new care and new solutions business in 2024, we are focused on driving long-term sustainable growth of our value-driven consumer-centric care model as we align interest to create a better health care experience for all, we believe our model is built for the future of health care. It represents a strong alternative to traditional approaches, which rely on broad provider networks with limited care coordination and lack of focus on the consumer.
Our model is grounded in the power of long-standing trusted relationships in local communities, not onetime episodic encounters. This means we are focused on deeply understanding the consumers we serve, proactively managing care on an ongoing basis and fostering strong partnerships with providers and payers to create a seamless, more coordinated care.
Brilliant our relationship-based approach gives us confidence in our ability to take on greater risk sharing in the future as we continue to build upon our knowledge of the populations we manage and the local communities we serve through our differentiated model. We are serving a diverse population base, including consumers across the ACA marketplace, Medicare and Medicaid, which has a large and growing addressable market.
Our ability to drive differentiated results across product categories allows us to capture opportunities with payers and providers throughout the industry. While limiting concentration, our model continues to resonate with our partners and the broader marketplace leading the strong consumer engagement and satisfaction. For example, this past year, there were approximately 745,000 ACA marketplace consumers in the Miami-Dade market and we observed approximately 40% of them.
This is significant and allows us to understand the unique needs of each consumer, deliver better health outcomes and effectively manage the total cost of care. In addition, we continue to receive high consumer satisfaction scores. For instance, in our Florida market, we have an NPS score of 84 as well as a 4.8 star Google rating.
Overall, our value-driven consumer-centric care model is attracting and retaining consumers and leading to long-standing partnerships with providers and payers across the industry. In the first quarter we delivered enterprise adjusted EBITDA of $2.5 million. This puts us in a strong position to continue to advance our care model and value-based capabilities this year.
This morning, I'll provide a brief update on our new care and new solutions segments. Then I'll turn it over to Jay to review our financial performance in more detail.
Neocare delivered strong results to start the year driving segment adjusted EBITDA of $13.6 million for the first quarter. Starting in 2024, we expanded our operations in Central Florida to serve approximately 41,000 additional ACA marketplace consumers. We completed this expansion in a capital-efficient manner, leveraging existing relationships to expand our footprint and the consumers we serve across our owned and affiliated clinics this expansion demonstrates the value we are driving for our payer partners and the trusted relationships we have built, especially in managing the ACA.
marketplace population in performance-based arrangements. We have had a strong presence in Florida for more than 20 years through our central Health associates, MD and Premier Medical Associates, Clent. And we look forward to continuing to grow our presence across the state as we bring a better health care experience to more local communities. We continually evaluate strategic opportunities to expand our value base footprint, not only in Florida, but throughout the country, and we believe we have a strong pipeline in place for the remainder of 2024, 2025 and beyond.
In our clinics, we are taking a holistic and comprehensive approach to care that starts with engagement. This helped us to guide our consumers to the right point of care, provide personalized and tailored treatment plans follow up on progress and maintain ongoing trusted relationships throughout the entire health care journey. With a strong focus on proactive engagement, we seek to drive improved results for all consumers no matter their need or circumstance and deliver a health care experience that is affordable, convenient and coordinated.
In our new solutions segment, we continue to advance our provider enablement business, including our suite of population health tools and capabilities as well as our ACO reach business in the first quarter.
As you may recall, on our fourth quarter earnings call, we announced that we secured new partnerships with provider groups that increased the lives we are serving in our provider enablement business. In the first quarter, we served approximately 109,000 consumers starting the year off on a strong note, we continue to see this business as a key driver of future growth opportunities, specifically in our new care segment, leading to new provider and payer partnerships and opportunities to serve additional consumers in diverse product categories through our own and affiliated Clent.
Looking at our first quarter 2024 ACO reach results, we are performing in line with our expectations this year. We have a carefully selected group of high-performing provider partners, and we are confident in our ability to deliver strong performance and improved margins in the program. We are working closely with our provider partners on care management and patient engagement initiatives focused on delivering consumer-centric care, preventing avoidable readmissions, optimizing site of service and proactively identifying high risk and rising risk beneficiaries. We will maintain tight collaboration with our provider partners as we continue to deliver high-quality personalized care to the Medicare beneficiaries we manage.
I'll now hand it over to Jay to provide additional details on our first quarter financial results.

Jay Matushak

Thank you, Mike, and good morning, everyone. I'll start by reviewing our first quarter financial performance for our consolidated new health business. As well as each of our new care and new solutions segments. And I'll provide a brief update on the wind down of our ACA insurance business and go over our balance sheet Finally, I'll talk through our 2024 outlook. As a reminder, I will be focusing on the 2024 financial results of our continuing new health business in each of our new care and new solutions segments.
GAAP financials are included in our earnings release and contained results that include our discontinued operations. New health consolidated revenue for the first quarter was $245.1 million, which is slightly below expectations due to the impact of prior year development in our ACL reach business as well as moderately lower volume in our new care segments, our first quarter gross margin was $48.2 million. New health adjusted EBITDA for the first quarter was $2.5 million due to the seasonality of our business.
We expect to drive increased growth in the second half of the year as we have in previous years, and we maintain our expectation for full year new health adjusted EBITDA of between $15 million and $25 million. In the first quarter, we served approximately for our 69,000 consumers across our new care and new solutions segments. In our new care segment, revenue was $73.6 million in the first quarter, slightly below our expectations resulting from lower volume in our clinics over the course of the year, we expect to grow the number of consumers we serve through existing and new payer partnerships, and we maintain our expectation of serving between 330,000 and 345,000 value-based consumers and our clinics in 2024
Nuclear operating costs were approximately in line with expectations with medical costs favorable for the first quarter. Uk operating income was $9.8 million for the quarter, including incremental surplus we realized in certain payer contracts from strong 2023 performance. We expect to continue to build on this positive momentum this year. As Mike mentioned, to start the year, we expanded in central Florida serving approximately 41,000 additional consumers, and we continue to see our ability to deliver high-quality, affordable care to all populations agnostic of product category as a strong competitive advantage through our experience and knowledge of the local market we serve, we have developed a deep understanding of our consumer base and continue to leverage our consumer-centric approach to engage consumers in a proactive and timely manner so we can deliver a personalized care experience and ensure each consumer is receiving the right care in the right setting.
Turning now to our newest Solutions segment, new solutions revenue was hundred [$173.9 million] in the first quarter, slightly below expectations resulting from the one-time impact of the 2023 retrospective trend adjustment in our ACO reach business. First quarter operating costs were in line with expectations with medical costs moderately lower new solutions segment operating loss was $2.9 million for the first quarter, excluding the prior period development in our ACO risk business, new solutions revenue and operating income were both in line with expectations for the quarter.
Looking at our 2024 results and our ACO reach business, we are performing well consistent with our expectations we have an optimized partner portfolio, and we are confident in our ability to execute against key care management and patient engagement initiatives to support the Medicare beneficiaries. We are managing and drive improved results this year. In 2024, we continue to expect to serve approximately 45,000 Medicare beneficiaries through our ACO reach business on the provider enablement side of our new solutions segment, we served approximately 109,000 consumers in the first quarter, which generated service revenue slightly above our expectations for the quarter.
We continue to partner with providers across the country, deploying our population health tools and capabilities. In addition to serving our owned and affiliated clinics, we see our provider enablement business as a reliable source of future growth opportunities in both our new care and new solutions segments as we deepen relationships with long-standing provider partners, build relationships with new provider groups and enable our own clinics to thrive in value-based arrangements.
Next, I'll turn to the wind down of our ACA insurance business, which continues to progress as planned in the first quarter. As a reminder, to satisfy our 2022 risk adjustment obligation. We paid $1.5 billion to CMS in September of 2023. This represented approximately 80% of our final ACA insurance business risk adjustment obligation. At that time, we entered into a repayment agreement with CMS to fulfill the remaining obligation, which comes due on March 15th, 2025. We expect to offset the remaining risk adjustment obligation with the $110 million held in escrow in connection with the sale of our Medicare Advantage business to Molina
At the end of the first quarter our ACA insurance business had approximately $150 million in excess cash after reserving for expected medical costs and other anticipated wind-down expenses, not including risk adjustment obligations due under our repayment agreements with CMS. We have had some early success in retrieving capital from our discontinued entities, which was used in this stage with repayment agreements. And we have made several prepayments that CMS already overall remaining liabilities associated with our ACA insurance business continues to steadily decline, placing our business in a much more stable and predictable position this year.
Now looking at our balance sheet. As of March 31st, 2024, we had $256.4 million in total cash and investments, including amounts in our regulated entities. Our nonregulated cash and short term investments were $62 million. As of the end of the first quarter. On April ninth, we announced that we entered into an incremental amendment to our credit facility with NEA that increases our unsecured term loan commitment by up to $30 million. We are pleased to have the continued support of our largest investor, which demonstrates ongoing confidence in the future of our business. We intend to use the proceeds of this incremental commitment for general corporate purposes, including to support our 2024 strategic priorities.
I'll now provide a brief review of our 2024 outlook. In 2024, we continue to expect consolidated revenue of approximately $1 billion. Specifically, we expect between $310 million and $320 million dollars from our new care segment and between $690 million and $700 million from our new solutions segment. In addition, we are confirming our expectations for enterprise adjusted EBITDA to be between $15 million and $25 million at the end of 2024. We expect to serve between four and 475,000 and 500,000 consumers across both our new care and new solutions segments, seven between 330,000 and 345,000 value-based consumers in our clinics and between 145,000 and 155,000 consumers and new solutions, including approximately 45,000 through ACO reach.
Finally, we expect our adjusted operating cost ratio to be between 15% and 16%, excluding corporate costs. When you include corporate costs, this is 19% to 20%. We are pleased with the performance of both our new care new solutions segments in the first quarter and remain confident in our ability to continue to drive strong results through the remainder of the year.
I'll now turn it back over to Mike for some closing remarks.

Mike Mikan

Thank you, Jay. As you heard this morning, we are off to a strong start this year with our new care and new solutions segments, well positioned for continued success. We have built a unique differentiated model that aligns with the industry shift towards value-based care grounded in the power of strong ongoing relationships and proactive consumer engagement. Our model allows us to deliver a more coordinated, personalized care experience for all populations across the ACA marketplace, Medicare and Medicaid. New Health is a more mature and focused business this year.
And we continue to see our value proposition resonating with the broader market as evidenced by the long-standing relationships we have formed with key payer and provider partners, the capital-efficient growth we have driven to start the year and the high consumer satisfaction scores we are receiving. We are confident in our ability to continue to drive strong performance this year as we maintain our focus on creating a better health care experience for all.
To conclude, I'd like to extend my sincere gratitude to the entire new health team for their continued commitment to transforming health care. I look forward to continuing to work together as we drive value for stakeholders across the health care ecosystem. Thank you for joining the call. And for your interest in new health. We'll now open it up for questions.

Question and Answer Session

Operator

(Operator Instructions)
Joshua Raskin from Nephron Research LLC.

Joshua Raskin

Hey, good morning. This is actually Marco on for Josh. Appreciate you taking the question. I'm looking at the balance sheet. It looks like cash was only up $25 million in the quarter despite the Molina proceeds and total liabilities don't seem to have come down that much either with that, can you can you just speak to changes in net debt in the first quarter and then also help us bridge liquidity against cash uses for the balance of 2024. Thank you.

Mike Mikan

Yes, Mark, on Mako, I'm a little bit confused by your By Your Side cash reconciliation. But if you just go back to what we talked about in the last call, you know, after closing the Molina transaction, we continue to have, you know, about $300 million, $305 million of what we consider to be that cash or potential cash proceeds coming back from the escrow and what have you to offset future liabilities?
You know, if you recall at the end of the first quarter, that that number was closer to that $380 million so we've seen a reduction in that estimate, and that is really based on that. We've had that we had to fund our financial guarantees for 2024, and we had other restructuring costs, severance and things like that, that offset that. And as you will note as well, we are we did increase our credit facility with NDA after the quarter, but earnings early April by about $30 million or so? Yes, that's the way we look at our capital position. Obviously, there's contingency to that, but we feel we're obviously in a much stronger capital position than we were a year ago.

Joshua Raskin

Great. That's helpful. And then if I could squeeze one other question in it looks like guidance for the adjusted operating cost ratio was up about 400 basis points versus the prior outlook, but you are reaffirming EBITDA guidance. I mean, is there any offset coming on the medical cost line for that? And if so what specific segment are you seeing that flow through?

Mike Mikan

Yes. No, that what we just did and that was a miss on our part for good in the in the previous guidance from that, we were referring to 15% to 16%, excluding the corporate costs, but that was always in the model. So we just added that it was a when you include corporate costs of about $40 million and that that remains the bottom line. So just so nothing's changed in terms of the guidance.

Joshua Raskin

Okay. Makes sense. Thank you.

Mike Mikan

Thank you.

Operator

As a reminder to ask your question today's call, please press star followed by one on your telephone keypad. And to withdraw your question, please press.
Hello.
We have no further questions on the line at this time. So I'll hand back over to the management team for closing remarks.

Mike Mikan

Thanks for your interest in new health. We look forward to further updates in the future.

Operator

That concludes today's call. You may now disconnect.