Bright Health's revenue jumps to $1.1B but share price tumbles

Bright Health Group described an ambitious future Tuesday in its first quarterly earnings report since going public, but investors came away troubled by aspects of the near-term financial picture.

After the Bloomington-based health insurer released second-quarter results that featured impressive revenue growth to $1.1 billion in the April-to-June period, the company's share price plunged by more than 20%.

Analysts cited a mix of factors from worse-than-expected medical cost trends to a disappointing revenue projection for the company's business unit that runs medical clinics.

"The first quarter as a public company was not as clean as we would have liked," wrote Kevin Fischbeck, an analyst with Bank of America, in a note to investors.

Even so, Bright Health Group is pushing ahead with plans to enter new markets as a health insurer while building 20 new clinics next year in North Carolina and Texas.

Founded by veterans of Minnetonka-based UnitedHealth Group, which runs the nation's largest health insurer, Bright Health is part of an industry trend where health insurers and health care providers are connected more closely in hopes of better controlling expenses.

"Making health care right together is built on the belief that by connecting and aligning the best local resources in health care delivery with the financing of care, we can deliver better outcomes at a lower cost for all consumers," Mike Mikan, the chief executive at Bright Health Group, said during a Tuesday conference call with investors.

Thanking the company's workforce of more than 2,500 people, Mikan added: "We are very pleased with our second quarter results and think this a strong start to our journey as a public company."

In June, Bright Health raised $924 million in the largest-ever initial public offering by a Minnesota company. It's been a tough ride for investors ever since. Whereas the stock initially priced at $18, shares on Tuesday closed at $8.49, off by about 22% for the day.

Nonetheless, analysts at Piper Sandler in Minneapolis said that they were "buyers on weakness." Shares likely were under pressure, they wrote in a research note, because of the medical cost trends reported by the company as well as second quarter financial performance that was partially attributable to an unexpected investment gain.

"We are believers in [Bright Health Group's] 'Care Partner' model that aligns incentives, enables [the company's] low-risk entry into new markets, drives superior member retention, and favorable unit economics," analyst Jeff Garro wrote.

Second quarter results were negatively impacted by worsening claims expense from an earlier period at a business unit in California, according to a research note from J.P. Morgan. They also noted disappointing financial guidance for the company's clinic business, but came away "incrementally more comfortable" after talking with company executives following the conference call.

Fischbeck of Bank of America lauded the company's revenue growth but wrote that the overall results were "messier than expected."

In the second quarter, Bright Health posted a loss of $43.7 million on the $1.1 billion of revenue, compared with a loss of $18 million on nearly $297 million of revenue between April and June of 2020.

Health insurance membership jumped from 207,000 people at the end of last year to nearly 663,000 people at the end of the second quarter.

For the year, Bright Health Group now expects revenue of $4 billion to $4.2 billion.NeueHealth, which is the company's division for medical clinics, expects annual revenue this year of about $425 million.

Bright HealthCare, which is the company's division for health insurance, plans to start selling coverage to individuals in four new states next year including California and Texas. That would be an increase over the 11 government-run health insurance exchange markets where the company currently competes.

Bright Health got its start in 2015 selling policies to individuals before expanding into the Medicare market. During the first half of 2021, Medicare Advantage health plans provided about 30% of premium revenue, Mikan said.

Last month, the company's NeueHealth division closed on $307.5 million cash-and-stock deal for a 75% stake in Centrum Medical Holdings, a large medical group in Florida. With the acquisition, NeueHealth owns 44 clinics that care for about 170,000 patients in value-based care contracts, where clinics take financial risk from health insurers to efficiently care for patients.

In different regional markets, Bright Health Group intends to grow first with either its clinic business or its health insurance business, executives said. In Central Florida, for example, the company's clinics already treat patients living in the nation's largest retirement community, so that creates a chance in the region to sell Medicare Advantage health insurance plans.

In other places like Texas, Bright Health plans to grow simultaneously as a health plan and clinic operator, said Simeon Schindelman, the chief executive of Bright HealthCare.

"Every market is different," Mikan said. "We do think that there [are] opportunities to enter the market with NeueHealth and then partner with Bright HealthCare to drive volume."

He added: "We're seeking the biggest counties in America."