Clover Health Investments, Corp. Price & Performance (CLOV)

Good afternoon, everyone. Joining me on our call today to discuss the company's fourth quarter and full year 2024 results are Andrew Toi, Clover Health's Chief Executive Officer and Peter Kuipers, the company's Chief Financial Officer. Can find today's press release and the accompanying supplemental slides in well as the company's most recent investor deck in the Investor Events and Presentations section of our website at investors.cloverhealth. This webcast is being recorded and a replay will be available in the Investor Relations of the Clover Health website. I'd also like to caution you that we may make forward looking statements during today's call, that are subject to risks and uncertainties. Including expectations about future performance, factors that may cause actual results to differ materially from expectations are detailed in our SEC filings including in the Risk Factors section of our most recent Annual Report on Form 10 ks. And other SEC filings. Information about non GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures can be found in the earnings materials available on our website. That, I'll turn the call over to Andrew. Thank you, Ryan. And a warm welcome to everyone joining us today. 2024 was a pivotal year for Clover Clover.

We set out with a clear mission to drive sustainable growth achieve adjusted EBITDA profitability and reinforce our differentiation in Medicare Advantage. And I feel we have executed very well delivering on these goals. Firstly, during 2024, we delivered meaningful full year adjusted EBITDA profitability We previously shared that achieving this would position us to return to growth during a period where our competitors would be retreating this profitability and return to growth has happened as anticipated and we believe our profitable core of returning membership cohorts sets us up well to invest in bringing on significant new membership. Every year. Secondly, we surpassed 100,000 Medicare Advantage members this year. During AEP. Reflecting well above market year over year 27% growth and a 95% AEP retention rate, proving that when members experience the Clover model, And more importantly, we achieved this growth while improving clinical outcomes, and cohort performance all of which are a testament to our discipline in managing the total cost of care and driving to better outcomes. Thirdly, we've again strengthened our star ratings. We now have over 95% of our members in four star rate PPO plans for the 2025 star rating year. With nation leading clinical measures highlighting our commitment to delivering higher quality care.

As a reminder, the financial effect of this four star rating will be enjoyed next year in 2026. Practically speaking, this means higher benchmarks for our plans which will flow through to top line PMPM revenue even more competitive benefits and long term stability for our members. Fourthly, we successfully launched Counterpart Health, our software business that houses Clover Assistant for third party partnerships where we branded as Counterpart Assistant. We signed and implemented our first external partners, built a scalable multi tenancy cloud platform and established a pipeline of additional potential customers spanning both providers and payers, The market is validating what we've known all along. Technology driven care management isn't just a future of MA, it's the key to making it sustainable. These achievements reflect the exceptional dedication and hard work of every Clover team member, as we collectively strive to enhance healthcare for seniors, via the earlier identification, management and treatment of chronic diseases. While we are very proud of our results, we're even more enthusiastic about what's to come. On our journey to care for more and more of the Medicare population. As we step into 2025, having established meaningful full year adjusted EBITDA profitability in 2024.

We're not just carrying momentum, we're operating from a position of strength. The core drivers of our business are aligned and accelerating and we're well positioned to execute upon our strategic goals during our next phase of [indiscernible] We will continue to actively manage care via our differentiated technology first care model. Our wide network PCB led technology driven approach remains our core advantage. Unlike traditional MA models that rely on health system based risk sharing, We enable PCPs to succeed in value based care while remaining on a fee for service chassis This ensures broad access for seniors, stronger physician engagement and better cost performance over time. [indiscernible] Clover Assistant technology will, of course, be the core of our strategy. Our proprietary software platform delivers real world clinical and financial impact. Advances in data interoperability and AI only serve to accelerate our platform because our results are built upon delivering AI driven insights and positions, The tremendous rate of improvement in these technologies create tailwinds to Clover in a way that traditional health plans do not experience. During 2024, more than two thirds of our members received proactive data driven and personalized care through Clover Assistant. Which continued to deliver over 1,000 basis points of MCR improvement while returning MA members whose PCPs UCA as compared to those who do not.

In 2025, we'll continue to invest in enhancements to evolve CAE with AI powered automation, and further enhanced EHR integrations, making it even more impactful for physicians at the point of care. While CA helped enhance the performance of our wide network ECP Home Care remains a critical and distinctive component of our care model. And complements those wide network PCPs with CA powered care directly in the home. Designed to engage with our highest risk members, our home care program does everything from gap closure to post acute care to integrated care for poly chronic patients at the end of life.

When we do this, our data also shows that our highest acuity cohort of members receiving home care experienced significantly improved MCRs over time. This demonstrates that intensive proactive care delivered in the home is a highly effective strategy for keeping members healthier and out of the hospital and blunting the medical cost trend for our most acute and comorbid members. This is precisely why during 2025, we intend to further scale our home services to ensure that care for our members is delivered at the right time in the right setting and with measurable impact. And lastly, Counterpart Health is no longer a concept. It's an emerging business with significant upside potential. We have a growing pipeline of partners including payers, and health systems evaluating CA. They see CA as a strong tool to help them improve value based performance but we also see health systems evaluating it for their own employees' physicians. We have invested for years in building a software product that drives clinical quality and we feel that our core technology DNA plus years spent iterating and improving within our own Medicare Advantage Plan created a unique and differentiated offering. We believe the opportunity here is great And in 2025, we'll focus on closing additional deals in varied markets that validate the broader scalability of our model.

Overall, in 2025, we're committed to maintaining adjusted EBITDA profitability as we also invest deeply in further increasing total life under management, and meaningfully growing top line revenue. We will also be investing in growing our Clover Assistant Reach [indiscernible] and in new markets as this laid the groundwork for managing that larger event mission. We believe that this balance of strong profitability from returning member cohorts together with our strategic investments in new member growth, [indiscernible] growing Clover Assistant's reach and expanding both our home care services as well as the counterpart health go to market strategy positions us well for acceleration profitability in twenty twenty six and beyond. I'll now hand it over to Peter for the financial update. Thank you, Andrew. I am very pleased with our strong 2024 results and I'm excited about our growth and momentum in 2025. Our 2024 results demonstrate our capacity to execute effectively achieve our objectives and generate strong business momentum. In short, we accomplished precisely what we promised [indiscernible] I will begin with our 2024 results covering a strong revenue growth, achieving meaningful profitability with industry leading loss ratios our progress on cost optimization efforts, and lastly, our strong balance sheet position.

Clover's fundamentals are strong. We continue to achieve strong revenue growth during the year growing 9% in both the fourth quarter and full year 2024 to $331,000,000 and $1,345,000,000 as compared to the prior periods respectively, Complementing our strong top line revenue growth was continued year over year margin improvements. During the fourth quarter of twenty twenty four, our insurance benefit expense ratio or VER improved to 82.8% compared to 87.4% in the same period of 2023 and our insurance MCR improved to 73.5% in the fourth quarter this year from 82.4% last year. We also experienced modestly favorable prior period developments or PPD during the fourth quarter. Which is similar to what we experienced during the third quarter and the seasonal development has effectively lowered our full year BER Jeff says, BER for the full year 2024 was 81.2%, and MCR was 75.1%. Both of which represent strong improvements of more than 500 basis points year over year. Overall, our results were driven by strong cohort economics returning member retention. As well as our ability to deliver earlier and better care outcomes for our members. Our technology first care model has continued to manage medx in our results. Additionally, the meaningful incremental impact on Clover Assistant our home care platform and our results this year occurred slightly earlier than anticipated.

And led to strong MA planned margin outperformance during the year.

This resulted in an immaterial minimum MLR rebate in 2024 for 2024 data service, which effectively lowered our revenues. As a reminder, any payment related to the rebate would not occur until all claims have been fully incurred in the future. That said, we believe our full year BER adjusting for the aforementioned favorable impacts of TPD, is a good representation of the underlying performance of our business. And a solid foundation for the company heading in 2025. Focusing next on the SG and A. Consistent with the expectations we signaled in last quarter's call, SG and A expenses were higher than usual in the fourth quarter given the strategic choice we made to support the recent AEP season, as well as various quality focused investments aimed at improving member outcomes. These investments paid off drove strong growth in the recent AEP season resulting in 27% membership growth in the AEP period itself. We believe that this growth is driven by the strength of our benefits, star ratings and OKR platform. As such, during the fourth quarter, total SG and A increased by 7% year over year to $150,000,000 and adjusted SG and A for the fourth quarter of twenty twenty four year over year to $86,000,000 For the full year 2024, total SG and A decreased 7% year over year and adjusted SG and A of $295,000,000 decreased 1% as compared to the same period in 2023.

While we did have increased costs to support our growth, and strategic investments in the fourth quarter, our full year 2024 results benefited we have discussed throughout this last year. Taking all of this into account, GAAP net loss from continuing operations for the fourth quarter improved by $46,000,000 to a loss of $21,000,000 as compared to the same quarter last year. Similarly, adjusted EBITDA significantly improved to a profit of $8,000,000 this quarter compared to a loss of $70,000,000 in the fourth quarter of twenty twenty three. For the full year, we meaningfully improved by $112,000,000 compared to 2023. Achieving over $70,000,000 of adjusted EBITDA in 2024 driven by our well managed returning member cohorts elevated favorable PPD amounts that we do not expect to recur our differentiated ability to better manage the total cost of care via technology and a continued focus Turning next to the balance sheet. We ended the fourth quarter twenty twenty four with a cash equivalents and investments totaling $438,000,000 on a consolidated basis. With $152,000,000 at the parent entity and unregulated subsidiary level. Consolidated and unregulated balances during the fourth quarter were impacted by the final $39,000,000 cash payment to CMS for the final settlement related to our ACO REIT participation in [indiscernible] As a reminder, this is the final payment related to this discontinued business and we expect no future impacts to our financials.

Cash flow used in operating activities from continuing operations for the fourth quarter was $47,000,000 and was impacted by various working capital dynamics as well as a continued normalization of our IV and R levels, which continued to decrease in the fourth quarter by approximately $11,000,000 quarter over quarter on the third quarter twenty twenty four, bringing our full year cash flow from operating activities to $82,000,000 Our strong business momentum continues to improve our already strong balance sheet this year allowing us to operate from a position of strength and investing growth. Next, I will provide commentary on our full year 2020 guidance Revenue for the insurance business is expected to be between $1,000,000,008.00 dollars and $1,875,000,000 reflecting continued strong year over year top line growth of 37% at the midpoint of the range. Medicare Advantage membership is expected to average between 210,000 members reflecting 30% growth year over year at the midpoint as compared to 2024. We expect adjusted SG and A to be between $355,000,000 and $365,000,000 This represents adjusted SG and A as a percentage of total revenue of 19 to 20%. And is an approximate 200 basis point improvement year over year at the midpoint of the range.

We expect full year 2025 adjusted EBITDA EBITDA to be between $45,000,000 and $70,000,000 Additionally, beginning this year, we are guiding to adjusted net income of between $45,000,000 and $70,000,000 We believe that this is a useful metric on investors and it is also used by others the industry. Lastly, we expect insurance BER for the full year 2025 to be within the range of 87% to 88%. As a reminder, we believe our insurance VAR is a solid representation of the total cost of care for MA members and it includes our proactive investments and quality improvement.

Going from 2024 to 2025, Offshore Here are the bridging items that I will cover in more detail later in this call. First, 2024 results included elevated favorable PPD amounts that we do not expect to recur. Second, investments in new membership growth year over year of 30% will reduce our year over year adjusted EBITDA and adjusted net income SG and A members typically have an over 1,000 basis points higher loss ratio than returning members. Third, we expect an increase in adjusted EBITDA and adjusted net income contribution from existing member cohorts as they continue to show an expanded profitability profile despite broader industry headwinds. Fourth, as a result of our new membership growth, we will experience increased variable and growth SG and A [indiscernible] We are also increasing our investments in Clover System Technology, and Clover Assistant Reach. These increases in SG and A will partially be offset by our cost efficiency program. That I will discuss in more detail later in this call. In totality, we believe that this balance in twenty twenty five of existing strong profitability from returning member cohorts With our assessments in new member growth, Clover System technology and Clover System Reach, coupled with our improved four star rating, positions us strongly for acceleration of profitability in 2026 and beyond.

First, on our cohort dynamics, please turn your focus to Slide six in the earnings deck posted on our website. Our new member growth during AEP driving our guidance of 30% year over year average membership growth at 2025 primarily occurred within our established core markets where we have strong Clover System Clover. And our confidence we can deliver strong clinical results. Within the new member cohort from this AEP, the vast majority of our growth came in the form of switchers from other MA plans. This nuance is important because MA switchers typically have more health data that we are able to equip physicians with as compared to other types of new members. Furthermore, we achieved impressive membership retention is AEP. And we're very pleased with the dynamics of our returning membership cohort. We also look forward to continuing to over the next month during the current OEP period. Where we remain on track to deliver a strong OEP season as a result of the previously mentioned disruption in began during AEP, as included in our full year 2025 guidance. During 2024, demonstrated a clear ability to achieve profitable existing member cohorts. And we plan to continue to prudently manage these returning member cohorts going forward.

In 2025, we will also see the impact of a large cohort of New Year won members in our financials. Given that it takes some time for our care management model to be effective with new members, both clinically and financially, we expect to see this new member cohort increase our loss ratio. In year one. Given our experience over the last number of years, we have strong conviction that the unit economics of the cohort of members that joined this year will have improved loss ratios of around 700 basis points in 2026. We have included a graph of our cohort economics on page six in our earnings deck. This illustrates a more than 700 basis point improvement in MCR between year one and year two cohorts, and approximate 1,500 basis point improvement Between year one and year three, cohort members. This shows the strength of our model delivering earlier and better care management at lower total cost of care and higher affordability. Next, I will give further context to our SG and A expense We categorized our SG and A expenses in different buckets, including quality initiatives, growth variable and fixed SG and A costs. That be managed accordingly.

Quality initiatives SG and A includes technology focused R and D innovation, to further expand our product roadmap as well as spend directly tied to enhancing healthcare quality for our member Growth SG and A includes costs that scale membership growth.

Such as the cost to acquire new members, including marketing, branding and broker commission costs. [indiscernible] that scale with a growing member base. This includes costs for our BPAS partner, that optimizes our back office MA plan operations. Fixed SG and A includes spend related to employees, infrastructure and vendor costs. That we're able to leverage to achieve scale. Our results in 2024 have already started to reflect this. Giving us meaningful operating leverage to enjoy as we scale further in the future. Beginning this year 2025, we have implemented a new efficiency program for SG and A to streamline our operations and identify further efficiency gains, within these different SG and A buckets. Optimization efforts here will be intended with incremental strategic investments to further improve our Clover Assistant capabilities, Cora Home Care program and expand our counterpart health go to market efforts. Taking all of this into account, our full year twenty twenty five guidance for adjusted SG and A represents a decrease or improvement of around 200 basis points for adjusted SG and A as a percentage of revenues. At the midpoint of the range in comparison to full year 2024. We have placed additional focus and continued efforts on cost optimization with a goal to further reduce SG and A as a percentage of revenue in the future.

Lastly, we remain excited about Conocoart's ability to bring our model of care into other geographies in a capital light and efficient manner. Where we do not currently have an MA plan established. This initiative is still in its early stages, as we had not even announced general availability yet at this time last year. That said, our priority in 2025 will be first to rapidly [indiscernible] We were thrilled to announce a multiyear partnership Southern Illinois Healthcare earlier this month as well as our partnerships with the Iowa Clinic and Duke Connected Care in 2024 and we expect momentum for counterpart assistance to only increase this year.

We look forward to sharing more detailed as we further develop and grow our counterpart SaaS and tech enabled services offering. While we are not providing we are excited about a strong positioning for acceleration of profitability in 2026 First, we believe we are well positioned for strong and above market membership growth in the upcoming AEP season later this year. Second, we believe that we are well positioned with tailwinds going in 2026, due to an increase to a four star payment year in 2026 Third, we expect the unit economics of our new cohort of membership added in 2025 to significantly improve into 2026. Fourth, continuous maturing and improving member cohort economics of members who joined in 2024 and before [indiscernible] we expect an increased impact of the cost efficiency program in 2026 and beyond. With that, let me now turn the call back to Andrew for closing comments. Thanks, Peter.

Clover is indeed very well positioned for success as we move into our new phase of growth in the years to come, we're excited to bring our technology first model to as many people as possible while maintaining strong profitability. Our investments into growth, Clover Assistant Technology and our differentiated model will be both strategic and judicious to ensure that we have plenty of room to run as we aim to increase overall business value for Clover.

What makes Clover different has and will continue to remain the same.

We aim to actively manage and deliver care as we equip more and more physicians with technology to identify, manage and treat chronic diseases earlier. As early intervention not only benefits the patient, via reducing the need for extensive treatment, but also helps flatten the medics curve and lowers the total cost of care.

This differentiation is also our that sets us apart. And why we believe we are positioned better than ever execute against our vision in the coming years. We'll continue expanding our impact driving better outcomes for our members achieving financial discipline for our business, and delivering long term value. For our shareholders. [indiscernible] let's open it up for questions.

Thank you. We will now be taking questions [indiscernible] Follow-up. We will take our first question from Jonathan Young with UBS.

Thanks for taking the question here. I guess I know we are early in the counterpart health store, but kind of when can we start expecting to see some of the revenue metrics kind of show up into the financials and what's your expectations for this year in terms of pipeline growth? Hey, Jonathan. For the question. So regarding Counterpart, we are very excited by that business.

We have a strong pipeline as we said in the remarks.

We are not yet saying when we're going to be incorporating that into the financial results. Of course, it's a newer business as Peter said during his section. And the way that we're looking at it is that we are really looking at it as a way to expand our [indiscernible] first of all. So we're looking at bringing more lives under Clover managed which is a key KPI of ours and under Clover Assistant Management. Those economics will eventually become significant, we believe. But right now, of course, the core of the financials are being driven by the MA plan itself. So look for more announcements on launches.

Certainly, look at more for more partnerships. We'll be talking a little bit more later this year I think about how we see the lives growing under management and the clinical results And then I think you'll see the financial side come a little later. Okay, thanks. And then just on the the G and A load, kind of as it a lot it's a little bit higher than what we were thinking I guess how much is kind of the cost related to the AEP growth that you kind of saw? And then as we kind of think about '26, it sounds like you're going to grow a decent clip Are we going to experience that kind of a similar G and A pickup in relation to that? How much do you think you can lop off via the G and A optimization efforts? Thanks. Yes. Thanks, Jonathan. This is Peter.

Also from an SG and A perspective, the growth SG and A is a significant portion of the SG and A growth year over year. Wanted to point out that we already are scaling and having some leverage, right? So the guide midpoint for SG and A for 2025 represents about a 200 basis points improvement, if you will, if you measure SG and A as a percentage of revenue, but we do have growth expenses in there, favorable expenses, We're optimizing as well and we think that for this year our fixed SG and A is actually slightly down year over year. We are of course executing on an efficiency program. But directionally from a growth going from '25 into '26, you would expect a similar direction, but I would say at a lower rate. [indiscernible] We will move next to Matt Hewitt with Craig Hallum. Hey, Matt.

This is Toph Korn on for Matt Hewitt.

Can you please provide some color on your expectations for Q2 growth of the home care arm in 2025 and beyond? Thank you.

Yes, absolutely. So this is highlighted as an area that we're very proud of Our investment into care being delivered with Clover Systems in the home, I think is an anchor stone of our entire strategy, looking after the most expensive, comorbid, most vulnerable members, in that home care program is a critical aspect of how we do total cost of care control as well as improved outcomes. As such, we are planning to invest more into that arm We are bringing that capability into new markets and expanding that team and expanding its capabilities and expanding its geo reach. So we don't have a specific guidance around that, but you should expect that to be a key part of our strategy. And to see that total cost of care control flow into our financials as well.

All right. Thank you.

I would like to turn the call back to Andrew Toy for any additional or closing remarks.

Great. Thank you, Chiu, for the questions there. In closing, I'm proud of the Clover team's many accomplishments this past year.

Including adjusted EBITDA profitability and corresponding strong membership growth to start the year, Our improved star ratings, of course, and our efforts with counterpart 2024 was a defining year for Clover. Where we continue to reinforce our competitive advantages within MA And as I've said before, this is just the beginning I look forward to updating you all on our progress during our next call. Thanks again for joining today. And everyone have a great evening.

Thank you. Ladies and gentlemen, this concludes today's Clover Health fourth quarter and full year twenty twenty four earnings call and webcast. May disconnect your line at this time. Have a wonderful day.