Q4 2022 Clover Health Investments Corp Earnings Call
Speaker 2: The.
Speaker 1: To all sites on hold, again, thank you for your patience in holding. We ask that you please continue to stand by. Your conference will begin shortly. Thank you.
Speaker 2: The that P.
Speaker 1: Good morning, ladies and gentlemen, and welcome to the Clover Health fourth quarter and full year 22 earnings conference call. At this time, all participants are in a listen only mode.
Speaker 1: A question and answer session will follow the prepared remarks.
Speaker 1: At that time, if you wish to ask a question, please press star 1 on your telephone keypad.
Speaker 1: At that time, if you wish to ask a question, please press star one on your telephone keypad. As a reminder, today's call is being recorded.
Speaker 1: I would now like to turn the call over to Ryan Schmidt, Investor Relations for Clover Health. Please go ahead.
Speaker 3: Good morning everyone. Joining me in our call today to discuss the company's fourth quarter and full year results are Andrew Toy, Clover Health's Chief Executive Officer, and Scott Lefler, the company's Chief Financial Officer. You can find today's press release in the accompanying supplemental slides and the investor events and presentation section of our website at investors.cloverhealth.com.
Speaker 3: This webcast is being recorded, and a replay will be available at the Investor Relations section 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 make cause actual results to different materially-summit expectations are detailed in our SEC Firewinds.
Speaker 4: Thank you, Ryan, and thanks for everyone for joining us. I'm excited to be here today on my first earnings call at Clover's Chief Executive Officer.
Speaker 4: This morning, I'm pleased to share our strong results for 2022, highlighted by Insurance MCR improving over 1,400 basis points compared to 2021. This improvement in MA Plan MCR reflects a continuation of the favorable performance trends we experienced throughout the year.
Speaker 4: Most importantly, our results highlight clover assistance impact on our business, and I'm excited by the data showing our technology's clear ability to empower Medicare physicians to identify and manage chronic diseases earlier, which I'll discuss in more detail shortly.
Speaker 4: In 2022, we emphasized profitability over growth. This strategic shift impacted both the insurance and non-insurance lines of business.
Speaker 4: We expect the combination of improved 2022 insurance results and the enhanced strategic emphasis on profitability overgrowth to position us for a successful 2023. As we demonstrate the strength of our approach to Medicare and deliver significant progress towards profitability.
Speaker 4: As a result, we're also pleased to reiterate and expand upon the partial guidance for 2023 that was issued last month.
Speaker 4: Let's start with our insurance segment. Where, throughout 2022, we delivered favorable results in both MCR and Revenue.
Speaker 4: We're proud of our full year insurance MCR of 91.8%, which was better than our most recent 2022 guidance and is reflective of the continued improvement in core insurance operations and the value derived from the clever assistance.
Speaker 4: Full-resistant underpins are differentiated offering in the market. High value plans at low cost on a wide network.
Speaker 4: Through our unique approach, we've proven our ability to grow. And as we prioritize profitability, we believe the mode of forward bike-loader assistance will allow us to flip the switch to sustainable industry-beating growth once we've established core profitability. As an additional reminder, we were paid on three stars during 2022.
Speaker 4: So our results are not yet reflective of the favorable impact that we will enjoy from being paid on three and a half stars for our PPO plan beginning this year. We also announced in the fall that we were awarded a three and a half star rating for all of our plans for 2024. The combination of our strong 2022 insurance results.
Speaker 4: for our non-insurance business during the full year 2022, MCR of 103.4% improved compared to 2021.
Speaker 4: While we did improve, this is not a result we are satisfied with.
Speaker 4: As discussed on previous calls, we strategically reduced the number of participating physicians in the program for 2023, which resulted in a reduction in aligned beneficiaries under the program.
Speaker 4: By focusing on providers who are more closely aligned to our approach, we expect MCR in 2023 to improve to a range of 98% to 100%.
Speaker 4: Another area we're really excited about is Clubber Home Care, which is a part of our insurance business operations.
Speaker 4: Clover home care, our internal primary care practice drives significant clinical value by delivering in-home care directly to our most vulnerable members. In 2022 alone, we service over 3,300 members receiving great feedback and high-members satisfaction.
Speaker 4: which we believe also contributes to higher member retention.
Speaker 4: These members are some of our most medically complex, often with multiple advanced global abilities and high institutional claims.
Speaker 4: For this cohort of clover members, we're focused on home-based supportive care models, including palliative that enable our most complex members to receive the care they need at home rather than in a hospital.
Speaker 4: When measured against other eligible but not enrolled members, we see near term meaningful cost reductions for members enrolled in the program, and these cost reductions come primarily from lower institutional claims.
Speaker 4: That's why in 2023, we plan to increase the size of our in-home practice panel to approximately 4,000 members, and thereby increase our MA Plan Medical expenses under home care management to more than $150 million.
Speaker 4: With that, I'll now hand over to Scott for the financial update.
Speaker 1: Thanks, Andrew. The Clover team's hard work is resulting in increased momentum across the business.
Speaker 1: I'll first cover the fourth quarter and full year 2022 financial highlight and then review our outlook for 2023. As Andrew mentioned, fourth quarter and full year 2022 financial results were highlighted by significantly favorable insurance MCR performance and strong insurance revenue growth. We also continue to moderate year-over-year adjusted SGA growth.
Speaker 1: Our full year insurance and CR demonstrated a meaningful improvement over a more extended time period with full year 2022 and CR of 91.8% improving significantly from 106% in 2021.
Speaker 1: We believe that these improvements are a reflection of our focus on expanding Clover assistant capabilities and reach, building best-in-class insurance operations, and the added benefit from medical expense trends normalizing compared to 2021.
Speaker 1: As we mentioned in the past, we did experience some favorability from prior periods as well.
Speaker 1: During the fourth quarter, insurance revenue grew 34% to $270 million. For the full year 2022, insurance revenue grew 36% to $1.085 billion. For both periods, member Coraz was the primary driver.
Speaker 1: Our non-insurance MCR during the fourth quarter with 103.6% slightly elevated compared to Q4 of 2021 MCR of 103%.
Speaker 1: Full year 2022 non-insurance MCR of 103.4% was a better result compared to our MCR of 105.7% in 2021.
Speaker 1: Having said that, I'll reiterate, Andrew's comments that our broader priority in 2023 is to deliver positive growth profit for this line of business.
Speaker 1: And we believe that our strategic shift towards a narrower base of providers position above to do so.
Speaker 1: For the fourth quarter, non-insurance revenue grew 172% to $623 million.
Speaker 1: During the full year 2022, non-insurance revenue grew 256% to $2.38 billion.
Speaker 1: Year-over-year revenue growth was primarily driven by growth in aligned beneficiaries. Favorability in the program, Fence Mark, also contributed to stronger Q4 revenue, which was offset in our MCR results by higher total cost of care for aligned beneficiaries.
Speaker 1: Fourth quarter, adjusted SGMA with $86 million and full year 2022, adjusted SGMA with $321 million.
Speaker 1: Moderating the justice and SGA remain the focus for us as we push towards profitability.
Speaker 1: Adjusted even after the fourth quarter was negative $1 million. Compared to a loss of $87 million in the prior year period.
Speaker 1: Adjusted to the year was approximately negative $298 million, which is an improvement compared to the loss of $344 million during the prior year.
Speaker 1: At the end of 2022, our restricted and unrestricted cash, past equivalence and investment totaled $555 million on a consolidated basis and $332 million at the parent entity and unregulated subsidiary level.
Speaker 1: These balances were impacted during Q4 by the normalization of the $96 million working capital benefit reference on our last earnings call and a $60 million DCE Provisional settlement for 2021
Speaker 1: While we always consider opportunistic financing, given our current healthy liquidity profile, I'll reiterate what we have said in the past, because the company expects to have adequate liquidity for 2023.
Speaker 1: In addition to our strong liquidity position, more broadly, we have a solid and unmovered balance which should provide opportunities for future sources of liquidity if needed.
Speaker 1: Nonetheless, our objectives are to accelerate on the path of profitability and achieve positive and a path in order to avoid? losing to our shareholder.
Speaker 1: Finally, I'll provide an overview of our full year 2023 guidance.
Speaker 1: We expect to continue to grow a top line revenue for the insurance line of business to between 1.15 billion to 1.2 billion dollars with a heightened focus on profitability, targeting an insurance mcr of 89% to 91%.
Speaker 1: We expect to reduce scale of our participation in the EICO REACH program to result in improved non-insurance MCR of 98% to 100% and revenue of 0.75 billion to 0.8 billion dollars.
Speaker 1: We estimate that adjusted SGNA will be between $315 million and $325 million.
Speaker 1: Whole year adjusted EBITDAQ is expected to improve significantly to between negative $155 million and negative $205 million.
Speaker 1: In summary, we delivered strong insurance performance during both the fourth quarter and full year 2022, and they're excited about the impact that our strategic emphasis on profitability for both lines of business will have on 2023 performance as we look to build upon the positive moments of 2022.
Speaker 1: Now we'll turn the call over to Andrew for some final comments.
Speaker 1: and final comments. Thank you, Scott.
Speaker 4: To close, I want to emphasize the progress we're making with clover-assistant, powering our differentiated approach to Medicare.
Speaker 4: Clover's technology-centric model is all about helping physicians with the early diagnosis and early care management of chronic disease, and approach that we believe closely aligned with CMS's recent proposed adjustments to Medicare Advantage.
Speaker 4: With the 2024 Advanced Notice, CMS has adjusted plan incentives to remove risk adjustment diagnoses that it believes do not predict future costs.
Speaker 4: Because of these MA rule changes, we expect to see many large established plans have to change the way that they have been operating and have to fundamentally rethink their approach to MA.
Speaker 4: On the other hand, at Clover, we have always said that the focus of MA should be on allowing doctors to both improve outcomes and lower cost, and this is precisely why we developed Clover Assistance, which is designed to help physicians with the early identification and early management of those conditions that most impact the members' health and consequently, the cost of care.
Speaker 4: Indeed, we're seeing that through this early identification of chronic disease, clover assistant can change the course of care. For example, our recent data shows that, in a population with no documented history of diabetes, clover assistant was able to identify for the physician, those clover members at higher risk of the disease.
Speaker 4: diabetes was often evaluated, diagnosed, and medication prescribed.
Speaker 4: This is exciting to us because our data demonstrates that clover-assistant can positively influence physician behavior, lead to earlier diagnoses interventions, and help with early disease treatment.
Speaker 4: You can find a visual representation of our data in the accompanying Q4 supplemental flight deck. I'm very excited to share more of the year progresses, but with that, let's take questions. The floor is now open for your questions.
Speaker 3: First, we will take questions from Clover's research analyst. If you wish to ask a question at this time, please press star 1 on your telephone keypad.
Speaker 1: You may remove yourself from the cube by pressing star 2.
Speaker 1: In the interest of time, we ask that you please limit yourself to one question and one quick follow-up.
Speaker 5: Thank you.
Speaker 1: Thank you. We'll take our first question.
Speaker 5: I'm sorry, Richard Clothes with Canacorn Genuity.
Speaker 6: Thank you and good morning. This is Will Hoover on for Richard. So you ended the year with roughly 89,000 MA members and the past you provided MA and non-insurance member and guidance, but that wasn't included. How should we think about the membership growth for 2023 and is that baked into your revenue guidance? Thank you.
Speaker 1: Yeah, thanks for the question, Will. So you may recall that when we issued preliminary guidance in early January , we did make a comment relating to the membership on the insurance side of the business coming out of AEP.
Speaker 1: and we indicated that it would be in line with our membership at the beginning of 2022. We don't have any update on that front. In terms of the aligned beneficiaries under the non-insurance side of the business, we're expecting that to be approximately 35,000 lives coming into 2023. Both of those reference points are reflected in our guidance.
Speaker 7: Thank you.
Speaker 5: Thank you. Again, if you would like to ask a question, please press star one. Our next question comes from Jason Kassola with City Group. Hello. Good morning. Thank you for taking my question. You have Ben Rossi on here for Jason. Jason.
Speaker 5: So thinking back on 2023 guidance, we're seeing that you have SGNA flat despite revenue coming down over 40% year over year Would you walk us through some of the drivers behind that expense and how we should be thinking about cadence over the course of year And then are you forecasting some increases to SGNA as your expand your home health offering? Thanks for the question. So first of all, I'll remind you that
Speaker 1: dedicated to that side of the business in order to generally variable such that it would vary in relation to the number of line beneficiaries. So that's why you're not seeing the decline in the overall S&A level that we're guiding to. I think part of your question was just around how does it sequence out during the year?
Speaker 1: And generally from an SGNAC's anality standpoint, we do usually see elevated SGNA in Q1 as a result of broker commissions that we incur coming out of the prior year's A.P. cycle. And then we usually have some amount of elevated SGNA in Q4 as well related to some of the marketing cost associated with the next A.P. cycle.
Speaker 1: on the revenue side, we saw some favorable movement in the relevant benchmarks that drive PMPM revenue. But then similarly, we also saw increases in total cost of peer on our claims experience for aligned beneficiaries. And so the two moving in tandem have the effect of...
Speaker 1: increasing both revenue and medics study as you can see there was a significant change in the overall and PR performance for that line of business.
Speaker 5: Got it. Thank you. Thank you. Our next question comes from Kevin Fishbeck with Bank of America. Great. Thanks. I appreciate the comments about liquidity for this year. Is there something we'd think about how the companies...
Speaker 5: you know, cash burn looks like relative to an EBITDA number, so if you're gonna...
Speaker 5: lose $150 million. What does that mean just as a kind of rule of thumb, as far as how much cash we'd expect you to go through? Generally, I would say that our cash burn largely approximates our EBITDA performance, just with the important caveat that...
Speaker 1: the working capital cycle for the non insurance line of business is kind of disconnected from the P&L by several quarters and so the performance of the non insurance line of business in 2022, you'd expect to see the cash effect of that. We're expecting to see that in Q3 of 2023 when we expect to settle on the 2022 performance.
Speaker 5: Okay, that makes sense. And then I guess maybe just going back to the comment about the MA rate and the coding dynamics. You know, I understand you guys have a more integrated coding, you know.
Speaker 5: and that the physician is actually doing the coding and actually intervening around the coding that they're documenting. But it feels to me like any change around how much CMS is paying for coding would still potentially at least have a disproportionate effect to you guys, because you are good at documenting everything. It made it sound like
Speaker 5: If the industry was to see a 3% head lift from this that maybe clover would see...
Speaker 5: Left, am I interpreting that correctly? Or are you saying that even if it is a bigger impact to you, it wouldn't change the way that you run your business?
Speaker 4: Yeah, there's not just a great question there. It's slightly different version than either the ones you just said, but good query. I think what we're saying is we're certainly impacted because there's a lot of places where the rules are changed, I can be 90 to 90 to be 10. There's a lot of adjustments. However, we feel like overall, because we are clever, assistant, we've always been focused on the diagnoses where there's also care management.
Speaker 4: because there just has been somewhat of a prevalence of we believe I'm coding for diagnoses that may not impact the cost of care just like CMS sees. So any provider or plan which is getting a disproportionate number of those diagnoses would we believe would be significantly more impacted than one is at what's inside of CMS projections. I think that's what we were telling you to say.
Speaker 4: there just has been somewhat of a prevalence of we believe we believe I'm coding for diagnoses that may not impact the cost of care just like CMS sees. So any provider or plan which is getting a disproportionate number of those diagnoses would we believe would be significantly more impacted than what is it what's inside of CMS projections. I think that's what we were telling you to say. Okay, but do you think you're more or less in the industry?
We think we're better than we're going to be better than industry. We obviously don't know what's in every other plan, but we do know sort of like when you look at plans who are heavily delegated downstream to some of these providers, if you're heavily delegated to a provider downstream and we do very little delegation because we rely on a clover assistant.
A lot of those downstream delegated risk bearing providers will be those likely who are doing more of that other kind of coding. So plans that are reliant on those kinds of services or those kinds of contracts will probably have to redo those contracts or will have some of those impacts will upstream. So we do believe that we are less impacted, but we are not saying that we are not impacted. But because the CodMA is a relative business.
what that means is that as we all go out to bid, we are all looking at our future performance, we believe that that relative performance and advantage relative to other plans will likely bear out such that we can probably have a bit of an advantage going forward.
All right, great, thanks. Once again, if you wish to ask a question, please press star one at this time.
We'll pause just a moment to allow questions to qand at this time. Have no further questions in Q. I would like to turn the call back over to Andrew toy for any additional or closing remarks.
executing on our past the probability, we've said that many times, we're going to continue widening our technology mode. We just discussed why that's so critical and helps us be resilient against changes that are coming into the industry. And of course, by improving clinical outcomes for our members. So thank you, everyone, for joining us today. Look forward to updating you on our progression throughout the year. Thank you.
probability, we've said that many times, we're going to continue widening our technology mode. We just discussed why that's so critical and helps us be resilient against changes that are coming into the industry, and of course by improving clinical outcomes for our members. So thank you everyone for joining us today. Look forward to updating you on our progression throughout the year.
This concludes today's Clover Health's fourth quarter and full year 2022 earnings call and webcast. You may disconnect your line at this time and have a wonderful day.
Goodbye
A that TR.