Q3 2024 Clover Health Investments Corp Earnings Call
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Speaker Change: Please stand by your program as about to begin. If you need assistance on today's conference, please press star zero.
Speaker Change: Ladies and gentlemen, good afternoon and welcome to the Clover Health 3rd Quarter, 2024 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the prepared remarks.
Speaker Change: At that time, if you wish to ask a question, please press star 1 on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the call over to Ryan Schmidt, Investor Relations for Clover Health. Please go ahead.
Ryan Schmidt: Good afternoon, everyone. Joining me on our call today to discuss the company's third quarter 2024 results are Andrew Toy, Clover Health's Chief Executive Officer, and Peter Kuipers, the company's Chief Financial Officer.
Ryan Schmidt: You can find today's press release and the accompanying supplemental slides, as well as the company's most recent investor deck, in the investor events and presentation section of our website at investors.cloverhealth.com.
Speaker Change: This webcast is being recorded and a replay will be available in 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.
Speaker Change: 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-K and other SEC filings.
Speaker Change: Information about non-GAAP financial measures reference, including a reconciliation of those measures to GAAP measures, can be found in the earnings materials available on our website. With that, I'll now turn the call over to Andrew.
Andrew: Thanks, Ryan, and thank you, everyone, for joining us today.
Andrew Toy: We have had a tremendous amount of progress at Clover that we're excited to talk through.
Speaker Change: Firstly, we delivered another quarter of meaningful adjusted EBITDA profitability and positive operating cash flow.
Speaker Change: As such, we are improving our full-year Adjusted EBITDA guidance.
Speaker Change: We have always emphasized our focus on delivering a profitable clover, and I feel that we have executed very well here.
Speaker Change: Secondly, we achieved another quarter of industry-leading loss ratios, driven by continued strong performance on both PMPM revenue as well as medical expense management.
Speaker Change: We're particularly proud of this because we see this value being driven largely by the technology-powered performance of the independent fee-for-service physicians in our wide network.
Speaker Change: This is the part of the network where a lot of other Medicare Advantage plans are struggling to manage total cost of care.
Speaker Change: Thirdly, we are proud to have received upgraded star ratings for our plans, most notably a 4 star rating for our flagship PPO for plan year 2025, impacting payment year 2026.
Speaker Change: In fact, for plans with over 2,000 members, our PPO received the highest score in the entire country on core HEDIS measures, with a score of 4.94, even edging out high-performing HMOs.
Speaker Change: Over 95% of our members are in this four-star plan.
Speaker Change: The key differentiator with CLOVER is that these results are driven by physicians using our technology, CLOVER Assistant.
Speaker Change: Unlike almost every other high-performing MA plan, Clover's plans have almost no traditional value-based contracts or delegated risk.
Speaker Change: We do not pay traditional quality incentives around gap closure. Instead, what we focus on is having physicians use Clover Assistant, which acts as a GPS for physicians to better manage Medicare Advantage, total cost of care, and quality.
Speaker Change: Between our network physicians and our internal Clover home care practice, which focuses on managing our most vulnerable members, we've historically delivered Clover assistant-powered care to over two-thirds of our membership.
Speaker Change: We've demonstrated that our technology-first model of care, while unconventional, generates differentiated value.
Speaker Change: We've driven strong clinical and financial performance in our insurance business, highlighted by meaningful adjusted EBITDA profitability and strong insurance loss ratios.
Speaker Change: I'm very proud that we've significantly increased our adjusted EBITDA profitability to over 62 million dollars year-to-date on a membership base of 81,000 lines.
Speaker Change: These strong financial results position us well to invest in membership growth going into 2025.
Speaker Change: This AEP, we believe we are offering a highly appealing and competitive product for Medicare eligibles, and we are prioritizing both acquiring new members and maintaining strong retention rates.
Speaker Change: With this strategy, we believe there is ample opportunity to expand our market share throughout 2025 in our core markets.
Speaker Change: We're particularly excited about the timing of our growth opportunity.
Speaker Change: Other plans have struggled to maintain star ratings and managed cost of care, and are effectively being forced to make strategic retreats by making plan closures, dropping providers from their networks, and pulling back on benefits.
Speaker Change: By maintaining our own benefit and network strength, and leveraging our improved star ratings, we are set up to be in a very good position.
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Speaker Change: While it's too early to discuss our 2025 posture in detail, our intent is to take advantage of the opportunity in front of us by focusing on growth while maintaining consolidated profitability via strong management of our returning member cohorts.
Speaker Change: We're demonstrating a clear ability to grow into the strength of our model, with our profitable existing member cohorts fueling growth and having a clear focus on bringing new members onto our care platform.
Speaker Change: We'll obviously have more to talk about regarding our annual enrollment period performance in the future. But overall, we feel very good about how we positioned our business for growth in 2025 on the back of our strong performance in 2024.
Speaker Change: To be clear though, we believe this growth opportunity will not be a one-year window.
Speaker Change: As I mentioned, we are very proud to have recently received a four-star rating for our flagship PPO plans.
Speaker Change: By achieving this rating, we'll have tailwinds going into payment year 2026 that will allow us to continue to invest in our flywheel as we expand profitability while continuing to accelerate growth.
Speaker Change: And again, our star's improvement came at the same time as the broader industry saw star rating degradation, setting us up to continue to differentiate our products for our members.
Speaker Change: In summary, I'm very proud of our team's accomplishments and progress during the quarter, where we again achieved meaningful adjusted EBITDA, improved our full year 2024 adjusted EBITDA profitability guidance, and have positioned the company well for growth amidst a dynamic market spectrum.
Speaker Change: I'll now hand it over to Peter for the financial update.
Peter Kuipers: Thanks, Andrew. I'm continually impressed with our ability to execute, deliver upon our goals, and drive strong business performance and momentum during this year while managing the total cost of care.
Peter Kuipers: I will begin by covering the third quarter and year-to-date financial highlights, and then review our updated guidance for the full year 2024.
Speaker Change: So the fundamentals are strong.
Speaker Change: Gap in that loss in continuing operations for the third quarter improved significantly by 25 million dollars to a loss of 9 million dollars as compared to the same quarter last year.
Speaker Change: Similarly, Adjusted Evita meaningfully improved to a profit of $19 million this quarter.
Speaker Change: compared to three million dollars.
Speaker Change: in the third quarter of 2033.
Speaker Change: on a year-to-day basis.
Speaker Change: We have significantly improved our adjusted EBITDA profitability by $87 million.
Speaker Change: as compared to the same year-to-date period in 2023, delivering $62 million of adjusted EBITDA so far this year, driven by continued, durable MA time momentum and further SDMA optimization.
Speaker Change: We have continued to deliver industry-leading benefit ratios for insurance business driven by our ability to control total cost of care.
Speaker Change: During the third quarter of 2024, our Assurance Benefits Expense Ratio, or BER, improved to 82.8% compared to 83.3% in the same period of 2023.
Speaker Change: Similarly, insurance NCR improved to 78% in the third quarter this year from 78.5% last year.
Speaker Change: specifically within our medical costs.
Speaker Change: In patients, supplemental benefits and Part D costs trended favorably as compared to last quarter and are generally in line with our expectations.
Speaker Change: Our strong margin performance was accompanied by an insurance revenue of $323 million, representing year-over-year growth of 7% in the third quarter.
Speaker Change: On a year-to-date basis, revenue was $1 billion and $14 million, or 9% growth year-to-year.
Speaker Change: On a year-to-date basis, BER was 80.6% and NCR 75.6%, both of which represent strong improvements of over 500 basis points year over year.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: This strong growth and market performance was driven by our focus on returning member retention, our ability to deliver earlier and better health outcomes at lower total cost of care, continued MA plan operational maturation.
Speaker Change: Solid Core Economics
Speaker Change: and our ability to manage total cost per tier for continued intra-year membership growth.
Speaker Change: Similar to last quarter, we have experienced positive priority period developments for PPD during the third quarter. As a reminder, PPD occurs when real-world performance exceeds our modeling and it is booked and claimed to finalize.
Speaker Change: If a continued MA outperformance coupled with a continued normalization offer IVNR to more historical levels, it is logical that we would have varying amounts of PPD.
Speaker Change: While the underlying business momentum in the medical cost trend management that I touched upon earlier is driving a strong margin performance, this tradable development has effectively also lowered our year today's DER to lower levels.
Speaker Change: Now moving to SDNF.
Speaker Change: During the third quarter, total SDNA decreased 11% year-over-year, and adjusted SDNA for the third quarter of $62 million came in 8% lower versus their comparable periods.
Speaker Change: On a year-to-date basis, total SDNA decreased 12% and adjusted SDNA of $209 million decreased 4% as compared to the same period in 2023.
Speaker Change: Both periods continue to see a favorable impact year-to-year from the cost-saving initiatives associated with our new operational ecosystem and our workforce nationalization announced last year.
Speaker Change: Partially offset by increased intra-year investments as a result of our intra-year growth.
Speaker Change: We're pleased with our optimization of the SG&A framework and will continue to enhance operational efficiencies.
Speaker Change: with a focus on member delights.
Speaker Change: that that's given a strong possibility profile, we have decided to strategically evaluate areas of opportunity to reinvest into our business.
Speaker Change: As Andrew mentioned earlier, we believe that we are strongly positioned to invest in our membership growth opportunity for 2025 and beyond.
Speaker Change: as a result of the 2024 performance, improved star ratings, and our ability to outperform during a period of market volatility.
Speaker Change: For these reasons, we plan to make prudent assessments that position us well to increase long-term growth.
Speaker Change: These investments include additional growth-focused spends to support the Annual Enrollment Periods, or AEP, as well as quality-focused spends focused on further improving outcomes for our members.
Speaker Change: including Continued R&D to further enhance co-assistive capabilities.
Speaker Change: We believe that now is the optimal time to do this in light of our strong performance.
Speaker Change: As such, you will notice that we have increased our full year 2024 STNA guidance.
Speaker Change: Although it is very important to note that we're also increasing a total year 2024 GSIB EDI guidance to reflect our underlying GSIB momentum.
Speaker Change: We continue to believe that any near-term assessments in the long-term trajectory of a business will prove to drive strong returns in the future.
Speaker Change: Thank you for the amazing interview with Peter Kuipers, Scott Leffler, Terrence Ronan, Peter Kuipers, Scott Leffler, Peter Kuipers, Scott Leffler, Andrew Toy, Terrence Ronan, Peter Kuipers, Scott Leffler, Andrew Toy, Andrew Toy, and Peter Kuipers.
Speaker Change: Thank you for the balance sheet.
Peter Kuipers: We ended the third quarter of 2024 with restricted and unrestricted cash, cash equivalents, and investments totaling $531 million on a consolidated basis, with $206 million at the parent entity and unregulated subsidiary level.
Peter Kuipers: During the fourth quarter, we anticipate unregulated liquidity levels to be impacted by the final payments of $39 million related to our 2023 ACO REACH participation.
Peter Kuipers: We also expect further normalization of our IVNR levels by the year-end.
Peter Kuipers: Tax flow from operating activities for the third quarter was $50 million, bringing our year-to-date tax flow from operating activities to $130 million.
Peter Kuipers: I am proud that a strong business momentum continues to further improve our already strong balance sheet and enables us to continue to operate from the position of strength and interesting growth.
Peter Kuipers: Next, I will provide an update to our full year 2024 guidance in light of the continued strong business momentum and fundamentals.
Peter Kuipers: We are reaffirming a 2024 Insurance Revenue Guidance of between $1,350,000,000 and $1,275,000,000.
Peter Kuipers: reflecting continuous strong year-over-year top-line growth.
Peter Kuipers: That said, we're likely tracking towards the lower end of the range driven by intra-year shifts in our member mix.
Peter Kuipers: We continue to execute very well on unit economics, and as a result, we are improving our cost ratios as follows.
Peter Kuipers: We are improving a 2024 insurance BER guidance to be between 81% and 82%.
Peter Kuipers: We are improving our 2024 insurance NCR guidance to be between 76% and 77%.
Peter Kuipers: We are raising a 2024 Adjusted SDNA Guide to be between $290 million and $295 million, reflecting our anticipated investments to drive 2025 growth and quality initiatives.
Peter Kuipers: We are increasing our full-year 2024 adjusted EBITDA guidance to be between $55 million and $65 million.
Peter Kuipers: In summary, we have exceeded our profitability goals with industry-leading benefit ratios and improved our already strong balance sheet and created the ability to execute on our growth opportunity.
Peter Kuipers: We have recently achieved a 4-star rating during the most recent rating cycle.
Peter Kuipers: sort of validating the strength of the differentiated model.
Peter Kuipers: We look forward to receiving the 5% quality bonus to benchmark rates associated with this rating starting for payment year 2026 that allows us the opportunity to further invest into our member benefits, quality initiatives, and growth.
Peter Kuipers: Beyond the business momentum in our own Medicare-Expanded Insurance business, we have good momentum in a strong pipeline for counterpart health.
Peter Kuipers: which provides a SaaS and tech-related services solution for third-party payers and risk-bearing providers.
Peter Kuipers: Demonstrating this during the third quarter, we announced a multi-year partnership with the Iowa Clinic to utilize counterpart assistance for MA and MSSP patients, marking our inaugural extension into the Midwest.
Peter Kuipers: While this is exciting, we're still in the early innings and expect counterparts revenue impact this year to be insignificant.
Peter Kuipers: and many more. Thank you. Thank you.
Peter Kuipers: We look forward to sharing more detailed financial guidance and expectations in the future, as we further develop and grow our counterparts, SaaS and technology services offering.
Speaker Change: Now, let me turn the call back to Andrew for closing comments.
Andrew Toy: Thanks, Peter. I'm proud of the achievements the Clover team has delivered over the first three quarters of the year.
Andrew Toy: First, we have been increasing our adjusted EBITDA profitability and demonstrating our ability to care for our membership cohorts properly.
Speaker Change: Second, we are delivering industry-leading loss ratios and Medicare Advantage performance on a wide network of providers, almost all of whom are still on fee-for-service arrangements.
Peter Kuipers: Third, we have achieved strong star rating performance on this same network, fueling our go-forward financial momentum and positioning us with a strong multi-year growth opportunity.
Peter Kuipers: All of this is enabled by our differentiated care platform and technology, Clover Assistant.
Peter Kuipers: We continue to be very excited about the progress and long-term opportunity to bring our technology to other value-based providers and MA plans via our counterpart health, SaaS, and tech-enabled services offering.
Peter Kuipers: As a reminder of our core strategy, we plan to grow our own MA plans significantly and profitably within our current markets, and we plan to also expand to new geographies.
Peter Kuipers: For markets where we don't have an M.A. plan, Counterpart Health allows us to bring in our model of Medicare Advantage managed care via partnerships with local providers and plans.
Peter Kuipers: Since we launched the offering earlier this year, we have had significant interest in the platform.
Peter Kuipers: And this interest has accelerated since we announced our STARS results, particularly the fact that our PPO plan received the highest HEDIS score for core HEDIS measures for plans over 2,000 members.
Peter Kuipers: Not only do we offer strong performance, but what others find particularly compelling is that we specialize in improving the performance of wide-network, fee-for-service, independent physicians.
Peter Kuipers: most managed care entities have no real solution for this component of the care ecosystem. And so the fact that we are able to drive excellent results in this area gives us unparalleled product market fit.
Peter Kuipers: While this is exciting, we're still in the early innings.
Peter Kuipers: We believe that demand for counterpart assistance will only increase as more and more industry players face the market pressures that many insurers and healthcare providers have signaled this year.
Peter Kuipers: As we engage with prospective partners, we do expect the larger health organizations to have longer sales cycles and the smaller groups to have shorter sales cycles.
Peter Kuipers: That said, we're looking to onboard more partners in both 2025 and 2026 when the industry star's headwinds will come to fruition.
Peter Kuipers: Stay tuned for more updates about Counterpart, including us signing up additional partners in the future.
Peter Kuipers: Clover is truly at an exciting inflection point, making it a great time to be along for the ride. With that, let's go to questions.
Speaker Change: We will now be taking questions from Clover's research analysts.
Speaker Change: At this time, if you wish to ask a question, please press Star 1 on your telephone keypad. You may remove yourself from the queue by pressing Star 2.
Speaker Change: In the interest of time, we ask that you please limit yourself to one question and one quick follow-up. Thank you.
Speaker Change: We'll take our first question from Jonathan Young of UBS.
Jonathan Young: Hey, guys. Thanks for taking the question. It sounds like you're feeling pretty good about how AEP is shaping up for 2025. Just any color you could provide there on what you're seeing and what stands out, and if the STARS rating improvement is helping you attract more members.
Speaker Change: Yeah, hey Jonathan, thanks for the question. Definitely in AEP, a couple of different things. As a reminder, our four-star rating does affect
Speaker Change: Between the two, four stars and the product richness, and some of our competitors going down in star ratings, we are positioned very well in the overall comparison between our plans and everyone else due to the retreat of others.
Speaker Change: So, we feel good about where we sit from a product richness perspective, we feel good about the relative star rating, and I would even note that even before this AEP, we did have material growth lead up to AEP on an intra-year basis. So we're carrying some of that momentum through as well. So overall, excited to go back to growth, feel really good about how we manage our cohorts.
Speaker Change: as well.
Speaker Change: Great, thanks. And then just in relation to the investments you're doing, I guess, in this fourth quarter here, can you talk about what those investments are and how much of it will be kind of one time in nature versus permanent? And also, how much was the PPD benefit in the quarter? Thanks.
Peter Kuipers: Hey Jonathan, it's Peter. How are you doing? Good to meet you here as well.
Speaker Change: So as far as the investments in the fourth quarter in SGA, you should think about, you know, a big portion of that is go-to-market marketing, given the factors that Andrew just discussed as well.
Speaker Change: strong, and we'll disclose more on how AAP is going later on. And then another good chunk of the increased investments is really in quality, quality initiatives. I think in the prepared remarks, we also talked about the HEDIS clinical score, right? So we'll continue to invest and improve our platform.
Speaker Change: And as far as PPD, we don't disclose on the call here the specifics of PPD, but it's a smaller impact than it was in prior quarters.
Speaker Change: Thanks. And of course, we're normalizing also, as you know, IVNR over time, give and change, and then also our new ecosystem.
Speaker Change: We'll take our next question from John French of Lerink Partners.
John French: Hey, thanks for taking my question. I was wondering if you could talk about how you were factoring in the IRA and its change on plan liability into your drug costs into your bids. Thanks.
Speaker Change: and Dan H. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Yeah, so basically the way we looked at this is that while we're not disclosing exactly of the mechanics of the bid, we, like everyone else in the industry, had to react a little bit as that more of the IRA was being phased in, just how much of the subsidy is coming in, the direct subsidy, and how much it affects the amount of revenue that we're going to be getting versus the amount of benefit we provide.
Speaker Change: Overall, I think we feel pretty good about where we've been against that.
Speaker Change: We feel that it's probably going to be something we need to test going into next year versus actual claims experience. But where it netted out, given the amount of variability, we think we should be in pretty good shape. What you'll also see is that in our actual plan products, we were able to maintain quite a bit of strength in our Part D offering, whereas we did see a bit of a retreat from those competitors in our markets. So we expect our Plan D offering to actually be quite a bit better.
Speaker Change: favorable for the purposes of plan richness.
Speaker Change: Great, thanks.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: And it appears that we have no further questions at this time. I'd be happy to return the call to Mr. Toy for any concluding remarks.
Mr. Toy: All right, thanks everyone. Thank you for joining us today. Thank you all for your questions.
Speaker Change: As I said earlier,
Mr. Toy: I'm very proud of the team and about the results that we've had this quarter and year to date. Feel really good about the care platform and the results that we're generating on our cohorts. Feel very much that our investments in quality, start and performance is excellent. And now the phase in front of us is looking forward to the growth opportunity ahead of us that we've outlined today. So we look to maintain and continue our strength and our performance on the financial side and to be adding to top-line growth, membership growth.
Mr. Toy: Thanks again for joining our call, and we're looking forward to sharing our full results and the results of our AEP during our next earnings call. Thanks so much, everyone.
Speaker Change: This concludes today's Clover Health's 3rd Quarter 2024 Earnings Call-In Webcast. You may now disconnect your line at this time. Have a wonderful day.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: THE END
Speaker Change: Hail to the Chief Go from Place to Place
Speaker Change: Thanks for watching!