Clover Health Investments, Corp.

Ladies and gentlemen, good afternoon and welcome to the Clover Health fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow to prepare remarks. 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, sir.

Good afternoon, everyone. Joining me on our call today to discuss the company's fourth quarter and full year 2023 results are Andrew Toy, Clover Health's Chief Executive Officer, and Terry Roman, the company's Interim Chief Financial Officer. You can find today's press release and the accompanying supplemental slides in the Investor Events and Presentations section of our website at investors.cloverhealth.com. 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. 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. 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. With that, I'll now turn the call over to Andrew.

Thank you, Ryan. I'm very excited to be putting the finishing touches on a very strong year of execution for Clover. We've delivered a step-change improvement in our financial performance in the same year that the greater Medicare Advantage ecosystem took a step back, which I feel proves out the power of our technology-centric model. We are aiming to deliver a profitable adjusted EBITDA year in 2024 while continuing to invest heavily in our core technology asset, Clover Assistance. We will then be in a position to return to growth during a period where we anticipate our competitors will be retreating and will aim to continually build on the strategic lead we have developed. With that, let's now walk through our 2023 performance. Beginning with our insurance results, we delivered an NCR of 82.4% in the fourth quarter of 2023, bringing our full-year NCR performance to 81.2%. This outcome maintains Clover's trend of significant year-over-year MCR improvement since 2021. I want to emphasize that I'm not referring to a couple of percentage points of improvements. In two years, we've successfully reduced our insurance MCR by approximately 25 percentage points. In 2021, our insurance MCR was 106%. followed by 91.8% in 2022, and then most recently 81.2% in 2023. The significant improvement in MCR since 2022 alone has driven a 181% improvement in our per member per month insurance gross profit, which has increased from an $87 PMPM profit in 2022 to a $245 PMPM profit in 2023. Most importantly, this step change improvement in our insurance results has translated to a full year 2023 adjusted EBITDA loss of $45 million, which is another significant improvement from 2022's loss of $290 billion. I believe that this large improvement in gross profit and adjusted EBITDA demonstrates the rapid and outstanding progress we've made to our core business and is the result of clear focus by the Clover team. Over the past two years, we have focused on maturing operations, including improving processes to increase the accuracy of claims payment and the accuracy of risk adjustment. We have also focused on significantly increasing value delivered through our care management platform, underpinned by Clover Assistant and Clover Home Care, which helps us deliver proactive care management at scale and bends the cost curve for our sickest members. What's most important in my mind is that these impressive insurance results were generated within the context of a benefit-rich, wide-network, PPO-first approach. We believe that this is the future of Medicare Advantage. Many in the industry have spent decades constructing their operations to manage utilization and financial performance within a narrow network HMO context. While this strategy was historically successful, we now see that the landscape is shifting rapidly. In fact, PPOs have grown at over two times the rate of these tightly controlled HMOs over the past five years. This is a clear reflection of consumer preference for choice. As industry-wide PPO penetration continues to expand from its current 43% and closer to the Clover PPO rate of 95%, we expect and already see that our peers will be confronted with increasing difficulty in managing their PPOs, especially since HMO and PPO frameworks are not easily interchangeable. On the other hand, we have built Clover to thrive in what we expect to be the future of the Medicare Advantage program. The investments we've made to build our care management platform and to empower more physicians with Clover-assisted technology have uniquely positioned us to deliver strong clinical and financial results within a PPO, as our 2023 results show. Ultimately, we believe that we are the only Medicare Advantage plan with a wide network care management model that's centered on technology-empowered physicians, and this will lead to a sustainable growth advantage over our competitors. Another industry dynamic that I would like to discuss is the high variance in Medicare Advantage utilization trends that have recently been in the public spotlight. Going back to the first quarter of 2023, we did experience elevated trends year-over-year that continued to persist through year-end. That said, this was not unexpected in terms of our modeling for the year, particularly given year-over-year changes in member mix. To be clear, we did not see anything that we were not prepared for in terms of utilization trends during Q4, and I believe that our care management platform provides us with a unique ability to navigate any underlying shifts in industry trends. That all said, we do, of course, recognize that trend variances across Medicare Advantage were much wider than usual in Q4 and in other plans 2024 outlook. As such, we have layered an additional buffer in our reserving and 2024 forecasting. For the full year 2024, we will be using a similar approach to guidance as we did last year, where we will aim to solidly improve upon our outlook throughout the year. We therefore are guiding to the following. Revenue for the insurance line of business to be between $1.25 billion and $1.3 billion. Insurance MCR to be within a range of 79% to 83%. Adjusted SG&A to be between $270 million and $280 million. Lastly, we expect these favorable improvements to result in a full year 2024 adjusted EBITDA range of negative $20 million to positive $20 million. representing an improvement of approximately $45 million year over year at the breakeven midpoint and a $65 million improvement at the top end of our range. We believe that we are well positioned to deliver upon our initial outlook, even as we have priced in headwinds that may be coming from broader industry utilization trends into this guidance. Put another way, if those trends do not develop, I believe we are well-placed to achieve the high end of our range. Putting industry trends aside, we have significant momentum from the continued focused efforts that we have been executing on in the last two years, which will help us deliver profitable adjusted EBITDA in 2024. This momentum includes continued R&D into Clover assistance throughout 2023, where we expect to see impact in 2024. We also had strong Clover home care coverage in 2023, which we expect to benefit our medics control throughout 2024. On the SG&A front, we are currently executing upon our previously discussed transformation to refine and replatform insurance operations, where we disclosed last year that we would expect material savings to be enjoyed in 2024. Lastly, our 2024 AEP strategy once again focused on margin, core market retention, and revenue top line. Given this, we feel good about our member levels and mix, as well as our ability to achieve our 2024 profitability goals. Overall, our 2023 results represent another important milestone on our path to profitability. We believe that we are well-positioned to achieve the goals we laid out for 2024 without the need for additional capital. As our business continues to mature, we strongly believe that the moat afforded by Clover Assistant and Clover Home Care, coupled with our focus and investments to improve our STARS performance, will allow us to expand our positioning from steady profitability to highly profitable growth. With that, I'll now hand it to Terry for the more detailed financial updates.