speaker
Operator
Conference Call Operator

Ladies and gentlemen, good afternoon and welcome to the Clover Health fourth quarter and full year 2024 earnings conference call. At this time all participants are in a listen-only mode. A question and answer session will follow with prepared remarks. 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. I would now like to turn the call over to Ryan Schmidt, Investor Relations for Clover Health. Please go ahead.

speaker
Ryan Schmidt
Investor Relations, Clover Health

Good afternoon, everyone. Joining me on our call today to discuss the company's fourth quarter and full year 2024 results are Andrew Toy, Clover Health's Chief Executive Officer and Peter Kipers, the company's Chief Financial Officer. 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 .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 factor 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 turn the call over to Andrew.

speaker
Andrew Toy
Chief Executive Officer, Clover Health

Thank you, Ryan, and a warm welcome to everyone joining us today. 2024 was a pivotal year for 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 in 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, they stay. 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 rated 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 TMPM 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 brand it 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 feature 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 health care 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 growth. We will continue to actively manage care while lowering costs via our differentiated technology first care model. Our wide network, PCP 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. 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 to physicians, 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 one thousand basis points of MCR improvement for returning MA members whose PCP's UCA as compared to those who do not. In 2025, we'll continue to invest in enhancements to evolve CA with AI powered automation and further enhance EHR integrations, making it even more impactful for physicians at the point of care. While CA helps enhance the performance of our wide network PCPs, home care remains a critical and distinctive component of our differentiated 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 polychronic patients at the end of life. When we do this, our data also shows that our highest acuity cohort of members receiving home care experience significantly improved MCR's 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 for their wide network, but we also see health systems evaluating it for their own employed 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, have 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 event-dial profitability as we also invest deeply in further increasing total lives under management and meaningfully growing top-line revenue. We will also be investing in growing our Clover Assistant reach within our markets and in new markets as this lays 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, Clover Assistant technology, growing Clover Assistant reach, and expanding both our home care services as well as the counterpart health -to-market strategy positions us well for acceleration of profitability in 2026 and beyond. I'll now hand it over to Peter for the financial update.

speaker
Peter Kipers
Chief Financial Officer, Clover Health

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 and more. 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 insurance revenue growth during the year, growing 9% in both the fourth quarter and full year of 2024 to $331 million and $1 billion, $345 million as compared to the prior periods respectively. Complementing our strong top-line revenue growth was continued -over-year margin improvement. During the fourth quarter of 2024, our insurance benefit expense ratio, or BER, improved to .8% compared to .4% in the same period of 2023, and our insurance MCR improved to .5% in the fourth quarter this year from .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 this favorable development has effectively lowered our full year BER. That said, BER for the full year of 2024 was 81.2%, and MCR was 75.1%, both of which represent strong improvements of more than 500 basis points -over-year. Overall, our results were driven by strong cohort economics in 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 medics in our results. Additionally, the meaningful incremental impact from Clover Assistant and our home care platform in our payments 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 payments related to the rebate would not occur until all claims have been fully incurred in the future. That said, we believe a full year BER adjusting for the aforementioned favorable impacts of PPD is a good representation of the underlying performance of our business and a solid foundation for the company heading in 2025. Focusing next on SDNA, consistent with the expectations we signaled in last quarter's call, SDNA 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 and 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 our care platform. As such, during the fourth quarter, total SDNA increased by 7% -over-year to $150 million and adjusted SDNA for the fourth quarter of 2024 increased by 9% -over-year to $86 million. For the full year of 2024, total SDNA decreased 7% -over-year and adjusted SDNA of $295 million decreased 1% as compared to the same period in 2023. While we did have increased costs to support our growth and strategic reinvestments in the fourth quarter, our full year of 2024 results benefited from the cost-saving initiatives we have discussed throughout this last year. Taking all of this into account, GapNet loss from continuing operations for the fourth quarter improved by $46 million to a loss of $21 million as compared to the same quarter last year. Similarly, adjusted EBITDA significantly improved to a profit of $8 million this quarter compared to a loss of $17 million in the fourth quarter of 2023. For the full year, we meaningfully improved our adjusted EBITDA profitability by $112 million compared to 2023, achieving over $70 million of adjusted EBITDA in 2024, driven by our well-managed returning member cohorts, elevated favorable PPD amounts that we do not expect to recur, a differentiated ability to better manage the total cost of care and fear technology, and a continued focus on SDNA optimization. Turning next to the balance sheet, we ended the fourth quarter of 2024 with restricted and unrestricted cash, cash equivalents and investments totaling $438 million on a consolidated basis, with $152 million at the parent entity and the unregulated subsidiary level. Consolidated and unregulated balances during the fourth quarter were impacted by the final $39 million cash payment to CMS for the final settlement related to our ACO REACH participation in 2023. As a reminder, this is the final payment related to this discontinued business, and we expect no future impacts to our financials. Cash flow use and operating activities from continuing operations for the fourth quarter was $47 million and was impacted by various working capital dynamics as well as a continued normalization of our IV&R levels, which continued to decrease in the fourth quarter by approximately $11 million quarter over quarter on the third quarter in 2024, bringing our full-year cash flow from operating activities to $82 million. 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 2025 guidance. Revenue for the insurance business is expected to be between ,000,000 and ,000,000, reflecting continued strong -over-year top-line growth of 37% at the midpoint of the range. Medicare's FANAS membership is expected to average between 103,000 and 107,000 members, reflecting 30% growth -over-year at the midpoint as compared to 2024. We expect adjusted ST&A to be between $355 million and $365 million. This represents adjusted ST&A's percentage of total revenue of 19 to 20% and is an approximate 200 basis point improvement -over-year at the midpoint of the range. We expect full-year 2025 adjusted EBITDA to be between $45 million and $70 million. Additionally, beginning this year, we are guiding to adjusted net income of between $45 million and $70 million. We believe that this is a useful metric from Festers and it is also used by others in the industry. Lastly, we expect insurance BER for the full year 2025 to be within a range of 87% to 88%. As a reminder, we believe our insurance BER is a solid representation of the total cost of care for our MA members and it includes our proactive investments in quality improvement. Going from 2024 to 2025, here are the bridging items that I will cover in more detail later in this call. First, the 2024 results included elevated favorable PPD amounts that we do not expect to recur. Second, investments in new membership growth -over-year of 30% will reduce our -over-year adjusted EBITDA and adjusted net income as year one 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 contributions 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 SDNA accordingly. We are also increasing our investments in Clover Assistant Technology and Clover Assistant Reach. These increases in SDNA 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 2025 of existing strong profitability from returning member cohorts with our investments in new member growth, Clover Assistant Technology and Clover Assistant Reach, coupled with our improved four-star rating positions are 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% -over-year average membership growth in 2025 primarily occurred within our established core markets where we have strong Clover Assistant coverage and are confident 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 this AEP and we're very pleased with the dynamics of our returning membership cohort. We also look forward to continuing to execute against our growth engine 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 that began during AEP, as included in our full year 2015. And we plan to continue to continue to manage these returning member cohorts going forward. In 2025, we will also see the impact of a large cohort of new year one members in our financials. Given that it takes some time for our care management model to be effective with new members, we will continue to work with our new members to ensure that we have the best possible coverage for the new year. In the next few years, 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 the 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 an approximate 1500 basis point improvement between year one and year three cohort members. This shows the strength of a model delivering earlier and better care management at lower total cost of care and higher affordability. Next, I will give further context to our STNA expenses. We categorize our STNA expenses in different buckets, including quality initiatives, growth, variable, and fixed STNA costs that be managed accordingly. Quality initiative STNA includes technology focused R&D innovation to further expand our product roadmap as well as spend directly tied to enhancing health care quality for our members. Growth STNA includes costs that scale membership growth, such as the cost to acquiring new members, including marketing, branding, and broker commission costs. Variable STNA includes costs that scale with a growing member base. This includes costs for our B-PASS partner that optimizes our back office and A-Plan operations. Fixed STNA includes spent 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 in 2025, we have implemented a new efficiency program for STNA to streamline our operations and identify further efficiency gains within these different STNA buckets. Our optimization efforts year will be intended with incremental strategic investments to further improve our Clover system capabilities, core our home care program, and expand our counterpart health go to market efforts. Taking all of this into account, a full year 2025 guidance for adjusted STNA represents a decrease or an improvement of around 200 basis points for adjusted STNA 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 STNA as a percentage of revenue in the future. Lastly, we remain excited about counterpart's ability to bring our model of care into other geographies in a capitalized and efficient manner where we do not currently have an M-A 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 expand the total lives covered by counterpart health. We were thrilled to announce a multi-year partnership with Southern Illinois Health Care 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 expectations in the future as we further develop and grow our counterpart SaaS and tech-enabled services offering. While we are not providing specific guidance for 2026 today, we are excited about a strong positioning for acceleration of profitability in 2026 and beyond. 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. Fifth, 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.

speaker
Andrew Toy
Chief Executive Officer, Clover Health

Thanks,

speaker
Peter Kipers
Chief Financial Officer, Clover Health

Peter.

speaker
Andrew Toy
Chief Executive Officer, Clover Health

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 medic's curve and lowers the total cost of care. This differentiation is also our fundamental advantage that sets us apart and why we believe we are positioned better than ever to 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. Now, with that, let's open it up for questions.

speaker
Operator
Conference Call Operator

Thank you. We will now be taking questions from Clover's research analysts. At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. In the interest of time, we ask that you please limit yourself to one question and one quick follow-up. We will take our first question from Jonathan Young with UBS.

speaker
Jonathan Young
Research Analyst, UBS

Hey, thanks for taking a question here. I guess I know we are only 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, you know, what's your expectations for this year in terms of pipeline growth?

speaker
Andrew Toy
Chief Executive Officer, Clover Health

Hey, Jonathan. Thanks 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 revenue and 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 reach, first of all. So we're looking at bringing more lives under Clover management, 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 M.A. 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.

speaker
Jonathan Young
Research Analyst, UBS

OK, thanks. And then just on the GNA load, kind of as it's 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 GNA pick up in relation to that? And how much do you think you can lop off via the GNA optimization efforts? Thanks.

speaker
Peter Kipers
Chief Financial Officer, Clover Health

Yeah, thanks, Jonathan. This is Peter. So from an STNA perspective, the growth STNA is a significant portion of the STNA growth year over year. I wanted to point out, though, that we already are scaling and having some leverage, right? So the guide at the midpoint for STNA for 2025 represents about a 200 basis points improvement, if you will, if you measure STNA as a percentage of revenue. But we do have growth expenses in there, variable expenses. We're optimizing as well. And we think that for this year, our fixed STNA 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 of increase.

speaker
Jonathan Young
Research Analyst, UBS

Thanks.

speaker
Operator
Conference Call Operator

And once again, if you would like to ask a question, please press star one on your telephone keypad now. We will move next to Matt Hewitt with Craig Hallam.

speaker
Tolf Coran (for Matt Hewitt)
Research Analyst, Craig Hallam

Hi, Matt. Hi. Thank you for taking our question. This is Tolf Coran for Matt Hewitt. Can you please provide some color on your expectations for continued growth of the home care arm in 2025 and beyond? Thank you.

speaker
Andrew Toy
Chief Executive Officer, Clover Health

Yeah, absolutely. So this is highlighted as an area that we're very proud of. Our investment into care being delivered with Clover Assistant in the home, I think, is an anchor stone of our entire strategy. Looking after the most expensive, most 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.

speaker
Tolf Coran (for Matt Hewitt)
Research Analyst, Craig Hallam

All right. Thank you.

speaker
Operator
Conference Call Operator

And once again, it was star one if you had a question. With no other questions holding, this will conclude the Q&A portion of today's conference. I would like to turn the call back to Andrew Toy for any additional or closing remarks.

speaker
Andrew Toy
Chief Executive Officer, Clover Health

Great. Thank you, too, 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 Health, 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.

speaker
Operator
Conference Call Operator

Thank you, ladies and gentlemen. This concludes today's Clover Health fourth quarter and full year 2024 earnings call and webcast. You may disconnect your line at this time. Have a wonderful day.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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