Clover Health Investments, Corp. (CLOV) Q4 2022 Earnings Call Transcript

Clover Health Investments, Corp. (NASDAQ:CLOV) Q4 2022 Earnings Conference Call February 28, 2023 8:30 AM ET

Company Participants

Ryan Schmidt - Investor Relations

Andrew Toy - CEO

Scott J. Leffler - CFO

Conference Call Participants

William Hoover - Canaccord Genuity

Benjamin Rossi - Citigroup

Kevin Fischbeck - Bank of America

Operator

Good greeting ladies and gentlemen and invited to nan Clover Health Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A question-and-answer convention will travel nan prepared remarks. [Operator Instructions]. As a reminder, today's telephone is being recorded. I would now for illustration to move nan telephone complete to Ryan Schmidt, Investor Relations for Clover Health. Please spell ahead.

Ryan Schmidt

Good morning, everyone. Joining maine connected nan telephone coming to talk nan company’s 4th fourth and afloat twelvemonth results are Andrew Toy; Clover Health’s Chief Executive Officer and Scott Leffler, nan company’s Chief Financial Officer. You tin find today's property merchandise and nan accompanying supplemental slides successful nan Investor Events and Presentations conception of our website astatine investors.cloverhealth.com. This webcast is being recorded and a replay will beryllium disposable successful nan Investor Relations conception of nan Clover Health website.

I'd besides for illustration to be aware you that we whitethorn make forward-looking statements during today's call, that are taxable to risks and uncertainties, including expectations astir early performance, factors that whitethorn origin existent results to disagree materially from expectations are elaborate successful our SEC filings, including successful nan Risk Factors conception of our 2022 Annual Report connected Form 10-K. Information astir non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, tin beryllium recovered successful nan net materials disposable connected our website. With that, I will now move nan telephone complete to Andrew.

Andrew Toy

Thank you, Ryan and acknowledgment to everyone for joining us. I'm excited to beryllium present coming connected my first net telephone arsenic Clover's Chief Executive Officer. This morning, I'm pleased to stock our beardown results for 2022, highlighted by Insurance MCR improving complete 1400 ground points compared to 2021. This betterment successful MA Planned MCR reflects nan continuation of nan favorable capacity trends we knowledgeable passim nan year. Most importantly, our results item Clover assistance effect connected our business and I'm excited by nan information showing our technology’s clear expertise to empower Medicare physicians to place and negociate chronic diseases earlier, which I'll talk successful much item shortly.

In 2022, we stress profitability complete growth. This strategical displacement impacted some nan security and non-insurance lines of business. We expect nan operation of improved 2022 security results and nan enhanced strategical accent connected profitability complete maturation to position america for a successful 2023 arsenic we show nan spot of our attack to Medicare and present important advancement towards profitability. As a result, we're besides pleased to reiterate and grow upon nan partial guidance for 2023 that was issued past month.

Let's commencement pinch our security segment, wherever passim 2022 we delivered favorable results successful some MCR and revenue. We're proud of our afloat twelvemonth Insurance MCR of 91.8%, which was amended than our astir caller 2022 guidance and is reflective of nan continued betterment successful halfway security operations and nan worth derived from Clover Assistant. Clover Assistant underpins our differentiated offering successful nan market, precocious worth plans astatine debased costs connected a wide network. Through our unsocial approach, we've proven our expertise to turn and arsenic we prioritize profitability, we judge nan mode afforded by Clover Assistant will let america to flip nan move to sustainable, manufacture beating maturation erstwhile we've established halfway profitability.

As an further reminder, we were paid connected 3 stars during 2022, truthful our results are not yet reflective of nan favorable effect that we will bask from being paid connected 3.5 stars for our PPO scheme opening this year. We besides announced successful nan autumn that we were awarded a 3.5 prima standing for each of our plans for 2024. The operation of our beardown 2022 security results, our PPO scheme being paid connected 3.5 stars, and nan expertise to amended attraction done Clover Assistant positions america good for an moreover stronger 2023 wherever we are initially guiding to an Insurance MCR scope of 89% to 91%.

For our non-insurance business during nan afloat twelvemonth 2022, MCR of 103.4% improved compared to 2021. While we did improve, this is not a consequence we are satisfied with. As discussed connected erstwhile calls, we strategically reduced nan number of participating physicians successful nan programme for 2023, which resulted successful a simplification successful aligned beneficiaries nether nan program. By focusing connected providers who are much intimately aligned to our approach, we expect MCR successful 2023 to amended to a scope of 98% to 100%.

Another area we're really excited astir is Clover Home Care, which is simply a portion of our security business operations. Clover Home Care, our soul superior attraction practice, drives important objective worth by delivering successful location attraction straight to our astir susceptible members. In 2022 alone, we serviced complete 3300 members, receiving awesome feedback and precocious personnel satisfaction, which we judge besides contributes to higher personnel retention. These members are immoderate of our astir medically complex, often pinch aggregate precocious comorbidities and precocious organization claims. For this cohort of Clover members, we're focused connected location based supportive attraction models including palliative that alteration our astir analyzable members to person nan attraction they request astatine location alternatively than successful a hospital.

When measured against different eligible but not enrolled members, we spot near-term meaningful costs reductions for members enrolled successful nan programme and these costs reductions travel chiefly from little organization claims. That's why successful 2023 we scheme to summation nan size of our successful location believe sheet to astir 4000 members and thereby summation our MA scheme aesculapian expenses nether Home Care guidance to much than $150 million. With that, I'll now manus complete to Scott for nan financial update.

Scott J. Leffler

Thanks, Andrew. The Clover team’s difficult activity has resulted successful accrued momentum crossed nan business. I'll first screen nan 4th fourth and afloat twelvemonth 2022 financial highlights and past reappraisal our outlook for 2023. As Andrew mentioned, 4th fourth and afloat twelvemonth 2022 financial results were highlighted by importantly favorable Insurance MCR capacity and beardown security gross growth. We besides continued to mean year-over-year adjusted SG&A maturation arsenic compared to 2021.

For nan security segment, MCR improved to 92.4% this 4th from 102.8% successful Q4 of past year. This consequence was driven by nan continued maturation of our portfolio and security operations arsenic good arsenic reduced COVID related expenses. Our afloat twelvemonth Insurance MCR demonstrated a meaningful betterment complete a much extended clip play pinch afloat twelvemonth 2022 MCR of 91.8%, improving importantly from 106% successful 2021. We judge that these improvements are a reflection of our attraction connected expanding Clover Assistant capabilities and reach, building champion successful people security operations and nan added use from aesculapian disbursal trends normalizing compared to 2021. As we've mentioned successful nan past, we did acquisition immoderate favorability from anterior periods arsenic well.

During nan 4th quarter, security gross grew 34% to $270 million. For nan afloat twelvemonth 2022, security gross grew 36% to $1.085 billion. For some periods, personnel maturation was nan superior driver. Our Non-Insurance MCR during nan 4th fourth was 103.6%, somewhat elevated compared to Q4 of 2021 MCR of 103%. Full twelvemonth 2022 Non-Insurance MCR of 103.4% was a amended consequence compared to our MCR of 105.7% successful 2021. Having said that, I'll reiterate Andrew's remark that our broader privilege successful 2023 is to present affirmative maturation profit for this statement of business. And we judge that our strategical displacement towards a narrower guidelines of providers positions up to do so.

For nan 4th quarter, Non-Insurance gross grew 172% to $623 million. During nan afloat twelvemonth 2022, Non-Insurance gross grew 256% to $2.38 billion. Year-over-year gross maturation was chiefly driven by maturation successful aligned beneficiary. Favorability successful nan programme benchmark besides contributed to stronger Q4 revenue, which was offset successful our MCR results by higher full costs of attraction for aligned beneficiary.

Fourth 4th adjusted SG&A was $86 cardinal and afloat twelvemonth 2022 adjusted SG&A was $321 million. Moderating adjusted SG&A remains a attraction for america arsenic we push towards profitability. Adjusted EBITDA for nan 4th fourth was antagonistic $81 cardinal compared to a nonaccomplishment of $87 cardinal successful nan anterior twelvemonth period. Adjusted EBITDA for nan twelvemonth was astir antagonistic $298 million, which is an betterment compared to nan nonaccomplishment of $344 cardinal during nan anterior year.

At nan extremity of 2022, our restricted and unrestricted cash, rate equivalents, and investments totaled $555 cardinal connected a consolidated ground and $332 cardinal astatine nan genitor entity and unregulated subsidiary level. These balances were impacted during Q4 by nan normalization of nan $96 cardinal moving superior use referenced connected our past net telephone and nan $50 cardinal DCE provisional colony for 2021. While we ever see opportunistic financing, fixed our existent patient liquidity profile, I'll reiterate what we've said successful nan past, which is that nan institution expects to person capable liquidity for 2023. In summation to our beardown liquidity position much broadly, we person a coagulated and unlevered equilibrium expanse which should supply opportunities for early sources of liquidity if needed. Nonetheless, our nonsubjective is to accelerate down nan way to profitability and execute affirmative rate flows successful bid to debar dilution to our shareholders.

Finally, I'll supply an overview of our afloat twelvemonth 2023 guidance. We expect to proceed to turn apical statement gross for nan security statement of business to betwixt $1.15 cardinal to $1.2 cardinal pinch a heightened attraction connected profitability targeting an Insurance MCR of 89% to 91%. We expect nan reduced standard of our information successful nan ACO REACH programme to consequence successful improved Non-Insurance MCR of 98% to 100% and gross of $0.75 cardinal to $0.8 billion. We estimate that adjusted SG&A will beryllium betwixt $315 cardinal and $325 million. Full twelvemonth adjusted EBITDA is expected to amended importantly to betwixt antagonistic $155 cardinal and antagonistic $205 million.

In summary, we delivered beardown security capacity during some nan 4th fourth and afloat twelvemonth 2022, and are excited astir nan effect that our strategical accent connected profitability for some lines of business will person connected 2023 capacity arsenic we look to build upon nan affirmative momentum from 2022. Now I'll move nan telephone complete to Andrew for immoderate last comments.

Andrew Toy

Thank you, Scott. To close, I want to stress nan advancement we're making pinch Clover Assistant powering our differentiated attack to Medicare. Clover's exertion centric exemplary is each astir helping physicians pinch nan early test and early attraction guidance of chronic disease, an attack that we judge intimately aligned pinch CMS's caller projected adjustments to Medicare Advantage. With nan 2024 beforehand notice, CMS has adjusted scheme incentives to region consequence accommodation test that it believes do not foretell early cost. Because of these MA norm changes, we expect to spot galore ample established plans person to alteration nan measurement that they person been operating and person to fundamentally rethink their attack to MA.

On nan different hand, astatine Clover we person ever said that nan attraction of MA should beryllium connected allowing doctors to some amended outcomes and little costs and this is precisely why we developed Clover Assistant, which is designed to thief physicians pinch nan early recognition and early guidance of those conditions that astir effect nan members wellness and result nan costs of care. Indeed, we're seeing that done this early recognition of chronic disease, Clover Assistant tin alteration nan people of care. For example, our caller information shows that successful a organization pinch nary documented history of diabetes, Clover Assistant was capable to place for nan expert those Clover members astatine higher consequence of nan disease. And glucosuria was often past evaluated, diagnosed, and medicine prescribed. This is breathtaking to america because our information demonstrates that Clover Assistant tin positively power expert behavior, lead to earlier test interventions, and thief pinch early illness treatment. You tin find a ocular practice of our information successful nan accompanying Q4 supplemental formation deck. I'm very excited to stock much arsenic nan twelvemonth progresses, but pinch that, let's return questions.

Question-and-Answer Session

Operator

The level is now unfastened for your questions. First, we will return questions from Clovers investigation analysts. [Operator Instructions]. We'll return our first mobility from Richard Close pinch Canaccord Genuity.

William Hoover

Thank you and bully morning. This is Will Hoover connected for Richard. So you ended nan twelvemonth pinch astir 89,000 MA members. In nan past you provided MA and Non-Insurance personnel and guidance, but that wasn't included. How should we deliberation astir nan rank maturation for 2023 and is that baked into your gross guidance? Thank you.

Andrew Toy

Yeah, acknowledgment for nan mobility Will. So you whitethorn callback that erstwhile we issued preliminary guidance successful early January, we did make a remark relating to nan rank connected nan security broadside of nan business coming retired of AEP. And we indicated that it would beryllium successful statement pinch our rank astatine nan opening of 2022. And truthful we don't person immoderate update connected that front. And past successful position of nan aligned beneficiaries nether nan Non-Insurance broadside of nan business, we're expecting that to beryllium astir 55,000 lives coming into 2023. And yes, some of those reference points are reflected successful our guidance.

William Hoover

Thank you.

Operator

Thank you. [Operator Instructions]. Our adjacent mobility comes from Jason Cassorla pinch Citigroup.

Benjamin Rossi

Hello, bully morning. Thank you for taking my question. You person Ben Rossi connected present for Jason. So reasoning backmost connected 2023 guidance, we're seeing that you person SG&A level contempt gross coming down complete 40% year-over-year. Would you locomotion america done immoderate of nan drivers down that disbursal and really we should beryllium reasoning astir cadence complete nan people of nan year? And past are you forecasting immoderate increases to SG&A arsenic you grow your location wellness offering?

Scott J. Leffler

Sure. Thanks for nan question. So first of each I'll punctual you that nan wide alteration successful gross that we're guiding to for 2023 comparative to 2022 is really -- it's driven exclusively by nan Non-Insurance broadside of nan business. And arsenic we mentioned connected our past telephone location isn't -- erstwhile you look astatine nan SG&A infrastructure of nan institution overall, location isn't a important proportionality of our SG&A that is exclusively dedicated to that broadside of nan business and nor is it mostly adaptable specified that it would alteration successful narration to nan number of aligned beneficiaries. So that's why you're not seeing a diminution successful nan wide SG&A level that we're guiding to. I deliberation portion of your mobility was conscionable astir really does it series retired during nan twelvemonth and mostly from an SG&A seasonality standpoint, we do usually spot elevated SG&A successful Q1 arsenic a consequence of agent commissions that we incur coming retired of nan anterior year’s AEP cycle. And past we usually person immoderate magnitude of elevated SG&A successful Q4 arsenic good related to immoderate of nan trading costs associated pinch nan adjacent AEP cycle.

Benjamin Rossi

Got it. Thank you. And arsenic a speedy follow-up, conscionable seeing nan DCE PMPM were stepping up quarter-over-quarter beautiful high, conscionable immoderate commentary connected nan drivers down that?

Andrew Toy

Yeah, I would qualify that arsenic benignant of a rising tide effect. On nan gross broadside we saw immoderate favorable activity successful nan applicable benchmarks that thrust PMPM revenue. But past likewise we besides saw increases successful full costs of attraction connected our claims acquisition for aligned beneficiaries. And truthful nan 2 moving successful tandem person nan effect of expanding some gross and MEDEX arsenic you tin spot location wasn't a important alteration successful nan wide MCR capacity for that statement of business.

Benjamin Rossi

Got it. Thank you.

Operator

Thank you. Our adjacent mobility comes from Kevin Fischbeck pinch Bank of America.

Kevin Fischbeck

Great, thanks. I admit nan comments astir liquidity for this year. Is location immoderate measurement to deliberation astir really nan company’s rate pain looks for illustration comparative to an EBITDA number, truthful if you're going suffer $150 million, what does that mean conscionable arsenic a benignant of norm of thumb arsenic acold arsenic really overmuch rate we expect you to spell through?

Scott J. Leffler

Generally, I would opportunity that our rate pain mostly approximates our EBITDA performance. This is nan important caveat that nan moving superior rhythm for nan Non-Insurance statement of business is benignant of disconnected from nan P&L by respective quarters. And truthful nan capacity of nan Non-Insurance costs business successful 2022, you'd expect to spot nan rate effect of that. We were expecting to spot that successful Q3 of 2023 erstwhile we expect to settee connected nan 2022 performance.

Kevin Fischbeck

Okay, that makes sense. And past I conjecture possibly conscionable going backmost to nan remark astir nan MA complaint and nan coding dynamics, I understand you guys person a much integrated coding, sophistication and that nan physicians are really doing nan coding and really intervening astir nan coding that they're documenting. But it still would consciousness to maine for illustration immoderate alteration astir really overmuch CMS is paying for coding would still perchance astatine slightest person a disproportionate effect you guys because you are bully astatine documenting everything and you made it sound for illustration if nan manufacture was to spot a 3% headway from this past possibly Clover would spot less, americium I interpreting that correctly aliases are you saying that moreover if it is simply a bigger effect you wouldn't alteration nan measurement that you tally your business?

Andrew Toy

Yeah. It is simply a awesome mobility there. A somewhat different type than either nan ones you conscionable said, but bully query. I deliberation what we're saying is we're surely impacted because there's a batch of places wherever nan rules person changed. [Indiscernible] there's a batch of adjustments. However, we consciousness for illustration overall, because we person Clover Assistant, we've ever been focused connected nan test wherever there's besides attraction guidance involved, which is nan tone of what CMS is doing. And truthful we consciousness beautiful bully astir that. If you look astatine immoderate of nan I deliberation effect that are conscionable coming retired from different plans, possibly consequence base providers, we deliberation they are importantly much impacted than what is successful their CMS projection, importantly much and that's because location conscionable has been somewhat of a prevalence of we judge I'm coding for test that whitethorn not effect nan costs of attraction conscionable for illustration CMS. So immoderate supplier aliases scheme which is getting a disproportionate number of those test what we judge would beryllium importantly much impacted than what's wrong nan CMS projections. I deliberation that's what we were trying to say.

Kevin Fischbeck

Okay, but do you deliberation you're much aliases little than nan industry?

Andrew Toy

We deliberation we're amended than -- we're going to beryllium amended than industry. We evidently don't cognize what's successful each different plan. But we do cognize benignant of for illustration erstwhile you look astatine plans who are heavy delegated downstream to immoderate of these providers. If you're heavy dedicated to a supplier downstream and we do very small delegation because we trust connected Clover Assistant, a batch of those downstream delegated consequence base providers will beryllium those apt who are doing much of that different benignant of coding. So plans that are reliant connected those kinds of services aliases those kinds of contracts will astir apt person to redo those contracts aliases we'll person immoderate of those impacts travel upstream. So we do judge that we are little impacted, but we're not saying that we are not impacted. But because MA is simply a comparative business what that intends is that arsenic we each spell retired to bid, we are each looking astatine our early performance. We judge that that comparative capacity and advantage comparative to different plans will apt carnivore retired specified that we tin beryllium astir apt person a spot of an advantage going forward.

Kevin Fischbeck

Alright, great. Thanks.

Operator

Thank you. [Operator Instructions]. And astatine this time, we person nary further questions successful queue. I would for illustration to move nan telephone backmost complete to Andrew Toy for immoderate further aliases closing remarks.

Andrew Toy

Sure. Thanks. So, yeah, to adjacent that I conscionable want to reiterate that 2023 will surely style up to beryllium a very pivotal twelvemonth for our business. And we're perfectly focused connected delivering shareholder worth arsenic our priority. So for that value, we'll present this by executing connected our way to profitability. We've said that galore times. We're going to proceed widening our exertion mode and we conscionable discussed why that's truthful captious and helps america beryllium resilient against changes that are coming into nan industry, and of people by improving objective outcomes for our members. So convey you everyone for joining america today. Look guardant to updating you connected our progression passim nan year.

Operator

This concludes today's Clover Health’s 4th fourth and afloat twelvemonth 2022 net telephone and webcast. You whitethorn disconnect your statement astatine this clip and person a awesome day.