Clover Health Investments, Corp. (CLOV) Earnings Call Transcript & Summary

Hello, everyone, and welcome, Clover Health, to the 42nd Annual JPMorgan Healthcare Conference. I'm Cameron Wang with the Healthcare Investment Banking Group at JPMorgan, and I will be helping moderate Q&A after the presentation today. A few forward-looking statements that the company would like to go over before the presentation. The company would like to caution you that it may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 during today's presentation that are subject to risks and uncertainties, including remarks about management's future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements, certain of which risks are outlined in our most recent annual report Form 10-K and subsequent SEC filings. The company does not undertake any duty to update such forward-looking statements. So without further ado, it's my pleasure to introduce to you today the CEO of Clover Health, Andrew Toy.

All right. Fantastic. Thanks for joining us today, and I look forward to reminding you and taking you all through the Clover story so far. So just as a reminder, our vision at Clover, we are a managed care company with a deep focus on research and development in clinical technology for physicians. And what we want is to empower physicians to identify and manage chronic diseases earlier. And it's key to do both of those things, right? Because we are a Medicare company. I'll talk more about that in a second, but when you have a population who is aging by definition or disabled, like we do in the Medicare population, all of us are going to, one day, get sick. We are all going to get older. It's just going to happen to us, which means that -- I hope not many of you in the audience have chronic diseases, but if you do have those, these will become a bigger and bigger part of all of our lives as we get older. And people are living old -- getting to a -- further or further along and getting older and older before they eventually pass away, which means that they're living longer with that chronic disease burden. So within our population, what we're laser-focused on is how do we manage those chronic diseases. And what we definitely see is that the earlier you identify these chronic diseases, the better you can manage them. There's a lot of focus on the management part and therapeutics, especially at this conference, like JPMorgan, but -- those therapeutics are amazing, but the early you find those diseases, and we are getting better and better at finding those diseases earlier, the earlier you can manage them, the better the outcomes. But let's talk about Clover itself and where we've come in the last year. A year ago, I was showing something similar to this, but this was more aspirational. We were talking about how we had become public, and we were very focused on top line growth, but then we were now focused, in the year of 2023, on adjusted EBITDA profitability, we were no longer as focused on top line revenue growth and that we intended to get to adjusted EBITDA profitability without the need for additional capital. And if you look at what we've achieved in the past year, and I'm incredibly proud about this, we have made a step function improvement, definitely improved how we perform in our core business, which is the Medicare Advantage insurance business, generating significantly more gross profit within that insurance business and reducing our adjusted EBITDA losses significantly, such that we now have a very strong line of sight and we recently announced that we continue to intend to target that 2024 adjusted EBITDA profitability that we've always talked about. We have line of sight towards it. We made tremendous strides beating our guidance, continuing to raise our targets, pushing ourselves further as a management team to deliver those results in 2023, such that we think that we have a very strong view now on how to achieve that goal, and it is very reasonable for us. Of course, it's still aspirational for our 2024 goal, and we have not yet issued our full guidance. But at a top level, you should expect us to aim for that adjusted EBITDA profitability. How are we going to get there? A couple of different things. First of all, this has been achieved through a core transformation in the margin profile of our business. When we identify diseases earlier, when we manage them earlier with our technology platform, Clover Assistant, what we're doing is making the insurance business innately better, right? We're using our technology to help physicians do something that's great for the patient, which is identify and manage those disease loads. When we do that, we bend the cost curve and in health insurance terms, we get better margin profiles that we can then invest back into R&D and invest into better care. And that's what you're seeing here is that as we slow down on growth, I think you're seeing the core benefits of our care model emerge, and that's what's driving the margin improvement. We also have made adjustments to our cost basis and our SG&A has become more efficient and our SG&A has gone down. And we also announced in '23 that in 2024, we would go live and we have on January 1, with our partnership with UST HealthProof which would enable us to send core platform operations of the insurance business to a trusted partner and that we would enjoy significant SG&A benefits in the 2024 year from that transformation on our core operations and we look forward to sharing more on the progress there. But we expect that, that will be a big part of closing that additional gap towards adjusted EBITDA breakeven and then profitability. So really, really strong improvement in our MCR, right? I think that people haven't really looked at this. And in managed care, it's very rare that you see these kinds of improvements. When we were -- really growth on our MCRs and our Insurance segment, we're sitting north of 100%, which meant that we were obviously not happy with where that was. We really pushed ourselves to improve on that and into 2022. You can see that coming down into the low 90s percent. And then we have now entered the sort of low 80s percent in terms of our 2023 outlook on our insurance MCR, which is the inverse of gross margin, effectively. So this margin improvement is being driven by the core performance of our care management platform. This is the differentiator that we have. This is what makes Clover, Clover is that this medical performance is not being driven by optimization of networking. We are around an 80,000-person plan. So it is not driven by massive economies of scale. This performance is being driven on a wide network of physicians, which is traditionally harder to manage in managed care. It's being driven still subscale, anyone would say, for insurance. But because we have Clover Assistant, our core technology asset, the 80,000 people we're looking after, we're encouraging to see Clover Assistant physicians. A good number of them are seeing Clover Assistant physicians multiple times a year, and they are receiving that data-driven primary care, where Clover Assistant is helping their physicians access data, access AI-driven insights on a daily basis to care for our membership, and that is what drives Clover's performance. It is not the usual things that drive performance within managed care, but it is what we're seeing emerge right now within our financial performance. And I think that really highlights the benefits of our approach in our care model. And not only does it work very well, as you can see in the margin performance here. But because we are software-driven. We are able to deploy our capabilities. we think, to almost any primary care physician, eventually [ burning a path ] to every physician. We just asked them, our onboarding to Clover Assistant just takes about an hour. And after that initial hour, there's no really more training that we have to give those physicians because it's designed to be a simple way to access that data, access those insights, help them deliver better care. So it really is a lightweight from a deploying perspective. We don't need to go in and deliver full practice transformation. That's not our business, but we see the value-based outcomes of practice transformation through the deployment of a software platform. We also have our Home Care asset. And what -- and here, any Clover member can call in and say, I would like -- I have a regular doctor, and I see them, but I would like someone to come to my home and see me there. And we are able to deploy a clinician. It could be an MA sometimes, it could be a nurse practitioner, an RN. It could be an MD. We're able to send them to the home. And in particular, for the sickest population, we take over the primary care. All of our sickest population, when they're multipally comorbid, entering end of life through potentially palliative and hospice, optimize that final part of their sort of health care journey and make it as comfortable for them as possible, give them as good care as possible, help them see a physician that they trust in the comfort of their own home. So if you want to think about what's driving the performance on the left-hand side, think about it simply this way. We can manage almost any population by saying, keep seeing the doctor you're seeing right now. Other managed care platform -- companies say, why don't you change doctors, come see our doctor. We don't say that. We say, keep seeing the doctor you're seeing now. And we're going to give that doctor software to help them look after you better and they do. And we'll talk more about that in a second. And then the vast majority of people get looked after by their doctor, hopefully, powered by Clover Assistant. And on the right-hand side, when people get sicker, more comorbid, leave the home less, enter perhaps that those final stages of their health care journey, we tend to take over their care through Clover Home Care, and we see tremendous benefits of doing that. So as a high-level summary, before we talk more about our care model, what are we really doing? It's a continuation from 2023. Last year, I said we were targeting adjusted EBITDA profitability. We continue to do so. We've demonstrated tremendous momentum in terms of reaching that goal and we think we're going to get there. And so we -- that is our goal as management is to hit adjusted EBITDA profit line. We are going to improve our insurance fundamentals. And so we did exit our ACO reach presence, so we are no longer focused on original Medicare. There may be a time we return to that, but it's not right now. We are absolutely focused on reaching that profitability on the basis of our Insurance segment, which is our Medicare Advantage plan. We're going to continue to manage our liquidity position. We've always said that we believe that we would be able to readjust EBITDA profitability without needing additional capital. And we continue to aim for that goal. And we will look towards setting the groundwork for a return to growth eventually. Growth is not our top line goal right now. When I talk to the team, I say, growth is fantastic if we can slide that in, let's do that. But growing the adjusted EBITDA KPI is what we want to do, so that we hit profitability, and then we will return to top line growth at some point. So let's talk about the fundamentals of the care model. What makes us different? And I really want to land this point with everybody because I think that we can do a better job talking about what the fundamental difference about Clover Health. First of all, we focus entirely on Medicare. There are others in the managed care space who have a blend of portfolios. There are people who are in commercial, people who focus on the ACA, we don't focus on those areas. We are only in Medicare. We do have duals in our population, but we don't really focus on stand-alone Medicaid either. We focus on Medicare, and that is what we do. And so I think it's one thing that tends to make us different, not unique, but different. The thing about the Medicare population is that they have a high chronic disease burden. And because they have that higher chronic disease burden. We think there's a lot of room where if we look after that chronic disease burden better, we will be -- just perform better versus our competitors in that space because managing these conditions is very different from sort of actuarially just doing calculations, doing network management, et cetera, we are all about managing those conditions. How do we do that? We do that with our technology platform. Once again, we are not in the practice transformation business. We are in the business of helping physicians to give better care through accessing in data-driven insights using our software tools, backed by data, backed by AI. The easier we can make that, the better job those physicians are going to do. We had that home-based office-less clinical practice that I talked about just now. This is a very asset-light way to deliver care into the home. We have no brick-and-mortar practices. We have a lot of clinicians, but no brick-and-mortar sort of offices for people to go to because we're looking at the sickest people in the comfort of their own home. Once again, driven by Clover Assistant data, but the site of care is different. And we think that this gives us the ability to really go into almost any market, deliver our care model and improve Medicare Advantage performance in that market. So between all of these things, I don't think that you'll see any other company approaching their performance in MA, the way that we do. Overall, we're very excited to be in there. Sometimes people ask me like, are you looking at commercial, are you looking at ACA? And I think that our care model actually will work anywhere there is a high chronic disease burden. We're not in the business of trying to collect as many healthy people as possible so that we can have the healthy people just wash out the cost of the sicker people. That's really the business of health care in a lot of other markets. Well, do the best you can with sick people, have a lot of healthy people to make get your profit. What we're saying is we are going to be really good and we are good at managing the sickness burden of the chronically ill and that is why I am excited to be in the Medicare market. That is where, as we all get older, we will have those conditions. That is why our platform has a disproportionate effect within Medicare. And I think there's plenty of room in that market for us to grow. It's far from saturated, it's a good place for us to be. So once again, reemphasizing, these are the 2 assets that we have. This is how we see the world is we have a significant investment in research and development of Clover Assistant. This is not an IT function of an insurer. This is a product development team. I consider it to be IP-generating, Intellectual Property-generating. We file patents on our software. It is a stand-alone product. It is capable of being -- it is cloud native. It is capable of being deployed into any number of clouds. We can separate data so we can service any number of different entities. It is built as a software product that helps manage chronic disease burdens, and it is focused right now at our own plan. I'll talk about later about -- our thoughts about perhaps expanding to other plans. But right now, its main customer is our own health insurance entity, but it is built technology-wise as a stand-alone software product. Clover Home Care, stand-alone clinical practice. It could potentially service any number of seniors. But once again, for now, it is focused on our own health insurance plan, our own MA plan, and that is where we deliver care into the home. I consider both of those assets differentiated. I think that it is rare for any managed care company to have one of those assets, and we have both. Together, they form the basis of our differentiation, and I think now that with 2023 is almost done, we haven't closed out fully yet. I think you're seeing the effect of that care model deliver outstanding performance with our own plan. And here's some evidence of that performance. We've consistently shared, and we continue to see that 1,000 basis point MCR loss ratio differential for returning MA members whose PCPs are using Clover Assistant as opposed to those who do not. We see correlations to the changes in the time line of care, which is critical, and I'll talk more about that in a second for Clover Assistant. And thousands of clinicians are using CA to manage our patient population within our managed care -- within our own insurance plan. Same thing on the Home Care deployed in active use, showing real results. Here, I'm going to focus on those high-risk members. Like I said, any member can have a home visit, which I'm super incredibly proud of. But most importantly, the most sick, high-risk members, about 3,500 of them we look after in the primary care model in the home we were seeing an actuarial significant impact we're sharing it there, about $500 per engaged member per month of savings driven by lower inpatient admissions, readmissions, et cetera, for that sicker population who is being managed by Home Care. And we do measure our Net Promoter Score for these areas and we're delighted to say that people are happy with the care. I think that makes sense, right? If you have a trusted physician seeing you in your home, that's a good experience for people, especially when you're struggling with a chronic disease or multiple chronic diseases. So I want to talk a little bit more about the evidence we're seeing from CA in terms of changing that time line of care that I mentioned just now. The way I think about Clover Assistant is that we are creating the software-powered physician, software-powered. We're not aiming to replace physicians. We're aiming to use data and make it very easy for physicians to perform better, practice medicine the way they need to practice medicine, but armed with more information, more insights, more timely insights. That's why we say software-powered. We've shared what we call mini white papers on each of these topics, and I encourage you all, they are on our website, if you would like to see more detail read the papers. But I want to highlight how critical I think this is that we are able to deliver this. All of this is tied, remember, because we have the business model of insurance and health insurance that when these things happen, we are looking after people better, and we are, therefore, seeing better results within our medical loss ratios. This is a chronic kidney disease example. If you look at this, doctors who start using Clover Assistant, so the same doctor who goes from not using CA to using CA, will start diagnosing chronic kidney disease Stage 3. We use Stage 3 as the anchor point because that's when CKD tends to start to become a symptomatic and we need to really look after it, diagnosing it earlier, managing it earlier. And when you manage it earlier, you can see there that GFR, which is the kidney function measurement, the filtration rate, stays higher during that period. So we're seeing evidence of that earlier diagnosis, that earlier management and the retention of higher kidney function simply through PCPs starting to use our software tool. Remember, there's no practice transformation here. There's no going in and like doing side work. This is just we're giving PCPs a software tool. We're accessing that data. We're applying AI, ML and rules to all of that information and servicing those insights of the physicians. They respond to that, and we're seeing that critical earlier diagnosis, earlier management, better retention of kidney function. Here's a diabetes example. Here, what you can see is, is that with -- before and after or with or without Clover Assistant, you're seeing that the initiation of diabetes medication correlated to a Clover Assistant visit. What we're seeing is that when people are going in and seeing their PCP, if that PCP is using Clover Assistant, there is a higher correlation to the deployment than all diabetes medication with that visit. What does that mean? That physician didn't see diabetes before. There was no diabetes medication being taken by this patient before. They have a Clover Assistant visit and now they've initiated diabetes medication. We see that initiation rate be higher with the CA doctors, which we believe means early identification of diabetes, early initiation of management of diabetes. And here, you can see other biomarker improvement from here, right? You can see if A1c being superior, lower is better, right, here. When you're on meds earlier, you're going to have better blood sugar control. That makes sense, right? If you begin meds earlier and you have better blood sugar control, you see lower initiation of insulin. Insulin is quite expensive, expensive to the member, expensive to the plan, not a good lifestyle to be on, if you can stay on meds longer, better lifestyle, better control, better costs and lower instances of hypoglycemia. Why do we look at hypoglycemia. Well, if you go on insulin as well, you tend to go up and down on your blood sugar. If you are on the meds, you stay more stable. Once you go on insulins, you risk hypo -- too low blood sugar, not just hyperglycemia. Also a correlation to improved medication adherence. We released this mini paper this week. Here, what we're seeing is that doctors are using Clover Assistant. We're flagging to them when medications are not being picked up. They're having those conversations with their patients about staying on their meds. It's not easy to keep people on their meds, but the person best equipped to have that conversation is the PCP, not the health plan, the PCP. We flag that data to the doctor. They have conversations, we see better adherence. Once again, critical for the management of disease in general, certainly the cost-effective management of disease. And so these are the things that we look at. These are the things that we do research on. These are the things where we say the most trusted interface to the patient is their doctor. We are not delivering these insights directly to the patient. We are delivering them to the doctor because the doctor is the one trained to have these conversations, to do this management and they want to practice management -- practice medicine better and better, but PCPs are under a lot of pressure these days, very little time per PCP visit. So much data to look at, so much time to spend doing documentation in the EHR, how do we make it easier for them to deliver this better care and once again, because we are in the health insurance business, if they deliver better care, patients are going to get better care, which I love, and we are also going to see that economic benefit flow through to our insurance business. So these are the software-driven aspects of our care model. We're incredibly proud of them. We'll keep on producing these mini papers, please take a look at that. And I think that this is really key is that to say how do we get this software out so that most people we have are managed on Clover Assistant. How do we then get it so that most people are on Medicare one day, managed by Clover Assistant. So looking forward, before we take some questions. The goals that we've established I'll go over again. This is really -- it was a 2-year plan between '23 and '24 to get to that adjusted EBITDA profitability is what we're seeing, and this is the second half of that plan. We've continued to target it. We intend to get to a positivity for full year 2024. We have significant SG&A savings arriving in '24 that were not in there at all in '23. So we should -- when we issue full guidance, you'll see some of that -- you'll see that in there continued improvements within the core of the platform. And I think that the ceiling is incredibly high with Clover Assistant. We've not maxed out what Clover Assistant can do, right? And all the care we delivered in '23 to our membership that returns in '24, we'll see the effects of that better management. If you stayed more consistent on your diabetes meds in '23, you're going to have a lower cost to us, we think, in '24. So you're going to see this compounding effect that as we deliver better and better care and have our membership return to us, that our margins continually improve because of the nature of how health care works. We spoke about this at our earnings. We did get a 3-star rating. We were very close for 2025, and we received a disappointing 3-star rating for the 2025 service year. So we are aiming to make that a 1-year event. We are -- have a number of different star initiatives that were deployed through '23 and into '24. We aim to get back to that 3.5 star rating and then have a pathway to eventual 4-star ratings. So stars are important to us. We were disappointed by that 3-star rating. We think we will be fine economically and we will manage through because we have so many places to continually drive momentum. Stars will be a headwind in '25. We aim to make it a 1-year thing and then have -- be firing on all cylinders after that. I look forward to returning to profitable growth. So I doubt we will return to a growth-at-all-cost mentality. We were, to some extent, like that earlier in our journey, but profitable growth is key. So once we cross the line over into positive adjusted EBITDA, we will stay there, but we will have strategies whereby we are growing the top line, while maintaining that positive adjusted EBITDA, growing that positive adjusted EBITDA. Of course, we're always going to be making investments. So we're not just only going to grow the profit side of things, but it will free up room for us to increase our investments everywhere as we grow the top line and maintain our margins. And finally, I would just do a little bit more here. I have talked a little bit about the fact that we want to expand our offerings. The way we think about this is we have built an incredible tool in Clover Assistant to be able to manage value-based Medicare, right? We are able to manage those diseases earlier, identify them, and we see those results all the time. How do we get more people managed by Clover Assistant. How do we bring those benefits to more people, both from a care perspective and an economic perspective. And what we're looking at is 2 dimensions. One is the growth of our own insurance business will expand the market for Clover Assistant of course, and we will do that as per the profitable growth statement. And second of all, we are looking for ways to bring this so that a doctor can use Clover Assistant for their entire Medicare Advantage panel. I used to say the full Medicare panel and one day, I think we will bring Clover Assistant back to original Medicare. But in the short term, because we have such high conviction around the MA market, what we're looking to do is how do we let doctors use Clover Assistant for their entire Medicare Advantage panel, including other payers. So basically going to a multipayer format for our software. MA is the same for all payers. So there's very little product development that's necessary. We think it works well for us. It's going to work well for a lot of people. We can help the payers improve their performance. We could help doctors improve their performance. It's a lightweight touch so we can work with almost any doctor. We think there's a good market for this. And I look forward to sharing more with all of you about that strategy going forward. But we've spoken about it in the past. I continue to reiterate that I think that will be an angle that we take in order to be able to return to profitable growth on the basis of the investments we've made in our technology. And with that, I would be happy to take any questions from the floor.

So we'll now open the floor to Q&A. If you're here with us in the audience, just raise your hand and there will be microphones floating around. [Operator Instructions] But I think there's a question up here, right.

I came in a little late. So I just want to clarify one thing and then ask another question. Your -- the premise with the software that you're providing for the providers is really to manage or allow them to better manage the care through getting -- while interacting with whatever insurance plan they have, is that...

I think that's right. Right now, we have our own insurance plan. So for clarity, it can work with any insurance plan, we believe, but it really right now is focused on just our insurance plan, but your thesis is correct. Yes.

With that being said, the software -- so as a provider, if I'm seeing a patient and I have to document in my EMR for whatever charting I have to do, is this another -- am I logging on to this other software platform to fill information into that, too? And if so, have you looked into -- what is your thoughts or solutions on API access or interoperability between your software and EMRs because the biggest thing is I'm sure there's value to this, but when you -- depending on the physician that you're dealing with and how well or not -- or how organized their practice is, they may or may not have time to really kind of maximize the use of this software. So just wondering if you've thought about that.

Yes, excellent point. So how we have thought about -- a lot of nuance in what you said. So thank you for the question. Lots of interesting research that we've done. So first of all, I'll start by saying at the baseline, the vast majority -- and we have a lot of doctors using it, managing a lot of patients right now. The baseline is that it's a separate web app, separate log-in, completely side-by-side, completely independent from any EMR infrastructure. So what I mean by that is it is independent of any EHR infrastructure and does not require any EHR infrastructure. So if you want to use it a separate app, that's the baseline, if that makes sense. Then we do have same things like smart and fiber capabilities. We have things where we use specific EHR APIs, which is proprietary to the EHR. And we do have EHR integration, it's not required, but if the practice wants that integration, then we're able to do that with things like Epic and Athena, et cetera, et cetera. And we have a number of folks who are using that as well. We have a number of folks who don't do that because it's easier for them to actually use it side by side, but we give them that choice if that makes sense, and then they can select. And the last thing I will say is the EHR remains, we consider Clover Assistant to be part of that medical record, if you see what I'm saying. So we have a very easy way to just generate Clover Assistant. And there will be things that are -- in Clover Assistant that the EHR didn't prompt for. That's why we're seeing the benefit. It was all in the EHR then there would be no benefit, right, with the Clover Assistant. But when there is additional documentation there, we find it -- make it very easy to link that into the EHR, so you can add that to your clinical note. And that way it becomes one note within the EHR if there was any care changes that were driven by CA.

Is there any advantage or have you thought about getting the insurance companies or some -- whoever is creating CPTs to create a CPT for the use or the integration of this, if you can show that it's benefiting the patient population. Therefore, you're going to get increased compliance from the physicians because they're now financially incentivized to -- while the patient is still benefiting from the use of this to actually make sure that they're integrating this software.

I love the nuance in the question by the way. So generation of CPT, really cool idea. So right now, they are financially incentivized, to be clear, because we already insure, we do financially incentivize them. We changed the payment schedule when they're on Clover Assistant. I didn't talk about it here, but we do, do that. So a great point. And that's their incentive. What we actually say is take a little extra time, and we recognize you're taking time to use this software. I'll make it as easy as possible, but it's still additional work. You know what I mean, like, of course, it is. Hopefully, good work, but it's still additional work. But we're going to compensate you for that time. We're trying to not squeeze you as much. We totally get it. This is rough as a doctor and that's the way we think about it. We don't do it through, necessarily, a claim right now because Clover Assistant actually can issue payment directly because we're the insurer, but a cool idea on the CPT. I can share more if you want to come and talk to me at the end. Yes, thank you for the questions.

I think there's a question in the back there.