Ladies and gentlemen, thank you for standing by and welcome to the Clover Health Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today’s program may be recorded. And now I’d like to introduce your host for today’s program, Dylan Solomon , please go ahead.

Welcome to Clover Health’s inaugural earnings call, where we will discuss Clover Health’s fourth quarter and full year 2020 results, our 2021 financial outlook and a comprehensive update on the business. Joining me today are Vivek Garipalli, Chief Executive Officer; Andrew Toy, President and CTO; and Joe Wagner, Chief Financial Officer.

Thank you for joining us today. I’m honored to welcome you to our first earnings call as a public company. And while we don’t consider ourselves a traditional health plan, we are the first health insurer to have gone public in over 15 years. 2020 was a difficult year for healthcare as our industry rose to the numerous challenges posed by the pandemic. Nevertheless, it was also a transformative year for Clover. We scaled our offering and serviced more than 58,000 Medicare Advantage members by year end and realized $670 million in total revenue for the year. Additionally, despite COVID-related headwinds, we had another solid annual enrollment period this year. As of February, 2021, we had more than 66,000 members, an increase of approximately 20% as compared to February 2020. We’re proud of how we’ve scaled our technology platform. As of the end of the year, approximately 32,400 members or 56% of total membership were managed by Primary Care Physician that was live on the Clover Assistant. This represents a 43% increase year-over-year underpinned by our ability to expand coverage despite inherent impact new members have on the overall growth rates. In fact, 63% of returning members and 46% of new members were managed by PCP that was live on the Clover Assistant.

Thanks, Vivek. It’s no secret that healthcare is completely broken on many, many levels. And this is the problem that we founded Clover to solve. The key that underpins Clover Health is the Clover Assistant, our proprietary software platform that’s designed to make it extremely easy for any physician to leverage data to care for our members. In 2020, there was a demonstrable impact for patients visiting a CA-powered physician, with nearly one net new diagnosis and care plan confirmed per member via Clover Assistant technology. On that note, tomorrow at 10:00 AM Pacific Time, I’d like to invite you all to attend the first edition of Clover Assistant Online. This will be our first product and technology showcase for our platform. I’ll be offering a deeper dive into the Clover Assistant. I will also be joined by our clinician team for an educational session highlighting where we are with the Clover Assistant, key features we see working in production, feedback from physicians and a peek into a few future features in upcoming launches. The stream will be available on our Investor Relations website, and a replay will be available on demand. We also have other resources, including video demos, and physician testimonials available on our Investor Relations website to help you better understand how our software creates a moat for Clover Health. So, as mentioned, the core goal of our strategy is to scaleably reduce the variability of clinical decision-making through our technology platform, the Clover Assistant. As an example, take your 80-year-old mother or grandmother, if she goes to see 10 different primary care physicians, she could come away with 10 different variants of diagnoses, treatment plans, medication regimens and dosages. It’s not that these are bad physicians, they’re not, but physicians today often just lack access to prioritize actionable clinical data at the point of care, data that is not usually paired with personalized evidence-based protocols. So they end up relying on historical practice patterns and intuition. The individual decisions that are made lead to a dispersion of outcomes and a high cost of care, and this ultimately hurts the patient.

Thanks, Andrew. Turning to our growth drivers. As we discussed throughout our transaction to date, we’ve relied predominantly on the strength of our obvious plans to be distributed by brokers and other on the ground agents to drive awareness and enrollment, and we have made only lean investments in our broader sales and marketing efforts. For context, historically about 80% of Clover’s sales were from this ground game, with the remainder from online or inbound sales. And Clover has grown rapidly by relying on direct, in-person sales, with very little marketing and very little brand spend.

We’re bullish on our opportunity with Direct Contracting. And we have several other initiatives in place that support our mission to improve every life. Our philosophy at Clover is to support the development of business entities under the Clover Health Investments Corp. umbrella that address the health needs of older adults. Two examples of this approach are Clover Therapeutics and SeekMedicare both of which are subsidiaries of Clover Health that largely operate independently. We will share some updates on Clover Therapeutics in the near future, but as a reminder, it is a biopharmaceutical company that seeks to partner with patients, providers, payers, and other researchers to drive forward clinical research and drug development for the treatment of diseases of aging. Clover Therapeutics integrates genetics with longitudinal clinical data in order to better understand the causes of aging-related conditions, find ways to improve the standard of care, and empower new therapies. SeekMedicare is another initiative that we are excited to talk about. It is a startup that was incubated within Clover, but then set up as an entity that has raised nearly all of its capital from outside investors, in order to make sure it could effectively pursue its goals. Seek’s fundamental belief is that Medicare consumers are simply not well-informed and that hurts their ability to get affordable, great healthcare. While Seek is a very young startup, it is purpose-built to deliver against that problem. We’ll be sharing more about Seek in due course. Clover Health aims to transform healthcare for each and every one of us. We believe our technology can improve the care of all primary care physicians, anywhere in the country and our aligned incentives equate to efficiency, improved outcomes, reduced patient costs, improved physician reimbursement and returns for the government. With that I will turn the call over to our CFO, Joe Wagner.

Thanks, Andrew. Hi everyone and thanks for being here. Despite COVID-19 headwinds Clover faced in 2020, we performed well during the year, growing revenue to more than $670 million. I will begin by recapping our 2020 financial performance and we will then discuss our latest thoughts on our outlook for 2021. Additional commentary in financial results can be found in our Shareholder Letter which is posted on our Investor Relations website. From a membership perspective, we ended 2020 by serving over 58,000 members, which represented an increase of approximately 36% over the end of 2019. As Andrew mentioned, earlier, we believe that growth was mostly a function of our plan design, our strong ground game and network of brokers. More recently, as of February 2021, we have 66,000 members overall, underpinned by a tripling of membership outside of our New Jersey market. We expect to continue to aggressively expand both inside and outside New Jersey, as we view market expansion as a key to driving growth and proliferation of the Clover Assistant. For the full year 2020 our total revenue reached $672.9 million, which exceeded our initial top-line projections for the year, 2020 revenue increased 45.6% from total revenue of $462.3 million in 2019, due primarily to an increase in membership and to a lesser extent, the impact of the pause on sequestration. Total medical costs in 2020 were $590.5 million, resulting in a full year GAAP MCR of 88.7%, as compared to costs of $450.6 million and a GAAP MCR of 98.6% in 2019. The year-over-year improvement in our MCR was driven primarily by operational execution and to a lesser extent, the net impact of COVID-19 on utilization that Vivek discussed. Our full year 2020 normalized MCR adjusted to remove the estimated net COVID impact as well as to…

We have a history of delivering for our members and physicians, but we are scratching the surface. As you evaluate our business, I want you to consider three things that we believe will make Clover successful in the months and years ahead. First, you need to believe that the Clover Assistant reduces variability, improving decision-making for physicians. Second, that Clover Assistant drives unique moat-like, incremental clinical and economic value. Finally, that consumers want plans that are of the lowest out-of-pocket cost with the most supplemental benefits, and with the widest choice of primary care physicians and specialists. And if you believe these three items, you have to believe we will be successful. We plan to continue to pioneer a fundamentally different approach, investing in technology and partnering closely with physicians to help them make critical decisions for their patients at the point of care. We are making prescriptive efforts across our growth vectors and beyond that. The market itself is rapidly growing and evolving. We have a significant market opportunity in front of us and are committed to creating value for all stakeholders. Operator, we’re ready for questions.

Certainly. Our first question comes from the line of Kevin Fischbeck from Bank of America. Your question, please.

Great, thanks. So I guess, membership growth in 2021, obviously, good on an absolute basis, but shorter than what you guys were looking for at the end of last year in a year when generally MA broadly grew well. Do you have any change to your kind of long-term views on the growth of the company as you think differently about your growth rates? Or should we take those growth rates and apply them to this new kind of 2021 base?

Thanks, Kevin. It’s Vivek. Great question. I’ll just let Joe hit some of that.

Hey, Kevin, thanks for the question. Yes, I mean, I think if you look at our growth for 2021, I mean, we’re happy with where we ended up just given the backdrop of COVID. Again, as Vivek mentioned, from a investment standpoint we’re pretty clear and transparent that we have not historically invested a ton of money into marketing and into brand spend. So I think that being said, we’re happy with where we ended up from a year in a year that was very unique and unlike anything that we’ve ever seen. We’re not going to give specific guidance for out years, but I would say, nothing that has happened over the course of the last few months, changes the growth trajectory of the company, or I would say our longer-term targets, if anything, it’s crystallized, I think some things that we think we need to do both in the short-term and long-term. So we don’t view this as indicative of any longer term trends. I think we’re looking at this very much as a short-term issue related to COVID and that we don’t view it necessarily as indicative of what the company claims to do longer term.

Okay. That’s helpful. And then, I guess…

Yes. And just to add a few more – this is Andrew as well. Just to add a few more sentences to that, Kevin. Like I think one thing is we have had a very centric growth focus on brokers in the past, and brokers tend to be less influenced by the marketing spend as you know because they go out and find their own leads. I think that COVID had more effect on that broker channel, and we do expect that our strength in the broker channel to sort of resume in the post-COVID period after people are out and then foot traffic has return to normal levels. In the intervening time though, we are increasing our overall spend against brand marketing, direct marketing, all the channels that we have traditionally actually invested a little less I think compared to regular plan. And we will maintain that even as broker channel sort of returns. And I think we’ll be strong across the board in growth areas, brand marketing, new markets, et cetera. And that’s some of the use of funds that Vivek alluded to earlier.

Okay. That’s helpful. I guess, maybe just going to ask you the same question as far as direct contracting goes because in theory MA membership and direct contracting membership are two separate numbers, but I would imagine that the more MA membership you have, the more engaged doctors you have. There may be more doctors you have in network, and then it would be easier to get targeting lives as you head into kind of 2022 and beyond. Is there’s a lower MA membership number this year impact? How many lives you should expect next year or in the future years to be able to sign up?

Kevin, does this question come around correlation between MA and direct contracting? I just want to make sure we understand the question.

Yes, I just would think that the more MA membership you have, it kind of implies the more physicians you might have in network or the deeper relationship you have with those physicians that are in your network because you’re sending more members to them and then easier would be therefore to get them to then also align with you from a direct contracting perspective. So I wasn’t sure, again, the membership this year being below kind of what you thought it was going to be last year. Has any implications or how would you think about the ramp up of direct contracting lives over the next couple of years?

Yes, I’ll just hit kind of I think the core part of that. So we don’t really see a correlation in a sense of a direct contracting. We think about fee for service depending on the market represents anywhere from 60% to sometimes over 70% of the Medicare population. So when Clover Assistant launches with a practice that only has Clover MA or let’s say even if you take a plan in any market that has the most market share, even the plan with the most market share will not have as much market share as fee for service. So we don’t see a correlation a sense of higher MA enrollment necessarily correlating with more, what we call more practices on direct contracting. At the same vein, we’ve proven out – you’ll see this kind of upcoming, there are states where we’re launching direct contract where we don’t have a MA yet. We think that’s the clearest indicator of Clover Assistant being able to proliferate without any MA plan and where we built preferred networks through that. Now I’m sure there’ll be data around in value in terms of launching your contracting and trailing behind that with an MA plan or vice versa, but in terms of correlation between the two, I mean, the correlation more in terms of how we expend resources internally versus what we experienced externally.

Okay. That’s helpful.

Sorry, go ahead, Andrew. You’re still on mute, Andrew.

Sorry about that. So just as Vivek said, I think that what’s really powerful is we’re anticipating that we will actually be able to front run at the MA plan. And rather than having the MA plans drive it to DC, we are able to launch it to the markets that don’t have MA and actually have doctors who will use Clover Assistant for the first time on entirely direct contracting based population. And we’ll have more to share on that in bright future reports, but we’re seeing that that possibility is definitely there. I think that’s really excited, right, because that means we can actually spread out first with the fee for service population that Clover Assistant deployed with direct contracting fee for service only even, and then fall behind that with the bachelor slower emotional bidding MA plan. So if all works out, I think that’s what you’ll actually see us do.

Thank you, Andrew.

Thanks Kevin for the question. We’ll jump to the next question.

Certainly. Our next question comes from the line of Gary Taylor from JPMorgan. Your question, please.

Hi, good afternoon. I have three-part question on direct contracting. In our model, if we get a few years out, it will constitute 80% to 90% of your care under management. So I just want to focus on a couple of things that – look, I just want to make sure I understand if these have changed or not. So first enrollment, you’re now saying up to 200,000, before you had just said 200,000. So I just want to make sure if that has changed, why? Second is on revenue. If we do nine months of 200,000 at $1,000 per member per month, that gets you to like $1.8 billion, but you’re only guiding for $900 million, which I guess implies you won’t get the whole 200,000 in April, little tend to be ratable. And then third, you had previously said breakeven on EBITDA for direct contracting yet at a 100% MLR. That won’t be the case. I’m just wondering if you’ve received your benchmarks yet or what’s informing the view on the EBITDA.

Yes. Hey, Gary, it’s Joe. Thanks for the question. I can take those. And so just to be clear, nothing has changed from a membership perspective, just in terms of kind of what we think the opportunity is. I mean, again, I think we believed and we’ve been modeling I think for awhile that the 200,000 will be ratable. It’s going to be a mix of claims alignment as well as voluntary alignment. And so the guidance that you see in terms of benchmark really reflects that ratable addition of members or addition of attributed lives throughout the year. And so it’s likely that will start with a chunk of claims aligned members and then with voluntary aligned members throughout the remainder of 2021. So I think that’s – and I don’t think that’s theoretically changed from a perspective of kind of being ratable throughout the year. And so I think from a benchmark perspective, again, we have our internal estimates. We have not received a detailed benchmark yet from CMS. And so the benchmark calculation is really just using our estimates of lives coming in ratable over the course of 2021 multiplied by what we think is an estimated benchmark. Obviously, as we know more, we’ll certainly share that with you and be transparent with you, but that’s kind of where we are. And then just in terms of breakeven, I think historically we’ve guided to a breakeven at the gross margin line, not necessarily at the EBITDA line. We’ve been pretty clear that we’re going to be conservative this year in how we guide and how we think about that program because we think it’s likely – we’re kind of factoring in, the fact that it may take a few months just to get off the ground. We’re already seeing just some I don’t want to say noise in CMS, but we’re seeing just some delays in some of the information being available. And so we’re getting to breakeven at the gross margin line conservatively, and then we’ve got operating costs on top of that. And so I think that’s been pretty clear with – we’re pretty consistent with at least with the guidance that we’ve shared in the past.

If I could just do one quick follow-up. I know you guys are big on benchmarking. So when I look at your 1,400 basis points of direct COVID costs in the quarter that is fairly comparable to Humana, it’s a little higher than United with more commercial, but right in there. But MLR up 2,000 basis points year-over-year with an implied 600 basis points of deferred spend coming back is not comparable. The other large insurers did not nearly see that. They essentially saw an acceleration of deferred care, which almost completely offset the acceleration of COVID costs in the quarter. So how do you look at that and benchmark that? Would you attribute it all to New Jersey? Or what would you point us to?

Joe, do you want to hit that?

Thanks, Vivek. Sure. Yes, I think, Gary, a few things there. I mean, certainly, we looked that and tracked that very closely in terms of what we saw in terms of from an MCR perspective for Q4. I think if you look at our geography on a relatively low number of members, right, we saw a very big drop off in the second quarter, which I think was probably more pronounced than some of our peers in terms of running an MLR in the second quarter that was in the very low 70s. And so we did see some – and we track very closely the return of that deferred care, even down to the off level, meaning, tracking offs that were originally approved in Q2 and even in the early part of Q3, and then coming back in Q4. So I think for us, again, we can’t upon on where others are, but I think for us, it is a geographic specific. The fact that we’re in 2020, we were highly concentrated in the New Jersey market. I think there are unique capacity issues in New Jersey and the fact that the practices, and we’ve heard this from our clinical staff, practices were doing what they could to get in as much elective volume as they could in 2020 even with the high COVID costs to replace everything that wasn’t happening in April and May. And so, again, we also have a concentration of membership. We have about 30% of our membership that would be considered low income from a demographic standpoint. So again, we think we do a lot of benchmarking, you’re right, we think in this case its geographic specific and the fact that we’ve got a relatively small base of membership, and that’s why as we look ahead, we’re guiding to a normalized number that we hope will ultimately – once the vaccines are prevalent, that will ultimately get back to equal in gap but that’s what we’ve looked at it pretty closely and that’s our conclusion from looking at what we saw in Q4.

Thank you.

Thank you. Our next question comes from the line Ralph Giacobbe from Citi, your question please.

Great. Thanks. Can you maybe talk about any headwinds around risk scoring for 2021 given perhaps less visits from members last year due to COVID and maybe how much that impacted the 2021 revenue?

Yes. Thanks Ralph. Andrew, do you want to take that?

Sure. Yes, thanks Ralph. Yes, we did see that Ralph, I think similar to a lot of the any other insurers, we did see that as a headwind. I think for us, it’s somewhat mitigated by the fact that we do have the Clover Assistant that we’re able to keep fee coverage up and keep visits up in Clover System from a telehealth perspective, so I think that helped us. We’re estimating for us in terms of 2021 revenue its worth, anywhere from a 100 basis points to 150 basis points, that’s our guess based on the work that we’ve done, based on the risk scores that we’ve seen. But that’s our best guess for 2021. And that is included in our guidance.

I’m sorry, 100 basis points and 150 basis points revenue impact are from lack of risk score.

Correct.

Got it. And then I do want to go back to Gary’s question around sort of Direct Contracting and the 200,000 members, I understand that ratably discussion but is there a – can you give us a sense, like starting in April and what’s the starting point? I mean it’s ratably where you start with 50,000 lives and then ramp that to 200,000. Can you give me any sense of the starting point, because again, the mismatch between 200,000 and the 800 million to 1.1 billion, I think I’m still struggling with.

Yes. Gary – I am sorry Ralph, I can follow up on that one as well. I think we’ve previously given guidance out there as to a mix of claims line and voluntarily line, we don’t have any information right now to say that would change. I think, roughly half-ish we would anticipate maybe plus or minus as the 10%, either way. I would say, we would start the year from a claims line of perspective, there may be some additional membership that comes on the claims line later in the year, given some of the conversations that we’re having with CMS. But again, I don’t think – we don’t have any better information frankly than we’ve had previously in terms of the ratableness of that. But I think generally speaking the guidance that we’ve given previously, we don’t necessarily anticipate any material changes from that, but that’s our guess only at this point.

Okay. And if I can squeeze one more in, MA enrollment, just going back to that. So sort of the shortfalls versus maybe what you initially targeted, you’re saying it’s just sort of COVID related and maybe if you could just give a bit more on your commentary around investing more in direct conversion and telesales and how important that’s going to be going forward? Thanks.

Yes. Andrew, you want to jump in on that maybe a couple of the other questions as well.

Yes, absolutely. Thanks Ralph. So just to give a bit more detail, so we have traditionally been very independent broker centric. So – and the way we do that is that we sort of go out there and we talk about the strength of our plans, we talk about how old they are, how good they are for the end consumer that has made a strong with independent brokers. And we call that our ground game normally. So as you know, those brokers go out, they generally have their own book of business. They do their own lead generation, there is marketing overlay as far as you’re on them, but it tends to be the brokers go out there and that’s why they get the commission for what they bring in. So we’ve had some marketing investment on top of that, but we’ve been very, very good and strong. I would say it’s one of our differentiators, how strong we are with that community with independent brokers. That was affected, we definitely saw that was affected during the COVID period, because there were fewer sites we could sellout. We saw lots of several brokers who traditionally produced a lot, actually just not go out with season they’ve retired. They just said, hey, because of COVID, it’s hard for me to run my book with season, so there was – we did a lot to try and get people to get out there, but it wasn’t COVID, so there’s only so much you can do. So we did see that slowdown. We’re still pretty happy with where we came in despite that and how much of our book is going to be coming in by the brokers. So on top of that, going into this year, we do expect that ground…

Thanks Andrew. And just, it’s a good question around just to add some additional colors to Joe and Andrew’s comments. MA is a really interesting market where if you look across, markets across the United States, sometimes in markets, even in our established markets, the plan designs with the lowest out-of-pocket costs and most flexibility don’t immediately get to number one market share. And so when you actually look at Clover’s plan designs and its established markets, for the most part they truly are the lowest out-of-pocket costs and most flexible network, and particularly the internet and network parity. Important to note, we look – if you look at kind of marketing and sales spent over the last many years, we have spent really minimally relative to the growth we’ve had is almost like compared to plans that have grown at a much lower rate. And so now when we’re at this standpoint where we have widening Clover Assistant coverage we’ve seen that year-over-year and some of what Andrew’s referencing is telemedicine, Clover Assistant has given us more confidence over time that we should be able to keep increasing our coverage rate of Clover Assistant. The other important thing to note is all these MCRs are at 3.0 Stars at 3 Stars and so Clover Assistant features as it relates to stars only really started getting built last year and are still being built now and obviously some of the effects of that are muted due to COVID. And so we have a really large tailwind on stars versus other organizations that are already at four stars. So that’s something that when we think about the ability to keep increasing the attractiveness of our plan designs. That’s something that’s super exciting for us. And so when we just kind of…

Okay. Thanks for the color.

Thank you. This does conclude today’s question-and-answer session. I’d now like to have the program back to Vivek Garipalli, CEO for any further remarks.

Thank you. We appreciate the time set on our first earnings call. And just to remind everyone again, we have our first product and technology showcase Clover Assistant online tomorrow at 10:00 AM, Pacific, 1:00 PM Eastern. So hopefully you could join.

Thank you ladies and gentlemen for your participation in today’s conference, this does conclude the program. You may now disconnect. Good day.