Ladies and gentlemen, good afternoon and welcome to the Clover Health Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Ryan Schmidt, Investor Relations for Clover Health. Please go ahead, sir.

Good afternoon, everyone. Joining me on our call today to discuss the company's fourth quarter and full year 2023 results are Andrew Toy, Clover Health's Chief Executive Officer; and Terry Ronan, the company's Interim Chief Financial Officer. You can find today's press release and the accompanying supplemental slides in the Investor Events and Presentations section of our website at investors.cloverhealth.com. This webcast is being recorded, and a replay will be available in the Investor Relations section of the Clover Health website. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties, including expectations about future performance. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K and other SEC filings. Information about non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be found in the earnings materials available on our website. With that, I'll now turn the call over to Andrew.

Thank you, Ryan. I'm very excited to be putting the finishing touches on a very strong year of execution for Clover. We've delivered a step change improvement in our financial performance in the same year that the greater Medicare Advantage ecosystem took a step back, which I feel proves out the power of our technology centric model. We are aiming to deliver a profitable adjusted EBITDA year in 2024 while continuing to invest heavily in our core technology asset, Clover Assistant. We will then be in a position to return to growth during a period where we anticipate our competitors will be retreating, and we'll aim to continually build on the strategic lead we have developed. With that, let's now walk through our 2023 performance. Beginning with our Insurance results, we delivered an MCR of 82.4% in the fourth quarter of 2023, bringing our full year MCR performance to 81.2%. This outcome maintained Clover's trend of significant year-over-year MCR improvement since 2021. I want to emphasize that I'm not referring to a couple of percentage points of improvements. In two years, we've successfully reduced our Insurance MCR by approximately 25 percentage points. In 2021, our Insurance MCR was 106% followed by 91.8% in 2022 and then most recently, 81.2% in 2023. The significant improvement in MCR since 2022 alone has driven a 181% improvement in our per member per month Insurance gross profit, which has increased from an $87 PMPM profit in 2022 to a $245 PMPM profit in 2023. Most importantly, this step change improvement in our Insurance results have translated to a full year 2023 adjusted EBITDA loss of $45 million, which is another significant improvement from 2022's loss of $290 million. I believe that this large improvement in gross profit and adjusted EBITDA demonstrates the rapid and…

Thanks, Andrew. Clover Health delivered an adjusted EBITDA loss of $19 million during Q4 and a loss of $45 million for the full year, both a significant improvement over the prior period losses of $80 million and $290 million in 2022, respectively. As a reminder, at this time last year, we provided initial 2023 full year adjusted EBITDA guidance of negative $180 million at the midpoint. We came in favorable to this initial guidance by $135 million and are obviously pleased with this result as well as the momentum this brings into 2024. For the Insurance segment, MCR improved to 82.4% in Q4 from 92.4% in Q4 of last year. For the full year, Insurance MCR improved by more than 10 percentage points from 91.8% in 2022 to 81.2% in 2023. Our strong MCR was paired with continued revenue growth of 12% and 14% to $303 million and $1.2 billion for Q4 and the full year 2023, respectively. We continue to realize favorable impacts from various operating initiatives during the year, and we believe our full year MCR is a good representation of the underlying performance of the business. Our non-Insurance MCR during the fourth quarter was 100.2% as compared to Q4 2022 MCR of 103.6%. Full year 2023 non-Insurance MCR of 99.8% was a better result compared to our MCR of 103.4% in 2022. Our Q4 and full year 2023 non-Insurance segment revenue each declined 68% versus the prior year periods, respectively, to $198 million in Q4 and $773 million for the full year. As a reminder, the company exited the ACO REACH program at the end of the 2023 performance year to focus more effort and resources on its core Medicare Advantage offerings. Fourth quarter adjusted SG&A was $81 million, down 4% year-over-year. On a full year basis,…

Thanks, Terry. I hope that our comments today further portray our confidence to deliver upon our 2024 targets. Before opening it up for Q&A, I'd like to close with my thoughts on the state of our unique care management platform, which consists of differentiated AI-powered technology with Clover Assistant and asset-light wraparound care services with Clover Home Care. We see these as entirely synergistic capabilities. We aim to care for all of our membership with CA-powered physicians in our wide network. If these members need extra support and care coordination, any Clover member can have a no-cost CA-powered visit from Clover Home Care in the comfort of their own home. For the most vulnerable and therefore highest utilizing members, Clover Home Care deploys a fully accountable primary and palliative care program called In Home Care. These programs are achieving meaningful scale and results. Going a little deeper on the technology platform side. You may have heard me say before that we are not building insurtech, that is we're not building software to improve the administrative functions of insurance. Rather, we are building software to improve clinical care. We've shared in the past that returning members who see a Clover Assistant provider have far lower MCRs than those who see a non-Clover Assistant provider. Over the last few years, we've continually made investments into the CA platform. Every day, we continue to expand upon our vastly differentiated data retrieval capabilities using our superior AI-native platform to process that data rapidly and leveraging our CA network to deploy those insights to physicians to maintain the closed loop. We expect these meaningful advancements in Clover Assistant's capabilities to continually improve the impact that our technology has on our business performance, and more importantly, continually improve the care that our members receive. Switching to…

We will now be taking questions from Clover Research Analysts. [Operator Instructions] Our first question comes from Jason Cassorla with Citi.

Great. Thanks. Good afternoon and congrats on the quarter. Just as it relates to the $1.25 billion to $1.3 billion of 2024 revenue and guidance. Can you give us a sense on what expectations are between MA enrollment declines and perhaps the offsetting PMPM growth that's embedded in that, call it, 3% top line growth at the midpoint? Thanks.

Yeah. Hey, Jason. So the way that we're looking at this, as we said in the remarks, is that we have been pricing the plan and the product, I think, very appropriately. And so we expect to see PMPM improvements mainly due to the effect of member mix and returning member mix. So while we are managing the plan to a little bit flat, a little bit down, growth is not our main focus right now. We do expect to see significant continued improvement through plan operations and through member mix, where we would see that PMPM revenue increase. And therefore, that one would drive that revenue number.

Okay. So predominantly driving to the PMPM growth. Got it. Okay. And then just my quick follow-up here is cash generation. Just as we think about the $137 million of accumulated cash at the end of the year, should we think about break even EBITDA expectation as a proxy for cash flow from ops in '24? And then can you give us a sense on what the potential cash outflow would look like from any settlement true up with CMS given your full ACO REACH business exit, just including the incremental working capital unwind that may happen because you completely exited the business at this point? Thanks.

Yeah. So a couple of different questions you had there, great ones. I think there's a couple of different things. Number one is, as we look at the unregulated number, I would note that a lot of our profitability means that cash is inside the regulated entity right now. And we have some operational methodologies where cash would move between those two entities was partially offsetting any outflow from the unregulated. So we feel pretty good about our unregulated cash position. Regarding ACO, we have been reducing -- we did exit last year, as everyone knows, and we have been lowering our exposure. So it's a reduced exposure that we had even in 2023, which is the last year of participation in the program. So we priced all of that into our modeling for the cash flow position, and we feel good about our unregulated cash. We feel good about where we sit on the overall liquidity. And as we said, our current goal as management is to target adjusted EBITDA profitability this year without the need for any additional capital in the unregulated NSE.

Great. Thanks. And maybe if I could just follow up one last question. I guess, first, can you give us a sense on how you approach '25 bids? And then just a follow-on to that and understanding that you recognize MLR improvements over time when a member is attributed to the Clover Assistant, right? I guess, given the higher pricing you've established in your plans over the past couple of years, the 20% revenue PMPM growth in '23, the likely growth in '24, can you just give us a sense on how to think about what the profitability of a new member to Clover looks like today, especially when you do decide to flip to more membership growth aspirations? Thanks.

Yeah. So that's a great follow-on question, Jason. I can't do it full justice here, but the way that we think about it in a couple of different ways. On that last part, we do look carefully at our LTV-CAC equation here, and there's a couple of different dimensions. Given that we do expect, publicly stated by other plans that they will be pulling back and repricing their products, we really do think that there’s an opportunity for us to leverage the fact that our technology-driven approach manages our membership much better than others, we believe. And what that means is, is that we don’t necessarily have to improve or increase the richness of our plans as others pull back and we will enjoy a decrease in the overall customer acquisition cost. The other dimension is – and we will be sharing more information later on about the effect of Clover Assistant on that LTV-CAC equation. But I think it’s a very interesting lever that we get that because we drive care through CA by pulling up those CA visits and getting people CA visits earlier, we’re able to also drive new – close that LTV-CAC equation and get the profitability on our members sooner rather than later. We haven’t shared that break-even point yet, but it’s something that we might share in the future.

[Operator Instructions] Our next question comes from Richard Close with Canaccord Genuity.

Yeah. Thanks. Congratulations on the success in '23. Andrew, maybe talk a little bit more about the higher utilization that you baked into 2024. Any more specifics that you can provide and just how to think about the low end and the high end of the range would be helpful, adjusted EBITDA?

Yeah. Absolutely. So what we've done here, just to be clearer, is that we feel very good about the momentum and we feel very good about the improvement in the business. We do see that others have seen this variability, as I said in my remarks. And to be clear, we are not seeing any utilization that we did not anticipate. So -- all we do have higher utilization, but we did anticipate that throughout '23. We had in the quarter for Q4, nothing that we didn't -- no surprises effectively. So what we did when we looked at our guide for -- outside of Q4, but when we look at our guide for full year 2024 is to say, look, we feel pretty good that we could target and we would land potentially near the higher end of that range that we provided. So we guided to negative 20 to 20 (ph). We looked and said we could come to the higher end of that range, as I said in my remarks. But then we said we wanted to increase the width of that range because there may be unexpected effects systemic to the environment that others are seeing that maybe haven't hit us yet. We aren't saying that we are seeing that. We are saying that we are being prudent in managing that guidance range. As we sort of have Q1, Q2 and the year develops, as we have claims run out, we expect to narrow that range and hopefully provide tighter guidance on where we end up. And again, hopefully, we will have price and everything appropriately and we will see ourselves come in on the higher end.

Okay. That's helpful. And just how are you thinking about Star ratings and improving that going forward?

Yeah. Absolutely. So one thing that I will say is that we are focused on our Star rating and making sure that we are able to clearly land and execute against a 3.5 Star rating and then have a pathway to 4. A couple of different things that we are able to say about our performance there. Number one is that with the two key methodology being applied last year, one thing that did come into play is these new guardrails around Star ratings. What that does is while the baseline for Stars did shift significantly last year, there is also significantly more predictability now and where cut points will land. And I think that is advantageous to not just us but all plans in terms of having higher predictability. And that's something we're pricing into all of our Star rating methodologies so that we know that we can manage against that 3.5 Stars and then proceed nicely towards that far 4 Star level. Second of all, I do think that when we look at Star ratings, it's much harder to predict your Star rating when you're growing significantly. And both in '23 and '24, we have a more stable membership. And because of that more stable membership, we're able to anticipate things like Star rating performance. These things that our net inherence denominators are more stable. And we are also able to estimate utilization and revenue more accurately because we have a more stable membership base and we have a higher returning membership. So between those two things, we do believe we have very good line of sight into where we think things will land.

Okay. If I could slip another one in. Just you said return to growth, and I'm curious, timing of that? What exactly are you, I guess, insinuating with that comment?

Yeah. So what we're saying there is that we absolutely have been focused on adjusted EBITDA profitability and attaining adjusted EBITDA profitability without the need for additional capital, right? And so that's been our focus. It remains our focus, and we are in striking distance of that and I feel good about that. That means that because that has been the priority, we have not been focused on necessarily membership growth during this period, and I think that's appropriate. I also think that, that has been a good strategic move on our part because those people who really took on a lot of PPO risk and didn’t have managed – those management capabilities, I think have had seen it be difficult for them to manage their performance because they don’t have something like Clover Assistant to provide their management capabilities on that wide network. Now one -- we’ve been focused on a lot of things in the last couple of years: maturing as a public company, maturing operation, rebaselining our PMPM servicing admin costs, loss of maturation that we’ve been focused on to drive that at the profitability. And as we get all those boxes ticked, I think you’re going to see us go through that adjusted EBITDA zero pathway, deliver profit and then stop to say to ourselves, we’ve matured our platform, we’ve matured our operations. Now how do we start picking up more membership again, growing top line while still enjoying the optimizations that we’ve delivered in the last couple of years.

We do have a follow-up from Jason Cassorla with Citi.

Great. Thanks. I just had a couple of numbers items I want to follow up on. First, can you remind us of what the SG&A cost load was for the ACO REACH business for 2023 as we think about modeling? And then second, just if there's any prior period development inside of the 2023 MLR, that 81.2%, just so we can think about the right jump-off point for '24? Thanks.

Yeah. So I think there’s a couple of different things. One is that you can see here in our full year results for – we effectively loaded our results for 2023 and maybe adjustments around SG&A there in terms of adjusted EBITDA. So you can look at our SG&A run rate and our optimizations going forward and our guide really saying that we’re reducing those operations largely to 0 in 2024. So hopefully, that gives you an idea of like – of what that targeting looks like. Of course, there are onetime costs related to exiting that program, but those would have been adjusted out from the adjusted EBITDA. The other thing on the PPE dimension is that we generally do feel like our full year MCR is a good proxy for our complete performance. Quarter-to-quarter, there are some things that flow in and out, and that’s expected due to IBNR and time calculations. So normally, what we say is if you look at our full year projections and our full year results, those give you a good idea of what our true performance is like because those PPD effects tend to net out across the full year basis.

[Operator Instructions]

All right. So if we have no more questions, thank you, everybody, for asking those questions. So heading into 2024, I hope that everybody gets a sense for the increasing confidence that we have in achieving our profitability on an adjusted EBITDA basis in 2024 as well as the durability of that progress, setting us up for success in future years. We've delivered favorable results each and every quarter this year driven by the strong unit economics of our core MA business on that PPO chassis and our differentiated care management platform that we continue to significantly invest in. So between these two things, this gives us great confidence in the trajectory of our business and our ability to succeed in the long term. We expect to continue to build upon this momentum in 2024, and I look forward to updating you all on even more progress in the future. So thank you all. Thank you.

This concludes today's Clover Health fourth quarter and full year 2023 earnings call and webcast. You may disconnect your lines at this time. Have a wonderful day