Thank you for coming. I'm Richard Close with Canaccord Genuity, covering Digital and Tech-Enabled Health. We're excited to have Clover here. It's been probably my best performing stock this year, so congratulations to you from that standpoint. Clover's been, you know, tracking towards positive adjusted EBITDA. This year is expected to be the first year of that with some cash to spare on that, which was a worry for some. Many of the larger Medicare Advantage companies have been pressured from a tougher reimbursement environment, higher medical cost trends that they've called out, and at the same time Clover has pretty successfully managed that. So interesting to get an update and more details on how you've been able to do that.
So, excited to have CEO Andrew Toy with us again this year. And welcome, Peter Kuipers, as well, who joined as CFO earlier this spring. So, well, welcome, and thank you for supporting Canaccord, so.
Thank you.
Pleasure.
Andrew, I guess maybe if you could start just giving us a quick introduction to Clover. There might be some out there that are new to the company, so that it would be good to start off there. Maybe the market you're targeting, the scale of the business, and why investors should be interested in Clover.
Yeah, thanks, and thanks for the invite today. So, Clover... At Clover, we are focused on the Medicare market, in particular, the Medicare Advantage market, which is the privatized form of Medicare. Medicare in the U.S. services those 65 and over, the disabled, those with end-stage renal disease, and those with ALS. And so, that's our population, and we're very focused on just Medicare Advantage. I think that's one area that makes us different, meaning we don't do the exchanges, we don't do commercial, we do Medicare Advantage. And so, what makes us interesting is we are functioning as an insurer, and we're covering a population which is definitionally going to be older and sicker than the general population. So the way that we solve the problem of how do we deliver care, is we are focused on earlier identification and earlier management of chronic disease.
Because when you're servicing the Medicare population, what you know is that that chronic disease burden is going to be high, and as people age, as all of us age, we are much more likely, almost certain, to get some form of chronic disease. So what we focus on is building our own technology, using a lot of different data streams, using the data available to us as a payer, the data available to us in terms of the care continuum, joining that with machine learning and AI, and delivering that to primary care physicians, and enabling them to do a better job with that earlier diagnosis and earlier management of those chronic diseases.
And when we do that, you see better outcomes, because earlier management leads to better clinical outcomes, and also earlier management leads to significantly better total cost of care performance, and that flows right back to us as an insurer. Because we're an insurer, we hold that risk of the premium, and so we can do good by improving clinical outcomes, we can deliver better total cost of care. That flows back to us in terms of, margin and profits, which we, we're very proud to have delivered, and then we can then now, in going forward, reinvest that margin and profit into our plan products, making them even richer and better for our consumers, our, our members, and then, and growing our insurance plans. And so that's the virtuous cycle of Clover, and that's what we're focused on doing.
Okay, great. Thank you. Peter, I asked an executive in the last meeting who is new to the company, and so I'll pose the same question to you as well. You joined here in the spring. I guess, you know, maybe go over your background a little bit, and past experience, and then, you know, your comfort level coming to Clover, and just any thoughts, perspectives.
Absolutely. Is the mic on? Absolutely happy to do that. So I grew up as an executive at General Electric, right, so Boston-based to some extent, both in Europe and in the U.S. After that, two decades in technology companies in Silicon Valley, really scaling technology companies, specifically in the SaaS side of the business, both at Weather Company and also at Omnicell. So very excited to have joined the team. I'm impressed with the talent across the board. Very strong technology leading to industry-leading results, if you look at an MCR, BER perspective. We have momentum, profitable this year, positive cash flow from an operating perspective, so happy to be on board.
Good. You brought up some of the highlights in that response, but Andrew or Peter, you know, the company reported last week. Is there any like main takeaway or key takeaways you think we should focus in on from the report?
Yeah, I can let Peter jump in for a second. But I think from my perspective, we've been talking for a long while, you and I have been talking for a long while, about the focus on the company on profitability. That has absolutely been our focus for the last 18 months-24 months, adjusted EBITDA profitability, and we were very proud to have continued to improve our guidance, continue to deliver in 2024, and really have confidence in our ability to have that profitability this year. So that really is an important milestone for us. Now, with that core fundamentals in place, we're able to start looking again at growth, top line growth, and building the business, maintaining profitability, leveraging our core differentiator in the technology.
. Yeah, exactly. I think I would add on, again, positive cash flow through the first half of the year, EBITDA for the first half of the year at $43 million. So we definitely have momentum. We increased our guide both on revenue, on EBITDA as well, and then we improved also the loss ratios, both the MCR and then BER as well.
Can you talk a little bit about the cash position and.
Yeah
The improvement there.
Yeah
And what's expected.
Yeah
I guess, in the second half of this year?
Yeah, absolutely. Total cash and investments by the end of June was about $483 million, $201 million of that is at the unregulated entity, if you will. So we expect positive cash flow for the full year on an operating basis. We have to return a deposit to the CMS for the ACO business that we exited last year. That's about $35 million. So we expect to be around $150 million, $160 million of ending cash for the unregulated basis, and then, of course, we have the regulated cash as well still. So, no need for financing from our perspective, and we haven't spoken about 2025, but we're positive about the momentum going into 2025 as well.
And the CMS payment, how certain is that? Is that completely... That's what the number is, or how does that move potentially?
Final settlement for the ACO REACH?
Yes.
Yeah, it's, it's very, very close.
Yeah.
Okay.
Yeah.
Okay.
It won't move much, no.
Okay, excellent. So, there's been a lot of controversy, I guess, in the Medicare Advantage. Maybe not controversy, but a lot of discussion in the MA business overall, industry-wide. Star Ratings have come in the.
Yeah
Under scrutiny, V28 reimbursement, medical trends, obviously medical cost trends. So, you know, first on the medical cost trends, you guys have seemed relatively immune to it. You might not characterize it as that, but, while others have continuously, you know, called it out, I guess, over the last year really, can you just, like, help us understand, you know, why Clover has performed better? Is it the product? Is it the IT? Is it?
Yeah. I think it's a combination of a, of a strategy, which relates to growth, as well as technology. So the key aspect is, for a long time, like, Medicare Advantage was heavily known, almost synonymous with narrow networks, with the HMO products, right? And the HMOs are where the insurer effectively picks your doctor for you and says, "You're gonna go see this doctor, and then we're gonna manage costs and manage care through there." And Medicare Advantage plans showed themselves to be pretty good at doing that, managing cost of care on the HMO. We've always been very focused at Clover on the PPO. The PPO is where the consumer, the member, the patient, picks their doctors, and then they see the doctors they wanna see, and that is just something consumers want, right? They want to pick their own doctors.
I often say, like, you don't sort of pick the HMO, you settle for the HMO, is what happens. So now, because those PPOs are popular, that's what consumers are picking, they continue to want those products. A lot of other nationals came into the PPO in the last couple of years seeking growth, seeking to grow, going to leave the HMO and doing more in the PPO. And what I think is what you've seen is, that we knew we were gonna be in the PPO, and we built our technology infrastructure to manage care on that wider network of physicians. Without that advantage, that technology advantage, the national payers who came into the Medicare Advantage space on the PPO have now struggled to manage cost of care on that wider network. So they came in, they were looking for growth.
That made sense, so they went to what consumers want, which is the PPO, but they couldn't quite manage the care there. They relied too much on that narrow HMO control for it. So I think that that's what you're seeing, is that's flowing into their results. Whereas, because we are born on the PPO, and because our strategy and our technology, Clover Assistant, is designed to help physicians on that wider network manage that total cost of care, I do think that we're able to perform significantly better in the face of those particular wins.
Now, you pulled back on growth a couple years ago?
We did
In terms of entering new markets or even significantly expanding in the existing markets.
Yep.
How much do you think that played a role on your medical costs, performance over the last couple years?
I think that what we've seen now is that we have exceptional cohort performance, right? So what we have is, we've been adding members to replace, you know, mortality and things like that, so we've been adding, we have been adding members. But what we've definitely been doing is keeping our cohorts stable, so that they have been aging, of course, everyone ages, but we've been keeping them relatively the same cohorts versus adding cohorts. So I think that if you even just look at our cohort performance, it's very, very strong, right? And can help sustain now the addition of new cohorts coming in. So don't get me wrong, new cohorts would be diluted in the earlier years.
Yeah
But we can sustain that given our current performance.
Okay. Maybe with respect to Star Ratings, a couple of lawsuits favorably.
Sure, yeah
Settled or determined, with respect to.
Adjudicated.
Adjudicated, yes.
Sure.
Thank you. On Star Ratings, a lot of noise on this.
Yeah
In terms of, you came out with a recalculation. Can you talk a little bit about, like, what's going on in Star Ratings?... And I'm curious, I think you have put some financial aspects on the impact of moving up a, you know, a half a star or whatnot in the past. I don't know if you wanna talk about [audio distortion] .
Sure. Yeah, so, what happened there was basically that when CMS was looking at this, that they... When they were applying something called the Tukey Outlier Calculation to the previous cut points for Star Ratings, which is the benchmarks you have to hit for certain Star Ratings, they actually applied these Tukey, these guardrails to a synthetic set of cut points. They basically generated a synthetic set of cut points and said, "These are what we're gonna now apply guardrails to." Whereas in the law, as written, they are meant to apply that to the previous year's Star Ratings, not to a synthetic set of cut points, and so that was what the lawsuits were basically about. They were saying, "Hey, the law doesn't say that this is what you're gonna do.
You've actually done this calculation differently than what the statute says." And the courts agreed, and that's why CMS went back and recalculated against the actual real Star Rating values. And when they did that, that's when we moved back to our 3.5 Star Rating, which we think was merited. A couple different things there. First of all, while we think that we could have still been profitable, and I always said that at earnings, next year at a 3-Star Rating, the 3.5 Star Rating actually makes it cheaper for us to fund benefits that we were gonna fund anyway. And what that also means is that we actually can maintain and actually fund additional benefits if we choose to as well.
Ultimately, what I mean by that is that our 2025 offering is now both we can offer a richer benefit, and that is, that effectively is cheaper to us from our economics, because CMS picks up more of that particular subsidy. So that puts us in a really good position, I think, because we have incredibly, proud of our margin position as it stands in 2024. We now maintain our 3.5 Star Rating, which means that there's no headwind to funding the benefits. That means that, while we don't know exactly what competitors will bid yet in New Jersey, in the core of our markets, we do believe that the nationals have signaled some amount of retreat in the MA space to look for margin.
And so that means that I think the timing of our return to growth is both good from a market perspective, and is now also economically quite.
Attainable
Attainable for us because we have the 3.5 Star Rating.
Yeah. So you just called out New Jersey. Is that the only market that you've talked about a return to growth this year or next year? Is New Jersey the only market you're focusing on, or?
I wouldn't say it's the only market, but something that I do want to embrace, I think it's, you know, we're proud of it, is that we have an incredible ability to deliver care on Medicare Advantage in New Jersey that others simply lack. New Jersey is known to be a challenging market, and we're proud of the fact that we're able to deliver, to deliver such strong care and service there. We have in-home care there, we have our nursing services there, we have our Admission-Readmission Prevention program there, we have our MA plan. We, everything we have is there, a strong network of CA docs. So New Jersey also, we have about 10% market share around on just the MA portion. We have about 60,000 lives, about 1.3 million, 1.4 million eligibles in New Jersey.
So we've got a full infrastructure. We think we feel very good from a cost-of-care perspective. We feel good from a clinical outcomes perspective. New Jersey share is something that's very important to us and that we will be focused on.
Okay. I guess the other industry headwind or is V28. How do you think about that? How have you executed, and thoughts on that going forward?
Yeah. So HCC V28, which is the design scheme for registering risk adjustment for various diagnoses. I think that the what I said earlier is really important here. We are focused on the early diagnosis and then early management, management is key, of chronic diseases, and the chronic diseases tend to be the greatest hits of aging. Chronic kidney disease, COPD, which is lung issues, right? Congestive heart failure, diabetes. So when you look at these kinds of conditions, these have management and cost associated with managing them, and they are prevalent and chronic diseases. These are the things that people get when they age.
If you look at V28, a lot of what CMS was doing there was looking for places where there was revenue associated with diagnoses, where there was really no treatment, not even done, necessary, basically. Like, most doctors would say, "Well, yeah, you have that, but there's nothing we need to do there." So one of my favorite examples would be, bruising, right? bruising, purpura used to be an HCC before V28, which meant that if you had bruises and that was diagnosed appropriately, there would be more revenue for that. In discussing with doctors, no doctor does anything about bruising in the aging population, right? Like, most people just have some bruises.
Mm.
So even if you have that clinical diagnosis, you don't do anything about it. And so CMS would look for those codes where there was a diagnosis, there was revenue, and there was very little treatment necessary, and has basically taken those out. Now, no plan has no exposure to those. We have some exposure to those, but I would say that there were certain, risk-bearing groups and certain plans who were delegating risk to those groups, where that was a very high percentage of their total, risk adjustment scores, and those particular areas have been significantly impacted.
This begs the question, or gets into, that I asked on the conference call a little bit about. There's been a couple negative articles in the journal, some investigative reporting, I, I guess, or looking at claims data in terms of the home care.
Yes
Or home visits. You have, you know, Clover Home Care, so I think it's worth discussing the difference between the two.
Absolutely. So, a few articles were written there. We're very proud of our home care capability, so like any, any one of our members can call and ask for someone to come see them in their home, and we will send a clinician to go see them and see how they're doing. We also do a lot of primary care in the home. So the first big difference is, we actually have a place where we take over primary care. We have, PCPs who will do entirely house visits. There are no offices here, and they deliver care to the sickest percentage. We try to enroll the sickest members who no longer can leave their home to really regularly see their primary care physician. We take over that primary care.
So a big part of what we do in-home care is that, and that's very different to what was being discussed in the journal. And so we deliver really great care there. Another aspect of what we do for home care is our Readmission Prevention Program. So after somebody goes and gets admitted, unfortunately, to the hospital, we get what's called a notice of admission in our data feeds, and it flows through our Clover Assistant platform, and we will actually immediately dispatch care to say, "Once you're discharged from the hospital, we will come see you at no cost to the member, to make sure that everything's okay, you understand your meds," and that reduces readmissions on our side. Again, very different.
Yeah
To what was cited in the journal. So I think that we are very focused on the care aspect here, and that is not only great because it helps out our members, which is critically important, but it really does drive economic value as well. It's just not this incredibly short-sighted.
Yeah
Value that was sort of.
Yeah
Cited in the journal.
Yeah, and of course, we also use the same technology there, too.
Yeah.
Clover Assistant.
Yeah. Oh, yeah, 'cause CA is the.
[crosstalk]
Is the backbone that drives all and coordinate the care across all of these.
Yeah
Sites of care.
So let's dive deeper on CA, because you announced Counterpart offering.
Yep
Several months ago. And just give the background on offering the essentially Clover Assistant to other providers, other plans, and what you think the opportunity is of that going forward. You do have some customers, that provider customers, that-.
Right
Have been using it, so it might be worth spending some time talking about some of those existing users.
Sure.
What is the opportunity going forward?
Yeah, so we announced Counterpart Health, I think it was in May, like a couple of months ago.
Yeah, yeah.
And what we announced there was general availability, so we weren't announcing, like, intention. It's general availability. As you say, we've already been working, and we've signed up a few systems who are already using it under the Counterpart model, and we feel comfortable that we're past those initial sort of trial phases and comfortable enough to announce GA. What does that mean? Really, when we look at the software, all the results of our plan are being driven by primary care physicians using Clover Assistant, and then now Counterpart Assistant, when it's not our plan. It's the exact same technology. It's the exact same data assets. It comes with its own data, so it's very quick to deploy. It can be integrated to the EHR, but it doesn't need to be to get its data.
We get our data through our own infrastructure, which is really powerful. So it's very quick to deploy to a health system, only needs about an hour of training per physician. And what we've seen is, as the results of our own MA plan have been really consistently good, and as you, as you said, in an environment where they're good, where others are really having minimally concern or maybe sometimes real struggles, I think that a lot of the industry now, people who are in MA need some help, basically switching over to a newer way of thinking about MA. And what we're able to offer them is proven, a proven approach, because we can point to our own plan to show that, look, it works.
And we can offer them a very technology-centric approach, where we say, "You just need to deploy this to your PCPs. You don't need to do full practice transformation. There's no rev cycle. There's no, like, EHR thing lift. It's just a separate cloud-based system that you're gonna deploy. And when you do that, these are the results we think you're gonna see." And then the business model is a combination of SaaS, like a recurring revenue on a PMPM, and, value-based, sort of shared savings on top of that, and we think that that's a very attractive model for those in MA right now.
What has been the demand so far? I'm curious.
Yeah, I think that. Again, the combination of those two things is driving a very good, in my mind, timing factor from product-market fit. Because maybe if we'd come out, like, a year or two years ago with this offering, there are others who would've said, "Well, you know, we're okay. Like, we think we've got MA figured out." But then, the changes have come on the, on the, on the.