Ready here. So hi, everyone. Steve Baxter, the Healthcare Services Analyst here. We're really proud to have Clover Health join us as our last session of the day. Clover is a bit of a unique take on the MA market. You're gonna hear a little bit more about Clover as an MA plan, and also what they're doing to differentiate themselves as an MA plan. We're happy to have CFO Peter Kuipers here with us, and he's gonna take us through a few slides, and then we'll follow it up with some Q&A. Thanks for being with us today.
Thank you, Steve. Great to be here. So like Steve said earlier, I'll cover a couple topics. First half, 2024 performance. Then I'll talk to the unique innovative approach that differentiates us from other plans and tech-enabled organizations from an insurance plan perspective. And I will also talk about Counterpart Health. We announced a deal earlier today, a multi-year deal with The Iowa Clinic, and then I'll round it off with summary as well. So let's start with the first half, 2024 performance. Second quarter was the first quarter of GAAP net income profitability. First half, EBITDA profitability view was $42 million profit. We also increased guidance on all metrics for 2024 both on revenue and on the cost ratios, including MCR, and also we increased the EBITDA guide for the year. I joined late April.
I do believe the company has very strong fundamentals, which you can see, you can see the momentum of that expressed in the numbers we reported and in the increased guidance. We continue to have strong top-line growth. We do believe we have industry-leading medical cost ratios. We have a strong balance sheet, no debt, and we believe that we can fund future member growth ourselves or self-fund. Our solution, uniquely, is based on the PPO chassis, focused on physicians, and I'll provide some more detail later on. We're providing strong returns, and we believe we're in strong positions for long-term success. So this page, you see the financial development over time, the financial results. You can see that top-line insurance revenue has grown double digits, including the guide for this year as well.
You see that gross profit from the insurance line of business has grown strongly as well over the years, and on the right side you can see the increased EBITDA profit for full year 2024. Our current guide for the year is adjusted EBITDA to be between $50 million and $65 million for 2024, so in a difficult environment, maybe for some other players, we're performing well, and why is that? We have a differentiated approach. First of all, the vast majority of our plan is PPO-based. This means that members or Clover cardholders have their choice of general physician or PCP, and we believe we can add value with our software solution, and I'll go into a little bit later. We're focused only on MA, and we're focusing on improving health outcomes at the point of care, at the time of care.
It's all AI-based, AI-powered cloud technology. Additionally, we also have a very strong home care element of our offering, and that actually is led by MDs and DOs, which is different from other plans. Here's what the software solution looks like. This is what a general physician would see using the Clover software platform. Fully integrated with almost all EHR systems, acute and non-acute, integrated with a really easy and elegant, intuitive workflow. Easily designed, it fits really well in clinical workflow. Clicking one detail down, this is an actual screenshot. What does Clover Assistant do? First of all, the technology is architected based on the cloud, so it's real-time. It connects over 100 data sources, also real time. Think about virtually all EHR systems, all claim systems, all pharmacy, Rx, and all labs. What does it actually do?
So when a general physician sees a Clover insurance member, the physician already has, in a very organized and curated way, an overview of where the patient is at, what medical treatment has he or she seen, so first of all, that's very difficult in other practices, right, so that's step one. It's elegant, it's really elegantly presented, summarized, and then we use AI or large language models to come up with areas of recommendations, areas to look at. Given that this patient took this lab test, was in acute care for this symptom, you might want to look at this area, and as a result, we've done A/B testing as well, and we can look at the results over a longer period of time. The software solution has been live for six, seven years now at scale.
We can prove out that physicians using the software platform generally are able to detect and diagnose chronic diseases between 12 and 18 months earlier, versus not using the software infrastructure, so generally, health outcomes are better, care management can start earlier, and therefore, also cost is actually lower, so to summarize the technology that we call Clover Assistant, again, it's cloud-based, AI-powered, it's platform-agnostic, functionally integrated in all EHR systems, and importantly, also, it has a feedback loop as well, so it's agile. We have a technology product roadmap developed by our technology team with Agile Scrum teams, so we develop every quarter, we develop new capabilities, we refine the algorithms and the AI. Additionally, we believe we have best-of-class Clover Home Care focused on the highest acuity, and we staff that with elite MDs and DOs, which is different from many other approaches, right?
So, and then, of course, the home care uses the same software. It's the same longitudinal record, full insights in the patient background, and the care management plan. So that is different. But if you're going to summarize this and look at the what flywheel do we really have here, right? So one, we have a really strong PPO benefit offering in the market with a high choice. The product really strengthens the membership and the growth there. We're, of course, recruiting and expanding physicians that use this software over time. And as more physicians use this software, of course, the iteration from an innovation perspective, that flywheel starts spinning faster, right? Via closed feedback loop. So here is a slide which we think is important to kind of distinguish ourselves from other plans, right?
So it's page twelve in the deck, for the listeners online, that we posted this morning in the investor relations section of our website, right? So we are an insurance plan, but we're technology-focused, and our focus is on Medicare Advantage. The technology is proprietary, like we talked about earlier, exclusively powered by AI, and we focus on early identification and management of chronic diseases. Earlier care, better health outcomes. Again, members have a choice of their physicians, so PPO. Important to note, also, compared to others, we do not delegate risk, essentially. So the results you see are the pure results. It's pure performance. Again, home care is physician-led, mostly MDs and DOs, and as a result, our loss ratios, either on an MCR basis or a BER basis, are industry-leading.
I would also point out that compared to maybe some more traditional MA plans, that the care management is at the point of care of the general physician at the time of care. So we don't need to wait till claims trickle in two, three months later, and then with a pop health tool dashboard, try and reach your members, or try and stem costs from a pre-op perspective, right? So it's pure clinical tool at the time, at the point of care, at the time of care. So now let's segue into Counterpart Health. So the same proven technology we have made generally available, since the end of May to other or third-party Medicare Advantage plans, and also providers that have taken upon risk. So what does that mean?
So we already have a proven technology, again, AI-powered, proven results, and we have conviction that we can help third parties, again, other MA plans and at-risk or risk-bearing providers. We have conviction that we can reduce their total cost of care or MCR ratios by over one thousand basis points, right? Which is significant, right? That's not over one year, but over multiple years, but not ten years, right? So think about multiple years there. Again, it helps also, of course, early diagnoses of chronic diseases, better health outcomes, lower cost of care, integrated easily, very intuitively in the workflow with almost all EHR systems. Installation, implementation is very straightforward. It requires one hour of training for a physician. And as you've seen, the workflow is very elegant, almost Apple-like, right? Very flows very well. You want to use it as a physician.
What does this now mean for Clover Health, right? For the company, if you will. So we can use the existing technology that's proven over many years at scale. There's relatively very low, almost no additional R&D or technology spent in really helping these third parties. The revenue model has two components. One is a per member, per month fee for the patients that are covered by the technology. So that is recurring revenue, and that will grow as more physicians add a customer, either at-risk provider or another MA plan start using the software and roll that out. So that's a recurring revenue stream... cloud-based, so that is recurring SaaS revenue. The second component of the revenue model is tech-enabled services revenue, and that is a share that Clover gets of the savings.
So generally, these contracts are constructed where the first layer of the savings is for the third-party MA plan or for the third-party provider, but after that, there's sharing of the reduction in the cost, if you will. So generally, that is calculated after a measurement year or care year is completed, right? So think about it as a kind of a fifth quarter, revenue, right? And as we grow and as we stagger on, that'll be more recurring. At some point, we might get to more like a quarterly revenue recognition on that as well, as we get more experience, right? So again, the offering has fairly low, customer acquisition costs, right? So we have a concentrated, very experienced, BD team.
Again, margin profile compared to the plan, of course, is higher, specifically for SaaS, but also tech-enabled services, and we believe this will ramp over time. It's a differentiated technology. It's proven, and then the pipeline is also very strong. Again, here is another summary, if you will. So early diagnoses for chronic disease, including chronic kidney disease and diabetes, med adherence, of course, very, very important also in care management. And again, we have conviction that we can help these third parties improve their cost ratios by over one thousand basis points. And on the right side, you see a lot of the preventive healthcare actions that providers can take. Again, in summary, strong first half 2024 results, improved guidance across all metrics, strong business fundamentals reflected also in the momentum, healthy balance sheet, no debt, no need for additional funding.
We believe we can self-fund growth into the future, and it's all powered by a leading technology platform, cloud-based, AI-powered. And then lastly, we've made this technology now also available to third parties. So I'll leave it at that, and maybe, Steve, if you have some questions.
Yeah. Oh, great. So I think just starting with Clover Assistant, I mean, obviously some impressive performance that you drive through, you know, getting physicians to treat their patients with Clover Assistant. How do you think about the penetration rate of that over the next few years? I guess, where have we been? Where can that be over the next few years, and how do you drive physicians to adopt Clover Assistant?
Yeah. Yeah, so I mean, from an organic perspective, from a growth perspective, there is a lot of opportunity to grow, right?
Mm-hmm.
Majority of our members are in the state of New Jersey. We're also in Georgia, South Carolina, Texas, and Pennsylvania.
Mm-hmm.
So if you look at kind of the recruiting of additional physicians, that is continuing.
Yeah
that will continue. And then, so roughly two-thirds of all the Clover cardholders, if you will-
Mm-hmm
members do get a visit at least once a year powered by this technology.
Okay. And then, you know, obviously, you highlighted the financial results, which have been really strong. I'm not sure if everyone would kind of realize how much they've improved. I think you, you know, you reported a 92% MLR in 2022. This year you're guiding for something like 78%. Like, it's a-
Yeah
really remarkable level of improvement. Like, if you think about, like, what have been the key building blocks that have allowed you to realize that at the same time the rest of the MA industry-
Yeah
is pressured, I guess, how would we think about what is so different for you
Yeah
versus the rest of the industry?
Yeah. So maybe kind of just looking at kind of the core strengths of the company and our technology platform. So that definitely has driven improvements. As we add additional capabilities-
Mm-hmm
the models are constantly learning, so the recommendations are
Yeah.
better and better.
Okay.
So that improves, if you will. I would also say we have an advantage that are the physicians using our technology use these recommendations at the point of care, so you're way earlier
Mm-hmm
than maybe competitors, that maybe have to look at claim data that is-
Okay
two or three months old, if you will. And then I would also say, cohort management is really important as well.
Okay.
So we know our members really well. We track and manage the cohorts, right? It's almost like similar to, like, SaaS revenue companies that manage the cohorts. We manage the cohorts that way as well, both from a, from a health perspective, but also from a, from a medical cost perspective, right? So I would also say some of the headwinds that maybe some of the larger players see, right, we really see less of an lesser of an impact there
Mm-hmm
because the care that our platform enables physicians to provide, the care management, is really more proactive than reactive.
Yeah.
Yeah.
Okay. And then specifically for 2024, I think your MLR guidance is already something like three hundred basis points lower than maybe it was where, you know, you started the year. I guess, what specifically this year is running ahead of plan for you?
Yeah. Well, it's difficult to say kind of exactly the, you know, wasn't
Yeah
I started in April.
Roughly, yeah, sure.
But in general, I would say
Yeah
it's to continue to improve it on the cohorts and then also the technology, right? Yeah.
Okay.
Yeah, and then maybe for if you compare it to the guide, right?
Yeah.
I think in the guide itself, when we went into calendar 2024, the guide for 2024, you know, initially, like for most other plans, was somewhat conservative because of the changed healthcare impact, right?
Mm-hmm.
So conservatively, probably actuarial teams were a little bit more conservative, right, than initial
Yeah
estimates in the guide, right? So we had that as well.
Okay. And then, you know, just in 2024, you know, obviously, you have other questions, a little bit more longer term in nature, but in terms of this Two- Midnight Rule impact, like there's been a lot of focus around whether MA plans are seeing, you know, pressure on the inpatient side from fewer things being downgraded to outpatient levels of payment, as a result of, you know, CMS regulatory changes. In terms of what you guys are seeing on that front or not seeing on that front in 2024, we'd love to hear a little bit about that.
Sure. Very, very, very little impact on that.
Very little impact on that?
Yeah.
Okay. When we think about, you know, the market opportunity for you over the next couple of years, and obviously, a lot of your membership is concentrated in New Jersey, I guess, how do we think about, you know, how you're gonna approach geographies over the next few years in markets? Like, do you think that you need to consider trying to expand further beyond where you are today? Or do you think there's enough disruption coming, especially for local PPO-type products over the next couple of years, that there's gonna be market share opportunities in your-
Yeah
your local market that don't require you to think bigger than that right away?
Yeah. Yeah, so I mean, to great question to kind of put some perspective, as our market share, roughly, depending on kind of what metric you use, is around 10% in New Jersey, so there's definitely a lot of growth opportunity organically to have. And then we believe we have the best technology and care stack in New Jersey, right? Based both the technology and then home care, and then also the thousands of physicians using our software in the state of New Jersey. We haven't given much guidance about 2025 yet, 'cause we're right into-
Yeah
bid season now, as everybody would understand, and then we have annual enrollment period starting in October this year, right? So, but we can point, though, to data points that we've given earlier. So in the 1Q earnings call, we said that we expected top line revenue growth to be between kinda mid-single digit and high single digits.
Mm-hmm.
Right? But that was before the beat or exceed on 2Q.
Yeah.
Right, so we increased the baseline in 2024, if you will.
Yeah.
That was also before the recalculation of the Star Rating for payment year 2025, which was increased by half a turn, right? So those are a couple of data points we can point to.
Mm-hmm.
We'll likely provide more guidance later this year on how we think about twenty-five as well. But that said, we're the only plan in New Jersey that received a tick-up in the recalc of the Star Rating. And then, as you've seen from some of the national players, they have some headwinds.
Okay.
Yeah.
Yeah, I think a lot of the larger plans have been pretty explicit that they are cutting benefits significantly for next year. You guys obviously seem like you're in a position where, if you wanted to, you could afford some level of investment in benefits. How are you approaching benefit changes for 2025?
Yeah, I mean, that's really proprietary. We will. That'll be more to discuss later, if you will. That said, though, we feel good about profitability in general. It's kind of the horsepower and the profit capacity of the company, right? On the insurance side, and then, of course, we have Counterpart's additive on that over time, if you will. So, we'll manage the growth, let's put it that way.
Okay.
Yeah.
And then when you think about, you know, Clover Assistant adoption in states beyond New Jersey, I guess, how do you how would you contrast the level of adoption outside of your
Yeah
your home state? I guess, how do you drive that higher over time, to the extent there is any
Yeah
any difference?
Yeah. So again, there's a lot of opportunity to drive growth over time, right, in New Jersey. But we're also in the other states, like Pennsylvania, Georgia, Texas.
Yeah.
Yeah, so there's opportunities to grow there as well. Yeah.
Penetration, I mean, is it lower for Clover Assistant on the members that you have there? Because New Jersey is just a more mature market for you.
Yeah.
I guess, like, how do you
Yeah, I don't
Yeah
I don't know if we have disclosed that.
Okay.
Maybe another final point is that we focus on certain areas in those states as well, right, so.
Okay. When we think about Counterpart, obviously, it's a pretty interesting, you know, structure for the deal. If we think about, you know, the potential for the thousand basis points of margin improvement over a multi-year horizon, I guess any sense of, like, what the right split is between, you know, you guys capturing some of that versus, like, what remains with them, obviously?
Yeah
to make it make sense?
Yeah. Yeah, we certainly have internal deal models as well. That, those are proprietary as well.
Yeah.
But, I mean, the savings, you know, can be and we believe will be significant. So,
Okay.
The way it's actually structured on the, if you talk about the gain share part, right?
Mm-hmm.
The tech-enabled services part, and actually, the agreements are structured that the first slice of the savings is actually for the benefit of the third-party Medicare Advantage plan or the third-party at-risk provider, right? So that's
Mm-hmm
how much conviction we have.
Okay. And, if I missed this, I apologize. How, how many lives did you say? How many lives are underneath this agreement that are gonna be part of t
The
Counterpart?
In the press release, yesterday, I think there was 250 physicians, right? And as far as the Iowa Clinic, we disclosed. Yeah.
Okay.
Yeah. Of course, you have patients underneath that, right, underneath those practices.
Okay.
But that will ramp up over time, as physicians happen.
Yeah, and this will
That's the way I think about it.
Okay, and this will
Yeah
obviously, you know
Yeah
help them grow. Okay. And you disclosed a new metric this past quarter, like this other not MLR ratio that you're disclosing.
Yeah.
Just remind us what the differences are and what you think?
Yeah
is important about the comparability-
Yeah
of those ratios.
Yeah. Yeah.
And
Great question. So MCR, medical cost ratio, essentially is MedEx, medical expenses divided over revenue. Then BER is also MedEx, but then you add quality improvement cost and divide that over revenue. And that's more comparable to some other pure MA players in the market.
Okay.
So for comparability, we thought that was good to disclose. We are committed to providing MCR throughout the year, so you have apples to apples. And then we'll also provide BER with a one-year look back, so you also have comparative numbers.
Another thing the company's done, you know, really nicely over the past couple of years is managed down SG&A costs. I think you had, like, a pretty big, like, outsourcing
Yep.
initiative. Just give us an update on the cost efficiency?
Yep
parts of the business and kinda where the remaining areas of opportunity might be.
Yeah
Over the next couple of years.
Yeah, good question. We restructured the company late last year.
Yeah.
And then outsourced a lot of kind of the processing technology, if you will, to a BPaaS partner, right? So we had a little bit of overlap of cost in the first quarter, but after that, it's a step down, right? So now it's more of a run rate. From that perspective, looking at SG&A, you really have to look at SG&A in three buckets. One is really growth SG&A.
Mm-hmm.
So you have new members, you have commissions and marketing and direct expense, if you will. You have some variable SG&A as well, with BPaaS and some other partners
Yeah
if you will, and then kinda the other SG&A that also includes administrative functions, business
Yeah
partnering functions, but also technology.
Right.
So
Yeah.
Yeah, there are opportunities, I would say, in kind of rate over time. I would also say that the infrastructure we have, there should be some leverage in there as well. We can help
Okay
manage a much larger number of members in the plan, but adding without adding much incremental cost, right? That's the way I look at it. So more to come with that.
Got it. Okay. And, you know, the company's, you know, the improvement in the P&L seems like that it's gonna support, you know, a pretty rapid shift to you having capital in excess of what's required to fund your growth. When you think about capital priorities for the company, to the extent that you have excess cash available, so you could talk about what those priorities are and what you see
Yeah
as the most attractive areas of
Yeah
Potential investment?
Yes. I mean, from a capital allocation perspective, of course, first we have the plan that we'll continue
Yeah
to invest in. We'll continue to invest in the technology as well. Then we, of course, have Counterpart. Counterpart Health. We'll invest
Mm-hmm
Continue to invest and go to market mostly. And then we also have authorizations for a stock buyback, given that we believe that the stock is heavily discounted, right? So those are the three priorities. And then, you know, we earn good investment income, conservative investment policy we have
Mm-hmm
on cash and the investments, if you will. So, yeah.
Got it. And then, you know, obviously, we're facing a macro environment. It looks like rate cuts are now, you know, strongly contemplated over the next few quarters. Can you just talk about your exposure to, you know, changes in prevailing interest rates and, you know, the kinda headwind that could present over the-
Sure
Next couple of years?
Yeah, we believe it's fairly neutral from an interest rate perspective, but on the other income side, yeah, we can change the mix, if you will, if you just talk about other income. Yeah, well, we'll manage the investment policy.
Okay. Let's see. Oh, Counterpart on the incremental margins. I know you mentioned that, you know, higher than the base business. I guess, as we're thinking about that, like any. ou mentioned there's really not too much incremental cost related-
Yeah
to that. I guess, like, should we be thinking, I don't know, 20%, 30%, 40%? If we're just trying to sensitize some percentage-
Yeah
of the savings you generate and come up with any kind of financial framework around it, like, I guess, how would you encourage us to
Yeah
to do that?
Yeah. I mean, there's two parts to the revenue stream, so Counterpart Health. Again, first, it's PMPM, that's SaaS, right?
Mm-hmm
likely not as high as SaaS. Gross margin percentage is a kind of pure tech play, right? However, that said, though, we're uniquely positioned because the technology is already proven for many years.
Mm-hmm.
Right? So, and on the tech-enabled services side, that kind of margin profile will kind of be lower, if you will, right?
Okay.
than SaaS, but you have to look at it on a mixed basis. There's a lot of research on kinda what that looks like in healthcare and healthcare IT, right? So
Do you think that's a good reference point?
Yeah. Without getting specific guidance, right? We need to
Yeah
continue to scale
Okay
And then at some point, you know, we'll likely come out with some guidance, but not quite yet.
Okay. And just in terms of, you know, the selling process around Counterpart, like, when you talk about getting into these relationships and getting them comfortable with you and the results you can drive, like, how do you characterize how long these sales cycles are, and the opportunity you might have
Yeah
to maybe shrink those as you have
Yeah
more experience and data points to put on?
Yeah. Yeah, of course, it is healthcare, right? As you know
Yeah
Sales cycles are longer than other industries.
Mm-hmm.
So I would say sales cycle could be twelve months, sometimes even longer, if you will, then you have a ramp-up.
Mm-hmm.
But I would say once embedded as a solution, it's a very strong driver of health outcomes for you.
Yeah
as a third-party plan, right? A really strong driver of your P&L also. So very, very sticky, we believe.
Okay. And how long are you entering these agreements for? Like, the nature of the contracts.
Yeah, multiple years, but not a decade, right, so think about multiple years. Yeah.
Okay. All right, I think that I have run through the questions that I have. If anyone else has a question or two, feel free to ask it, but otherwise, that clock is not correct. It's the one below that we're looking at. Anything coming from the field? No? Okay. Well, I think then I'll give you guys back about 90 seconds. Thanks so much for your time today. Thanks for coming to the conference.
Great to be here.
Appreciate the insight.
Yeah, thanks for having us.
Okay.
Thank you.
All right, bye now.