Great. Good morning. Thank you for attending our conference this year. I'm Richard Close. I cover digital and tech-enabled health at Canaccord . Excited to have Clover Health here again this year to update us on the company's progress. It's definitely come a long way over the last several years. From the company, we have CFO Peter Kuipers here to go over the story, and then we'll go into a little bit of a Q&A fireside chat. If you have any questions, raise your hands, and we'll go from there. Peter, thanks.
Thank you for having us, Richard. Glad to be here at the Canaccord Growth Conference. We are a tech-enabled insurance company focused on Medicare Advantage that is actually growing amidst tough industry headwinds. From the start, our founders wanted to combine two things: deliver great clinical outcomes, one, and two, also have broad access for members for healthcare. This is pretty unique in the industry, we believe, and it's very rare in healthcare to be running a business that's both clinically and financially sound. That is what we believe we have done. Click, it doesn't work. We'll just do it this way. Go to page two, please. From an investment perspective, again, a fairly unique solution that we offer. We're leading the technology, physician, we enable physicians at the point of care, at the time of care, which is really unique.
Our technology platform called Clover Assistant is powered by machine learning and AI at the core, not any back office. It helps clinicians perform at the top of their license to earlier diagnose, treat diseases earlier, deliver better health outcomes for members, and over time, also lower costs and total cost of care. Medicare Advantage is a large market, around $500 billion annually. 35 million people in the U.S. are enrolled in Medicare Advantage. 40% of those are in PPO plans, roughly. We have a differentiated approach where we believe in wide access for members. 97% of our Clover members are part of our PPO plans, which is a wide network, and the proprietary technology helps drive clinical outcomes and is also a differentiator in the market.
From a growth perspective, we are growing 32% at the midpoint from a membership perspective for 2025, and 37% for the midpoint on revenue, which is very strong growth, especially in the MA market. While doing that, we're also maintaining and sustaining profitability with profitability on an adjusted EBITDA basis, flat year over year, comparing the first half of this year versus the first half of last year. Next slide. It doesn't work. Can you do it, please? Yeah, this one. Okay. Can you, okay, it should be the same. All right. Thank you. Efficient from the get-go, from the start of the business, is empowering every physician with technology to identify, manage, and treat especially chronic diseases earlier. Earlier diagnoses, earlier treatments, better disease management, better clinical quality of care, and better health outcomes. Also, of course, accessible care at lower total cost of care.
Here's a snapshot actually of what the Clover Assistant technology looks like. This is the user interface that a physician uses at the point of care, at the time of care. Our proprietary technology combines over 100 sources of medical records for all EHR systems, all claims, almost all labs, all meds as well. Our proprietary models synthesize this data to information and actually to clinical insights, helping during a visit for the PCP to provide better care and also care recommendation. The PCP, the clinician, makes the clinical decision, but we empower the physician to make better choices and more informed choices. Think about it that the PCP essentially has a thousand or thousands of second opinions, large data sets, better recommendations, proven over time.
An interesting summary slide here is that since we are at scale and have been operating our insurance plan at full risk, we do not have risk delegation in the traditional sense. We are able to compare data sets of members that are covered by the software stack and compare to members that are not covered by the software. We have issued a number of white papers that are publicly available on a number of chronic diseases that you see here. In general, physicians using our software are able to earlier identify and treat chronic diseases. Diabetes, earlier diagnosis and earlier treatment, on average 36 months earlier. That's three years earlier that treatment can start for better health outcomes. Chronic kidney disease, CKD stage 3, 18 months earlier on average. Chronic heart failure and COPD, also earlier diagnosis, but also very significant.
The hospital, hospitalizations and hospital readmissions are significantly lower. For CHF, 18% lower and 25% lower, and for COPD, 15% lower and 18% lower. Another testament to the quality of the clinical care, we have the highest HEDIS score correlates to clinical quality. We have 4.94 stars out of five stars possible in the clinical measure, for plans with 2,000 or more members. Very unique, testament there. Here's the white paper on COPD. You'll see the reduction in hospitalizations and also readmissions. The 15% and 18%, very significant reduction in inpatient admissions. Now let's compare the business model, the differentiated business model that we have at Clover versus a traditional Medicare Advantage business model.
First, we have a clinical approach, tech-enabled, at the point of care, at the time of care that we talked about earlier, versus more traditional players and payers that are focused more on back office and administrative measures. The strategy is to identify disease earlier, treat it earlier for better health outcomes. We are preventive on healthcare, versus traditional players being reactive, back office-oriented. Choice, choice in healthcare, very important. We offer a wide open network where members have choice of physicians in the PPO plan. The majority of other players approach a closed network, HMO network. Risk delegation, like we talked about earlier, we're not focused on risk delegation. We don't have risk delegation in the traditional sense. Traditional players have a lot of risk delegation. Very important to point out.
The important point there is that actually this is a proof point for the technology working because the P&L is a pure P&L. It shows full risk as well. Home care, we use the same technology in home care as well, and our home care teams are led by physicians, mostly MDs. From a cost perspective or BER perspective, we're industry leading. Difficult to compare exact apples to apples, but we believe we're a couple hundred basis points lower as far as cost ratios. I think it's important to talk about the growth year over year. 2024 was the first year that we established profitability on an adjusted EBITDA basis. We also had positive cash flow from operating activities in 2024 for around $84 million. Going to 2025, 2025 is a growth year for us with a large cohort on new members. Again, 32% new members from 2024 to 2025.
That impacts actually gross profit because new members generally come at higher cost, if you will. Our maturing cohorts, returning members, actually are incremental to gross profit as they mature. We do have some additional volume impact of serving more members on the variable SG&A side. We'll also continue to invest in R&D and in quality. That net is offset also by an efficiency program that helps reduce cost on the SG&A side and create leverage. Net net, comparing EBITDA profitability in 2024 to 2025, given all these drivers, we are sustaining profitability while growing 32% members, which is very unique in the industry. Here you see the membership growth. From 2024 to 2025, 32% membership growth.
Very important, on the right side, we issued earlier this year a cohort analysis, which shows the impact of earlier identification, earlier diagnoses, earlier treatment, and better health outcomes, and a lower total cost of care over time. Where we compare the cohorts by year, a year two cohort of members has a 700 basis points incremental or lower MCR, so higher gross profit, and another 800 basis points get added by year three. This enables us actually to grow at a much above market rate, where other players are actually retreating, specifically in the PPO space. Now we're focused on our core markets, which are New Jersey, Georgia, South Carolina, and Texas. We have ample growth opportunity, runway, and momentum, we believe, for many years to come. If we look at the New Jersey market, if you look at all plans, we probably have around a 12% market share.
A lot of growth is to be had there, given our strength and momentum. In Georgia, I believe there's a runway there also for a lot of momentum. Outside these four states, we want to bring this technology and better health outcomes to as many members in Medicare Advantage as possible. In the middle of last year, we came to market essentially providing, making this technology also available for third-party providers that bear risk and also to payers, both regional and national. We've announced a number of deals. We cannot announce every deal, if you will, where we offer this solution on a SaaS basis or on a proficient basis from a revenue model perspective. We believe that we can help at-risk providers and payers improve their cost ratio or MCR by over 1,000 basis points. We have a strong and compelling pipeline, and we continue to build momentum there.
We're certainly busy here. Looking at our opportunity, membership and revenue, we believe, will continue to grow. I prepared remarks for earnings last week. We believe that membership growth and revenue growth will accelerate from this year, actually. Same accounts for profitability also. I'll talk in a minute about what we believe and see for 2026 profitability. We'll continue to execute, of course, on the quality side. Counterpart, the third-party software offering, the third parties, has great momentum. We'll expand that also. We'll continue to build on our Clover Assistant technology. Again, here is the strategic flywheel. Because we grow membership, because we get more usage of Clover Assistant technology, we deliver better outcomes from a clinical perspective, better health outcomes. That reduces total cost of care, and that then again enables us to reinvest in member benefits and also technology.
From a 2025 perspective, from a guide perspective, we reconfirmed the guidance ranges for membership and revenue and EBITDA and adjusted net income as well. From a 2026 till win perspective, again, we believe that we will grow at the same rate from a membership perspective as this year, or potentially higher. We're also going from a 3.5 payment year to a 4-star payment year next year, which is significant from a financial perspective. We also have a compounding impact of the CMS final rate notice of around 9% increase from 2024 to 2025. Also, the new members this year, that cohort will be a year two cohort next year. It will also have additional leverage from our cost efficiency initiatives that we have implemented.
Lastly, from a GAAP perspective, we issued an Form 8-K yesterday, pointing out that our stock-based comp expense, more than half of the expense from January 2021 to January 2026, is really consisting of founder-based awards from the IPO that are expensed over that period. That expense will stop after January 2026. Therefore, we expect 2026 to have significantly lower stock-based comp expense. Very important from a GAAP perspective.
Yeah.
Yeah.
Great. Peter, maybe just hitting on the Q2 update last week, the stock did take a hit on the results. You've done a great job over the last two years versus every other managed care company in terms of controlling medical costs, benefit costs. Can you talk a little bit about the adjustment that you made on the benefit cost trend, the reason for it, and maybe why you're not concerned about that as you're thinking about 2026?
Yeah. Yeah, I think the second quarter results came in, beat expectations of the markets, both on revenue and profitability. We pointed out some higher utilization in Part D, which is a known unknown, if you will, because it's new for the industry. We're managing that from a perspective that we're investing and we have additional capabilities in Clover Assistant as well to manage medications, if you will, med reconciliation, and then, of course, identification of possibilities for generic meds as well. Another point on Part D is that the direct subsidy from CMS will increase by 40% to next year. We're working towards that, if you will, while we're executing to maintain and reduce the cost during 2025. Important to note Part D, the catastrophic reimbursement by government, is off this year. It's new for a lot of the MA plans.
We believe you can work through that as well. Yeah, we're really looking forward to kind of continuing the trend to 2026. On your question on the cost trends, at the core Part C cohorts, dynamics as far as cost reductions and MCR perspective, they are trending in line to our expectations.
Okay. Anything to add on the supplemental, because you guys called that out as well? Do you make changes in terms of what you've put in for the benefits for the next benefit year 2026?
Yeah, we really can't talk about the benefits quite yet because AEP is coming up. I would say for dental, we see more utilization there, which is actually good for members that are used. Of course, we're looking at investing there as well and also deploying Clover Assistant technology also at dentists. A holistic approach from a technology perspective, and they're also looking more at network management also.
Okay. With respect to next year, you did say that, you know, potential for membership growth in the next AEP. How do you, if, you know, how do you balance the growth with what's going on in the overall market in managed care with people exiting various markets and just talk about that a little bit.
Yeah, that's a great question. From a go-to-market and growth perspective, we're laser focused on growing. We have a strategy by county where we have the network of physicians using the software, and we also have a membership base, if you will, that coincides. We're aiming to grow there and expand it. Think about it that way. We want to be really precise in growth, like we've shown last AEP. We believe we continue and we can repeat that as well for this AEP.
Is there anything different in the dynamics in New Jersey, what you've been able to do in New Jersey versus Georgia or Texas or South Carolina? Do you see those states eventually getting to the size of New Jersey?
Yeah, New Jersey is certainly where we started. It has, of course, the largest membership base and the largest PCP base using Clover Assistant as well. We see Georgia following after that, if you will, growing also to that maturity as far as network and members.
One thing is obviously with the medical cost trend, performance that you've had over the last several years, introducing Counterpart Health as an avenue to bring that technology, I guess I would characterize it to the masses, let's say. Do you ever envision that, like, breaking out the revenue from that just so we can see the performance of that? Obviously, it would be much smaller because I assume it's a, you know, SaaS licensed technology versus managed care. Can you just talk about how you think about that?
Yeah. First of all, we're excited about the progress in Counterpart. Certainly, the HEDIS aspects of the quality aspect that we talked about earlier resonate really well with both the risk-bearing providers and with payers, both regional and national. We're certainly busy. It's a significant opportunity. We've got a strong pipeline. At some point, we will break out our revenue and provide some more metrics.
Okay. Maybe just really to wrap up here over the last couple of questions, the performance has been good while others have really stumbled. There's been a lot of changes with respect to managed care, V28. Maybe just go into a little bit deeper. Is it just the technology that has differentiated the company or enabled it to, you know, perform as, you know, or quote unquote bucked the trend over the last couple of years compared to everyone else?
I think two things there. One, the technology is at its core, Clover Assistant technology, like we talked about earlier, combining all available medical data, synthesizing that information to actionable insights to earlier diagnose and earlier treat diseases for better health outcomes and lower total cost of care. That certainly is the main driver there. Secondly, on V28, our focus, our founders have always focused on clinical care first, which means that from a prescribing perspective, we generally, our physicians don't necessarily have used descriptions that are now not applicable anymore for V28, like the mild depression, I believe, and bruising. We believe that in our health plan, that is a much lower occurrence. Therefore, we think that any headwinds are really de minimis from a V28 perspective. I believe we're in year two or year three now. We don't see any impact from that.
If we could slip one final one, you did mention going to four stars for next year. How do we think about that in terms of, does that just drop down in terms of profit or, you know, how do we think about that?
Yeah, so the economics on a high level perspective, moving up from a 3.5- star payment year in 2025 to a 4- star payment year in 2026, adds around 5% in premium, fee or bonus on the top line. Now we haven't disclosed, and we haven't disclosed our kind of our benefits yet. There might be some reinvestment in benefits as well. Certainly it's a strong tailwind.
Thank you for your time. I appreciate it.
Appreciate it. Good to see you. Thanks for having us.