Clover Health Investments Corp

NASDAQ:CLOV

Q1-2025 Earnings Call

[Operator]

Ladies and gentlemen, good afternoon, and welcome to the Clover Health First Quarter 2025 Earnings Conference Call. [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.

[Ryan Schmidt, executive]

Good afternoon, everyone. Joining me on our call today to discuss the company's first quarter 2025 results are Andrew Toy, Clover Health's Chief Executive Officer; and Peter Kuipers, the company's Chief Financial Officer. You can find today's press release and the accompanying supplemental slides as well as the company's most recent investor deck 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.

[Andrew Toy, executive]

All right, everyone. Thanks for joining us today. I'm excited to dive into our first quarter 2025 results. We've been working hard at Clover, and it's really showing in our Medicare Advantage performance and overall business growth. Let's break down what we've accomplished and why it matters.



First, let's talk about MA plan growth where we're doing very well. We've seen some significant numbers this quarter. We're looking at a 30% jump in MA membership, 33% growth in our revenue and a whopping 279% increase in adjusted EBITDA year-over-year. That's not just numbers on a page, that's real momentum. And what's driving this? It's our focus on getting people the right health care right when they need it, earlier, higher quality and critically more affordable. This isn't just about growth for growth's sake. It's about making a real difference in people's lives by lowering barriers in care, whether it be by reducing out-of-pocket costs or delivering care to them right in their homes.



We even released a new white paper last week showing how Clover Assistant helps better manage congestive heart failure, leading to better care and fewer hospital visits. That's the kind of impact we are aiming for.



Next up, let's discuss our confidence in the rest of the year. This quarter's performance really reinforces that we're on the right track to hit our full year 2025 goals and improved guidance. We had a strong enrollment season, and those new members are utilizing care at expected levels. That's key. We're planning to keep this momentum going throughout the year. But what's most important, it's how we're taking care of these new members. We're using Clover Assistant to power their primary care, making sure they get the best health outcomes and the most efficient care. This isn't just about enrolling more seniors. It's about making sure we look after them in the right way.



Now let's talk about how we're managing things behind the scenes. Our Part C and Part D utilization costs are both tracking as expected.



We are also navigating the HEC V28 phase-in smoothly with Clover Assistant. Why is this important? Because it shows our technology-first care model is adaptable and can handle changes in the industry. We're not just reacting, we're staying ahead of the curve, making sure our members get better care management. That's a huge advantage for us.



A big part of our confidence comes from our control of our care model, whether in the wide PPO network with PCPs using Clover Assistant or via home care in our Clover Care Services division, care is what we do. Speaking of Clover Care Services, our mission is simple: to deliver additional support to Clover members when and where they need it. Every Clover member is eligible for a personalized in-home Clover Care visit and coordinated care services tailored to their health journey. We work closely with Clover Assistant using physicians to identify members needing support and deliver that support directly to them. For example, our Welcome Home Clover Care visit helps members transition from hospital inpatient stays. For members with the highest needs, we offer a comprehensive in-home care program focused on palliative and advanced illness support. These services drive strong performance for our health plan and provide tailored personalized care for our Clover members.



We're also pleased about the recent CMS final rate notice for 2026. It's a positive for us and will add to our momentum, especially with our 4-star PPO plan coming next year. But let's be clear, our real strength is in our architecture and in our operations. It's in our innovative care model, our wide networks and the clinical and financial results we get from Clover Assistant. I've spoken about this before, and I want to emphasize that we would feel good no matter what the rate notice was. That's because we're not just relying on favorable rates, we're building a solid foundation for long-term success.



Looking ahead, we see even more growth and profitability coming in 2026 and beyond. This isn't just wishful thinking. It's based on our strategy of expanding Clover Assistant reach, managing our members with personalized care and the financial boost we'll get from our 4-star rating. It's too early to talk about bid specifics right now, but our intention is to keep building a growth flywheel, and we expect it to start spinning much faster as we go into next year.



And for areas where we don't have an MA plan, we're pushing forward with counterpart health. We're seeing a great opportunity here to partner with others and bring Clover Assistant to even more people. We're already working with several partners, and we have more in the pipeline. Organizations are seeing the value of counterpart Assistant in improving care and managing costs, and we believe this is a big area of growth for us.



To support this growing deal flow, we are actively taking steps to add implementation resources to ensure successful onboarding and integration for our partners. I'm excited about traction in this area, and I think the opportunity to bring CA to many people served by other MA plans is a very real one.



Finally, I want to highlight the real-world impact of Clover Assistant. Our research shows that doctors using Clover Assistant diagnose chronic kidney disease and diabetes earlier. And we just released our latest paper on congestive heart failure, showing that Clover Assistant usage is associated with better care, fewer hospitalizations and fewer readmissions related to CHS. Heart failure is a huge issue, and we're making a real difference. We're giving our doctors the tools they need to provide better care, and it's showing in the results.



So to sum it up, we've had a fantastic start to 2025. Our approach powered by Clover Assistant and our home care program is driving strong growth in membership, revenue and adjusted EBITDA. We're confident in our 2025 goals and excited about our future.



Now I'll hand it over to Peter for the financial update.

[Peter Kuipers, executive]

Thank you, Andrew. First, let's start with the results, and then I will cover the drivers in more detail. I'm very pleased with our strong first quarter performance, where we have delivered a combination of 30% membership growth and 33% total revenue growth while growing adjusted EBITDA by 279% and adjusted net income by 322% year-over-year. We are executing very well against our strategy.



Let's now move into the drivers. Starting with membership and revenue. Insurance revenue grew by 34% year-over-year to $457 million, driven by 30% Medicare Advantage membership growth from strong AEP and OEP enrollment seasons. Member retention was also strong during both the AEP and OEP season.



Our first quarter results give us conviction in our new member cohort management strategy. Similar to AEP, the majority of our OEP growth occurred in our core New Jersey markets where we have a strong Clover Assistant network presence.



During the quarter, new members were effectively onboarded and our results demonstrate strong management of both our new member and profitable returning member cohorts with performance in line with expectations. This is reflective of our pricing discipline, geographic growth strategy and our efforts to proactively engage with new members via Clover Assistant powered primary care.



Given our experience over the last number of years, we have strong conviction that the unit economics for our new member cohort will improve as we've seen on average a more than a 700 basis point improvement in loss ratios between year 1 and year 2 cohorts and an approximate 1,500 basis point improvement between year 1 and year 3 cohort members. This demonstrates the effectiveness of our model over the long term by providing earlier and better care management at a lower total cost of care.



Overall, we are confident that our medical costs are in line with expectations. We experienced elevated inpatient utilization in January from an uptick in lower intensity care related to a later cold and flu season.



However, trends quickly normalized starting in February and continued through March. Operationally, we continuously perform checks into our data and metrics via prior authorizations, weekly claims and real-time Clover Assistant insights from provider interactions to identify patterns in our utilization.



Focusing next on SG&A. I'm pleased with the operating leverage that we are demonstrating. This quarter, adjusted SG&A as a percentage of total revenue decreased to 18% of revenue, representing an improvement or decrease of 360 basis points year-over-year while absorbing the increased growth and variable costs associated with higher membership and our continued strategic quality investments into our business.



Our profitability metrics are strong. GAAP net loss during the first quarter of 2025 improved by $18 million year-over-year to a loss of $1 million. First quarter 2025 adjusted EBITDA improved by 279% to a profit of $26 million. Similarly, adjusted net income grew by 322% year-over-year to a profit of $25 million.



Lastly, insurance VER for the first quarter 2025 was 86.1%, which represents a modest increase year-over-year, but importantly, is in line with our expectations and consistent with our full year 2025 guidance given seasonality. We also note that one driver of the year-over-year increase in insurance VER was the implementation of our CA-enabled affiliate entity within our operating structure, which the plan now employs to engage providers directly and better service our health plan and membership in New Jersey. The goal of this entity is to drive higher quality and better health outcomes for our members via better care coordination services, unified care management and a deeper focus on our partnerships with local physicians.



Overall, we're proud of our strong results this quarter. As we look ahead to the rest of the year, please note that we expect typical Medicare Advantage seasonality trends in the form of higher utilization levels in the back half of the year with more of an impact in the fourth quarter of the year as is typical. That said, this is simply seasonality. Our first quarter performance reinforces our conviction in our improved 2025 guidance, which I will cover later in this call.



Turning next to the balance sheet. We are pleased to announce that during the first quarter, we have successfully repurchased 5 million shares of common stock, making up the remaining $80 million authorized under our buyback program announced in May of last year. This strategic decision reflects our confidence in the company's long-term value and the strength of our balance sheet.



We ended the first quarter of 2025 with cash, cash equivalents and investments totaling $391 million on a consolidated basis with $126 million at the parent entity and unregulated subsidiary level. Our unregulated cash was impacted by various working capital and timing dynamics as well as the stock buyback program. We're confident that this balance will increase throughout the year, allowing us to operate from a position of strength as we invest in our growth model.



During the first quarter of 2025, cash flow used in operating activities was $16 million and was similarly impacted by working capital and timing-related dynamics. That said, given our business momentum, we continue to expect to be on pace to generate strong cash flow from operating activities for the full year.



Days in claims payable was 37 days as of March 31, 2025, representing a decrease of 22 days sequentially. This reflects the normalization of our claims inventory and timeliness of claims payments to historical levels. If you recall, at this time last year, we were simultaneously navigating the industry-wide Change Healthcare incident as well as the transition to our back-office BPaaS Medicare Advantage ecosystem. We are pleased to report the successful conclusion of this and expect our claims payment patterns to now be at typical go-forward ranges.



For our full year 2025 guidance, we believe that we are well positioned to accomplish our goals this year and are providing the following guidance update. We are reconfirming our Medicare Advantage membership to average between 103,000 and 107,000 members, reflecting 30% growth year-over-year at the midpoint and continued intra-year growth through the SEP period in 2025, all driven by a robust plan benefits, competitive positioning and our 4-star rating. We are also reconfirming our insurance revenue of between $1.80 billion and $1.875 billion reflecting year-over-year growth of 37% at the midpoint of the range. In tandem with our membership growth expectations, we anticipate more revenue in the second half of the year as compared to the first half, unlike historical patterns.



We are reconfirming our adjusted SG&A guidance to be between $355 million and $365 million. This represents adjusted SG&A as a percentage of total revenue of 19% to 20% and is an approximate 200 basis point decrease or improvement year-over-year at the midpoint of the range.



We are increasing our 2025 adjusted EBITDA guidance to now be between $50 million and $70 million. Similarly, we are also increasing our 2025 adjusted net income guide to now be between $50 million and $70 million. Lastly, we continue to expect insurance VER to be within a range of 87% to 88%.



In totality, as Andrew mentioned, we delivered strong results and a very strong start to the year. Throughout the remainder of 2025, we look forward to continuing to balance our strong profitability profile via exceptional cohort management, together with our strategic investments in new membership growth, Clover Assistant technology and expanding both our Clover Home Care Services and counterpart Health go-to-market strategy. As such, we have increased conviction in our improved full year 2025 guidance, and we believe that we are very well positioned for accelerated growth and profitability in the future.



Looking forward, first, we will continue to invest in growth and expanding Clover Assistant technology and reach to better manage our new and returning member cohorts. Second, we believe that we are very well positioned with tailwinds going into 2026 due to an increase to a 4-star payment year in 2026. Third, we expect a compounding favorable impact from the recent CMS final rate notice, which is additive to the impact of the improved 4-star rating. Fourth, we expect the unit economics of our large new cohort of membership added in 2025 to significantly improve in 2026 and beyond as well as continued maturation of our broader returning member cohorts. Lastly, we believe that there will be a continued impact from our efforts to gain operating leverage. With that, let me now turn the call back to Andrew for closing comments.

[Andrew Toy, executive]

Thanks, Peter. In conclusion, we are incredibly proud of our strong start to 2025. These first quarter results clearly demonstrate our ability to meaningfully grow membership, expand profitability and execute our strategic plan effectively. Our differentiated model powered by Clover Assistant and our clinically focused home care platform is delivering tangible value and better clinical outcomes, driving our strong Medicare Advantage performance. We are confident in our improved full year 2025 guidance and are strategically investing in our growth model, managing our new and returning member cohorts and expanding Clover Assistant's reach.



These efforts are not only enhancing our current position, but also positioning us for accelerated growth and profitability in the future. We remain excited about Clover's trajectory and are committed to driving long-term value for our members and shareholders alike. With that, let's open it up for questions.

[Operator]

We will now be taking questions from Clover's research analysts. [Operator Instructions]. We will take our first question from Jonathan Young with UBS.

[Jonathan Young, analyst]

Just starting with the insurance business first. Can you provide any color on how core medical trends are progressing there between kind of new versus the existing cohort? And how are members hitting the out-of-pocket drug max? Is it trending in line with your expectations? And has there been any change in behavior there?

[Peter Kuipers, executive]

Yes. Thank you, Jonathan. It's Peter. So overall, cost trends are as expected. We also say that the -- both the new members cohort and the returning members cohorts are also from an MCR and BDR perspective, trending in the way both in actuals and what we see in the coming quarters as expected as well.

[Jonathan Young, analyst]

Okay. And then we didn't hear much on counterpart health here. Just any color on how that go-to-market strategy is progressing, if there's been any more bigger wins and kind of as we look ahead, when can we start seeing contribution?

[Andrew Toy, executive]

Jonathan, it's Andrew. Yes, definitely remain excited about the counterpart business, and we are looking to provide more updates on that as we go out throughout the year. We remind everybody that we are not necessarily intending to make announcements around every single deal that we make around there. However, we remain excited about it. All contributions, revenue, et cetera, will, of course, be in the consolidated financials as well. And we're going to be talking more about that as we proceed in the quarter. But right now, we're very focused on making sure that we improve profitability in the insurance segment.

[Operator]

[Operator Instructions]. We will go next to Matt Hewitt with Craig-Hallum Capital.

[Matt Hewitt, analyst]

Maybe first up and kind of sticking with the counterpart theme. Have you had some, I guess, feedback or how have the initial implementations gone? And what are you hearing from those partners regarding kind of the key metrics that you would be looking for once those -- once the platform is implemented and they've kind of had a chance to use it for a little bit?

[Andrew Toy, executive]

Yes. Thanks. So definitely, what we're looking for and what we're aiming to do is to make sure that we deliver the amount of value within our counterpart customer base as similar to what we see within our own MA plan and within the providers that use the assistant within our own network. So that's what our aim is. That's the power of the software approach is that we can develop the product, we can then use it to help manage care to identify diseases earlier within almost any part of the Medicare population, whether it be under our own plan or whether it be with other people's plans, third-party plans.



So the key KPIs that we're looking for there are do we still see the engagement with the physicians? Do we still see the earlier diagnosis and management of diseases. Do we still see improvement on the HEDIS side of things? As we said, we're very proud of our performance there. It's all the same metrics that we use within our own plan, but translated into third-party counterpart usage. And our initial data, we feel optimistic on that, and our goal was that those would be effectively equivalent.

[Matt Hewitt, analyst]

That's great. And then maybe shifting gears a little bit. Given some of your success over the past, call it, couple of years, has there been any changes in the competitive landscape? Are you seeing some of your peers adapting or kind of shifting to your model a little bit more? Are you seeing any new competitive entrants? And how does that kind of change your game plan, if at all?

[Andrew Toy, executive]

Yes. I think that what we see here is that we have been focused on the PPO and the wide network and managing care within that wide network for quite some time. And others have been focused, and it's perfectly legitimate as a model to value-based programs within their network, deploying those out, but rarely with a software backing, right? Like most people's development of software has been for employed physicians, it's been for insurance operations. And while those are both good things, the assistant kinderpart Clover Assistant is usable by the broader wider network, and that is a distinct moat and advantage that we have. So that's something we're excited to bring as a model to drive clinical value to lots of different markets, lots of different places, we think we can look after a large percentage of the total Medicare population in the U.S.



And I think that what we're seeing is that others have struggled a bit on the PPO and are pulling back on benefits are perhaps not really investing as much as they used to, cutting back on marketing, cutting back on commissions. And that is just a natural cycle of the market. We are staying the course. We feel good about where we are. We feel that our model is working. We feel that it is highly differentiated.

[Operator]

[Operator Instructions]. We'll go next to Richard Close with Canaccord Genuity.

[Richard Close, analyst]

Congratulations on a great start to the year, first of all. Andrew and Peter, you guys mentioned accelerated growth in the years to come. You talked about the growth flywheel and expect faster growth next year. So maybe can you break that down a little bit? Obviously, your positive rate adjustment for next year and then the 4 stars. But how are you thinking about the building blocks to growth? And where does the acceleration come from beyond, I guess, the positive on rate and star?

[Peter Kuipers, executive]

Yes. Thank you, Richard. This is Peter. So what we see, of course, now also now that we have experience with a large cohort joining the plan this year, that's a reconfirmation for us to really see the cohort economics for both new members and then also the returning members. So that is a large factor as we look at unit economics and profitability going into next year. Yes, absolutely, the rate notice will be a tailwind. But with our model, we don't necessarily need that, if you will. We are, of course, now looking at bids, some more news to come there. So likely there will be some adjustments there from a benefit perspective.



And then, of course, we also have, of course, the cost actions we've taken as well. We'll have more leverage from an SG&A perspective also. And then lastly, we believe that from our product road map from a Clover Assistant technology perspective, we'll have additional impact as well, starting with the clinical side and then, of course, the results flowing through to the financials as well over time.

[Andrew Toy, executive]

Yes. And then just jumping in here. Obviously, we are -- as a reminder to all, is that we're going from a payment year. We're being paid on 3.5 stars this year, and we'll be going to paid on 4 stars next year, which affects the benchmark. And so we're looking at what we do. As Peter said, we're still early on, and we're not talking about bid just yet. But obviously, we're factoring that into our bid discussions. Others might be moving downwards in our markets on the star rating. And so that will put some pressure on their benefits, whereas we can -- we think we have room as we are moving upwards.



Another dimension on that, as Peter said, was a lot of that's being driven by CA. CA helps our star ratings. We are very proud. We're the #1 plan of over 2,000 lives on HEDIS under the Star ratings. That's driven by our technology platform. We look to maintain that advantage going forward, which will help us with Stars, which will help us with benefits, too.

[Richard Close, analyst]

Okay. And I guess I have -- or my follow-up is somewhat centered on New Jersey. First, in terms of New Jersey, obviously, you have great penetration there. And I'm curious with respect to this accelerating growth, how you think about like are you bumping up on where you can go in New Jersey? And then do you have to go to new markets? So that's one question. And then the second part of the question is you mentioned this affiliated entity related to BER. If you can go into that a little bit more for us as well.

[Andrew Toy, executive]

Yes, I'll jump in on the first part, Richard. I'll let Peter take the second part. Regarding New Jersey, I think we have plenty of room to run. We have plenty of room within that market. We have our full platform deployed there. It's our home state, like we feel a lot of affection for New Jersey. We have plenty of market share. While we're proud of the market share position we have, we have -- we also have room to take on more market share there. So we feel really good about where we are there. That doesn't mean that we are not going to look at other geos. That's not what I'm saying. I think we certainly will look at other geos. But because we are just right around north of 20% market share on non SNP in New Jersey, we have plenty of room to go before we become saturated. And I'll let Peter take the second part.

[Peter Kuipers, executive]

Yes. So when comparing BER year-over-year or sequentially quarter-over-quarter, a couple of things to keep in mind as far as drivers, right? So first of all, new members from a BER perspective are a headwind. That is then offset by returning members as well. Of course, we do have a somewhat elevated medics trend as well, but it appears that, that is much lower than competitors that do not have a clinically technology-focused approach. There's a little bit of timing as well as far as PPD. And then lastly, going back to the CA-enabled affiliate entity that we signaled, I think, last year that we were setting up is really meant to drive higher quality and better care for members. So activities that, that entity is deploying include, for example, care coordination, care management and also partnerships with local physicians. So that is a fourth factor if you look at both quarter-over-quarter and year-over-year BER.

[Operator]

[Operator Instructions]. With no other questions, this will conclude the Q&A portion of today's conference. I would now like to turn the call back over to Andrew Toy for any additional or closing remarks.

[Andrew Toy, executive]

All right. Thank you all again for joining us today and for the thoughtful questions. We appreciate your interest in Clover and look forward to updating you more in our next call. So have a great evening, everyone. Thank you.

[Operator]

Thank you. This concludes today's Clover Health First Quarter 2025 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.