Everyone, thanks for coming to the Wells Fargo Healthcare Conference. I'm Steve Baxter, the healthcare services analyst, and we're pleased to be joined by Clover Health, who's an innovative player in the Medicare Advantage space. From the company, we have Scott Leffler, the CFO, and Ryan Schmidt from Investor Relations. Thanks so much for joining us today. For those of us that are maybe a little bit, you know, less familiar with the company, kind of give us a reminder of where Clover sits in its life cycle, like, Clover's market fit, and the reason why the company exists, like, the problems that, you know, the company saw in the MA market and how they responded with the solution that they think responds to that. Sure. Thanks very much for the question, Steve. Let me, let me start out, first of all, by thanking you, Steve, and the Wells organization, for having us here. For all of you who are either already familiar with the Clover story or looking to learn more about it, very much appreciate your interest in the company. You know, this is a very exciting time for Clover. We believe that we are really at an inflection point in our history. We are, just to answer your question at a high level around who Clover is, we are a health insurance company servicing the Medicare-eligible population, and we are primarily known in the marketplace for our wide network PPO plans, which provide maximum choice to the members that we serve. Now, in the network, generally speaking, it's understood that that maximum choice is something that is, compelling to the membership base. But generally speaking, in the industry, the PPO construct is one that is also known to come with certain economic headwinds. And I think the real challenge for us in bringing that maximum choice, construct to our membership base has been what is the right tool that we could bring to the market to help to, to make it a viable business model as well. And that's where our true differentiator really comes in, because Clover, has developed and deployed a tool. It's a proprietary, AI-driven software tool called Clover Assistant. Clover Assistant is a physician enablement tool that we've deployed in the marketplace that really helps to take, at the point of care, the physician's clinical judgment, which we are effectively investing in, supplementing that clinical judgment with data-driven analytics in a machine learning environment, in the form of our proprietary tool, Clover Assistant. Really, in such a data-rich environment as we have today, it becomes more and more challenging for any one individual to aggregate and analyze and process the vast amount of clinical data that's out there. Clover Assistant, at the point of care, acts as a physician enablement tool to help to supplement the clinical judgment of the physician. At the end of the day, one of the ways that we measure success with Clover Assistant is the early diagnosis of chronic conditions to help for a more effective and accelerated treatment plan. Increasingly, we have more proof points around that. Even recently, we published an analysis around chronic kidney disease, where we found that physicians who are live on Clover Assistant were significantly accelerated in their diagnosis of chronic kidney disease, which, of course, helps for the early treatment of the disease and improved clinical outcomes. So you take this increasing number of clinical reference points as far as the impact of Clover Assistant, and you bump that up against the step change improvement in financial performance for the company, particularly with our most recently published Q2 results, where our Q2 and year-to-date performance for that side of our business really is a step change improvement over 2022, and also now comparing very favorably to other, more scaled-up industry players. No, it's a great start, and it's good timing, because it's been, you know, a year since you joined Clover as a CFO. So, you know, from our perspective externally, you know, it's been a little bit of a volatility in terms of the level of growth the company has experienced, both across the insurance and non-insurance businesses, and obviously, that's had P&L impacts as well. I guess when you say the company you think is kind of at an inflection point, kind of expand kind of what the company has done from kind of, like, the market growth and market fit perspective, especially on the non-insurance side of the business, and what you think that's translating to in terms of the potential financial inflection that you're already seeing and as you hope that continues into next year. Sure. And, yeah, so you're right. I have been with the company now for a little over a year, and really, really excited. Obviously, when I joined the company a little over a year ago, was excited just about the history of the company, not just in terms of the tool and the value that we believe it offers in the marketplace, but, from a financial trajectory standpoint, Clover is a young company, but one that had already proven the ability to deliver outsized growth, both on the membership side and, of course, on the revenue side as well. When I joined Clover a little over a year ago, we also began messaging to the marketplace that having really established the growth potential of the business, we were also looking to establish the profit-generating potential of the business. We began talking more, and this applies to both of our lines of business, both the insurance and non-insurance lines of business. We began talking more about prioritizing an acceleration of the path to profitability, as opposed to just continuing to document the revenue-generating potential of the business. What that translated to for 2023 was a descaling of the non-insurance side of our business, which had grown very quickly to almost, I think, almost around 170,000 members as of 2022, down to a little over 50,000 members this year. For that side of our business, really aligning ourselves more closely with those providers that we fit with, that we felt fit with our program of value-based care and deployment of the Clover Assistant tool. But then importantly, on the insurance or MA side of our business, the more moderated growth in membership that we were targeting really helped to allow for the maturation of the membership base and the business model in general. For those who are familiar with kind of the economics of Medicare Advantage, I think you're well familiar with the concept, is that the more new members you have joining, the more dilutive that is to your profitability at the gross profit level. So by taking a more moderated approach to membership growth for the Medicare Advantage or insurance side of our business, we were able to finally show the marketplace the profit-generating potential of the business. We have talked for quite some time about the fact that for the MA side of our business, when we have physicians who are relying on Clover Assistant, those-- the members that they're seeing are generating over 1,000 basis points of MCR improvement. Mm-hmm. But again, that effect was kind of lost in the accelerated growth history of the company- Yeah - where you had all these new members coming in that were kind of offsetting that incremental MCR advantage from the tool. So now here we are in 2023, we've taken this more moderated approach to membership growth. And finally, you can see the step change improvement in financial performance that comes from that. And there are a few factors that are influencing that that I'm sure we'll get into later in the discussion. But this improved mix of returning versus new members is a big part of that- Yeah It's a reflection of that strategic shift. No, that makes perfect sense. And you mentioned, you know, the 1,000 basis points. Like, as we attempt to think about, you know, kind of the composition of the 1,000 basis points, you know, like, obviously, there's gonna be, you know, cost consideration because you're driving improved, you know, decision-making on the clinical side. There's also gonna be a revenue component, I'm sure, because getting paid appropriately for the acuity of your patients is a huge part of being successful in MA. Just how do we think about the relative size of those levers compared to each other? Is there anything you can share on that front? Sure. So a number of drivers that are resulting in this improved performance for the MA side of our business this year. And just as a reference point for everyone, our year-to-date MCR or MLR for the insurance side of our business is around 82%. And again, that is a step change improvement, not just relative to what we have historically reported, but also I think relative to many major players in the industry. It shows really the profit-generating potential of the business and in particular the impact of Clover Assistant. Now, we have been talking for some time about the fact that we would be paid for our PPO plans on three and a half stars in 2023 for the first time. We're very excited to have been talking about that really throughout last year, and finally realizing that benefit here in 2023. We've talked in the past about how that is an impact of around 300-500 basis points. Yeah. But obviously, when you look at the improvement of over 1,000 basis points in MLR relative to our performance last year, there's a lot more that's going on. We haven't quantified each of the individual drivers, but as I said, it, it is that improved mix of new versus returning members. We have a number of operational improvements that are helping to mature a lot of the back office areas of our- Mm-hmm ... of our still young company, that help to contribute some of that incremental benefit as well. We have talked in the past about the fact that another differentiator for our business is the home care business, which, we believe to be one of the largest, if not the largest, in the state of New Jersey. This is a business that allows us to provide a very broad range of services in the home to those members who need it most, and that can obviously have an outsized impact on the medical costs as well, where we're able to impact those members prior to their needing readmission and things like that. A number of factors that are driving for us favorably, not the least of which, of course, is Clover Assistant and its impact. When you think about driving Clover Assistant, you know, adoption higher, I guess, how does that work operationally? Like, what do you have to do in your more mature markets to continue to march up penetration of Clover Assistant? And then as you think about, you know, potentially entering new markets, like, it seems like it'd be harder to initially have the scale to get physicians to adopt. So how do you overcome that challenge in newer markets? Yeah. Well, so, you know, first and foremost, we are always investing in significant resources in the continued development and advancement of the tool itself. Mm-hmm. Of course, we believe that the more impactful, the tool is, then that obviously will lend itself to, to greater buy-in. But to the point you were making a second ago, historically, Clover had really followed a very aggressive growth model, and that growth model really also followed a fairly, dispersed geographical expansion pattern. It is one of the things that is part of our, the refinement of our growth strategy and the focus on profitability. We believe that by narrowing the geographic focus of our growth efforts, we will, we will also accelerate the overall level of CA penetration. We believe that CA is a very easy tool for, PCPs or physicians to adopt. But having said that, the greater concentration of Clover members that they have in their patient panel, there will be that much more of an incentive, and it will be that much easier for them to incorporate it into their work stream. Okay. And then on the MA side, you mentioned, you know, the strong MLR improvement that you've seen. Obviously, utilization's been in a huge degree of focus, especially on the MA side. I know that because you have certain geographical concentrations, it's possible you may be seeing a different kind of reality on the ground. I guess, give us a sense of what you've been seeing on the MA utilization side? Any color you can give across different categories of, you know, utilization types would also be helpful. Yeah. Yeah, Yeah, it's interesting. If you were to go back and relisten to our earnings discussion when we reported Q1 earnings, we were already beginning to get some amount of question around utilization levels based on, I think, some amount of noise in the marketplace in general. And then obviously, there was a significant acceleration in overall industry discussion around utilization levels when we reported Q2. But you know, fortunately for us, what we found is a very stable Medicare environment overall. When you look at our medical expenses on a per member per month basis, I think what we saw was a very modest 2% uptick in Q2. On a year-to-date basis, it was, again, a modest 3% uptick in PMPM medic. Now, there might be some amount of upward pressure on utilization that everyone in the marketplace is seeing, but we also believe that we're well-positioned to offset those through our diversification, our diversified value offerings, you know, particularly the home care offering that helps to depress that type of upward pressure and of course, the impact of CA. Okay. And as we pivot a little bit to 2024, you know, give us a sense of how you approach bids for 2024. I guess, what were the company's objectives from a membership growth and a margin perspective? And as you've gotten a better sense of what's out there competitively, I guess, how do you feel like the company's positioned, and maybe how does that compare to what you might have thought a couple of months ago? Yeah, so we don't have a lot of new information to talk about at this point on 2024, the bid cycle. I think the most important thing I can tell you about 2024 is that when we look at the increasing level of momentum we have in 2023, we- Mm-hmm. We just couldn't be more excited. Naturally, we came into 2023 very optimistic of around the financial trajectory. In each of those two earnings discussions, we have significantly improved on the full year guidance for the company, and obviously, the stronger our jump-off point in 2023, then the more optimistic we feel about 2024. I would say that for 2024, we don't have a significant shift in our overall strategy, whether in terms of bids and plan design or anything else. In general, the intent to find the appropriate balance between profitability and growth is still there. I don't wanna comment on other industry players' strategy as far as bids or AEP, but we do feel like we're well-positioned in the cycle to accomplish on our objectives. And we've been making, you know, increasingly optimistic comments, I think, around our belief that we have line of sight to profitability on an adjusted EBITDA basis in 2024, and obviously, that is also comes with it an increasing level of comfort around our overall capital position in the future. And then, you know, when we think about the risk model changes that are coming from the industry, can you just talk a little bit about what that means for Clover, given your kind of unique take on the market, and how you think about, you know, any potential pressures that could generate, and how you would plan to, you know, offset those pressures if they are? Sure. Well, I think what the core of the answer to that question is just a reminder that Clover Assistant is not a risk adjustment tool, and it is not a medical cost management tool. It is a care tool designed to improve clinical outcomes. The logic that underlies Clover Assistant is care-based logic. And so when we think about the behaviors that we believe some of the adjustments in the risk coding model are intending to offset or mitigate, we don't believe that our type of business model is really- Mm-hmm. in the crosshairs of that. And when we look more specifically at kind of some of the granularity of the changes that are upcoming, we don't feel like we are particularly exposed to it. I mean, I think everyone has at least some amount of- Yeah exposure to it around the edges, but we think that relative to others in the marketplace, we are less exposed. And certainly, all of the other favorable drivers that we have coming, that are impacting us here in 2023, and we believe will continue to impact us even more in 2024, we look for those to more than offset any kind of headwind from that. Okay. And then to pivot a little bit to the non-insurance business, you know, you've revamped the ACO REACH strategy significantly over the past couple of years. Just give us some context on, you know, kind of the company's experience with ACO REACH and the necessity of making that change? Yeah, and just as a reminder, our participation in that program, which falls under our non-insurance segment, is very young. I mean, Clover overall is a very young company, with its origins, of course, on the insurance or MA side. And then, really, the non-insurance segment began delivering revenue for the first time- Mm-hmm ... in 2021, and very quickly scaled up to over a $2 billion revenue-generating segment in 2022. So you can see to have gone from $0 in revenue all the way up to over $2 billion, it's an extraordinary growth trajectory in a very short time. So I think it's, you know, reasonable that we would have taken the learnings from that extraordinary growth period and made the decision in the second half of 2022 to then take a step back, as I mentioned earlier, align ourselves more closely with those providers that we had identified, that really fall more closely into the strategy of value-based care that we're looking to implement. And those capabilities are capabilities that we're still building ourselves- Mm-hmm. Given the newness of the program. And of course, our expectation is that over time, there will be an increasing impact from the deployment of Clover Assistant among that population, as well as the providers that are partnered with us under the program continue to ramp up their own usage. And you know, the efficacy of the tool, obviously, is one that improves over time. And with the maturation of the population and provider group that we maintain, we can expect to have an increasing impact over time. Okay. Now, how do you think about, you know, financial performance of this business, you know, over the next couple of years? Like, do you think stability is probably the way to think about it, and then based on that, you can decide how much you want to grow or not grow in this business? Or I guess, what's driving your decision-making on whether to grow more in this business in the future? Yeah. I, I would say in the immediate term, it's more about a strategy of patience as we allow for that line of business, and I'm speaking here specifically around the non-insurance segment. It's around allowing it to mature... our own capabilities to mature. So I, I wouldn't say that we are, in the immediate term, back in any kind of a growth on mentality. Mm-hmm. We had talked last fall, beginning last fall, about targeting to make that business for the first time, a gross margin positive business, which it had not been during the early part of its history. And when you look at the year-to-date performance of the business, we've achieved that. So, just on a year-over-year comp basis, that improvement and the achievement of gross profit positivity for that line of business is an important part of our overall step change improvement as a company. And I think we'll just look in the immediate term to continue to mature the capabilities there before we go back to a more of a growth on mentality. Earlier this year, you announced an agreement to move many, you know, core health plan operations to UST HealthProof. Just walk us through the decision-making process there, about why that was something that made sense, I guess, operationally, what is required to make that a smooth transition? And then as you think about the financial benefits of this, I guess, how significant are they? Are they fully realized in 2024, or is this more of like a multi-year initiative? Yeah, it's a great question, and as a reminder for those that weren't following the news cycle over the last year, looking for optimization opportunities around SG&A and OpEx overall is something that we've been talking about as part of the overall path to profitability discussion that we began to be more vocal about beginning in the second half of last year. And so we've talked a lot so far this morning about the improvement in MCR on the MA or insurance side of the business. We talked about achieving gross profit profitability for the non-insurance or ACO side of our business, and the third lever, of course, is around SG&A and OpEx. And given the extraordinary growth trajectory of the company historically, you could probably imagine that our expenditures on SG&A had also grown at a very aggressive pace. So certainly, it's easy to see that there would be optimization opportunities in there. I believe it was in April of this year that we announced some cost-cutting initiatives that were gonna have an immediate impact on the business, but primarily it was this back office transformation project- Yeah - and the partnership with UST HealthProof that you just mentioned, that we expect to be the value driver over the longer term. When we reported Q2, just a little while ago, even though the transition over to UST isn't gonna take full effect until the beginning of 2024, we already saw about a 7% reduction in SG&A year-over-year for Q2. So that you can see that not only have we stopped the growth in SG&A, we've already begun to deliver- Mm-hmm ... some, some value in terms of savings from these other initiatives. But we did cite the expectation that we would achieve a total of about $30 million in run rate savings, beginning in, in early 2024, with the culmination of that transition. At the risk of stating the obvious, it is a very kind of comprehensive transition and impactful transition- Mm-hmm In terms of our back office insurance operations. The most important thing that you want to be cognizant of is risk mitigation during a period of change, and that is the biggest priority for the team. But ultimately, we remain very comfortable with the pace and execution around that project, and remain comfortable around the overall value that it's gonna be delivering. And as a reminder, in terms of what we're actually transferring over to the UST team, it is what we would refer to as our non-core back office operations. When you think about everything that makes us special, our differentiators, whether it's our Clover Assistant and the continued investment in Clover Assistant, the overall strategic direction of our insurance or non-insurance operations, the home health business- Mm-hmm and some of the other differentiated capabilities that we have, obviously, we are still maintaining all of that in-house. And really, what the partnership with UST HealthProof gives us is the opportunity to partner with someone who has already achieved an extraordinary amount of scale in terms of the number of members that they're serving, and us still being a relatively small plan, we can now tap into the scale that they've achieved for some of these non-core operations. Okay. As we think about, you know, your target for adjusted EBITDA, you know, from your guidance this year and your, your targets for next year to get to, to profitability. So it sounds like some component of the $30 million is part of your thinking in terms of the savings there. Doesn't sound like maybe necessarily we should expect a big change on the non-insurance side of the business. And then seems to think then that the largest part of the step up there is gonna be probably from the, the MA profitability. Is that the right way to think about it, or are there more levers? What else should we be keeping in mind? Yeah, I want to be cautious because we are—it's very early in our process to be issuing guidance or more concrete expectations for 2024. As I mentioned earlier, we are increasingly comfortable that we have line of sight to Adjusted EBITDA profitability next year. You know, I think in terms of those three major categories of levers, what you laid out is reasonable as far as kind of the size of the prize in terms of being able to move the needle next year. And we think we have a lot of important momentum behind us in order to achieve that. Okay. And then, you know, in the market, there's obviously a huge amount of focus on star ratings, and we're gonna get some more, you know, star ratings news in the next couple of weeks on, you know, 2025 payment year. Just remind us where the company sits today in terms of its star strategy Is there an expectation over time, you know, the company could get over the hump and get to that, you know, four-star rating? And I guess, what are the key areas of, you know, the company's star ratings today that have prevented it from getting there, and I guess how you guys getting after that? Sure. Well, great question, and, and I did mention earlier that for 2023, we're, we're very pleased to be paid for the first time at three and a half stars for the PPO side of our business of our insurance operations, which is by, by far the majority of our membership base. We are also, similarly excited that, that we will be paid in 2024 on three and a half stars for our HMO, which may be a smaller part of our business, but still should provide some amount of incremental tailwind for us, in 2024. We're not specifically targeting a timeline for achievement of any other stars level, but, you know, what I can tell you more broadly is that, excuse me, one of the attributes around our membership base and Clover historically has been that we serve a very diverse population. And when you listen to some of the directional comments from CMS over time around achieving greater levels of health equity across the Medicare and Medicare Advantage ecosystem, we really believe that the overall direction of that program is gonna favor plans like ours that have a more diverse membership base. And so certainly we're hopeful that that's gonna be advantageous to us in a number of different areas, including in terms of stars. But as far as our overall economic trajectory, our objective is to achieve profitability without needing to achieve four stars. And so certainly being on that kind of three-and-a-half-star chassis now is an important stepping stone for us, and then we believe that the other P&L levers that we've got, that we already discussed, will be enough to get us to profitability on an Adjusted EBITDA basis. Yeah. Another question I had, it kind of relates a little bit to that. You've had improving stars. You've been, and especially in your core markets, you've been a key player for a number of years now. You're no longer kind of a new face in the room. I guess, how has that changed your relationship with brokers and distribution channel, as they've seen you as a more stable and consistent part of the ecosystem? Yeah, absolutely. And, you know, in the markets that we operate, especially during this period over the last year, where we are now seeing just an overall maturation of our portfolio, that certainly is gonna have a favorable impact on your relationship with all of your various commercial channels. And I think we've always had a very successful and collaborative relationship with the broker network that we work with, and certainly see the opportunity to build on that over time. Okay. Is there any, As you guys, again, like, have matured a bit, like, have you seen any change or inflection in, in your retention of membership, or how has your retention levels, I guess, trended over the past couple of years? And is there any thought to how that might look in 2024, if there's maybe more shopping across the market as a whole? Yeah, we don't publish or disclose retention data specifically, but, you know, overall, I think when you look at the plan design that we offer to our members or potential members, the fact that we're on this wide network PPO construct, which is so attractive to such a wide range of the marketplace, I think it's difficult for them to find something that competes with us in terms of a choice standpoint. And I think that we offer a very attractive plan design overall, supplemental benefits, and so on. And so I think that's always impacted us favorably from a retention standpoint, and we look for that to continue to favorably impact us. Got it. And then as we think about, you know, the company's improving financial profile, both this year and hopefully into next year too, can you talk about the interaction of that with your expectations on transitioning to, you know, to positive free cash flow and where the company sits today in terms of, like, a capital and liquidity perspective? Sure. Well, we have been talking. I want to say we began referencing also in the second half of last year, that when we looked at our overall capital and liquidity position, we felt comfortable that it was more than adequate to support us through our 2023 operating needs. We have reiterated that a number of times, and obviously, with the increasing outlook that we continue to report relating to 2023, we throughout the year have become increasingly comfortable with our near-term capital position. And then as we have become more comfortable also with having line of sight to profitability on an Adjusted EBITDA basis for 2024, we have also expressed that we're increasingly comfortable that we'll be able to reach that profitability without requiring any incremental capital. As a reminder, in terms of our total liquidity position, with cash and investments, on a consolidated basis, as of Q2, we reported around $700 million or so of total liquidity, cash and investments, and then even at the parent or unregulated level, we reported around $300 million or so. So when you look at that relative to our run rate, cash burn and the achievability of profitability in 2024, we are becoming increasingly comfortable with our overall capital position. Okay, great. And then as we think about, you know, the regulatory landscape or policy landscape and things in, in D.C., I guess, is there anything that you would highlight that the company is especially focused on advocating for? Or in general, when you think about, you know, expectations around, like, rates and reimbursement for the next couple of years, it feels like we have this known item around, you know, the risk model phase in, and that leads me, and maybe some others, to think that maybe there's, like, less likely to be disruptive change over the next couple of years. I guess, big picture, like, what do you guys look for, and what do you think are the most meaningful things on the, the regulatory side to stay focused on? Yeah. Well, I mean, certainly we've always been an advocate for the overall direction towards health equity, like I was talking about earlier, because we think that there is so much of a population, including the population that we serve, that can benefit from that overall trending from a policymaking standpoint. As I mentioned earlier, some of the changes around the risk coding structure, we think are really targeting other parts of the market landscape as opposed to where we sit. And so I think that we are in the fortuitous position right now, where the value drivers that we think that we bring, our differentiators, are areas that where we can really control our own fate, as opposed to relying on any kind of particular policy change or direction. And so we're focused on delivering and capitalizing on that value now, and we think that really, when you look at our year-to-date performance, it really shows how much we can achieve and how much more we are hoping to achieve in the quarters and year to come. Last question, kind of an open-ended one. You know, when we're sitting here a year from now, what do you think people will realize about the company that they don't realize today? Boy! Well, this might be a good time to make a plug for Clover Assistant, if I hadn't done it enough yet. But you know, I think that as our financial performance continues to improve significantly, for us, it's that much more important that all of our stakeholders become more intimately familiar with Clover Assistant and the value that it brings. And so we are planning to conduct a Clover Assistant spotlight event that we encourage everybody to tune in for, including you. And we'd love for people to take this opportunity to look at this overall step change improvement and financial trajectory for the company, and understand how Clover Assistant is an integral part of that. And that's something that we don't have a specific date to announce for that yet, but we expect it to occur in the near future. And that's something that hopefully people can use as a stepping stone into 2024, where our objective is to continue to deliver improvement in financial performance overall. And I think as people see more of those proof points with the foundational understanding of the value that Clover Assistant is bringing, I think it helps people to bring the pieces together and understand why we are so optimistic around the future of the company. Okay, fantastic. That's a great place to leave it. All right. Thanks so much for your time today. Appreciate you having me.