Third quarter Insurance MCR of 86.3% and year-to-date Insurance MCR of 91.7% demonstrate positive momentum
The Company updates 2022 full year guidance to include improved 2022 Insurance MCR range of 93% to 94%
Clover intends to continue to grow Insurance business at above-market rates in 2023 but will moderate growth to prioritize profitability
Company outlines strategic reduction in number of ACO REACH participating physicians in 2023; targeting Non-Insurance MCR below 100%
The Company reports strong liquidity, delaying any requirement for additional capital at least through 2023 and potentially beyond
"Strong third quarter results, led by significantly improved Insurance Medical Care Ratio ("MCR"), highlight our ability so far this year to drive more and more value via Clover Assistant," said
Dollars in Millions | Q3'22 | Q3'21 | ||||||
Total revenue | $ | 856.8 | $ | 427.2 | ||||
Insurance MCR | 86.3 | % | 102.5 | % | ||||
Non-Insurance MCR | 104.2 | 102.4 | ||||||
Salaries and benefits plus General and administrative expenses ("SG&A")(1) | $ | 118.0 | $ | 119.2 | ||||
Adjusted Salaries and benefits plus General and administrative expenses ("Adjusted SG&A") (non-GAAP)(1)(2)(3) | 75.3 | 70.5 | ||||||
Net loss | (75.3 | ) | (34.5 | ) | ||||
Adjusted EBITDA (non-GAAP)(3) | (58.3 | ) | (79.7 | ) |
(1) Salaries and benefits plus General and administrative expenses ("SG&A") is the sum of Salaries and benefits plus General and administrative expenses presented as the GAAP measure in the unaudited condensed consolidated financial statements.
(2) Beginning with the third quarter of 2022, we updated the name of our Adjusted Operating Expenses (non-GAAP) metric to Adjusted SG&A (non-GAAP). There has been no change to the calculation of this metric and previously reported results of the Company were not impacted by this change.
(3) Adjusted SG&A (non-GAAP) and Adjusted EBITDA (non-GAAP) are non-GAAP financial measures. Reconciliations of Adjusted SG&A (non-GAAP) to the sum of SG&A and Adjusted EBITDA (non-GAAP) to net loss, respectively, the most directly comparable GAAP measures, are provided in the tables immediately following the consolidated financial statements below. Additional information about the Company's non-GAAP financial measures can be found under the caption "About Non-GAAP Financial Measures" below and in Appendix A.
Lives under Clover Management
Insurance members | 88,136 | 67,281 | |
166,432 | 61,818 | ||
Total Lives under Clover Management | 254,568 | 129,099 |
Financial Outlook
"Third quarter financial results were highlighted by strong Insurance MCR performance, outsized revenue growth, and continued moderation of Adjusted SG&A growth," said Clover Health CFO
For full-year 2022,
- Insurance membership is expected to average 86,000 - 87,000, a growth rate of 29% - 30% as compared to the 2021 average. For the
Non-Insurance business, the Company expects the average number of aligned beneficiaries to be 165,000 - 170,000, compared to an average of 62,125 in 2021. - Total revenues are expected to be in the range of
$3.2 billion to$3.4 billion . This includes projected Insurance revenue of$1.0 billion to$1.1 billion andNon-Insurance revenue of$2.2 billion to$2.3 billion . - Insurance MCR is expected to be in the range of 93% - 94%. Non-Insurance MCR is expected to be improved versus 2021 levels. As in previous guidance, significant developments related to COVID-19 and/or historical utilization trends could potentially impact these expectations.
- Adjusted SG&A (non-GAAP)(1) is expected to be between
$320 million and$330 million . - Adjusted SG&A as a percentage of revenue (non-GAAP)(1) is expected to be 9% - 10% compared to 18% in 2021.
(1) Reconciliations of projected Adjusted SG&A (non-GAAP) to projected SG&A and of projected Adjusted SG&A as a percentage of revenue (non-GAAP) to projected SG&A as a percentage of revenue, the most directly comparable GAAP measures, are not provided because stock-based compensation expense, which is excluded from Adjusted SG&A (non-GAAP), cannot be reasonably calculated or predicted at this time without unreasonable efforts. Additional information about the Company's non-GAAP financial measures can be found under the caption "About Non-GAAP Financial Measures" below and in Appendix A.
MA Star Rating
CMS recently maintained Clover's PPO plan at 3.5 stars on the Medicare Star Ratings for its Medicare Advantage ("MA") plans for the 2021 measurement year, which will impact the 2024 payment year. Currently, over 90% of Clover's MA membership is served through its PPO plan. We believe that this is a significant event for Clover for several reasons. First, the Star Rating was achieved on a wide network plan that serves a higher percentage of underserved beneficiaries than is typical in the industry. Second, we have maintained this Star Rating for the second year in a row while growing at an above industry average pace - which is naturally a headwind to higher Star Ratings. We believe this Star Rating validates our tech-centric approach to Medicare and health equity is working and is applicable across the full Medicare population as opposed to only small, high-performing segments.
Earnings Conference Call Details
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding future events and
About Non-GAAP Financial Measures
We use non-GAAP measures including Adjusted EBITDA, Adjusted SG&A, and Adjusted SG&A as a percentage of revenue. These non-GAAP financial measures are provided to enhance the reader's understanding of
For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see Appendix A: "Explanation of Non-GAAP Financial Measures and Other Items."
The statements contained in this document are solely those of the authors and do not necessarily reflect the views or policies of CMS. The authors assume responsibility for the accuracy and completeness of the information contained in this document.
About
Visit: www.cloverhealth.com
Investor Relations Contacts:
investors@cloverhealth.com
shalper@lifesciadvisors.com
Press Contacts:
Andrew Still-Baxter
press@cloverhealth.com
CONSOLIDATED BALANCE SHEETS: SELECTED METRICS | |||||
(in thousands) | |||||
(Unaudited) | |||||
Selected Balance Sheet Data: | |||||
Cash, cash equivalents and investments | $ | 782,721 | $ | 791,194 | |
Total assets | 1,557,679 | 950,804 | |||
Unpaid claims | 140,276 | 138,604 | |||
Notes and securities payable, net of discount and deferred issuance costs | 19,965 | 19,938 | |||
Total liabilities | 1,165,699 | 411,487 | |||
Total stockholders' equity | 391,980 | 539,317 |
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(Dollars in thousands, except share amounts) (Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenues: | |||||||||||||||
Premiums earned, net (Net of ceded premiums of | $ | 267,892 | $ | 203,657 | $ | 814,566 | $ | 598,390 | |||||||
585,311 | 222,647 | 1,757,579 | 439,020 | ||||||||||||
Other income | 3,614 | 859 | 5,751 | 2,550 | |||||||||||
Total revenues | 856,817 | 427,163 | 2,577,896 | 1,039,960 | |||||||||||
Operating expenses: | |||||||||||||||
Net medical claims incurred | 839,799 | 436,325 | 2,560,307 | 1,109,248 | |||||||||||
Salaries and benefits | 70,142 | 73,364 | 209,724 | 201,555 | |||||||||||
General and administrative expenses | 47,832 | 45,846 | 152,569 | 130,110 | |||||||||||
Premium deficiency reserve (benefit) expense | (27,657 | ) | 20,761 | (82,971 | ) | 48,661 | |||||||||
Depreciation and amortization | 616 | 120 | 2,028 | 398 | |||||||||||
Other expense | — | — | — | 191 | |||||||||||
Total operating expenses | 930,732 | 576,416 | 2,841,657 | 1,490,163 | |||||||||||
Loss from operations | (73,915 | ) | (149,253 | ) | (263,761 | ) | (450,203 | ) | |||||||
Change in fair value of warrants payable | — | (115,152 | ) | — | (66,146 | ) | |||||||||
Interest expense | 404 | 404 | 1,197 | 2,790 | |||||||||||
Amortization of notes and securities discounts | 9 | 22 | 27 | 13,708 | |||||||||||
Loss (gain) on investment | 980 | — | (10,187 | ) | — | ||||||||||
Net loss | $ | (75,308 | ) | $ | (34,527 | ) | $ | (254,798 | ) | $ | (400,555 | ) | |||
Basic and diluted weighted average number of Class A and Class B common shares and common share equivalents outstanding | 477,690,204 | 414,572,706 | 475,609,571 | 410,417,493 |
Operating Segments | |||||||||||||||||
Insurance | Corporate/Other | Eliminations | Consolidated Total | ||||||||||||||
Three Months Ended | (in thousands) | ||||||||||||||||
Premiums earned, net (Net of ceded premiums of | $ | 267,892 | $ | — | $ | — | $ | — | $ | 267,892 | |||||||
— | 585,311 | — | — | 585,311 | |||||||||||||
Other income | 957 | 457 | 15,494 | (13,294 | ) | 3,614 | |||||||||||
Intersegment revenues | — | — | 29,954 | (29,954 | ) | — | |||||||||||
Net medical claims incurred | 231,211 | 609,650 | 1,980 | (3,042 | ) | 839,799 | |||||||||||
Gross profit (loss) | $ | 37,638 | $ | (23,882 | ) | $ | 43,468 | $ | (40,206 | ) | $ | 17,018 |
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | |||||||
ADJUSTED EBITDA RECONCILIATION | |||||||
(in thousands) (Unaudited)(1) | |||||||
Three Months Ended | |||||||
2022 | 2021 | ||||||
Net loss: | $ | (75,308 | ) | $ | (34,527 | ) | |
Adjustments | |||||||
Interest expense | 404 | 404 | |||||
Amortization of notes and securities discount | 9 | 22 | |||||
Depreciation and amortization | 616 | 120 | |||||
Change in fair value of warrants payable | — | (115,152 | ) | ||||
Loss on investment | 980 | — | |||||
Stock-based compensation expense | 42,641 | 46,803 | |||||
Premium deficiency reserve (benefit) expense | (27,657 | ) | 20,761 | ||||
Expenses attributable to | 6 | 1,319 | |||||
Expenses attributable to | — | 588 | |||||
Adjusted EBITDA (non-GAAP) | $ | (58,309 | ) | $ | (79,662 | ) |
(1) The table above includes non-GAAP measures. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP. For a detailed explanation of these non-GAAP measures, see Appendix A.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | |||||||
ADJUSTED SG&A (NON-GAAP) RECONCILIATION | |||||||
(Dollars in thousands) (Unaudited)(1) | |||||||
Three Months Ended | |||||||
2022 | 2021 | ||||||
Salaries and benefits | $ | 70,142 | $ | 73,364 | |||
General and administrative expenses | 47,832 | 45,846 | |||||
Total SG&A | 117,974 | 119,210 | |||||
Adjustments | |||||||
Stock-based compensation expense | (42,641 | ) | (46,803 | ) | |||
Expenses attributable to | (6 | ) | (1,319 | ) | |||
Expenses attributable to | — | (588 | ) | ||||
Adjusted SG&A (non-GAAP) | $ | 75,327 | $ | 70,500 | |||
Total revenues | $ | 856,817 | $ | 427,163 | |||
Adjusted SG&A (non-GAAP) as a percentage of revenue | 9 | % | 17 | % |
(1) The table above includes non-GAAP measures. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP. For a detailed explanation of these non-GAAP measures, see Appendix A.
Appendix A
Explanation of Non-GAAP Financial Measures and Other Items
Non-GAAP Adjustments
We believe it is useful to investors for our presentation within this document of financial measures on a non-GAAP basis to exclude the below items. In particular, we believe that the exclusion of these amounts provides useful measures for period-to-period comparisons of our business. These key measures are used by our management and the board of directors to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operating plans. In addition, we believe that the presentation of these non-GAAP measures enhances an investor's understanding of our financial performance.
Amortization of notes and securities discount - We report non-convertible notes and convertible securities at carrying value, net of discount. We account for convertible securities in accordance with accounting guidance for debt with conversion and other options, after determining whether embedded conversion options should be bifurcated from their host instruments.
Change in fair value of warrants payable - The fair value of warrant liabilities is estimated using a valuation method based on the level of instrument, where the values of various instruments are estimated based on an analysis of future values, assuming various future outcomes.
Depreciation and amortization - Depreciation and amortization consists of all depreciation and amortization expenses associated with our property and equipment. Depreciation includes expenses associated with property and equipment. Amortization includes expenses associated with leasehold improvements.
Expenses attributable to
Loss (gain) on investment - This consists of the loss or gain recorded during the applicable period by the Company on its minority equity interest in
Interest expense - Interest expense consists mostly of interest expense associated with previously outstanding non-convertible notes under our term loan facility that was terminated in the second quarter of 2021.
Premium deficiency reserve (benefit) expense – This consists of a reserve established to the extent that the sum of expected future costs, claim adjustment expenses, and maintenance costs exceeds related future premiums under contracts without consideration of investment income. We assess the profitability of our contracts with CMS to identify those contracts where current operating results or forecasts indicate probable future losses. Premium deficiency reserve (benefit) expense is recognized in the period in which the losses are identified.
Stock-based compensation expense – This consists of expenses for stock-based payment awards granted to employees and non-employees.
Non-GAAP Definitions
Adjusted EBITDA - A non-GAAP financial measure defined by us as net loss before interest expense, amortization of notes and securities discount, depreciation and amortization, change in fair value of warrants payable, (gain) loss on investment, stock-based compensation expense, premium deficiency reserve expense (benefit), and expenses attributable to
Adjusted SG&A - A non-GAAP financial measure defined by us as total SG&A less stock-based compensation expense, less expenses attributable to
Definitions of Other Items
Non-Insurance MCR - We calculate our Non-Insurance MCR by dividing net medical claims incurred in connection with our
Lives under Clover Management - Consists of our (i) Insurance members and (ii) Original Medicare beneficiaries aligned to the Company's Direct Contracting Entity ("DCE") via attribution to a DCE-participating provider through alignment based on claims data or by beneficiary election through voluntarily alignment, in connection with the
Insurance MCR, gross and net - We calculate our Insurance MCR by dividing total net medical claims incurred by premiums earned, in each case on a gross or net basis, as the case may be, in a given period. We believe our MCR is an indicator of our gross profit for our Medicare Advantage plans and the ability of our Clover Assistant platform to capture and analyze data over time to generate actionable insights for returning members to improve care and reduce medical expenses.
Source:
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