Ladies and gentlemen, good afternoon, and welcome to the Clover Health Second 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 Sch

Good afternoon, everyone. Joining me on our call today to discuss the company's Second 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 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 patients 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.

Thank you, Ryan. Welcome, everyone, to our Second Quarter Earnings Call. We are happy to report that we delivered yet another impactful quarter this year, building our momentum and demonstrating our ability to achieve meaningful growth alongside sustained adjusted EBITDA profitability in Medicare Advantage through the first half of the year. To start, I feel we are executing well against our strategy. We have always aimed to position Clover to win over the long term within Medicare Advantage and our arc has been simple: first, achieve profitability; then return to growth while sustaining profitability; and then leverage our differentiated model to accelerate growth and profitability together. We exceeded our adjusted EBITDA profitability target in 2024. Through the first half of 2025, we are executing well and believe that we are proving that we can achieve sustained adjusted EBITDA profitability amid to meaningful membership and revenue growth during a 3.5 star payment year. And most importantly, we expect that our performance in 2025 will position us very well to accelerate both growth and profitability in 2026, which is a 4-star payment year and where we will continue to offer our flagship-wide network PPO plan, while others retreat from that offering. Our trajectory is clear. We are confident in the path ahead. And while not all market plan data is available yet, we have reason to believe this will be another strong membership growth season for us. Potentially even stronger than this year. Also with next year being a 4-star payment year, we feel we should be able to strongly grow 2026 adjusted EBITDA as well. Next, let's discuss how our second quarter highlights our strategic arc and the significant value our technology-first care model brings to our members. As I mentioned, we're continuing to deliver robust membership and revenue growth this year, alongside sustained adjusted EBITDA profitability in our business. Since last quarter, our Medicare Advantage book has continued to increase membership, and we are now projecting ending 2025 with even more members. This is not just growth for growth's sake, we're making a real difference by bringing earlier care management via Clover Assistant technology to more and more Medicare Advantage seniors. We're, of course, proud of our financial results so far this year, and I believe we have truly differentiated ourselves to the unmatched value we bring to our members. We continue to lead with physician choice, affordability and high-quality health care through our technology-first care model, and we are driving real life results. And this ultimately is driving our growth and we believe is why seniors are choosing Clover Medicare Advantage plans. As another example of our models impact, earlier this month, we published a clinical white paper on chronic obstructive pulmonary disease, or COPD, showing that a relationship with a Clover Assistant provider was correlated with 15% fewer hospitalizations and 18% fewer readmissions. Our results are more than just numbers on a page. They are a testament to the momentum we're building and the effectiveness of Clover Assistant to make a real-world impact in better managing chronic diseases. Next, I would like to discuss broader industry managed care trends, particularly in the context of the pressures others are noting in the Medicaid and ACA markets. It's crucial to note that at Clover, our business is Medicare Advantage. We do not run stand-alone Medicaid plans nor do we participate on the ACA exchanges. We do serve dual eligible members, but these Medicare Advantage individuals are, by definition, seniors or are disabled meaning that they are not impacted by dynamics like work requirements within the construct of Medicaid redeterminations. As such, we believe that our Medicare Advantage focus should help insulate us from these broader industry pressures. However, we are also seeing some of the elevated cost trends within our MA book that others in the industry have identified. That said, we are generally satisfied with the underlying trends we're observing in our portfolio. I would note that we are keeping a particularly close watch on the impact from the Part D IRA changes this year. Given that this is the first year of the new program, there is less of a historic baseline to trend against. And so we anticipate more variability in our modeling of performance. As such, we are diligently monitoring this to see how it plays out through the remainder of the year. Put another way, while I think we are appropriately focused on delivering our care management model, we also recognize that Part B remains a big known unknown for the second half of the year. This is also consistent with the recently published Part D direct subsidy rate, which is materially higher for 2026 than for 2025, signaling higher costs than expected by the industry. The good news is that this also gives us a reason to believe that Part D pressure in 2025 might be alleviated in 2026. With all that said, against this backdrop of general managed care headwinds, we continue to believe our technology-centric care delivery model differentiates us. Remember that our approach to managing total cost of care is fundamentally different. It's anchored on identifying and managing diseases as early as possible via Clover Assistant and simultaneously delivering crucial support through our Clover care services offering, when and where our members need it most. This unique approach allows us the potential to truly bend the cost curve over time for our members and effectively manage trends amidst broader industry pressures. To that end, we are extremely excited about the new Health Tech ecosystem initiative unveiled last week by CMS and the White House that focuses on building a truly patient-centric interoperable ecosystem. This initiative fostering a smarter, more secure and personalized health care experience through enhanced interoperability and real-time information sharing resonates deeply with the foundational principles we championed at Clover since day one. Clover Assistant is already built upon the very interoperability framework and fire standards, highlighted last week, both utilizing data to generate actionable insights and contributing those insights back into the networks. Ultimately, Clover Assistant and AI technologies all scale with data. And we see this initiative as turbocharging data access, which will then bring a significant accelerant to our technology approach. Looking to 2026, we anticipate building on our successful 2025 strategy with an even sharper focus on profitable growth in our bids. Our commitment to expanding Clover Assistant's reach, emphasizing retention in existing markets and balancing new and returning member cohorts remain central to accelerating our growth strategy. While the competitive MA landscape will undoubtedly evolve, we're confident in our pricing and positioning next year during a 4-star payment year, as we've already proven we can deliver strong MA performance during a 3.5 star payment year in 2025. This step-up in our stars rating provides us with an additional financial tailwind in 2026, and we believe that this will also position us to continue to strengthen our insurance products. We're proud of the growth and momentum we've achieved in our results so far this year and look forward to our flywheel starting to spend much faster as we go into 2026. Now let's discuss our counterpart health progress and overall strategy. Since we announced last year that we made our same CA technology platform available to other risk-bearing entities we've seen broad interest and uptake. Our belief is that everything in health care ultimately revolves around the health outcomes and total cost of care of outpatient. Involved in delivering these outcomes are a number of health care ecosystem players, primary care physicians, risk-bearing ACOs, pharmacies, large hospitals and, of course, health insurers, both regional and national. Counterpart assistant can benefit all these third parties and the interest we've received through the deals we've already announced shows the varied application potential of the tool, both by scaling CA within our own plan and outside of it. In particular, we are seeing a lot of resonance with plans that need assistance with star ratings and HEDIS quality scores as well as managing costs within their PPO-wide networks. Based on this, we are very excited to have pipeline deals and deployment across the health care ecosystem. As a reminder, while we aren't able to announce every customer, we have announced several large health system deals and we're very pleased with our progress with payer partners. Our MA plan also recently announced a pilot to use CA with independent pharmacies, bringing our technology to yet another often overlooked site of care. I'm excited about our progress, and I believe we are well on our way to showing that counterpart assistance is capable of powering Medicare advantage, not just in our own plan, but in any managed-care setting, nationwide, and that it's ready for prime time scale. In summary, we are focused on achieving our goals this year and are strategically positioning the company for the future. We're growing significantly, operating profitably and differentiating ourselves through our technology-first model. Simultaneously, we are setting the stage for an even more impactful 2026, which we believe will cement our position as a leader in Medicare Advantage. Now I'll hand it over to Peter for a more detailed financial update.

Thank you, Andrew. Before we get to the financials, I want to emphasize our strong position in today's managed care environment. We are demonstrating great Medicare panic execution, leading with a wide network PPO plan that currently serves 97% of our members. We have achieved over 30% membership growth, which is well above the industry, all while maintaining profitability on a 3.5 star payment year. We have outlined our year-over-year profitability drivers on Page 8 of the earnings deck posted to our IR website. We are absorbing typical new member growth headwinds through the strong economics of our returning cohorts. And while our favorable and growth SG&A cost is increasing,due to the strong growth, coupled with our strategic investments into our model, this is effectively balanced by ongoing cost efficiencies in our business, a topic I'll elaborate on later. Now diving into the financials. Our results reflect continued growth and momentum in Medicare Advantage with sustained adjusted EBITDA profitability through the first half of 2025. We've grown both membership and revenue by more than 30% year-over-year. And at the same time, we improved GAAP net loss from continuing operations by $4 million to $12 million, and maintained our year-to-date adjusted EBITDA and adjusted net income, steady at $43 million and $42 million, respectively. Our results powered by our technology-first model of care, reinforce confidence in achieving our updated full year 2025 guidance. We believe this also positions us well for accelerated growth and a meaningful increase in profitability in 2026, which is a 4-star payment year. Now let's move to a more detailed review of our second quarter financial performance drivers and our updated full year 2025 guidance. Clover's core fundamentals are strong with well above market insurance revenue and membership growth. Second quarter 2025 and Medicare Advantage membership grew 32% year-over-year to above 106,000 members. This growth fueled a 34% increase in insurance revenue to $470 million in the second quarter and similarly, 34% growth year-to-date to $927 million as compared to the prior year period. And as our strategic growth flywheel continues to spin, we're generally satisfied with the underlying trends we're observing in our portfolio. While we are seeing some of the elevated Medicare advantage cost trends that others in the industry have identified, we remain confident in our ability to manage our book. Both new and returning member core performance has been strong, which we attribute to our differentiated tech-first model of care to manage Part C cost trends and identify diseases as early as possible. That said, during the second quarter, we observed some elevated pockets of utilization within supplemental benefits, elevated Part D utilization from IRA impacts. While this did negatively impact our results, we have implemented different initiatives to monitor and manage these developments going forward. As such, we slightly increased our full year 2025 insurance BER guidance to reflect these developments, which I will discuss in more detail later. As it relates to the elevated utilization levels we're seeing within Part B and as Andrew mentioned, we're keeping a close eye on the impact from the first year of the IRA changes, and we will continue to diligently monitor any evolving trends that we're seeing here. Moving to SG&A. We continue to drive operating leverage and efficiencies in our business amidst our strong growth. Adjusted SG&A as a percentage of total revenues improved to 17% this quarter, a 280 basis point improvement year-over-year. This demonstrates our ability to gain operating leverage amidst increased favorable and growth SG&A costs necessarily to support a strong new membership growth this year. More importantly, our result is net of our continued strategic investments focused on stars, quality initiatives, further improving our home care and Clover Assistant platform capabilities and further accelerating the reach of CA in our MA plan as well as in our counterpart health offering, all while leveraging technology and AI to gain further efficiencies in our SG&A. Our focus remains on disciplined, strategic investments to create lasting value for our members. More importantly, we have sustained our adjusted EBITDA profitability profile in tandem with our strong growth through the first half of this year. GAAP net loss was $11 million this quarter, bringing year-to-date GAAP net loss to $12 million, and this represents an improvement year-to-date of $4 million compared to the same period last year. During the second quarter, in tandem with our continued strong membership and revenue growth, we delivered $70 million in adjusted EBITDA and $70 million of adjusted net income. For the year-to-date period, adjusted EBITDA reached $43 million and adjusted net income is $42 million, both remaining steady year-over-year amidst 32% membership growth. This underscores the strength of our differentiated growth model, sound insurance operations and solid cohort management. In addition, our performance this quarter resulted in an insurance BER of 88.4% compared to 76.1% in the second quarter of 2024, bringing our year-to-date insurance BER to 87.3% and developing in line with our updated guidance for the full year of 2005. As you may recall, last year, during the second quarter of 2024, we experienced heightened prior period development that skews the year-over-year comparisons. The year-over-year increase in insurance BER also includes the continued impact of our CA-enabled affiliate entity focused on improving care coordination and health outcomes for our New Jersey plan and members. We continue to push forward to this initiative 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. Lastly, days in claims payable was 32 days as of June 30, 2025, representing a decrease of 5 days sequentially. This represents continued normalization of our claims inventory from early last year when we experienced an increase in claims backlog as a result of the industry-wide change health care incident that occurred simultaneously with our back-office business processing as a service and a ecosystem transition. In an effort to normalize our claims inventory since last year, we have accelerated our timeliness of claims payments. We believe that we have now adequately normalized our claims inventory and that our BCP is within expected go-forward ranges. Moving on to the balance sheet. We ended the second quarter with cash, cash equivalents and investments totaling $389 million on a consolidated basis, with $146 million at the unregulated subsidiary level. During the second quarter of 2025, cash flow from operating activities was $5 million, favorably impacted by our results this quarter, bringing our year-to-date cash flow used in operating activities to $11 million. We expect that our cash balances will remain strong for the remainder of 2025, which will allow us to continue to operate from a position of strength, as we invest in our growth model in 2026 and beyond. Finally, we have maintained our full year 2025 adjusted net income and adjusted EBITDA profitability guidance, underscoring our continued business execution, strong intra-year membership growth and the power of a differentiated model of care. And while our overall outlook remains consistent, we are providing the following guidance updates to reflect the latest developments in our business. We are increasing our Medicare Advantage membership guidance to now average between 104,000 and 108,000 members, reflecting 32% membership growth year-over-year at the midpoint and continued intra-year growth this year. We are reconfirming our insurance revenue of between $1.800 billion and $1.875 billion, reflecting year-over-year growth of 37% at the midpoint of the range. We are improving our adjusted SG&A guidance to be between $335 million and $345 million. This represents adjusted SG&A as a percentage of total revenue of 18% to 19% and is an approximate 300 basis point decrease or improvement year-over-year at the midpoint of the range. This reflects our continued ability to gain operating leverage in our business as we grow. For the full year 2025, we are maintaining both adjusted EBITDA and adjusted net income guidance of between $50 million and $70 million. And lastly, we're updating our insurance BER guidance to a range of 88.5% to 89.5%. This incorporates the underlying trends we've observed this quarter in Part D and supplemental benefits discussed earlier. And notably, the impact of our MA membership growth outperformed so far this year. While new members inherently bring near-term cost pressure as we bring them into our care model, we view as incremental membership growth positively as it further strengthens our conviction for '26 and beyond where these new members will mature into returning members in the future. And lastly, we continue to expect typical revenue medical cost seasonality during the second half of the year, with customary elevate utilization, particularly during the fourth quarter. That said, this is simply normal Medicare Advantage seasonality. We remain confident in our unique care model and are focused on aspiring PCPs with technology to identify and manage chronic diseases as early as possible to effectively manage costs amidst broader industry pressures. In summary, we are executing well on our strategy this year, achieving strong Medicare Advantage performance with above market growth and sustained adjusted EBITDA profitability year to date, which we believe firmly positions us for continued success in 2026 and beyond. We remain confident in our trajectory for the following reasons: first, as Andrew mentioned earlier, we're confident in the growth path ahead, and while not all market plan data is available yet, we have reason to believe that this will be another strong membership growth season for us. Our underlying financial performance allows us to continue to invest in quality and affordability for our members, fueling our growth flywheel as well as continued investments to expand the reach of Clover systems to better manage new and returning member cohorts; second, we're continuing to prioritize returning member retention in our 2026 bid strategy. We expect the user economics of our large cohort of new members added in 2025 and to significantly improve into 2026 as returning members. And we also expect a continued phaseable impact from further improvement in our year 3 plus return member cohorts; third, in 2026, we will increase to a 4-star payment year for our PPO plans, which brings financial tailwinds that will favorably impact -- our results as 97% of our members are currently enrolled in a wide network PPO plans; fourth, we expect the compounding favorable impact from the CMS final rate notice announced earlier this year that affect the broader industry. Although this is particularly additive to Clover, given that we're moving from a 3.5 star payment year in 2025 to a 4-star rating for payment year '26; lastly, we believe that there will be an incremental impact from our efforts to gain operating leverage, see our initiatives to optimize favorable fixed and growth SG&A costs. By leveraging this year's momentum and targeted investments in our care platform, we believe that we are strategically positioned to meaningfully increase profitability, drive strong growth and truly unlock Clover Health's full potential in 2026 and beyond. Now I'll turn the call back to Andrew for closing comments.

Thanks, Peter. In conclusion, we have delivered significant growth this quarter amidst sustained adjusted EBITDA profitability, clearly executing our strategy. Our differentiated tech-first care model is consistently delivering value for members and enabling us to effectively manage costs and drive our strong performance. We remain confident in our full year 2025 performance and we believe we are strategically positioned for accelerated growth and sustained profitability unlocking Clover's full potential in the future. With that, let's open it up for questions.

[Operator Instructions] We will now take our first question from Jonathan Wong with UBS.

I guess to start, the MCR BER came in above kind of expectations here. I know you called out sub in Part D, but within the context of your raised guidance on the BER. How much conservatism do you kind of have embedded in there? And how much visibility do you have into how that trend will develop in the back half of the year?

Yes. Thanks, Jonathan, for the question. So the the increase in the DR guide for the full year is mostly related to Part D and supplemental, mostly actually dental. So that's a positive for for the members, we have initiatives in place to monitor this go forward. And we believe there's some relief as well on the Part D pressure from the IRA as we go into 2026.

Okay. And then within the context of what you saw -- when did these pressures kind of start emerging? Was it in the earlier part of the quarter, later part of the quarter? And then how much of this did you actually capture within the context of your bids for next year just given it does seem like a fairly sizable step up here.

Yes. I think that -- as I mentioned in my comments -- this is Andrew. The -- especially on the Part D side, one thing we've been tracking as we go through the year is that this is the first year of the IRA. So tracking against the model is something new across the industry, I think. So we did look at that we were pricing it to the bid. I think you can see that I think a lot field industry did that as well as reflected by the fact of the variability and increase in the Part D direct subsidy that came in for 2026. I do think that across the industry that higher Part D costs are being factored in as we start to look and rationalize that trend from earlier this year into our sort of like baseline models.

We'll go next to Matt Hewitt with Craig-Hallum Capital Group.

Maybe first up, you've increased showing improvement in your SG&A or adjusted SG&A. And I'm just curious, what are the drivers for those improvements. Are you kind of holding back on some of the hiring? Or are you finding some new efficiencies within the model? Any color there would be helpful.

Yes, Matt, thanks for the question. Yes. So mostly cost efficiencies, we started a company-wide cost initiative to really rationalize the price and volume terms we get with most of our partnership contracts. Now that we are growing well off the industry, and we're estimating that same growth also to remain for the next couple of years. So we're very -- we are a very attractive partner -- so a lot of that also comes from term renegotiations with partners. .

Got it. And then maybe kind of a separate question here. But what kind of response have you been getting from the COPD white paper? Is that something that you can replicate? Are there other similar types of papers that you can publish that kind of highlight the benefits of using CA and kind of driving incremental business?

Yes, definitely. We're very proud of these papers that we're putting out. Obviously COP just came out. We had CHF maybe about a month, I think 2 ago. Our flagship paper on CKD came out, I think, last year or the year before. we plan to keep producing this material, and we think that Clover Assistant definitely in our data shown to be as you can see the white paper is correlated with management, care, total cost of care. You can see that in our -- our HEDIS scores, which remain one at the top in the country. There's a lot of these data points, which we're very, very proud of. It also flows into how we're talking about being in the counterpart context as well, where we point to these results that are being driven by our technology with our own plan, and it's something that we can bring to other plans in other markets. .

[Operator Instructions] We'll go next to John Pinney with penny Canaccord Genuity.

Joining in on for Richard Close. Yes, so going back to the BER, is the elevated cost trend you're seeing like kind of more localized in that like on a newer cohort? Or is it pretty broad based? Is there any differences in geography there? Is it -- again, pretty broad-based?

Yes, this is Pete. I'll answer that question. So the cohorts are -- want to make sure that, that message is clear and land. The cohorts in our unique model, tech-first model are performing as expected in line. So for Part D and supplemental, we don't see a specific split or between new and returning members. So returning members are definitely improving from an MCR and BER perspective as expected.

And I would also add in there that, as we said on our previous commentary, as we model out parts, especially the Part D side of things, which was in my section, this is the first year. We are still figuring out what the baseline models look like. the direct subsidy will increase going to 26. So as Peter mentioned, like I think there's reason to believe that any pressures we see there will be appropriately priced in industry-wide going into next year as well. And we are also making sure that we keep an eye on supplemental benefits throughout the year.

Okay. Great. And then also just to touch on like the competitive landscape and the upcoming AEP. Is there anything like different that you'd call out on how your competitors are approaching this year going into 2026? Are they like maybe pulling back a little bit less than they did last year? Or anything you would call out on any differences in the competitive landscape compared to your .

Yes, for sure. I think that, obviously, we're noting that cost trends like within managed care in general and even Medicare Advantage, there's been a lot of motion this year by the national players. The way that we see it is that the products that they're most pulling back, while all of them pretty much are pulling back to some extent, where they're pulling back count and where they're pulling back is generally within that PPO, white work they struggle to deploy their existing managed care capabilities I think that's an area where we are very strong based upon our technology from the counterpart side. So we feel good in our core markets, we feel that that people are pulling back, they're quite likely to pull back within those same markets because those are challenging for the same reasons that they're good for us. So that's why within our commentary, we said that while we don't have all the data yet, we feel like we're likely to be very well placed into this coming growth season.

And I would add to that as well to point out next year 2026, is a 4-star payment here. So that's also a financial headwind allowing us to grow.

[Operator Instructions] And now we'll 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.

Fantastic. I want to thank everybody for joining us today. Thank you for taking the time and for your questions. Truly value everyone's interest in Clover Health. And we'll be speaking with everyone again soon. Thanks again, and enjoy the rest of your evening.

Thank you. This concludes today's Clover Health Second Quarter 2025 Earnings Call and webcast. You may disconnect your line at this time. Have a wonderful day.