Clover Health Investments, Corp. Q3 FY2025 earnings call

Growth Engine

• Growth engine is running well, focused on sustainable and profitable growth. Missed targets on adjusted EBITDA and stars but will make quick adjustments.

Drivers of Lowered Guidance

• Broad systemic utilization pressure compounded by growth. Higher proportion of new members and not factoring in utilization headwinds enough in non-CA population.

Star Ratings

• Received 3.5-star rating for 2026, but aims for 4-star. Clover Assistant powered Clover to top of industry for clinical quality with HEDIS score of 4.72. Focus on delivering better care and outcomes, working to improve pharmacy measures.

Counterpart Health

• New organization making strong progress, rolled out new capabilities like integrated scribing and generative AI tools. Expanded go-to-market team, seen good demand, and remains a leading technology partner for value-based care.

In the third quarter, Clover Health's Medicare Advantage membership grew 35% year-over-year to over 109,000 members, delivering insurance revenue of $479 million, an increase of 49% year-over-year. Year-to-date insurance revenue was $1.4 billion, up 39% year-over-year. Returning members continue to be accretive to contribution profit, although this impact was partly offset by a negative contribution profit from the new member cohort. The year-to-date underlying incurred medical cost trends, excluding pharmacy, for the entire population remained strong with a 4% increase year-over-year.

2025 Guidance

• Increased Medicare Advantage membership guidance to average between 106,000 and 108,000 members, insurance revenue guidance to between $1.850 billion and $1.880 billion. Improved adjusted SG&A guidance to between $325 million and $335 million. Lowered adjusted EBITDA and adjusted net income guidance to between $15 million and $30 million. Updated insurance BER guidance to a range of 90% to 91%.

2026 Guidance

• Anticipates strong returning member retention, 4-star payment year creating financial tailwinds, continued focus on increasing Clover Assistant coverage and PCP adoption, focus on cost-efficient growth channels, favorable impact from Part C CMS final rate notice and Part D direct subsidy, and incremental efficiencies from SG&A leverage.

• Systemic utilization pressure.
• New member growth compounding utilization pressure.
• Part D pressures in branded and non-formulary pharmacy spend.
• Abnormal activity in dental and DME.

Q: Obviously, you got the elevated utilization in the quarter. Last quarter, you had pharmacy and dental issues, and now it's inpatient, outpatient alongside other supplemental benefits. I'm trying to frame out how we should think about 2026 from a BER perspective? Like, I understand that the stars will be better. These cohorts will mature, but at the same time, you're also going to grow what seems to be fairly significant. I'm fairly certain your benefits have gotten richer. So, how do you plan on -- is there a mispricing issue that may have occurred for 2026 given what's occurring here? Or are you fairly confident that this is encapsulated in your bids and that you won't see a problem in '26 given what you're kind of experiencing now with outsized growth and that seems to be the driver of the pressure here?

A: Jonathan, it's Peter. Let me answer that question. So, if you look at our earnings release and the prepared remarks, on a normalized basis, excluding prior year [ PPV ], the underlying incurred cost trends, excluding pharmacy, is around 4%. So, given the higher utilization trend that we see and also the higher mix of new members, we think that's a solid performance. Now, we -- like we said in the prepared remarks, we had expected to do better. So we'll work on that. For next year, I would say that, that cost trend roughly is baked into the bid as well. But that's just one part, right? We have a number of other tailwinds as well as the 4-star payment year, the rate notice on Part C, and of course, the direct subsidy as well on Part D. So -- plus that SG&A increased leverage, it doesn't impact BER, of course, but -- so we feel that, that's baked into our bit. And then also -- I would also say, like we said in the past, we're nuclear precise of where we do our marketing and target our growth. We're focusing on so-called priority markets that meet a couple of conditions. One, where we have a solid Clover member base already. We also have in those priority markets good coverage from the Clover Assistant perspective and home care perspective as well. So, we're targeting growing in the areas that we want to grow, and that should also help BER go forward.

Q: Okay. And then just looking at your guidance here, I think if I were to -- just kind of putting the numbers together here, it looks like the BER does step up, but if I look at kind of the core MCR basis, it almost seems to imply that it actually steps down. I'm just trying to understand, is there anything specific for how we should think about 4Q? Or are you guys seeing anything specific that would seem to imply that it actually steps down? Or maybe my math is wrong here?

A: Are you looking at 3Q to 4Q, or looking at 9 months into the fourth quarter?

Q: 3Q to 4Q because it looks like you did 89.5% in 3Q, and it seems to imply steps down?

A: Exactly. Yes. I think we can refer back to the prepared remarks in my section where we talked about essentially intra-year PPV from the second half impacting the third quarter. So, the real -- the way to look at is really averaging out the first 3 quarters to get to kind of like a baseline expectation for the fourth quarter.