Please stand-by, your program is about to begin. Ladies and gentlemen, good afternoon, and welcome to the Clover Health Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. 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.

Good afternoon, everyone. Joining me on the call today to discuss the company’s third quarter results are Vivek Garipalli; Clover Health Chief Executive Officer, Andrew Toy, the company’s President; and Scott Leffler, our Chief Financial Officer. You can find today's press release and the accompanying supplemental slides in the Investor Events and Presentations section of our website at cloverhealth.com. This webcast is being recorded, and a replay will be available at 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. 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 will now turn the call over to Vivek.

Thank you, Ryan, and thanks, everyone, for joining us today. Our wide network approach powered by Clover Assistant, enabling great primary care, helped deliver a solid set of results for the third quarter. I'm proud of the hard work being done by everyone at Clover so far this year, leading to consistently improving financial results in our insurance line business and a maturation of our non-insurance business. Importantly, I also believe that this quarter's results further illustrate our positive momentum towards achieving profitability. Before handing it over to Andrew, I would like to briefly touch on some key highlights from the third quarter. We delivered significant improvement in insurance MCR, continued stability in adjusted SG&A spending and strong revenue and live growth relative to the prior year period. Clover Assistant continues to be a key differentiator in our mission to improve every life, by supporting physicians in catching and treating conditions earlier. We continue to see MCR performance that is over 1,000 basis points better for returning members, whose PCPs used Clover Assistant, as compared to members whose PCPs do not. We believe this differential in MCR performance is evident that Clover Assistant is in fact, helping to improve clinical outcomes. Finally, I am pleased by our increased focus on operational excellence at Clover, which contributed to our maintaining 3.5 stars on our flagship PPO plan. We look forward to continued execution against our strategy, as we head into 2023. With that, I will turn the call over to Andrew.

Thanks, Vivek. It really is exciting to see the result of our hard work manifest an increasing momentum across the business. Our Q3 results were highlighted by significant improvement in our insurance MCR to 86.3%, and I am excited to see that our focus on sustainable insurance operations, bringing Clovers to more doctors and our consistent improvement of Clover Assistant platform capabilities are having such a meaningful impact on performance. As a reminder, we are being paid this year on three stars. Therefore, our 2022 results are not yet reflective of the favorable impact that we expect from being paid on 3.5 stars beginning in 2023. Furthermore, we recently announced maintaining the 3.5 star rating for another year, continuing the favorable revenue effect into 2024. While some uncertainty exists due to typical end of year seasonality in medical expenses, as well as the ongoing risk of COVID surges, we are revising our 2022 insurance MCR guidance to reflect our overall improved performance and positive momentum. We now expect a range of 93% to 94%, favorably updated from the previous range of 95% to 99%. As I've previously discussed, we are now highly focused on striking the right balance between growth and profitability. We believe our Clover Assistant enabled model gives us a structural advantage over other industry participants, allowing for profitable above-market growth. However, it is a well-understood attribute that all MA plans as new members typically represent a headwind to MCR as it takes a year or two to comprehensively diagnose health conditions and bring members under care management. This transition period for new members impacts both MCR and star ratings. In the past, we emphasized growth in life, even as we understood this would result in a near-term profitability headwind. As our business matures, we've adopted a more balanced philosophy emphasizing not just growth but profitable growth. To be clear, we expect to continue to grow membership above market rate, but we also expect overall growth in life that will be lower than previous years. We intend to accomplish this balance through a combination of tweaks to plan design, growing our core markets versus expansion and further focusing our marketing spend. With regard specifically to 2023, we believe that the current AEP season will be especially competitive with some of our competitors improving their benefits in an attempt to come in line with our offering. That said, while others can try to match our insurance plans, we believe they lack the ability to manage care on a wide physician network, which is what Clover Assistant sets us towards. Turning now to our non-insurance segment. Our Q3 non-insurance MCR was 104.2%, which is a result that we intend to improve. ACO Reach is an innovative program and its rules and benchmark rates continue to be adjusted by CMMI, resulting in some amount of unpredictability. Given the program environment and the learnings with our participants, we have modified our ACO to target an MCR lower than 100% next year and have made adjustments to the number of physicians participating in the ACO Reach program. Despite having many new participants for 2023 that would have allowed for substantial program growth, we have decided to significantly decrease the total number of participating physicians. We believe this will reduce total attributed live and revenue managed by our ACO by up to two-thirds. We still expect this business line to have a scale of approximately $1 billion of annual revenue. Importantly, we very much believe these adjustments will result in a sustainable business line with an MCR below 100%. To be clear, we continue to strongly believe in Clover Assistant being used for the entirety of a physician's Medicare panel, including fee-for-service. For the physicians who we will not be admitting to our ACO in 2023, we are exploring alternate opportunities to support them in shifting their fee-for-service population onto value-based care. For example, we are looking at potentially partnering with them on existing statutory programs such as the Medicare shared savings program. We believe these other programs could be a very good fit for a number of these physicians, and we will provide more updates here as they come about. With that, I will now hand over to Scott for the financial update.

Thanks, Andrew. I'll first cover the third quarter 2022 highlights and then review our updated 2022 outlook. I also want to echo that I am proud of Clover's performance this year, and I look forward to building upon our positive momentum next year, when we're paid at 3.5 stars on our flagship PPO plan. As Vivek and Andrew mentioned, our Q3 results were highlighted by significant improvement in insurance MCR, which improved to 86.3% this quarter from 102.5% in Q3 of last year. This improvement was driven by favorability in underlying operational trends as our portfolio continues to mature. Our year-to-date insurance MCR through Q3 also demonstrates meaningful improvement over a more extended period, with Q3 year-to-date MCR improving to 91.7% from 107.1% in the Q3 year-to-date period last year. We believe that these improvements are a reflection of our focus on building best-in-class insurance operations and expanded Clover Assistant coverage and capabilities in addition to the benefit from normalizing COVID-related medical expenses compared to last year. In general, we won't be sharing prior period development in our results. That said, the insurance MCR does reflect favorability from prior periods and we don't view 86.3% as a go-forward run rate. We do feel that our full year guidance range of 93% to 94% is a fair representation of the overall underlying run rate of the business in 2022. This sets us up to do well in 2023 when we layer in the incremental benefits of being paid on 3.5 stars maturation of our portfolio and other operational tailwinds. Our non-insurance MCR was 104.2%, elevated versus Q3 of 2021. As Andrew mentioned, we're excited about the changes we're making to the program, which we believe will result in an MCR below 100% for the non-insurance line in 2023. During the third quarter, insurance and non-insurance revenue growth of 32% and 163% respectively was driven by growth in live vendor management, resulting in total revenue of $857 million and net medical claims incurred of $840 million. Looking forward to 2023, we expect the insurance line to continue to grow at above market rates, although somewhat moderated from recent years. In addition, the decision to reduce the scale of participation in the ACO program will result in a reduction of our non-insurance revenue by up to two-thirds. As Andrew mentioned, we still expect non-insurance to be a $1 billion revenue line of business. Both of these changes are reflective of our increasing emphasis on profitability and will drive continued improvement in MCR and adjusted EBITDA performance, ultimately driving us towards profitability. Third quarter adjusted SG&A, which we previously referred to as adjusted operating expenses was $75.3 million, representing 9% of total revenue, a modest improvement since last quarter and down nearly 800 basis points year-over-year. This quarter represents another proof point that we are being prudent in spend decisions to complement our increasing focus on profitability. Our net loss for the quarter was $75.3 million, compared to a $34.5 million loss in Q3 of 2021. Adjusted EBITDA for the third quarter was negative $58.3 million, improving significantly from a loss of $79.7 million in the prior year period. Our consolidated cash, cash equivalents and investments totaled $783 million. Cash, cash equivalents and investments at the parent company and unregulated subsidiaries was $416 million. Note that we received both the September and October MA payments from CMS in the month of September, causing Q3 cash to be elevated by about $96 million at the regulated entity level. This effect will normalize in Q4. Regarding capital requirements, we are in a strong liquidity position, and we continue to see no immediate need to raise new capital. Our focus on improving MCRs for both lines of business should help delay any requirement for additional capital at least through 2023 and potentially beyond. Finally, I'll provide an overview of our updated guidance. As a result of another strong quarter and favorable momentum, we are updating our guidance for the full year 2022 to include an improved insurance MCR range of 93% to 94%. 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 and non-insurance revenue of $2.2 billion to $2.3 billion. Insurance membership is expected to average 86,000 to 87,000 lives and non-insurance beneficiaries are expected to be 165,000 to 170,000 aligned beneficiaries on average. We estimate that full year non-GAAP adjusted SG&A will be between $320 million and $330 million, representing adjusted SG&A as a percentage of revenue between 9% and 10%. Furthermore, while we are not providing explicit stand-alone guidance for the fourth quarter of 2022, we do expect Q4 revenue for each line of business to be similar to our results in this third quarter. In conclusion, we recorded strong financial results during the third quarter with a meaningfully improved insurance MCR, coupled with strong insurance revenue and lives growth and great operational execution, which will benefit us in the future. We will look to build upon this positive momentum as we head into 2023. Now, let me turn the call over to Vivek for some closing comments.

Thank you, Scott. First, a big thank you to the entire Clover team and all of the extremely hard work that has led to a very good quarter. The continued evolution of Clover Assistant is having a bigger and bigger impact on our results, and I believe that trend will only continue. This will be my last earnings call as CEO, so I thought it would be good to lay out a few thoughts on the long-term. Firstly, Andrew's transition to CEO is going extremely well, and there's no better person and leader to be at the helm of Clover for the next many years to come. And speaking as the largest Clover shareholder, I am very confident he will deliver for me and for all of our current and future shareholders in ways that will be spectacular and shocking in a good way over the next many years. Now looking ahead, it's important to remember that the public and private markets have yet to see a healthcare company achieving a positive disruptive impact at scale versus just a slice of it. It simply has never happened before. And it has occurred in other industries: consumer retail at Amazon, phones with Apple, knowledge acquisition at Google, entertainment with Netflix, cars with Tesla, space travel at SpaceX, short-distance travel with Uber and hotels with Airbnb. Healthcare, education, and energy production are three industries where positive disruptive impact at scale has not yet been proven out. Until that occurs, shareholders, current and future, should expect and embrace the skepticism that we face. The human mind is not geared to believe something that has not yet been proven. Our job at Clover is to demonstrate that proof. Healthcare is a vast and complicated system. I've been fortunate to be a part of building and investing in businesses at all stages of the lifecycle across outpatient, hospital provider, revenue cycle, medical device, data, technology, and therapeutics, both domestically and internationally, as well as in many businesses outside of healthcare. This experience provides me with a helpful vantage point and an unusual perspective on what works, what doesn't, and what is and isn't sustainable. Many healthcare prognosticators out there have acknowledged one or two areas, but very rarely across many. That limitation they have is a natural advantage to the team at Clover. One conclusion I've come to over the years is that the vast majority of the public market value of healthcare companies today has been created on the back of medical cost inflation. More simply, healthcare cost inflation in excess of GDP growth has accrued to mass market value, plain and simple. That is not sustainable. And we are hitting the proverbial wall over the next decade with that dependency. Any investor who believes it will be straightforward for large and small companies to pivot from a business model benefiting from medical cost inflation to a model benefiting from medical cost reduction is not only wrong but also delusional, and has likely never tried to pivot a business in that seismic of a fashion. I will go down to three areas as to how costs can and will be reduced over the long-term to the benefit of patients and taxpayers. From my vantage point, I would be very surprised if three things I'm about to describe do not manifest themselves within the next 10 years. Firstly, less than 1% of acute care hospital services take place in the home. In 10 years, that number will be at least 10% and more likely 30% or higher. That will dramatically lower the cost structure of hospital admission and have tremendous negative cost structure implications for hospitals themselves. Second, a significant amount of healthcare technology being developed today has nothing to do with aiding clinicians and making better clinical decisions. Yet mistreatment options, veering off of evidence-based protocols, clinical errors, and knowing when to do something and when not to do something, are what actually drives costs up. In 10 years, the most valuable healthcare technology companies will be driving true clinical intelligence to clinicians. Healthcare technology companies that are not driving impact in this way will be extremely challenged in 10 years. Finally, a minority of therapeutics coming to market today are truly curative. A decade ago, that number was near zero and a decade from now, the majority will indeed be curative. We will enter an era where an incremental dollar in therapeutic spend will lower medical costs by greater than $1. Therapeutics coming up today are tied to development breakthroughs made 10 years ago. And in 10 years, therapeutics will be tied to breakthroughs developed today. There are many other areas of cost reduction opportunity; automation, streamlined regulations, better incentives alignment, better access, etc., but the three I described will have massive implications. What does that mean for Clover? What we built in Clover Home Care to date and what is to come over the next many years in Clover Home Care will be a game changer. It would be an understatement to say that I'm extremely excited about our long-term plans for this area. For healthcare technology, a huge portion of our R&D spend is around Clover Assistant and clinical intelligence for clinicians. Our progress to date has been impressive and for various reasons, will only accelerate. Our first foray into therapeutics is our spin-out company Character Biosciences, formerly Clover Therapeutics. Character has initially focused on AMD and is off to a very promising start. In 10 years, I strongly believe that it is possible for Clover to have made the biggest positive impact in healthcare while simultaneously accruing the largest market value in healthcare in excess of any healthcare company that exists today. Their journey there, while having already been very volatile over the last 10 years, will only continue to be so. We are in the extremely early innings, and I'm excited for Andrew to lead us on this next and extremely important phase. When I look across the healthcare CEO landscape and my top three list of where value will accrue, it's obvious to me that Andrew's head and shoulders above anyone else out there. Now that I put enough pressure on expectations on him, we will now take questions.

We'll take our first question from Jason Cassorla from Citi.

Great. Thanks. Good evening, guys. Just wanted to start with the decision to scale back your non-insurance business with the ACO REACH program. Just can you discuss the decision a bit more, what the main drivers of that movement away from where you were with the drug contracting? And then maybe just high level, could you give more detail into the potential other areas for Clover Assistant such as the MSSP perhaps and how your participation in those types of programs could differ from contracting the ECL program? Thanks.

Yeah, absolutely. Thanks for the question. So as you said, we are very excited about our presence in fee-for-service. We've seen a lot of data about how Clover Assistant performs well within the fee-for-service environment and physicians are really enjoying using it for a majority of the Medicare panel. What we are moving away from is having our entirety of our fee-for-service presence come from the CMMI program, the direct contracting now ACO REACH program, which is not yet a statutory program. What that means is that those rules can still change, rates are being tweaked, and the models being adjusted, so we still intend to be one of the larger participants in that program, but we're very excited to extend fee-for-service into other areas too. Like you said, MSSP is already statutory. Its rules are much more defined. Rulemaking is much more defined, like it is on the Medicare advantage side. And we think we've identified from our data a lot of physicians who will do well in that particular program as well. So you'll see us move away from having everyone in fee-for-service just an ACO REACH, and then we'll discuss more about motion into MSSP and having a blended portfolio for fee-for-service, and we'll talk more about that in the future.

Okay. Got it. And then I guess just as a follow-up here, just coupled with that decision. I just wanted to go back to commentary on how you're thinking about 2023, including the benefit from this year's star performance on revenue. I think for next year, I think you flagged that before in the past there's a 300 to 500 basis point benefit to insurance MCR. So just any confirmation there? And then any early thoughts into cost trend expectations for MA, the improvement on insurance margin? Just any other puts and takes that we need to be mindful of as you try to go for profitability generation and balancing that between growth and profits? Thanks.

Thank you for the question, Jason. This is Scott. There are several factors we anticipate will contribute to our significantly improved performance and run rate in 2022 as we head into 2023. We mentioned earlier that we believe the run rate coming out of 2022 aligns closely with our full-year guidance of 93% to 94%. Regarding the insurance line MCR, we have previously noted that the incremental impact from achieving 3.5 stars will result in a benefit of 300 to 500 basis points. We also expect additional positive effects from operational improvements and the continued expansion of CA. While we’re not ready to provide detailed guidance on that yet, we are very optimistic about the momentum we have as we move into 2023.

Our next question comes from Richard Close from Canaccord Genuity.

Yeah. Thanks for the question. Can you hear me okay?

We can hear you.

Yeah.

Okay, great. Thanks. Sorry about that. Just as we're entering the AEP period for this year, and you guys pulled back on the number of counties, new counties you were going after. Can you just talk a little bit about how you're viewing the sales and marketing spend and effectiveness of that? I know you said you're expecting maybe a little bit lower growth rate versus past years because of the competitiveness, but still above market rates. But just if you could talk a little bit about the annual enrollment period would be helpful.

Yeah, definitely. So the way we think about growth is we feel like growth is really a differentiator for us and that our ability to offer a wide network product is really core to our growth ability, and then what we've demonstrated in the past is that that's really what Medicare eligibles want is that wide network. And Clover Assistant lets us manage care on that wide network. So we've always spent not that much on marketing. We've always tuned how we look at growth, because we are able to grow without having to put a lot of capital into marketing. So this year, we really are adjusting our growth rate, not because of competitiveness, but because the faster we grow, the more new members we have, and because it takes a year or two to bring them under care management, that provides a headwind to MCR and our path to profitability. So because we are absolutely focused on MCR profitability and operating expenses, we decided to moderate growth a little bit, and therefore, that will provide a tailwind towards that pathway in our breakeven point.

Okay. That's helpful. And then in the first quarter, you provided some MCR on different regions. And Southern New Jersey stuck out. Have you guys seen any improvements there over the last couple of quarters, or any update you can provide?

Yeah. Southern New Jersey definitely stuck out there. So we'll look forward to discussing this more early next year. Again, in that same vein there, the more returning members we have who are under Clover Assistant management, that's where we see our model really coming to a turn. So because we're choosing to downsize growth a little bit this year and going into next season, we'll have more of those returning members, especially in South Jersey and Georgia. And because that percentage of returning members will be higher, we expect to see significant improvements in MCR and we look forward to reporting more on that next year.

We’ll take our next question from Kevin Fischbeck from Bank of America.

Thank you. I wanted to understand more about the decision to reduce DCE. It seems your experience has helped to differentiate when it is effective versus when it is not. Also, when you mention a decline by two-thirds, does that one-third include those already at your 100% MLR? Additionally, are there any general and administrative cost adjustments to consider during this process?

Yes, Kevin, thanks for the question. So a couple of different things. Not every single doctor is at that 100% MLR as they go through, but we have a strong belief that they engage well with the model, they have care management programs in place that complement our care management programs, and so we really feel like there’s a lot of tailwinds that haven't performed well as they go into next year. The other dimension that I would say here is that as the rules change, like I'll give you a simple example, CMS continues to maintain the benchmark on a national basis. And because that benchmark is not national, different regions performed differently, which means that some doctors just have more of a headwind to perform even if they deliver savings than other physicians. So if you look at things like that. If you look at Clover Assistant engagement, the individual usage, our physician usage, we look at care management synergies. And with that algorithm, we get sure then who we look at admin for next year.

And G&A... Are you saying the G&A, is there a G&A deleveraging, we should be thinking about from exiting this, or is there not much incremental G&A that gets stranded as you shrink the size of that business?

I would say that there is some opportunity there. And more broadly, we are looking across the entire business to make sure that we're operating at the most efficient level, and it's an area that we're going to prioritize as we get into 2023, just as part of our overall broader efforts towards profitability, not necessarily something I would like specifically for the DCE side of the business. I was going to add to Andrew's comments as well, Kevin, that we had made a comment earlier that we view the order of magnitude of the go-forward, non-insurance line of businesses being around $1 billion in revenue. And obviously, that's going to be dependent on final attribution of life under the program. So the number will differ from that, but we just wanted to give a general order of magnitude for how large the scale of the business would be.

All right. Thanks.

We’ll take our next question from Whit Mayo from SVB Securities.

Thanks. I think we've covered most of everything. But back on DCE, did any of the physicians give an indication to you that they didn't want to renew or participate in the program? And in 2023 or was this exclusively a Clover-driven decision?

As I said in my comments, back Whit, we actually had a lot of applications. So we could have grown the program quite significantly, like this year. We actually chose to make an adjustment so that it could be more strategic, and we could actually broaden that portfolio into other statutory programs. So I'm not going to say that sounds to every single physician. But by and large, it was our decision because we could have grown it quite significantly.

Got it. So if you're establishing some type of MSSP offering in 2023, what does this look like? Is this a software-driven business? Any insights would be appreciated.

Yes, definitely. Everything will be supported and guided by Clover Assistant. We should understand that the transition to value-based care may not be a direct jump from fee-for-service to the ACO Reach model, which includes both upside and downside risk. Instead, we intend to offer a more gradual approach that allows participants to enter the system. We have many applicants, and they can initially join an upside-only program like MSSP, progress through its various stages, and eventually transition to something like the ACO Reach program when it's suitable. We believe this aligns more with CMS's vision, and it’s beneficial to have multiple peers participating and leveraging data from Clover Assistant, as this can significantly improve the process of selecting the right program for a physician.

Got it. And I don't know if you gave any disclosure around any retro activity in the DC segment in the quarter. So just asking that question.

If you look at the...

Do you mean like the prior period development impacting the financial performance?

Well, given the underlying benchmark that keeps changing and some of the assumptions that CMS is providing to the industry.

Yes. So certainly, we're impacted by that. There was not a significant impact from any kind of prior period development relating to that in the quarter.

Okay. Thanks.

It appears we have no further questions at this time. I will now turn the program back over to Andrew Toy for any additional or closing remarks.

Thank you, and thank you all for joining us today. I'm looking very much looking forward to 2023, when I will share our next quarter results with you all as CEO of Clover. I'm very proud that Clover is strong, purposefully evolving, and we're definitely heading in the right direction. I wouldn't be here today without Vivek. His vision and inspiration, I believe that healthcare can truly be both different and better than what it currently is, are all core to Clover philosophy and integral to why I began this particular journey. In the last few years, there are many things that Clover has executed on under Vivek’s leadership and vision that were far from common wisdom and were deemed to be impossible. But we are now seeing these things come to fruition. When Clover started, we were the only plan really offering incredibly strong plan benefits on a PPO, and we see now that other plans are copying our model. Years ago, we launched our own Complex Care Program betting that the future of Chronic Care Management was in the home. We now have a Clover Home Care practice powered by Clover Assistant that has grown tremendously. We believe it's actually one of the largest in New Jersey, and we see others moving to that model of care. And of course, we have always believed that primary care is critical, and forming physicians with technology to simply help them make better decisions without forcing them to do anything they don't want to do is crucial. Clover Assistant was born from that insight. And we've yet to see anyone who can compete with us on that front. There's one last piece of Vivek's vision yet to address and that is that the future of healthcare can only be realized by a true technology leader at the helm of a scaled healthcare company. I'm proud to step into that role, and I look forward to presenting to you all as CEO next quarter. Thank you.

This does conclude today's Clover Health Third Quarter 2022 Earnings Call and Webcast. You may disconnect your line at this time. Have a wonderful day.