Clover Health Investments, Corp.

Good day, and thank you for standing by. Welcome to Clover Health's second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. It is my pleasure to hand the conference over to Derek Newman, Vice President of Investor Relations.

Good afternoon, everyone. Joining me on today's call is our CEO, Vivek Garapalli, our President and CTO, Andrew Toy, and our CFO, Joe Wagner. We will discuss second quarter results, recent trends, and answer your questions. This call is also being recorded. Before we get started, I would like to remind you that our second quarter earnings materials, including the release, are available on our website at cloverhealth.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risk and uncertainties. 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 annual report on Form 10-K for the year ended December 31st, 2020, and in our other periodic SEC filings, including our quarterly reports on Form 10-Q for the quarter ended June 30th, 2021. Information about non-GAAP financial measures referenced, including a reconciliation of these measures to GAAP measures, can also be found in the earnings materials available on our website. With that, I will now turn over the call to be back.

Thanks, Derek, and thanks, everyone, for joining us today. As I have said many times before, we have ambitious goals, delivering on our aggressive growth trajectory, improving health equity for America's underserved seniors, regardless of economic standing, and aligning incentives across a broken healthcare system. We are making progress toward those goals, both on a scale basis and serving more seniors. Getting into the key points from the quarter, we delivered $412 million in total revenue, up 140% year-over-year. We think this is important to note because we are going after the entire $1 trillion-plus Medicare market, including both Medicare Advantage and fee-for-service. Our lives under Clover management nearly doubled to 129,000 versus last quarter. This growth was driven by the launch of direct contracting, and our MA business continued to grow steadily. Clover's system continues to be a differentiator, which Andrew will address in his commentary. But we continue to do a better job on health equity than most Medicare-focused companies by serving more minority or underserved beneficiaries. As a reminder, Clover MA plans over index towards underserved populations and historically over 50% of our members are minorities versus an industry average of a little more than 30%. We expect these growth trends to only continue and we believe we are building a strong foundation as we go after a bigger piece of the $1 trillion plus Medicare market we just referenced. Specifically, we recently announced our MA plans are expanding to another 101 counties in 2022. subject to CMS approval, and we are preparing for the fall annual enrollment period. We're adding more DCE providers and moving into new states, as evidenced by the recent press release announcing our DCE's expansion into Florida. The DCE efforts will also provide us with the ability to expand our MA plan more aggressively in the future, as they help us build network adequacy faster, and importantly, also bring the Clover Assistant to many more physicians. While we have these long-term structural tailwinds in our business, COVID-19 continues to create near-term challenges and makes it difficult to holistically evaluate our progress. Specifically, it has impacted revenue via risk scores and medical expenses, especially in our largest market, New Jersey. It's worth pausing here to discuss Clover's mission as well as our economics. Our mission is to improve every life, and COVID has brought some of the most challenging conditions to our core markets, most notably New Jersey. We are proud to have helped our members during this time. We have paid more for care, relaxed utilization management protocols, focused on vaccinations, and we are proud to have done so. We even maintained care via the Clover Assistant and any communication mechanism that our members could support, video or just pure voice, even if the latter is not recognized by CMS as a face-to-face visit. While this has, of course, had an effect on our medical expenses and risk adjustment revenues, We wear that as a badge of honor. We will continue to do this through the pandemic as this is who we are as a company and we are proud of it. That said, to help investors better evaluate Clover and get through the COVID-19 noise, we are providing additional disclosure around these impacts. This includes looking at direct COVID-19 costs, risk score changes, and shifts in utilization. The key takeaway from this exercise is that Clover's planned performance has been heavily impacted by COVID. In Q2 2020, this manifested itself with a record low MCR, where we had gap MCR of 70%, and in Q2 2021, with a record high gap MCR of 111%. This quarter, we are providing an updated view of what management believes our business looks like on a hypothetical COVID-less basis. We believe that these updated normalized measures better reflect the company's underlying fundamentals and and provide a more meaningful view of the company's results outside of the COVID environment. Applying this new normalized non-GAAP methodology, last year our normalized Q2 MCR was 97.5%, and this year it was 97.0%. It's hard to predict when the impact from COVID-19 will be gone, especially with recent variants, but we are pursuing long-term improvements to MCR, including driving additional clover-assisting coverage, significant benefit from potential improved star ratings, and potential upside from improvements in internal processes such as UI management, which are underway. Shifting to our org, we continued to strengthen our team, and we recently made two key hires to help propel our group. We welcomed Prabhdeep Singh, our Chief Growth Officer, and Justin Joseph, our new Chief Strategy and Development Officer. Prabh brings robust experience from disruptive tech companies such as Uber and WeWork, and will lead our member growth and service area expansion efforts. And Justin brings a wealth of experience driving global business development for healthcare, most recently at Palantir. He will be instrumental in helping Clover Bridge Healthcare and Technology to drive strategic partnerships. We also announced that our CFO, Joe Wagner, will be moving on. Joe has been a true partner on our journey, and we wish him and his family the very best. Mark Herbers will serve as Interim Chief Financial Officer while we conduct a search for a permanent CFO. Mark has served as CFO for a number of public and private healthcare organizations and has over 20 years of experience in the sector. He has been working closely with Joe and our entire finance team since the announcement, and I am confident it will be a smooth transition. We are in an exciting phase of growth. We're passionate that we can make healthcare better for seniors, especially those that are underserved. We look forward to delivering on this goal and providing proof points as our journey progresses. Andrew.