Clover Health Investments, Corp.

Ladies and gentlemen, good afternoon and welcome to the Clover Health third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. At that time, if you wish to ask a question, please press star 1 on your telephone keypad. As a reminder, today's call is being recorded. I'd now like to turn the call over to Ryan Schmidt, Investor Relations for Clover Health. Please go ahead, sir.

Good afternoon, everyone. Joining me on our call today to discuss the company's third quarter results are Andrew Toy, Clover Health's chief executive officer, and Scott Loeffler, the company's chief financial officer. You can find today's press release in the accompanying supplemental slides in the investor events and presentation 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 expectations 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 reference. including a reconciliation of those measures to gap 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, and thanks, everyone, for joining us. Our results that we've reported today continue to highlight our progress towards sustained profitability and the great value derived from Clover assistance. We've built upon our impressive first half of the year, with our insurance segment once again delivering excellent results, driving strong overall company performance during the third quarter. Our results represent another proof point in our strategic shift to prioritize profitability this year, which in turn has led us to once again improve upon our full year 2023 guidance ranges. We believe that our Q3 results coupled with our first half momentum further show our potential to achieve profitability next year on an adjusted EBITDA basis and without needing to raise additional capital. Before I dive in more into our Q3 results, I hope that everyone was able to tune into our Clover Assistant Showcase last month, where we highlighted our cloud-based AI-powered platform and gave real-world examples of the impact we've seen through the use of Clover Assistant. I'll touch more on this later in the call, but I encourage everyone to check out the replay of our event on our investor relations website if they haven't done so already. Beginning first with our insurance results, we reported segment revenue of $301 million during the third quarter, representing an increase of 12% year over year. This segment continued its strong margin trajectory, delivering an MCR of 78.5%, a great improvement as compared to Q3 of 2022. I'm proud that our efforts this year to optimize our MA plan operations, grow revenue, and blunt Med-X growth continue to shine through in our results. We're constantly looking to optimize our capabilities, and I expect our MA plan improvements to only accelerate into next year. We believe the performance of our insurance segment further highlights how our technology and increasingly mature operations can truly support better care management within any MA population. As compared to other similar MA plans, our membership is more ethnically diverse and has a much higher percentage of members considered low-income. Studies have shown that both low-income and more diverse populations generally have a higher disease burden and also have difficulty accessing needed care. We believe that our ability to comprehensively support this population while delivering strong, sustainable economics demonstrates the power of our technology-centric model. Now let's move on to the recent publication of STARS Performance for the Measurement Year 2022 Cycle. While we received stronger scores in many areas on our star rating, we received an overall three-star rating for measurement year 2022, which dictates reimbursement for payment year 2025. This result is obviously disappointing to us, but we do see this cycle as an outlier. We came very close to three and a half stars for measurement year 2022, even with the significant increase in cut points. And the significant number of STARS improvement efforts we deployed for measurement year 2023, plus the increased predictability given to us through the new CMS STARS guardrails, gives us optimism about our ability to regain our 3.5-star rating in the near future. As an overall summary on STARS, we are disappointed in the 3-star rating, but see it as likely a one-year event for 2025. For that year, we're committed to having strong financial momentum to mitigate its effects, and we do not see it as a barrier to long-term sustained profitability. And we anticipate our star performance improving in future measurement years. Shifting over to growth, similar to 2023, we intend to measure ourselves in terms of increasing top-line insurance revenue, and we are targeting high single to low double-digit insurance segment revenue growth in 2024. Expect us to continue to index on profitable growth through a combination of new member lives, churn reduction, and per-member revenue initiatives. As our business continues to mature, we believe that this balanced approach is the right one to help us achieve our broader goal of reaching sustained profitability on an adjusted EBITDA basis next year. We'll obviously have more to talk about regarding our annual enrollment performance and our next earnings. For our non-insurance segment, we reported a third quarter MCR of 104.1% on revenue of $176 million, bringing the year-to-date performance to an MCR of 99.7%. Even though we are continuing to target a non-insurance MCR below 100% for 2023, we continue to see challenges in the design of the program and therefore are committed to right-sizing our exposure to value-based original Medicare. Consistent with that approach, we again expect a reduction in the number of participating physicians next year as we continue to evaluate this segment's performance. For the future of this segment, we very much believe in our ability to use Clover Assistant to help physicians go to value-based care for non-Clover MA plan patients with Medicare. We started this with ACA REACH and Original Medicare, but in the last couple of years, we have seen clear evidence that we have great strength in Medicare Advantage total risk management. As such, while we will likely continue to closely manage our exposure to Original Medicare, you will see us increase investment in Medicare Advantage within our non-insurance segments. That is, we will look to enable physicians to use Clover assistance across their entire MA panel for all MA plans and to be able to go to value-based risk on those lives. We're incredibly excited by this adjustment to the non-insurance strategy, and we look forward to talking about it more. With that, I'll now hand it to Scott for the more detailed financial update.