Hello, and welcome to Clover Health's Third Quarter 2025 Earnings Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ryan, you may begin.

Good afternoon, everyone. Joining me on our call today to discuss the company's third 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 the 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 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 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, and welcome, everyone, to Clover's third quarter earnings call. There are 3 main areas I want to focus on today. Firstly, that our growth engine is running well, and we remain focused on growing sustainably and profitably. Secondly, taking everyone through the drivers of our lowered guidance for 2025 adjusted EBITDA profitability and what we're doing to address it. In short, we do see broad systemic utilization pressure, but this is also compounded by our growth. We feel we can address this, but it did hit us significantly in 2025 because of that growth. And thirdly, talking about our recently announced star ratings and how we intend to ensure we can grow profitably, whether at 3.5 or 4 stars. Overall, I want to say this, we missed our targets on both overall adjusted EBITDA and stars. While we will remain profitable and growing, these misses aren't at all acceptable to us. They do not capture our aspiration or bar for the company. We can and will make quick adjustments. The good news is that Clover Assistant remains incredibly strong as our core driver. Our CA managed returning cohorts improved year-over-year. CA also enabled Clover to be the top PPO in the country for the second year running on core HEDIS clinical quality scores. The bad news is that while we did plan for growth and utilization headwinds, we clearly didn't factor those in strongly enough or manage those tightly enough in the non-CA population, which definitionally includes the new members. So, those areas are where we're going to intensely refocus going into 2026, which I think is going to be a big year for Clover. Okay. Going into more detail. For the third quarter, we've remained adjusted EBITDA profitable on a wide network, while growing membership by…

Thank you, Andrew. Before getting into the financials, I want to reiterate Andrew's comments that we remain confident on our long-term trajectory to achieve sustained growth and expanding profitability. Despite increased utilization and margin pressure from a higher-than-expected mix of new members relative to our returning base, our year-to-date underlying incurred medical cost trend, excluding pharmacy, for our entire population remained strong with a 4% increase year-over-year. We are pleased with the strong cost management, but this trend has run above our initial expectations. Combined with 35% membership and 39% insurance revenue growth year-to-date, we have maintained positive year-to-date adjusted EBITDA and adjusted net income. As we move into 2026, we expect to build on our profitability base with several clear tailwinds impacting our model, including strong member retention, our anticipated larger profitable returning member cohort, financial benefit from our increased payment year 2026 4-star rating, further enhanced and expanded Clover Assistant capabilities, our ability to increase PCP user adoption of Clover Assistant and continued operating leverage gains as we scale. We also expect to benefit from a favorable CMS Part C rate update and an increased Part D direct subsidy. Taken altogether, we believe that Clover is well positioned for above-market growth and increasing profitability through 2026 and beyond. Most importantly, we expect to benefit from the strength of Clover Assistant and our returning member cohort management as this year's large group of new members mature into returning members in 2026. Our data has shown meaningful improvement as members mature within our care model with roughly a 700 basis point improvement in MCR between year 1 and year 2 cohorts and a 1,400 basis point MCR improvement by year 3 on average. Notably, we deliver more contribution profit from our profitable returning member cohorts than our new member cohorts.…

In closing, despite margin pressure this year, we continue to deliver a stable underlying medical trend, high retention and strong returning profitable member cohorts. As such, we remain comfortable with our go-forward medical cost trend heading into 2026 and feel confident to deliver continued profitability as our flywheel will spin even harder next year when we expect to have a larger returning member base managed by Clover Assistant. Importantly, Clover Assistant continues to perform exactly as designed, helping physicians identify and manage disease earlier, improving outcomes and lowering costs over time. I remain excited about the potential we see for AI to improve the care received by our Clover members and all Medicare beneficiaries. I recently testified to Congress on AI in healthcare where I emphasized that AI when used properly, can be a powerful tool to drive clinical results and enhance members' access to personalized care. You can see this in our results. We recently published another clinical white paper highlighting how Clover Assistant helps PCPs provide better care for members in underserved communities. The analysis reveals more frequent identification of diabetes, CKD, COPD, and CHF among members from disadvantaged areas joining a Clover MA plan from another MA plan in the first year post enrollment. We also see the diagnosis occur at earlier clinical stages of diabetes and CKD. The analysis also showed that members with any of these diseases of aging who were seeing CA PCPs had less frequent hospitalizations and readmissions. These results reinforce that Clover Assistant not only helps improve outcomes across our plan, but also uniquely supports smaller resource-constrained practices in both urban and rural underserved regions, where better data and coordinated care can make the greatest difference. Taken together, our strong growth, cohort management, disciplined execution, and expanding technology capabilities, give us confidence in our ability to continue to achieve profitability in 2026 and beyond while growing above market. With that, let's open it up for questions.

[Operator Instructions] Our first question will come from Jonathan Yong from UBS.

Can you guys hear me?

Yes. Go ahead Jonathan.

Okay. 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?

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.

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.

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

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

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.

[Operator Instructions] Okay. Well, there are no further questions on the webinar. I'll now turn the call back over to Andrew Toy for any closing remarks.

All right, folks. Thanks, everyone, for joining us today. Thank you, Jonathan, for the questions. We appreciate everyone's continued interest in Clover, and we look forward to updating you all on our progress in the quarters ahead as we go into 2026. Have a great evening, everyone. Thank you.