Clover Health Investments, Corp. (CLOV) Q3 2026 Earnings Call Transcript

Operator: Hello, and welcome to Clover Health's Third Quarter 2026 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.

Ryan Schmidt: Good afternoon, everyone. Joining me on our call today to discuss the company's third quarter 2026 results are Andrew Toy, Clover Health's Chief Executive Officer; and Clay Thornton, 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.

Andrew Toy: Thank you, Ryan, and welcome, everyone, to our third quarter earnings call. There is a lot to be excited about at Clover right now. We expect to deliver our first full year of GAAP net income profitability this year. Our flagship PPO continues to rank #1 in the country on core HEDIS measures. Early AEP results are reinforcing the strength of our 2027 plan designs, and there is a meaningful 2027 earnings opportunity within our growing base of returning members. All of this built on a very strong 2026 foundation. Through the first 9 months, we've grown membership by nearly 50% year-over-year, increased consolidated gross profit by over $160 million, more than doubled adjusted EBITDA to $97 million and improved GAAP net income by nearly $100 million, which we believe positions us to be GAAP profitable on a full year basis in 2026, an important milestone for our business. What's most important to me is what is driving our results. At Clover, we bring our health plan, clinically focused AI technology and financial approach together in one model. Clover Assistant improves care across a broad physician network. Our full risk structure lets us retain the entire upside value as members stay and cohorts mature. And our focused growth strategy lets us scale with discipline. We believe that is why our model is working today and getting stronger as we grow. Now let's shift to discussing Stars. We are incredibly proud that our flagship PPO plan achieved 5 Stars for payment year 2028, making it the largest 5-Star PPO contract in the country. Additionally, our HMO plan achieved 4.5 Stars, meaning 100% of Clover members are enrolled in plans rated at least 4.5 Stars for payment year 2028. These Star Ratings give us continued flexibility to invest in the benefits and affordable access to care that matter most to our members. Underlying this result, our HEDIS quality performance remains industry-leading. As we've explained before, this matters because CMS uses HEDIS measures to assess aspects of care quality, including preventative screenings and management of health issues such as diabetes, cancer and heart disease. And that is why we're proud that for the third year in a row, we ranked #1 nationally among comparable PPO plans on core HEDIS measures. At the same time, we have not built Clover around optimizing to Stars Ratings. We are built to manage true clinical quality and total cost of care. That distinction matters. Clover Assistant empowers physicians to identify disease earlier and proactively manage chronic conditions and our full risk model allows us to retain the economic benefit of that care over time. The clinical impact of CA is demonstrated in our published white papers and the financial impact can be seen in our total cost of care. These outcomes reinforce one another. Deeper CA engagement drives better clinical care and strengthens cohort economics over time. Strong Stars create more flexibility to invest in member value and support growth and retention. And our full risk approach allows us to retain the resulting improvement in member lifetime value. We believe our 2027 plan designs reflect this compounding advantage. We approach 2027 with a disciplined product strategy centered on physician choice, access to affordable routine care and sustainable unit economics. Our care model works best when members can engage with their physicians with minimal financial barriers. This is why our plans preserve wide network PPO choice, $0 primary care access, low specialist co-pays, broad $0 premium options and some of the lowest Part D deductibles in our markets. We are also seeing the AEP market dynamics that we anticipated now playing out in our markets. There are planned exits, fewer PPO options and broader benefit repricing, reinforcing the importance of our disciplined approach to plan design. While AEP remains underway, we are not providing formal 2027 guidance, but we feel good about what we are seeing so far. AEP is tracking as expected, and we believe our superior product positioning in our core markets supports another strong year of growth. With high retention and CA-powered cohort maturation, we believe 2027 will be another important step forward. This is distinctively Clover, an AI-powered model where growth, better care and strong profitable economics compound together in Medicare Advantage. Our 2027 products are designed to extend that advantage as we scale. One of the leading indicators we watch closely is Clover Assistant coverage. The more members we reach through CA, the more opportunity we have to drive better care and stronger economics over time. Importantly, CA coverage has accelerated through the second half of 2026 and is now running ahead of last year's pace. Counterpart takes the same model beyond Clover. Our nation-leading HEDIS performance and strong financial results continue to resonate with partners as we prove out the model in third-party environments. At the same time, we are making strong progress toward our goal of serving as many people through Counterpart as we do through our growing Clover plans. Overall, we are excited about what comes next and look forward to updating you along the way. Before I turn it over to Clay, who will walk through our third quarter financial performance and improved guidance, I'm pleased to share that our Board has appointed him Chief Financial Officer. Clay has been a terrific partner through his time as interim CFO, and I've really enjoyed working alongside him. I greatly valued his judgment and leadership, and I look forward to continuing our partnership as we build on Clover's progress. Clay, over to you.

Clay Thornton: Thank you, Andrew. The last several months have been a great experience. I appreciate the confidence you and the Board have placed in me, and I'm grateful for the opportunity to continue serving Clover in this role. I'm excited to build on the progress we've made and help bring our care model to more seniors. Now let's turn to the third quarter results. Andrew outlined the strategy. I'll focus on the financial results and why we see a growing earnings opportunity across 2027 and 2028. Through the first 9 months of 2026, average Medicare Advantage membership grew 49% year-over-year to approximately 157,000 members. Total revenue increased 57% to approximately $2.3 billion. and consolidated gross profit grew by $161 million to $442 million. Adjusted EBITDA more than doubled to $97 million, while GAAP net income increased by $98 million to $62 million. We are delivering this earnings growth while a substantial portion of our membership remains early in its Clover life cycle. We are improving profitability while building a larger base of members whose economics we expect to strengthen over time. For the third quarter, total revenue was $759 million, up 53% year-over-year and consolidated gross profit was $130 million, up 77%. Adjusted EBITDA was $16 million compared to $2 million a year ago, GAAP net income was $6 million compared to a $24 million loss in the third quarter last year. These results included approximately $11 million of other income, which partially benefited from a $4 million favorable investment valuation adjustment. The medical cost picture remains consistent with the themes we have discussed throughout the year. Inpatient utilization continues to trend favorably year-over-year across the membership. Our year 1 cohort remains broadly stable, while returning cohorts are performing in line with expectations. As we've discussed previously, favorable inpatient trends can be accompanied by higher utilization in outpatient settings. That remains consistent with what we are seeing today with outpatient utilization elevated year-over-year, but in line with our initial outlook. Our Part D performance is better than anticipated and remains a positive year-over-year contributor. Alongside our medical cost trend, our focus remains on cohort progression. Our large 2025 and 2026 join year populations are developing in line with our projections. And we are also seeing year-over-year gross profit improvement across cohorts at each stage of their Clover life cycle. That combination is important, continued progress in the members already under our care while we integrate a substantially larger new member population. Turning next to SG&A. Adjusted SG&A was $114 million in the quarter and $345 million year-to-date. Our adjusted SG&A as a percentage of total revenues is approximately 15% year-to-date and has improved 120 basis points from last year. For the full year, we expect to deliver an adjusted SG&A ratio improvement at or above our original target of 100 basis points to 150 basis points. We are realizing fixed cost leverage while continuing to invest in Clover Assistant, Clinical Capabilities, Counterpart Health and core insurance operations. These investments are designed to improve member economics and allow us to support a larger business more efficiently. Our balance sheet also continues to strengthen. We ended the quarter with approximately $513 million of cash, cash equivalents and investments and no debt outstanding. Cash flow from operations totaled $203 million through September. We believe that liquidity and cash generation will support our ability to self-fund expected growth, meet regulatory capital needs and further invest in the business. Now to our full year outlook. We are raising the low end of guidance across every metric while maintaining the high end of each range. We now expect average Medicare Advantage membership of 157,000 to 158,000 members, total revenue of $2.97 billion to $3 billion. Consolidated gross profit of $540 million to $555 million, adjusted EBITDA of $75 million to $85 million and GAAP net income of $25 million to $35 million. These narrower ranges reflect our progress through 9 months and increased confidence in delivering our full year outlook. The fourth quarter shape remains consistent with our prior outlook. Lower consolidated gross profit from normal medical cost seasonality alongside higher SG&A as planned AEP investments increase. Those factors produced the seasonal adjusted EBITDA loss already contemplated in our guidance. With the performance we have delivered to date and our updated guidance, we expect 2026 to mark Clover's first full year of GAAP net income profitability. Looking ahead to 2027, we are encouraged by early AEP activity and our 2027 competitive position. As Andrew discussed, we anticipated further disruption among Medicare Advantage PPO offerings, and we are seeing that play out. We remain committed to broad PPO access and reducing barriers to preventive care with thoughtful 2027 plan designs that we believe position us to balance sustainable economics and growth as many competitors continue to pull back. While we're not providing formal guidance today, we believe we're well positioned for another strong year of membership growth with significant opportunity to deepen our presence within our core markets of New Jersey and Georgia. But we believe our earnings opportunity extends well beyond adding new members. We see 2 key drivers of earnings expansion in 2027, continued cohort maturation under Clover Assistant and greater operating leverage as we scale. And importantly, a substantial part of that opportunity is already within our existing membership base. Our 2025 and 2026 cohorts together represent approximately half of our current membership. Next year, the 2025 cohort enters year 3, while the 2026 cohort enters year 2. Our historical data shows why that progression matters. Insurance gross profit per member per month has been approximately $70 higher in year 2 than in year 1 and approximately $85 higher in year 3 than in year 2. We are seeing that progression in our results today. Our 2025 cohort is delivering stronger economics in its second year and both large populations continue to develop in line with expectations. And as Andrew mentioned, we also have an encouraging leading indicator in Clover Assistant coverage, which has accelerated during the second half of 2026 and is now tracking ahead of where we stood at the same point in time last year. That increasing clinical engagement strengthens our confidence in cohort maturation heading into 2027. To bring the clinical impact of those metrics to life, we've added a new slide to our supplemental deck, highlighting examples of how Clover Assistant is generating life-changing patient outcomes. Those outcomes are at the heart of how we drive better clinical quality and lower total cost of care over time. As we retain these members and deepen their engagement with our care model, we also expect their economics to improve. Because we operate at full risk rather than delegate risk downstream, improvements in total cost of care directly benefit Clover. Alongside cohort maturation, we expect operating leverage to provide a second source of earnings expansion. We do not view our current SG&A ratio as a mature state profile of this business. Here, the opportunity comes from both spreading our existing fixed costs across a larger business and reducing variable administrative expenses over time. We have a meaningful fixed cost base supporting the business today. As membership and revenue grow, we expect to spread those costs across a larger base, supporting further improvement in our SG&A ratio. At the same time, we are increasingly applying AI to health plan operations that were largely built in a pre-AI world. The opportunity is to improve the work happening behind the scenes while delivering a better member experience and reducing variable administrative costs as we scale. Together, we believe cohort maturation and operating leverage give us a strong foundation for meaningful earnings expansion in 2027. But the opportunity does not stop there. The growth of the past 2 years is building the earnings base for the next 2. In 2028, we believe the same drivers can operate across an even larger base of mature members. Our 2025 cohort will be in year 4, our 2026 cohort in year 3. And with the strong membership growth we expect in 2027, a third large cohort would enter year 2. That sets us up for 3 large cohorts progressing through more economically mature years at the same time, alongside further opportunities for operating efficiency. This is why our 5-Star PPO rating for payment year 2028 is so important financially. It supports our ability to maintain competitive plan designs and retain members into 2028 as more of our membership progresses into economically mature years. Cohort maturation and operating leverage build the earnings opportunity. Star continuity give us a stronger framework in which to realize it. We are not providing formal guidance for 2027 or 2028 today, but we see a clearly defined 2-year opportunity, meaningful earnings expansion in 2027, supported by a broader base of maturing members and momentum into 2028. Our immediate focus is finishing 2026 well and planning to deliver our first full year of GAAP net income profitability. Beyond that, the objective is to translate the growth and investments of the past 2 years into sustained earnings expansion over the next 2. With that, I'll turn it back to Andrew.

Andrew Toy: Thanks, Clay. In 2026, we have demonstrated how market-leading growth and increasing profitability can happen together in Medicare Advantage. We believe that the next chapter for Clover is proving that our model can scale further with growth and profitability reinforcing one another as we expand deeper into both our core markets as well as new ones. And AI is a significant part of how we scale, making care better, service smarter and the health plan more efficient as we grow. Critically, we believe that AI has reset the playing field in health plan operations. Even relatively modern systems and workflows built for a pre-AI world can now be rebuilt faster with AI, accelerated with better data and utilize far more intelligence. We are taking advantage of this by applying AI across Clover to make the plan far more efficient to operate as we scale. AI also creates an opportunity to deliver a much better service experience. For seniors, that means informed, responsive and personal support powered by better data. From AI welcome calls engaging new members earlier to chat-based scheduling and visit routing for our Clover Care Services division, we are bringing AI to all parts of the Clover stack. Most importantly, we believe AI powers better care. Clover Assistant helps physicians identify disease earlier, services important treatment gaps and medication-related risks, identify diagnoses that might otherwise be missed and turns years of fragmented medical history into actionable information at the point of care. That's the opportunity we see across Clover, not simply using AI to do the same work at lower cost, but using it to deliver better care, better service and better operations at scale. With that, operator, we will be happy to open the call for questions.

Operator: [Operator Instructions] Our first question will come from John Pinney with Canaccord Genuity.

John Granville Pinney: Yes. Congrats on the quarter John Pinney for Richard Close. Just first question, when you say Clover Assistant coverage is trending better than last year, like how does that relate to the 2/3 number that's still in the slide presentation, like 2/3 getting -- receiving at least one Clover Assistant powered care visit. Just curious on that.

Clay Thornton: So the 2/3 number that we've quoted in the earnings materials is the average Clover Assistant coverage that we've observed over the last several years. When we're quoting the comparison to last year specifically, what we're looking at there is where were we tracking in October last year versus where are we this year. And so far this year, we're tracking ahead of last year's results. So trending well toward that 2/3 goal.

John Granville Pinney: Okay. Great. And then just curious on like the cohort performance. Is there any like differences across like geographies? Is still like the best performance in like the more mature New Jersey market followed by Georgia. Just curious if any commentary on that.

Clay Thornton: Yes. So the performance within cohorts definitely has a strong correlation with Clover Assistant coverage itself. And given that we've been in New Jersey the longest, our Clover Assistant network is deepest inside of New Jersey, the coverage there is highest. So as we drive more membership inside of New Jersey, for instance, you're going to have stronger cohort economics there.

John Granville Pinney: Okay. I guess one more for me. It's like you have 4 now -- you're being paid on 4.5 Stars going to next year, 5 Stars going to 2028. I mean, I guess, like -- how does -- does that change any of your thinking as far as like going deeper into some of the smaller markets that you're in like the South Carolinas, the Texas, the Pennsylvania? Do you still think there's plenty of room in New Jersey and Georgia for the near term and not necessarily get too far over your skis there? Just curious on your updated commentary there.

Clay Thornton: Sure thing. So first, I'll address the economics point itself. So 4.5 Stars in 2027, 5 Stars in 2028, those do carry the same payment dynamics in both years. And as far as it relates to changing our growth strategy, we've said for a while that there's significant room to run inside of New Jersey and inside of Georgia. And that continues to be our focus in the near term. As we point our eye to 2028, I'm not going to make any comments on 2028 growth strategy at this time, but we'll come back with that next year.

Operator: Our next question will come from Jonathan Yong with UBS.

Jonathan Yong: I guess just going back to the CA coverage that you're talking about and how it's tracking ahead of last year. Does that give you -- does that provide potential greater than normal upside in terms of that kind of year 1 or year 1 to year 2 kind of benefit from the gross profit side? And do you kind of expect that to materialize as we go through the year given that you are tracking ahead?

Clay Thornton: Yes, a lot of it depends on where we're tracking. So when we're talking about the number itself, Jonathan, we're looking at that in aggregate. I am pleased to say we're generally tracking ahead across all cohorts and across all geographies. But yes, as it relates to cohort maturation heading into '27, that's really our #1 leading indicator -- so when we often talk about that $70 improvement from year 1 to year 2 and the $85 from 2 to 3, we talk about it in combination with Clover Assistant coverage. And the higher the coverage is, the higher the cohort maturation economics are.

Jonathan Yong: Okay. Great. And then just as we think about having a 5-Star plan, you did turn off marketing this year a bit during the [ intra-year ] period or pull back a little bit, I guess. As you think about next year or future years, would you expect to increase marketing given you do have 5 Star and you can market that all year? Or kind of how are you thinking about that, particularly as you're talking about significant growth for next year and presumably year after?

Clay Thornton: Yes. So right now, we're purely focused on AEP. So we're about 3 weeks into AEP. And like we said, results are very strong. So as we progress through AEP and get a better sense of what our 1/1 /2027 membership is, we'll revisit the strategy for the OEP and the SEP period at that point.

Operator: Your next question comes from Matthew Shea with Needham.

Matthew Shea: I wanted to maybe start on AEP, specifically New Jersey. Braven's exiting the state, sounds like that could free up around 40,000 to 50,000 non-SNF lives in your core counties. Devoted is entering the state at the same time. How are these dynamics, I guess, playing out so far in AEP? Have you seen strong switching activity from Braven in your favor versus the large nationals? And then maybe just help us understand, did you underwrite the potential switching opportunity from Braven in your bids? Or how are you thinking about the potential impact from onboarding that book?

Clay Thornton: So first off, when we were underwriting our bids, we did have a sense that there would be planned exits inside of New Jersey, and we had a pretty good read on where those members would be. So that was knowledge that we did take into account when we submitted our plan designs for 2027. As far as how the market is playing out inside of New Jersey, you nailed it. We do have a planned exit inside of New Jersey via Braven. That's in the range of the low 40,000 MA lives. You also have a new entrant in Devoted, but you also have the large nationals really retreating in a pretty significant way again from $0 PPOs. So we're seeing all those dynamics play out right now. And the early returns over the first few weeks are that things are playing out quite well. So we're driving strong growth, like we said, and our competitive position is incredibly strong this year.

Matthew Shea: Okay. That's helpful. And then 98% of your members sitting in the PPO contract. And although moving to 5 Stars, I feel like we have to ask given the challenges at alignment. But with Stars and litigation-driven volatility, splitting into additional H contracts become more attractive given the current environment? Or how are you thinking about diversification of contracts? And if you were to diversify, would it be by state? Or how are you thinking about ultimately going about that?

Clay Thornton: Yes. As we start to assess market expansion down the line, new H contracts is certainly something that we would bring into that equation. Like you said, 98% of our members are on our large PPO contract today. That's predominantly condensed to Georgia and New Jersey. And within those 2 states, we have really strong CA network. We have a really strong operation through which we can navigate Stars and drive results there. As we look at expansion down the line, I think new H contracts could make a lot of sense.

Operator: [Operator Instructions] Our next question will come from George Hill with Deutsche Bank.

Unknown Analyst: This is [ Graham Harris ] on for George Hill. You said you're poised for another year of significant membership growth. And so I was just wondering if you could kind of frame or size the MLR improvements from maturation versus first year members given that first year members are dilutive. And then should we think of the outsized membership growth versus what we saw last year? And through AEP, are you able to kind of give any insight into the acuity and quality of any of the incoming members?

Clay Thornton: Graham, so first on the economic point, I'll point you back to the cohort maturation stats that we've shared previously on the $70 PMPM, $85 PMPM. I think last quarter, we addressed a similar question. Those numbers are still the same. About 21% of our members are in their second year this year, so they'll be moving into their third, 28% are in year 1 and they'll be moving into year 2. So we fully expect to follow that cohort maturation curve into 2027. As far as the new members, we're not going to put a specific figure on it right now. We are 3 weeks into AEP. There's still a lot of room to run there. Early results are strong. And as we kind of wrap up AEP and get into '27, we'll give a better sense of what that growth looks like and then what that means to our go-forward financial picture.

Unknown Analyst: Great. And can you guys also discuss how much of the incremental benefit in 2027 from cohort maturation and Stars you expect to retain in earnings versus reinvest in the business?

Clay Thornton: Not going to put a specific figure on that. We're certainly in planning mode right now. So we're assessing a series of investments going into 2027, and we'll hold that until we issue guidance in '27.

Operator: Our final question will come from Dean Rosales with Leerink Partners.

Dean Rosales: Congrats, Clay, on CFO. Obviously, you're not going anywhere. With the government's appeal still pending, right, how are you guys thinking about the range of potential outcomes going into '27? Obviously, specifically, right, when -- if the government were to ultimately prevail, right, once the year has begun, what's your understanding of whether CMS could change your payments? And is there any contingency you guys have baked into the planning there?

Andrew Toy: Yes. Like obviously, this is Andrew. Obviously, we are thinking about all the possible scenarios. That said, that we feel very good about the case of before us. We feel very good about the positioning that we have around the appeal, and we think that the original decision by the court was well decided. Now if things should happen to not go our way in the appeal, we will then sort of address it at that particular point in time, but there are so many scenarios where that could possibly go that we probably is best to speak to it if and when that happens.

Dean Rosales: Got it. And then so I guess my follow-up would be stepping back from your own litigation and kind of keeping your policy hat on, how do you feel about the Stars program today? You guys think it appropriately rewards quality, better patient outcomes. What changes would you prioritize to make the program a little bit more predictable down the line?

Andrew Toy: Yes, absolutely. So as we said in our case before CMS and as we said publicly as well, we think that rewarding plans for focusing on quality makes a lot of sense. However, the current program, we strongly believe the measures -- a large number of those measures don't actually measure true quality, right? They measure -- they were put in place when they sort of said, look, how do we measure things that sort of allude to quality. So they're not completely wrong. But on the other hand, like they just don't measure core quality the way that I think that they should. So right now, the program is what it is. We want it to improve. We'll keep on sort of like driving towards the measures that the government has put before us every single year. But in terms of improving the program, as you're saying, what I think that we really want to do is move to a much more data-driven granular personalized world where we're really measuring quality on an individualized basis we're looking at what every individual person needs, not using these large sort of like denominators generated for like without personalization. And we've said that by moving towards that world, we think that we have a much, much better system.

Dean Rosales: I guess my last one, right, would be like, again, as you're assessing these -- the early AEP results, we're hearing stronger than expected -- hopefully not stronger-than-expected growth, but obviously, we're hearing a lot about you guys saying you're encouraged by the early activity. You think it will be a strong year of growth. What gives you confidence that you guys can deliver on the earnings expansion while onboarding this larger member cohort? Is there going to be -- could there be potential for that growth to absorb some of the earnings benefit from the cohort maturation? Any color there would be...

Clay Thornton: Sure, Dean. Yes, happy to take that one. So as we watch this strong growth come in, we're encouraged in that this is our third year in a row. So we grew significantly in the 2025 AEP. We grew significantly in the 2026 AEP. So from an operational standpoint, this is our third go around. And we really feel like we understand how to absorb the growth, how to staff appropriately to meet the clinical needs of the new patients that we have and how to engage them in Clover Assistant coverage. So we feel like we have all the pieces of the puzzle there to absorb that growth into 2027 and turn it into the cohort maturation that we expect. Will it be a near-term drag on earnings in '27? Sure. But that's what our model is built to do is take these new members and bring them into our care model and move them along the cohort maturation curve. So we're feeling really good about where we stand.

Operator: This completes the allotted time for questions. I will now turn the call back over to Andrew Toy for any closing remarks.

Andrew Toy: All right. Well, thank you again to everybody for joining us today and for the thoughtful questions. We appreciate everyone's continued interest in Clover, and we look forward to updating you all on our full year results next quarter. Thank you so much.

Operator: Thank you for joining Clover Health's Third Quarter 2026 Earnings Call. You may now disconnect.