Clover Health Investments Corp - Ordinary Shares - Class A Stock

Hello, and welcome to Clover Health's Second 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.

Good afternoon, everyone. Joining me on our call today to discuss the company's second quarter 2026 results are Andrew Toy, Clover Health's Chief Executive Officer; and Clay Thornton, the company's Interim 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 thanks, everyone, for joining our call today. At Clover, we've always believed the greatest opportunity for AI in health care is not simply to make the existing system a little more efficient. It's to help physicians make better decisions for individual patients at the point of care. That's what Clover Assistant does. And our results are increasingly demonstrating that when you improve those decisions at scale, better care, membership growth and increasing profitability can happen together.

The first half of 2026 was another important proof point of this. Through the first 6 months of the year, we delivered market-leading MA membership growth of 48%, while increasing GAAP net income by $67 million year-over-year. At the same time, total revenue in the first half increased by more than $550 million year-over-year to $1.5 billion. Consolidated gross profit increased by $104 million, and we've expanded operating leverage by more than 200 basis points as we've scaled.

We believe this performance validates how our AI-powered model not only improves care for members but also strengthens our underlying business over time. I am proud of our results so far this year and believe we are on a strong path.

I want to turn now to where the business is headed. Since our last call, two things have strengthened our confidence in 2027 and beyond. One is the recalculation of our Star rating. The other and ultimately, the more important one, is the continued maturation of our member cohorts under Clover Assistant. It's important not to confuse the role each one plays. We believe the higher Star rating gives us more flexibility. Cohort maturation is what strengthens the underlying earnings engine.

Following the court order and CMS' subsequent recalculation, all of our Medicare Advantage members are now enrolled in plans rated 4.5 Stars for payment year 2027. We're pleased with that outcome because we believe it better reflects the quality we have been delivering for years. CMS has filed notice of its intent to appeal the District Court's decision.

Because this regards pending litigation, I'll be brief, we believe the District Court's ruling was thorough and well reasoned, and we are prepared to defend it on appeal. In the meantime, we remain focused on bringing affordable, high-quality care to seniors on Medicare in our 4.5-Star plans.

To be clear, 4.5 Stars matters. It gives us more room to reinvest in members, maintain a highly competitive product, support growth and expand profitability. But it does not create the economics of our model. Our confidence in 2027 is grounded in the continued cohort maturation under Clover Assistant, which we believe will allow us to grow membership and meaningfully expand profitability.

The higher Star rating simply gives us more flexibility, allowing us to extend our differentiated model to more Medicare beneficiaries while remaining disciplined in how we balance member value, growth and profitability. Put another way, the rating gives us more freedom in how we allocate value. Clover Assistant is what creates the value in the first place. And that distinction matters.

Our strategy has never been to wait for a favorable rate or rating to make the business work. We built a wide network full risk PPO model because we believe seniors should be able to get an affordable product without being forced to give up broad physician choice. But we also believe that if we wanted to make that model work over the long term, we had to solve one of the hardest problems in health care first, how to empower physicians to deliver better clinical care for their patients.

That's what Clover Assistant was built to do. It helps physicians use a more complete view of the patient to identify disease earlier, manage chronic conditions more consistently and make better care decisions over time. Our clinically focused approach has contributed to Clover becoming the top-rated HEDIS PPO plan in the country. And importantly, that same technology not only powers our own Medicare Advantage business, but through Counterpart Health, we're extending that same clinically focused model across the health care market. We believe the broader industry is only beginning to recognize what's possible when technology is built around the clinical decision.

Now, as we look towards next year, it's too early to provide a specific outlook for 2027, but we feel very good about our growth position heading into next year. The 4.5-Star rating strengthens our ability to put forth a compelling product, particularly across our core New Jersey and Georgia markets. Because we can improve the health outcomes and economics of our members, we believe we have a powerful growth engine within those core markets that will sustain us well into the future.

That's not to say that we won't expand to more geographies, rather that we do not feel compelled to do so just to chase a top line growth number. The key thing for 2027 is what happens as members mature under our care model. New members do not arrive with every condition neatly managed, every care gap closed and every part of their care already coordinated. Over time, Clover Assistant helps physicians deliver that individualized care for each patient to identify disease earlier and make better care decisions.

As that happens, we expect the clinical and financial performance of the cohort to improve, and this is exactly what we are seeing. We now have multiple vintages of members who have had CA-driven care for many years, and we believe that provides a compounding tailwind to our business.

To set your intuition, we've shared before that our cohorts typically improve by about $70 PMPM in gross profit as they move from year 1 to year 2. It's encouraging to see that progression playing out this year in the large cohort of members that joined in 2025. By 2027, that same cohort will be in year 3, and our 2026 cohort will be in year 2. That means a much larger portion of our membership base will have had at least 1 year of Clover Assistant-powered care. This is not simply a matter of having more members. It's a matter of having more members whose conditions we understand better, whose physicians have had more time to act and whose economics have had more time to mature.

That gives us increasing confidence in the earnings potential of the business heading into 2027. Clay will discuss the cohort performance in more detail later in the call. So while we are not providing formal 2027 guidance today, the setup is increasingly clear. We expect to enter next year with a larger membership base, a greater proportion of tenured members, more flexibility from our 4.5-Star rating and additional operating leverage.

Those are not four disconnected points. They reinforce one another because they're all driven by the same underlying care model. We built Clover Assistant to help physicians make better decisions that lead to better care. Better clinical care leads to stronger cohort economics. And because we operate at full risk, those stronger cohort economics create a stronger business.

To us, better clinical quality, stronger cohort economics and a more scalable operating model are all parts of the same system working as intended. We believe that's what makes Clover different, and it's the foundation for how we think about the years ahead.

With that, I'll turn the call over to Clay.

Thank you, Andrew, and thanks, everyone, for joining us today. Andrew covered the strategic foundation of the business and why we have increasing confidence in 2027. I'll focus my remarks today on the financial performance and operating indicators behind that confidence, starting with the headline for the quarter.

We continue to demonstrate a differentiated combination of growth and profitability in Medicare Advantage. During the second quarter, we grew Medicare Advantage membership 48% year-over-year while generating $41 million of adjusted EBITDA and $28 million of GAAP net income. Our underlying Medicare Advantage business continues to strengthen, and today's increased guidance reflects our strong first half performance and the operating indicators we are seeing across the business.

In short, the first half gives us greater confidence that this year's growth is converting into the long-term earnings profile we expected. Let's begin with membership and revenue. Average Medicare Advantage membership increased to 157,000 members during the quarter, driving total revenue of $743 million, an increase of 56% year-over-year.

Importantly, our growth remains disciplined and concentrated in the markets where we believe we have the strongest ability to engage members clinically and manage long-term unit economics, particularly across our core New Jersey and Georgia markets.

Turning next to gross profit. Consolidated gross profit totaled $153 million during the quarter, representing 54% year-over-year growth. Importantly, the gross profit performance was supported by two things we care most about at this point in the year, favorable trend development and cohort progression.

First, medical cost trends are performing better than we expected when we entered the year. Inpatient utilization continues to trend favorably overall, including among our year 1 members, where utilization is tracking below the comparable new member cohort from a year ago. On outpatient, trends peaked in March and have since moderated in Q2. They remain elevated from prior years but are within our expectations, and we continue to monitor closely.

We are also seeing continued progress in categories that were specific focus areas for us. Dental cost performance continues to improve following the changes we implemented in how we manage out-of-network dental claims. Part D has also performed better than expected through the first half. And now that we are in the second year of IRA implementation, we have stronger visibility into the expected seasonality in that category.

Second, and more important to how we think about the business, our cohorts are developing well. As illustrated in our supplemental presentation, our historical data shows insurance gross profit improving as members move from year 1 to year 2 and again from year 2 to year 3. That framework is especially relevant today because a significant portion of our membership is still in the first 2 years of its Clover life cycle.

This matters because the full earnings power of this year's growth is not realized on day 1. It builds as members remain with Clover, as Clover Assistant coverage expands and as Clover Care services engagement deepens. Taken together, favorable trend development and cohort progression give us greater confidence that the growth we delivered this year is converting into the earnings profile we expected. I'll come back to this when I discuss our 2027 outlook.

Turning next to SG&A. Adjusted SG&A totaled $112 million during the quarter, representing 15% of total revenue. That's an improvement of approximately 220 basis points compared to the second quarter of 2025. We believe these results continue to demonstrate the operating leverage inherent in our model as we scale. At the same time, we are continuing to make deliberate investments that strengthen both our Medicare Advantage business and Counterpart Health.

These investments include continued enhancement of our flagship Clover Assistant product, Counterpart Health's go-to-market capabilities and targeted investments in health plan operations that we believe will support operating leverage in future years. That is the balance we are focused on, maintaining expense discipline in the core business while funding capabilities that can support growth, clinical performance and operating leverage over time.

Turning next to profitability. Second quarter adjusted EBITDA totaled $41 million, while GAAP net income totaled $28 million. Through the first half of the year, we've now generated $81 million of adjusted EBITDA and $55 million of GAAP net income. Turning briefly to our balance sheet. We ended the quarter with $443 million of cash and investments while continuing to operate with no debt outstanding. Cash flow from operations totaled $133 million through the first half of the year, reinforcing our confidence in our ability to self-fund future growth while further strengthening our balance sheet.

Next, I'd like to cover our updated guidance. Following strong first half performance, we are increasing our full year guidance across all metrics. We now expect average Medicare Advantage membership of 156,000 to 158,000 members, total revenue of $2.92 billion to $3 billion, consolidated gross profit of $525 million to $555 million, adjusted EBITDA of $70 million to $85 million and GAAP net income of $20 million to $35 million.

These updates reflect our increasing confidence in the underlying performance of the business after 6 months of execution. That said, this remains a balanced outlook, one that recognizes the strength we are seeing while maintaining appropriate discipline in the second half. With a large portion of our membership still in the early stages of our care, we believe it's prudent to allow additional claims experience to emerge before assuming current trends will persist through year-end.

As we think about the second half of 2026, the expected quarterly shape is consistent with how we plan the business. Within this outlook, we continue to expect consolidated gross profit to be stronger in the third quarter than the fourth quarter, reflecting typical MA seasonality patterns.

We also expect investments to increase during the fourth quarter, including AEP-related activities. Taken together, we expect adjusted EBITDA to remain positive in the third quarter before returning to a more typical seasonal loss in the fourth quarter. Importantly, even with that seasonal pattern, our second half outlook represents significant improvement versus last year. The confidence behind this guidance is supported by the same operating framework we laid out earlier this year, which continues to strengthen across five key indicators.

First, retention remains high and continues to support favorable underlying economics. Second, we are bringing more members under Clover Assistant-powered primary care while continuing to expand Clover Care services engagement for our most vulnerable members. Third, underlying utilization trends are stable and continue performing better than our original expectations. Fourth, we are continuing to realize meaningful operating leverage as membership has nearly doubled since 2024. And finally, after the first 6 months of this year, our 2025 and 2026 cohorts continue developing in line with or ahead of our expectations.

Looking ahead now to 2027. We believe the most important financial driver for Clover is continued cohort maturation under our full-risk model. Maturing our membership under Clover Assistant-powered care is central to how our model is designed to work. New members create expected near-term pressure because they are earlier in their Clover life cycle. But as those members remain with us, engage with Clover Assistant and become more integrated into our care model, their economics improve over time.

We are seeing that dynamic play out today. Our 2025 members created the expected first-year margin headwind last year. This year, that same cohort is in year 2, and we are seeing meaningfully stronger economics than we did a year ago. At the same time, our members that joined in 2026 are following a similar early life pattern as expected. That is the maturation curve we expect, and it is now visible in our results. That is what gives us increasing confidence in 2027.

Next year, our 2025 cohort will move into year 3, where our historical data shows another meaningful step-up in economics, while our 2026 cohort will move into year 2. In other words, we expect to enter 2027 with a substantially larger membership base moving into more economically mature years under our care model. That is the core of our 2027 outlook.

As Andrew discussed, our 2027 strategy was not built around a higher Star rating. The move to a 4.5-Star payment year does not change the underlying earnings trajectory we expected from cohort maturation. It simply provided additional flexibility as we finalized our 2027 bids and made decisions across member value, growth and margin. The ultimate financial benefit will depend on the final economics reflected in our bids and our final 2027 enrollment. So we are not providing additional detail on those assumptions today.

The important point is that our foundation for 2027 is a larger and more mature membership base, improving cohort economics and a differentiated full-risk model where better care can translate into better financial performance. While we are not providing formal guidance for 2027 today, we have increasing confidence in the direction of the business. Our focus now is on executing through the second half of 2026, delivering our first full year of GAAP net income profitability and entering 2027 from a position of strength.

With that, I'll turn it back to Andrew.

Thanks, Clay. Before we open the call for questions, I'll leave you with one final thought. We've spent the past several years using AI to empower physicians to make better decisions. It's where technology can create the greatest impact in our mission to improve every life, and it's the foundation of everything we've built at Clover.

But we don't intend to stop there. We're now moving quickly to bring AI into our back-office insurance operations themselves. We believe that will help us better support our members, improve speed and accuracy of claims processing and completely change the way we scale the business with regard to admin expense. This should compound the margin opportunity we expect over time.

By doing this, we think AI will drive both aspects of our business. Clinically, it's used to accelerate access to personalized care. And on operations, it's used to streamline administrative functions to lower overhead. Taken together, we think the business is very well positioned for the years ahead.

With that, operator, we'd be happy to open it up for questions.

[Operator Instructions] Your first question will come from Richard Close with Canaccord Genuity.

Congratulations. In one of the slides, you point to 2/3 of the members are managed with CA. And I'm just curious, since you guys have focused in on New Jersey and Georgia, the last two cohorts in terms of the growth, like what are the percentage of those two cohorts that are managed under CA?

Richard, thanks for the question. I just want to clarify, you're specifically asking about New Jersey and Georgia and the Clover Assistant coverage within those two markets?

Yes. No, just really on -- I guess the last two cohorts, the percentage of those, I mean, obviously, that's where the -- those two states have been where the focus is, but the two cohorts.

Right. Okay. Got you. So members joining in 2025 and 2026.

Yes.

So we're really pleased with the coverage that we've seen there. It's a little bit lower than the 2/3 across our overall population, but you're looking in the low 60s, and then that generally trends up over time. So as members kind of stay with Clover for longer periods of time, we generally see that Clover Assistant engagement tick up and meet the more -- the higher range of that 2/3 number.

Okay. That's helpful. And then with respect to your comments on the cohorts and maturation from year 2 to year 3, just the 49%, I guess, rough math, that's like 70 -- well, call it, 77,000 members. How is that split up between year 1 and year 2, just to get some sort of sense in terms of the year 2 rolling into year 3 for '27?

Sure thing, Richard. So when you think about that, about 21% or so of the membership we see in this year, the new member cohort -- excuse me, the new member cohort from '25 represents about 21% and then the 2026 cohort is at about 28%. So as you're trying to model from '26 into '27, those are kind of the figures that I would anchor you on. So obviously, a higher percentage of members will be shifting from year 1 to year 2 than year 2 to year 3.

Okay. That's helpful. And then just a final question. I appreciate the investments, talking about the investments. But like with respect to SG&A, I guess it declined sequentially from first quarter to second quarter. Was there anything specific in the second quarter that we should think about?

Not particularly. So Richard, in the first quarter, I did mention there are a few one-time events that were nonrecurring. For instance, the claims adjustment expense that we incurred in the first quarter when our IBNR reserves went up. So really from Q1 to Q2, you had the elimination of those one-time nonrecurring events that occurred in the first quarter.

[Operator Instructions] Your next question will come from Jonathan Yong with UBS.

I guess starting with kind of your bids for '27, can you talk a little bit about how you approached it? And did you kind of approach it from a more balanced perspective? Or were you moving a little bit more towards -- just any perspective on there? And then if you could provide any color on kind of how you were thinking about the cost trend? Is it -- were you assuming something similar to what you experienced this year or something improving, just if you could provide any color there?

Sure thing, Jonathan. So I'll actually hit the cost trend point first and then circle back to the strategy. So underlying cost trends, I would say we're generally not going to assume anything meaningfully different than the large national peers would on the underlying cost trend itself. But what is unique about us when you think about 2027 is the cohort maturation that will impact 2027.

So with a company like Clover that's growing at the rate that we are growing, you're dealing with a little bit more complex movement from 2026 into '27. So we're generally looking at it, yes, through the lens of trend and through the lens of benchmark increase and direct subsidy increase. But we're also looking at it through the lens of how much value is created in 2027 as a result of that cohort maturation.

And then the answer to that question really kind of can inform the growth posture because ultimately, as you're trying to assess cohort maturation from year 2 to year 3 and year 1 to year 2, that really becomes an offset to any near-term margin headwind that you may face with bringing on additional year 1 members.

So to kind of pull it back around to the root of your question, how did we think about our bids? We really approached our bids in a similar fashion that we have in the past 2 years. We wanted to put a strong product in the market that we knew we could grow and we knew we could grow profitably. And the impact of our cohort maturation to 2027, I think, positioned us well to do that.

Okay. And then just given some of the commentary from the nationals about continuing to exit certain markets, et cetera, curious if that was kind of factored within the context of your bids because obviously, I assume that, that helped you quite a bit this year. I was just curious if that was factored into your thinking there?

Yes. We definitely did assume continued disruption. So when you look at '25 and '26, there's been significant disruption in New Jersey and in Georgia. As we are assessing 2027, we definitely had a close eye on what the nationals were saying leading up to their bids, but also some of the local competitors so that we could get a sense for what they may do heading into '27. So our expectation certainly is that there would be more disruption, Jonathan, and we did factor that into the bids.

Okay. Great. And then just last one here is you obviously had a good outcome related to Stars, that court case. But I guess -- I know you guys don't necessarily try to target for Stars, but relative to kind of your internal metrics, kind of how are you performing on the Stars metrics? And do you feel that you'll be able to continue to maintain whether it be 4.5 or 4 Stars kind of moving forward as we progress to the next Stars update?

Jonathan, like obviously, we're pleased with the Stars outcome, as we said during the commentary. We're always investing in Stars. We're always focusing on making sure we do as well as possible. Plan Previews are just about to come out now, so we'll have more to talk about here. But traditionally, we've been the #1 -- well, for the last 2 years, we've been the #1 PPO in the country on HEDIS Star ratings. We've been very pleased with that. We think our technology approach really helps with that. And for the other ratings, we're always investing there as well. So more to come on that as Plan Previews come out.

[Operator Instructions] Our next question will come from Dean Rosales with Leerink.

Dean Rosales on for Whit Mayo. With Plan Preview 1 coming out, just curious really quick your thoughts on how CAHPS are looking those kind of preliminary data points. Anything you could share on that would be incredibly helpful.

Dean, thanks for the question. So Plan Preview 1 is really just kicking off. So we're not going to comment specifically on any particular domain at this time. As we move closer to October and the release of measurement year '25 results, we'll speak to that then.

No problem. And then if I could just get a quick one. Are you guys -- so I guess, obviously, with this favorable ruling and then subsequent appeal, are you guys assuming this 4.5-Star benefit in bids? Or what's kind of baked into the '26, '27 raise or framing? Any sort of color there, that would be great.

Yes, of course, Dean. So CMS has appealed as we said in the commentary, and that's moving forward. We feel good about the case. We think that the District Court had good rationale, had good judgment. We think the judge was very thoughtful. So we're feeling good about defending that as this goes into appeal. Just as a reminder for everyone, though, we are paid on 4.5 Stars going into next year. We were -- we recalculated and we bid against that. So we're going into a 4.5-Star payment year going into next year. We feel like everything we've got is aligned to executing against that.

[Operator Instructions] There are no further hands raised at this time. I will now turn the call back over to Andrew Toy.

All right. Thanks to everybody for joining us today, and thanks for the thoughtful questions from everyone. We appreciate your continued interest in Clover and the opportunity to share our progress with you, and we look forward to speaking with you all again next quarter. Have a great evening. Thank you.

Hello, and welcome to Clover Health's First 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.

Good afternoon, everyone. Joining me on our call today to discuss the company's first quarter 2026 results are Andrew Toy, Clover Health's Chief Executive Officer; and Clay Thornton, the company's Interim 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 thank you, everyone, for joining us today. Entering 2026, our first quarter results demonstrate how market-leading growth, GAAP net income profitability and full risk can scale together in Medicare Advantage. This quarter, we grew membership 51% year-over-year, while generating GAAP net income of $27 million.

We believe that this demonstrates our ability to empower physicians with technology to deliver earlier and better care, finance best-in-class benefits, drive strong retention and strengthen our cohort economics over time. The clearest example of that is in our core New Jersey markets, where our model is most integrated and where that integration is translating into market leadership.

Coming into 2026, outside of special needs and employer retiree plans, Clover is now the largest PPO in New Jersey. We believe this concentration creates a virtuous cycle where growth drives deeper clinical integration and continued investment in core markets, reinforcing provider alignment and strengthening the underlying economics of the business over time. Also, as we attract and retain more members under our technology-driven care model, we expect that to translate into continued earnings expansion.

Our business model is also structurally different from most Medicare Advantage plans. This is why we believe our model compounds better over time. We operate on a wide network PPO structure where we retain full economics and generally do not delegate risk downstream.

As new members join, we view their cost of acquisition and first year medical costs as deliberate upfront investments as they are not yet fully under our care model. These new members create a near-term headwind, but also establish a strong profitability tailwind as those cohorts mature under our platform.

In that first year, we are assessing their health, enrolling the sickest into the home care and, of course, getting as many members as possible Clover Assistant visits. This provides us with what we consider to be best-in-class cohort improvement. Put another way, we believe the total lifetime value of a Clover member significantly exceeds that of other plans.

We deliberately designed the model this way. Better clinical engagement driven by technology at the point of care is what we believe improves both member outcomes and plan economics. That same model is foundational across our MA business and Counterpart Health. Other plans note our leading wide network PPO, our total cost of care and our nation-leading HEDIS performance and ask us if we might be able to help them do the same.

Counterpart is what lets us say yes to that. Importantly, 2026 is also our second consecutive year of strong MA plan growth, and we believe we are significantly better positioned than we were a year ago. We benefit from a higher Star rating, and we kept benefit design stable year-over-year.

Notably, beginning in OEP, we also decided to moderate in-year growth to prioritize clinical integration. We grew significantly in AEP and moderating the rest of the year makes sense to us as we can focus on the experience and care of our new members.

Our model is also differentiated by the data foundation we have built over time. We recently announced an expansion of our capabilities here, becoming one of the first payers active on the new CMS aligned networks. This allows us to access more data earlier in the member life cycle and power more effective AI-driven insights.

AI runs on data, and we believe we are one of the only plans who view interoperability not as an IT-driven compliance project, but as a core capability. We believe this is a key structural advantage and will be reflected in the performance of our care model as we scale.

Let's turn to care we delivered within the quarter. Clover Assistant and Clover Care services are driving both wide network clinical engagement and supporting higher acuity members in the home.

During the first quarter, over 1/3 of our members received Clover Assistant-powered care, in line with expectations and tracking toward our full year targets. We have also meaningfully increased engagement for higher acuity members with our home care division enrolling a record number of patients for this point in the year. This matters as we continue to see meaningful differences in outcomes and cost performance for members who are actively engaged in these programs.

While still early in the year, our start to 2026 builds on the foundation we established in 2025 and reflects the consistent year-over-year execution of our strategy. Clay will cover this in more detail, but we believe initial trends are developing in line with expectations.

Looking ahead to 2027, it's too early to discuss our bids in detail, but we feel good about how we are positioned. We've built our model to thrive across both 3.5 and 4-Star ratings, and we believe the CMS rate notice came in at a reasonable place.

First, CMS did not finalize the proposed risk model changes, resulting in a more stable outcome on the risk adjustment side than many expected. While this stability is supportive to the broader industry, it's important to note that our model is built to perform through clinical engagement and care management. We do not rely on rate inflation in the same way others do. We have also consistently supported efforts to strengthen risk adjustment. By aligning payments more closely with actual care delivery, we believe our model is well positioned for an environment that moves in that direction.

Second, on the changes surrounding unlinked chart reviews, we expect a minimal impact from this change year-over-year. Further, we support the underlying broader shift toward aligning payment with care delivered at the point of service. Our model has long been grounded in encounter-based claims-linked documentation with Clover Assistant enabling earlier and more accurate diagnosis within physician workflows. In our comments to CMS, we highlighted a specific issue around members who switch plans since the new plan may not always have access to the prior encounter data needed to link historical chart reviews. We were pleased to see CMS address that issue through the switcher exception, which we believe supports fair competition and more accurate risk adjustment for growing plans like ours.

Lastly, beyond the final 2027 rate notice, we think the direction of the STAR program is gradually becoming more aligned with how quality should be measured. That said, there is still significant work to be done. We continue to believe the program should place more weight on the measures most directly tied to clinical outcomes, measurable improvements in member health and evidence-backed clinical actions.

We built Clover around physician enablement, interoperable care coordination and supporting physicians in providing earlier diagnosis and management of chronic disease. We think our historical market-leading HEDIS performance reflects that.

While we still think further reform is needed, we are encouraged by CMS' recent steps to move Stars in a more outcomes-oriented direction, and we believe plans such as Clover built on delivering better health outcomes will be very well positioned over time.

Taken all together, we feel good about our strong start to the year and long-term positioning. Our cohorts are developing as expected. Our care model is scaling and our leading operational indicators are performing as anticipated. We expect to deliver full year GAAP net income profitability in 2026 and to continue improving both care and economics over time.

Finally, I'm delighted to introduce Clay Thornton, Clover's Interim Chief Financial Officer. I've worked closely with Clay at Clover for several years in his role as CFO of our Medicare Advantage plan. He's been deeply involved in building and scaling the financial foundation of the business, and we're excited for him to step into this expanded role. With that, I'll turn it over to Clay for the financial update.

Thank you, Andrew, and thanks to everyone for joining. Over the past 2 years leading the Medicare Advantage finance organization here at Clover, I've been directly involved in building and scaling this model, and I'm looking forward to bringing that perspective to our discussion today.

First, let me start with the headline for the quarter. We delivered positive GAAP net income while continuing to grow at a market-leading rate with performance that was broadly in line with our expectations and reflects continued improvement in our underlying earnings power. At the same time, I want to acknowledge upfront that it is still early in the year. While we're encouraged by what we're seeing, we are approaching the rest of 2026 with appropriate discipline as we continue to evaluate how our newer cohorts develop.

Next, I'd like to discuss our strong first quarter 2026 performance in detail, starting with membership and revenue. We grew Medicare Advantage membership by over 52,000 lives year-over-year to approximately 156,000 members, driving $749 million in total revenues, up 62% year-over-year.

Breaking that down a bit further, first, our growth was driven primarily by a strong AEP, where we saw both high enrollment and best-in-class retention, which we view as one of the most important leading indicators of long-term cohort profitability in Medicare Advantage. Retention is ultimately what allows the economics of our model specifically to compound over time.

And second, during OEP, we began to intentionally moderate the pace of new member growth, prioritizing operational readiness and clinical capacity following a very strong AEP. That moderation was a deliberate choice in our model. Additionally, within each enrollment period, we continue to intentionally prioritize growth in our core markets and plans where Clover Assistant coverage and impact is highest. This reinforces that our growth this year is aligned with where we have the strongest long-term unit economics.

Finally, I'd like to highlight that the strength of our benefit design continues to be a meaningful driver of our growth, and we view this as an important strategic lever as we look ahead to 2027.

Turning next to consolidated gross profit. Consolidated gross profit during the first quarter was $160 million, up 47% year-over-year, reflecting strong revenue growth alongside stable medical cost performance. Let me spend a minute here on the underlying trends.

First, inpatient utilization was meaningfully lower year-over-year in the first quarter. Lower flu and COVID-related utilization contributed approximately 25 to 30 basis points of favorability to our overall margin relative to 2025. More importantly, though, we are seeing early evidence that increased clinical engagement is helping to effectively manage utilization, particularly among higher acuity members.

Enrollment in our Clover Care Services program is up approximately 90% year-over-year, reflecting our ability to engage members earlier and more proactively to manage care. While inpatient trends were favorable, outpatient utilization and cost continues to be elevated, but largely in line with our expectations.

We saw an acceleration here in the back half of 2025, and that has continued into early 2026, reflecting an increase in service intensity and provider billing patterns. We are actively addressing this by leveraging our data advantage and AI-driven insights to drive more effective medical expense management here.

Within supplemental benefits, we've made substantial progress on dental cost management following the targeted remediation and recovery actions implemented in 2025, and we continue to view dental care as a critical component of overall health care. While utilization has remained stable year-over-year, we are seeing meaningful cost reductions driven by structural changes in how we approach out-of-network dental claims, which historically introduced variability if not tightly managed.

And lastly, on Part D, performance is developing in line with our expectations as we move into the second year of the IRA implementation. We feel good about how this is trending so far, but we will continue to closely monitor ongoing impact to Part D performance, most notably the impact of risk adjustment normalization and trend acceleration among non-low-income members as the year progresses.

We continue to view consolidated gross profit as the clearest overall indicator of underlying insurance plan performance and are pleased with our first quarter results, particularly as we scale and manage through our evolving cohort mix. At a high level, though, we focus less on any single quarter's utilization and more on whether cohorts are tracking to expected maturity curves as that is ultimately what drives long-term economics in our model.

To do this, we evaluate performance at the cohort level through contribution profit, which allows us to directly assess the underlying unit economics of each cohort as members mature under our care.

All that said, insurance BER was 86.5% for the quarter, reflecting both strong performance alongside our ongoing investment in quality improvement for our members.

Turning to SG&A. Adjusted SG&A during the first quarter was $119 million or 16% of revenue, improving approximately 200 basis points year-over-year and broadly in line with expectations. This improvement is the result of efficiencies of scale in our fixed cost structure, improved efficiency and variable operating costs through vendor optimization, more disciplined variable growth spending relative to prior years, and the early impact from automation and AI-driven workflows.

We expect all of these to be durable drivers of efficiency as we scale. At the same time, we are continuing to invest in these capabilities, particularly in our AI and data platform, which we believe is a structural advantage in how we manage both medical costs and operating expenses and an increasingly important driver of efficiency as we scale.

We are also intentionally investing in Counterpart Health, both in product development and go-to-market capabilities. We view these investments as strengthening the clinical and economic performance of our own MA members while also creating incremental long-term growth opportunities outside of our core insurance business.

We are beginning to see early traction within Counterpart with growing provider adoption in markets where we do not currently operate plans, and we expect to expand that footprint further over time. As we've communicated previously, our near-term focus remains on expanding total lives on the platform to position Counterpart as a long-term growth engine alongside our Medicare Advantage business.

During the quarter, we did also experience modest variability in our SG&A, driven by higher variable costs associated with strong OEP retention as well as some timing-related operational expenses.

Turning to profitability. We generated $27 million of GAAP net income in the first quarter, improving by $29 million year-over-year with adjusted EBITDA of $40 million, increasing 56% year-over-year. Both reflect continued improvement in underlying earnings power as our cohorts mature and our operating leverage improves.

On the balance sheet, we ended the first quarter with $418 million in total cash and investments with no debt outstanding. Cash flow from operations was $108 million in the quarter, driven by strong underlying business performance alongside timing-related working capital favorability as a result of our strong membership growth.

Given current performance and cohort trajectory, we remain confident in our ability to self-fund growth while continuing to strengthen our unregulated cash position through disciplined capital allocation and ongoing operational initiatives.

Turning next to guidance. We expect to meet or exceed our full year 2026 outlook across all metrics. That being said, we will revisit our full year 2026 guidance across all metrics following our second quarter results when we expect to have a more complete baseline through which to evaluate performance trends and inform our outlook for the second half of the year. As we think about the remainder of 2026, though, there are a number of things we feel particularly good about.

First, our strong retention, which drives a more favorable cohort mix; second, our continued growth in clinical engagement, particularly in home-based care delivery; third, our ability to expand Clover Assistant reach and impact across both new and returning members as we scale; fourth, encouraging early trends in inpatient utilization and supplemental benefit cost management, both tracking in line with or better than expectations, and lastly, the efficiencies of scale we are beginning to realize as our membership base has roughly doubled over the past 2 years.

At the same time, and as I mentioned earlier, we are closely monitoring outpatient and Part D impacts alongside the pacing and impact of our Counterpart Health investments. Taken all together, while we are encouraged by the start to the year and the leading indicators we are seeing, we are maintaining a disciplined posture until we have more data to inform our views of how our newer cohorts will perform throughout the year.

Looking beyond 2026, as Andrew noted, it's still too early to speak specifically about our 2027 bids, and we'll provide more detail on our next call. That said, we believe the strength of our benefit positioning this year provides us with meaningful flexibility in how we approach growth versus margin in 2027, allowing us to make deliberate choices rather than react to market conditions.

And more importantly, we believe that our model uniquely allows our underlying earnings power to compound over time as returning cohorts grow and mature. As a reminder, we are managing a membership base today that includes a large number of first and second year members, which are much earlier in their lifetime value curve relative to more mature cohorts.

As we move into 2027, we expect a large portion of our membership base will be progressing favorably along the lifetime value curve, including our 2025 cohort entering year three, which we expect to be a meaningful tailwind to both margin and cash generation. We also expect continued efficiency gains, particularly within SG&A, driven by increased scale alongside the effects of our AI and data platform to further enhance cohort economics.

That dynamic, the compounding effect of cohort maturation and continued SG&A optimization through AI remains central to how we think about long-term value creation. In conclusion, we are encouraged by the start to the year, and we're seeing the model perform as expected, but we're maintaining discipline as we move forward. I look forward to updating you as the year progresses.

And with that, I'll turn it back to Andrew for closing remarks.

Thanks, Clay. To close, I just reinforce a few simple points. We're seeing strong growth and profitability come through at the same time with cohorts developing as expected and our care model scaling as designed.

As we move through 2026, we remain focused on engaging more members earlier in their life cycle while balancing profitability with ongoing investment in our care model, technology and long-term capabilities.

It's still early in the year, but taken all together, this gives us confidence not just in delivering our 2026 goals, but in the durability and compounding nature of the model over time. We're building Clover for an AI-first personalized health care world, and we find that incredibly exciting.

With that, we're happy to take your questions.

[Operator Instructions] Our first question comes from Richard Close from Canaccord Genuity.

Okay. Congratulations, first of all. Clay, you've been here at Clover for a couple of years. I'm just curious to really get your perspectives. You've been in MA for a while prior to Clover. So really what attracted you to the company? What's different in terms of this model versus maybe other models that you've seen before?

Yes. Thanks for the question, Richard. So there's quite a bit that's different and quite a bit that attracted me to the company. So first off, purely from the financial lens, I love that Clover takes full risk on the economics of its population.

That's very unique in the Medicare Advantage industry. Like you said, I've been in the space for most of my career. And most of our peers are delegating a large portion of their risk down to their providers. Clover does not do that. So we take full risk on the economics of our population.

The second is how we engage with the wide network on the PPO, using the Clover Assistant platform to engage that wide network and drive clinical and economic results is very unique in the space, and it's inherent in the results we see today.

Okay. That's helpful. And then with respect to the SG&A, I was wondering if you could go into a little bit more details on what that variability is that you called out.

Yes. So there were a few onetime nonrecurring expenses in the first quarter, Richard. I'll just give you an example of one of them. When our membership grows and our reserve number grows, there's a noncash expense that hits the SG&A line called claims adjustment expense. It's effectively a reserve that we set up on SG&A to cover the future liability for paying those claims. So we had that expense in the first quarter won't be recurring for the remainder of the year. There were a couple of other things like that as well.

[Operator Instructions] Our next question comes from Jonathan Yong at UBS.

I guess just in relation to the new versus existing cohorts, can you talk about how the new members are kind of shaping up in terms of the RAF scores and just their overall health, at least in the early days of what you can see? And similarly, kind of how is the existing cohort kind of trending? Are there any areas that kind of give you pause at this time? Or is everything trending better than what you initially thought?

Yes. Thanks for the question, Jonathan. So first off, on the new members or the returning, we have pretty good visibility into the leading indicators through the first quarter and feel great about how those are tracking. I mentioned inpatient and dental as two in particular that are tracking either in line with expectations or better.

So feel really good there. As it relates to the RAF scores, we have good visibility there as well. When we provided guidance back in February, we already had 2 months of MMR. So had good feel of what that population was and how they were going to track for the rest of the year. And so far, things are tracking in line with expectations there.

Okay. Great. And then just curious if there was any positive or negative prior period development within the quarter related to last year's claims. And then just going back to the G&A question for a second. I don't see, I don't know if the G&A was, the G&A ratio was reaffirmed with this guidance. I assume it was, but I just want to get clarification on that.

Yes. So, first on G&A, we didn't officially guide to G&A. What we said back in February was we are committing to 100 to 150 basis points of SG&A improvement during 2026. So, in the first quarter, we delivered 200 basis points of improvement. So feel really good about how we're tracking there. You could consider SG&A in our broad statement around feeling good about meeting or exceeding expectations. And then as far as the first question, could you repeat that, Jonathan?

Just if you had any prior year development within the quarter, prior year.

Yes. We did have some modest unfavourability actually in the first quarter, which is going a bit of the opposite direction of 2025, just normal restatements and reserves, also some slight unfavourability on the revenue side.

[Operator Instructions] There are no more questions. This will complete the allotted amount of time for questions. I will now turn the call back over to Andrew Toy for any closing remarks.

All right. Thanks, everybody, for joining us today. Thank you for the thoughtful questions. We appreciate everyone's continued interest in Clover, and we definitely look forward to updating you all on our progress as the year progresses. Everybody, have a nice evening. Thank you so much.

Hello, and welcome to Clover Health's Fourth 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 fourth quarter and full year 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 fourth quarter earnings call. The headline takeaway is this. In 2025, we achieved full year adjusted EBITDA profitability, delivered a well-controlled medical cost trend and reestablished market-leading membership growth, all in a year marked by elevated utilization across the industry.

What makes this especially notable is that we achieved these results while absorbing the natural first year dilution that comes with membership growth in Medicare Advantage. Because we retain full underwriting risk rather than delegating it downstream, that near-term pressure sits entirely with us. Sustaining profitability while growing 38% within that structure is not easy.

However, as those members mature into returning cohorts, we capture the full economic upside, and we're excited about the accelerating earnings power that dynamic unlocks. This reinforces the durability of our model and the strength of our cohort economics, which we believe are among the strongest in the industry.

What also gives us confidence moving forward is the contrast between Clover's trajectory and the broader Medicare Advantage market. Headlines that might read as negative for the Medicare Advantage industry are clear tailwinds for Clover from a competitive lens, and the past 3 years are our evidence of this.

When regulatory actions have tightened risk adjustment and reimbursement rates, incumbents have reacted by reducing benefits, exiting markets and eroding margins. This only serves to strengthen Clover's competitive positioning, making us an even more attractive option for consumers.

For years, we have been explicit that Medicare Advantage should reward real clinical value and disciplined cost management, not coding intensity or favorable rate assumptions. As far back as 2021, we publicly supported heightened rigor around risk adjustment and emphasized that our model focuses on clinical value with no incentive for increased coding.

In 2022 and 2023, we reiterated that sustained growth would come from empowering physicians through technology and bending the cost curve over time, not by benefiting from medical cost inflation or temporary rate tailwinds. When the broader market faces pressure, it reinforces the durability of our model and the structural choices we made in building Clover.

With this foundation, combined with clear structural tailwinds this year, we expect to achieve our first full year of GAAP net income and EPS profitability in 2026. This metric will be the cornerstone for our 2026 guidance that Peter will discuss in more detail later in the call.

I will now walk through our results in 3 parts: first, how we executed our 2025 strategy; second, why we believe that we are well positioned for 2026; and third, as we look ahead, why we feel good about the durability of our model in 2027 and beyond.

Starting with 2025, we set out to achieve adjusted EBITDA profitability while absorbing meaningful new member dilution to continue to deliver industry-leading quality and to prove that our growth strategy works. We delivered on each of those priorities even against a difficult industry backdrop, higher-than-expected intra-year new member growth and during a 3.5-star payment year.

Secondly, we also demonstrated that our growth strategy could be repeatable. During the 2026 annual enrollment period, we delivered 53% year-over-year membership growth, driven by a stable benefit offering, strong retention, a focus on our core markets where Clover Assistant coverage is strong and minimal reliance on e-brokers. This reinforces that our growth strategy makes sense and is also durable.

Lastly, our 2025 benefits continue to be the clear and compelling choice in our core New Jersey markets. And at the same time, our underlying medical cost trend remains strong. Growing membership while maintaining cost discipline is what enables us to balance profitability through the inherent earnings power of our model.

Turning to 2026. We entered this year with exceptional member retention, more operating experience and a focus on deep Clover Assistant engagement. With greater than 95% AEP retention and approximately 2/3 of our members receiving Clover Assistant-powered care in 2025, we are carrying forward a stable 2026 benefit offering that builds directly on last year's performance.

That combination of retention, engagement and underwriting discipline drives our confidence in delivering our first full year of GAAP net income profitability in 2026 while continuing to grow at a market-leading pace.

Further reinforcing this is our underlying cohort economics, which we expect to be structurally stronger in 2026 versus 2025. As I discussed earlier, new members are inherently dilutive across the industry. And because we do not delegate risk to providers, we absorb that near-term pressure more directly.

However, as these members mature into returning cohorts, we retain the full economic upside and our data consistently shows profitability improves with tenure. That dynamic, combined with our 4-star payment year, favorable market rate dynamics and earlier care management via Clover Assistant highlights the structural earnings power of our model and gives us real conviction in the year ahead.

Now looking ahead to 2027, our view is that the broader MA policy direction and the underlying strength of our business remain aligned. Overall, we support the intent and goals of the proposed changes around unlinked chart review records as they aim to further align payment with documented clinical care delivered in real patient encounters.

Our model has always been grounded in encounter-based claims-linked documentation with Clover Assistant enabling earlier, more accurate diagnosis and better clinical decision-making directly at the point of care.

That said, we believe that there is one unintended consequence of the proposal related to switchers. For example, when members switch plans, the new plan currently lacks the data needed to link records to prior encounters. Our view is that CMS can close this gap by simply sharing that data.

Nonetheless, we support CMS' broader goals of strengthening payment accuracy and fostering fair competition. Because our clinical insights are generated and acted on within real physician workflows, this policy direction is consistent with how we operate and reinforces the long-term integrity of the Medicare Advantage program.

Similarly, our model was built to perform without relying on annual rate increases, unlike many other plans, which gives us a differentiated perspective on the 2027 Medicare Advantage Advance rate notice. From the beginning, we designed Clover to make the math work through disciplined cost management and clinical integration, not through elevated rate assumptions or policy optimization.

It is through this lens that we view the recent announcement, which we believe highlights structural differences across the industry. Plans built around favorable rate environments feel pressure and plans built to better manage total cost of care through real clinical engagement are positioned differently.

At its core, Medicare Advantage exists to improve care delivery and clinical outcomes while keeping medical cost growth under control for the country. That principle is foundational to how we operate. When payment policy moves closer to documented clinical reality, it reinforces how we've built Clover to improve care while bending the cost curve through Clover Assistant and deeper clinical integration.

As a result, we believe our model is structurally less sensitive to policy cycles and better positioned in periods of industry adjustment.

Beyond policy, our long-term confidence rests on 2 things: sustained core New Jersey market leadership and a technology-driven model that can grow comfortably even in a 3.5-star environment. We are now the largest individual non-special needs plan, PPO plan, in New Jersey, and that is not accidental. It reflects our intention not only to establish leadership in our core New Jersey markets, but to sustain it and extend it into 2027 and beyond.

And our scale in New Jersey matters as it makes us a more attractive partner across the network while creating natural efficiencies that strengthen the economics of our model as we scale. Additionally, we've demonstrated our ability to grow and maintain profitability while offering attractive market-leading benefits priced against a 3.5-star benchmark.

This validates the resilience and differentiation of our model compared to competitors and reinforces that while a 4-star payment year represents meaningful upside, it is not a hard dependency for profitability. This relative independence of both rates and stars is differentiating in an industry where many plans often depend on both to simply maintain baseline membership.

Importantly, the same technology platform and operating strengths that underpin our core Medicare Advantage business also forms the foundation for Counterpart Health. Our near-term goal is to achieve the milestone of managing as many members under Counterpart Assistant as we manage under Clover Assistant in our growing MA plan.

As payers and risk-bearing providers face ongoing pressure around medical costs, quality performance and fragmented health data, we believe there is a clear need for clinically grounded AI-powered solutions that operate in real-world workflows.

Our priority right now is to expand total lives on the Counterpart platform and deepen clinician adoption, positioning Counterpart as a long-term growth engine alongside our growing and profitable Medicare Advantage business.

In summary, 2025 was a year of execution that demonstrated the earnings power of our model even amid significant new member growth and dilution. 2026 is about building on that foundation as we anticipate our first full year of GAAP net income profitability. And beyond that, we see a scalable platform that continues to improve care, strengthen economics over time and deliver long-term value for seniors.

With that, I will turn it over to Peter to walk through the financials in more detail.

Thank you, Andrew. Before I walk through the financial results, I want to highlight why we believe Clover is exceptionally well positioned as we enter 2026 and beyond.

We are starting from a position of strength with improving earnings power, disciplined underwriting and a technology-enabled model designed to perform across cycles. In 2025, we demonstrated financial resilience. We grew Medicare Advantage membership well above the market while maintaining underwriting discipline, and we delivered full year adjusted EBITDA profitability.

We did this in a 3.5-star payment year despite new member margin dilution and elevated utilization across the industry. Our benefits remain a clear and compelling choice in our core New Jersey markets. This drove strong membership growth while maintaining pricing discipline. We absorbed new member margin dilution while keeping underlying medical cost trends, excluding pharmacy, well controlled at 5% year-over-year.

Overall, this validates our 2025 pricing strategy, our balance of growth and profitability, the strength of our Clover Assistant-powered model and it gives us confidence as we enter 2026 with a stable benefit design.

In 2025, both new and returning member cohort contribution profit performed in line with expectations. Returning member contribution profit remained strong at $200 PMPM year-over-year. New member contribution loss improved to $145 PMPM, reflecting better execution and disciplined benefit design even in a challenging utilization environment.

As we enter 2026, we expect meaningful improvement in new member contribution profit and continued strength in returning cohorts, consistent with our historical progression and supported by structural tailwinds. As members mature on our platform and Clover Assistant engagement deepens, profitability improves with tenure.

With AEP retention above 95%, we're entering the year with a larger base of seasoned cohorts. This structurally strengthens our earnings profile and supports a strong path to continued above-market growth and our first full year of GAAP net income profitability.

Turning now to our fourth quarter and full year 2025 results. Medicare Advantage membership increased 38% year-over-year to approximately 140,000 members at year-end. Insurance revenue in the fourth quarter was $486 million, an increase of 47% year-over-year. 2025 insurance revenue was $1.9 billion, an increase of 41% year-over-year, and 2025 total revenue increased 40% year-over-year.

Our medical cost trends remained well controlled in 2025. In the fourth quarter, we did see continued cost pressure, particularly in outpatient settings in line with broader industry trends. As expected, we also saw seasonal Part D pressure related to the IRA changes. Despite this, we improved our Part D margin year-over-year and delivered higher consolidated gross profit in 2025. Overall, our performance was in line with our guidance.

Starting this quarter, we are introducing consolidated gross profit as a primary operating metric for guidance and reporting. We define consolidated gross profit as total revenue minus medical claims. We believe consolidated gross profit gives the clearest view of our consolidated business performance and underlying earnings power. As we scale, it better reflects the operating leverage and capital efficiency of our model. Beginning this year, consolidated gross profit will replace Insurance segment BER as a primary operating guidance metric. For the full year 2025, consolidated gross profit was $356 million.

Turning to Insurance segment BER. For 2025, BER was 90.9%, an increase of 970 basis points year-over-year. After normalizing for prior period development in both periods, BER increased by approximately 700 basis points year-over-year, primarily driven by new member dilution and incremental quality investments.

As we move to SG&A and operational leverage, fourth quarter adjusted SG&A of $98 million was slightly above expectations. This was mainly due to higher commissions and stronger-than-expected new sales and continued quality-focused investments to improve cohort performance and margins in 2026.

We continue to demonstrate operating leverage as we scale. Adjusted SG&A as a percentage of total revenue was 20% in the fourth quarter, improving 560 basis points year-over-year and was 17% for the full year, improving 410 basis points year-over-year.

We continue to manage expenses with discipline, investing in initiatives that strengthen cohort economics. Our focus remains on turning growth into consistent margin improvement and durable long-term earnings. 2025 showed that we can grow and stay profitable at the same time. We managed new member dilution effectively even with higher industry utilization.

For the full year, we delivered $22 million of adjusted EBITDA and $20 million of adjusted net income. As expected, the fourth quarter reflected normal seasonal patterns. For the full year, we remain profitable on an adjusted EBITDA basis while growing membership by 33% on average. That demonstrates the strength of our model, the durability of our cohorts and our ability to turn growth into sustainable earnings.

Let's turn to the balance sheet. We ended the fourth quarter with $320 million in cash and investments on a consolidated basis, including $122 million at the unregulated subsidiary level. Cash flow used in operating activities for the full year was $67 million, primarily driven by working capital timing related to membership growth.

Our capital allocation framework remains disciplined and consistent. First, we prioritize preserving balance sheet strength and liquidity. Second, we choose to selectively reinvest in initiatives that enhance long-term cohort economics and deepen clinical integration through Clover Assistant.

We're not pursuing growth for growth's sake. Our strategy is designed to become increasingly self-funding over time, supported by improving core performance and expanding operating leverage. We believe our liquidity position remains strong, and we expect to generate meaningful operating cash flow while achieving GAAP net income profitability.

Let's move to the guidance for 2026. Medicare Advantage membership is expected to average between 154,000 and 158,000, reflecting 46% growth year-over-year at the midpoint.

Total revenue is expected to be between $2.810 billion and $2.920 billion, reflecting continued market-leading year-over-year top line growth of 49%. Consolidated gross profit is expected to be between $470 million and $510 million.

We expect to continue improving operating leverage in adjusted SG&A through cost initiatives and scale efficiencies. We target to reduce adjusted SG&A as a percentage of total revenue by approximately 100 basis points to 150 basis points year-over-year.

Adjusted EBITDA is expected to be between $50 million and $70 million. We expect 2026 to be our first full year of GAAP net income profitability with net income between breakeven and $20 million.

In 2026, we expect stronger cohort performance and continued market-leading membership growth to drive higher consolidated gross profit and adjusted EBITDA, while we stay disciplined on SG&A and continue to gain operating leverage as we scale.

Our adjusted SG&A includes material investments in quality improvement and in research and development that strengthen our care delivery and technology. As our fundamentals continue to improve, we'll keep flexibility in SG&A to reinvest in clinical programs, care management and innovation where we see strong returns.

Overall, our approach balances disciplined cost management with continued investment in long-term value creation while maintaining clear accountability for bottom line performance.

Our conviction in achieving our first full year of positive GAAP net income in 2026 is based on several clear drivers that we believe strengthen Clover's earnings profile.

First, strong 2025 execution reinforces our underwriting discipline as we enter 2026 with stable benefits and the second year of executing the same growth playbook.

Second, we delivered strong returning member retention during AEP, resulting in a larger and more profitable returning member base in 2026, with continued favorable performance from our year 3 and older cohorts as they mature.

Third, 2026 is a 4-star payment year for our PPO plans, providing a material financial tailwind with approximately 97% of members enrolled in our wide network PPO plan.

Fourth, we expect a favorable impact from the 2026 Part C final rate notice.

Fifth, we continue to expand Clover Assistant coverage and deepen PCP adoption, supported by ongoing investments in the platform, clinical and operational capabilities. The vast majority of 2026 new member growth is concentrated in our core markets where Clover Assistant PCP penetration is highest and our model is most integrated and economically advantaged.

Sixth, we are directing intra-year 2026 growth toward more cost-efficient acquisition channels, which improves new member unit economics.

Seventh, Part D optimization initiatives implemented in 2025, with enhanced utilization and unit cost management now in place, position us to better manage the second year of IRA changes.

Eighth, as discussed on prior calls, we implemented targeted remediation and recovery actions to address abnormal dental and DME activity experienced in 2025.

Finally, we expect continued margin expansion from SG&A leverage as efficiencies across variable, fixed and growth-related expenses compound with scale.

In closing, the tailwinds we've outlined today underpin our conviction in delivering meaningful improvement in new member cohort economics and continued strength in returning members.

Our confidence comes from the inherent earnings power of our full risk model. We absorb the near-term impact of new member growth and as cohorts mature, we retain the full economic upside. Unlike delegated structures that rely primarily on incremental growth to expand earnings, our model is designed to compound profitability as membership seasons and clinical integration deepens.

We saw this dynamic clearly in 2025, generating adjusted EBITDA profitability while growing at a market-leading pace. As cohorts continue to mature and Clover Assistant engagement increases, we believe this structural advantage positions us to achieve our first full year of GAAP net income profitability in 2026 and compound earnings over time.

With that, I'll turn the call back over to Andrew for closing remarks.

Thanks, Peter. To close, I want to reinforce a few simple takeaways. 2025 was a year of execution, where we delivered sustained profitability while absorbing new member dilution, reestablished meaningfully above-market growth and continue to lead the nation on quality among PPO plans.

2026 is about building on that foundation. With improving cohort economics, strong retention and a stable benefit design carried forward, we are positioned to deliver what we expect to be our first full year of GAAP net income profitability. And importantly, not due to favorable conditions, but because of the structural earnings power embedded in our model.

And as we look beyond that, what gives us confidence is not just the durability of our model, but its potential scale. We believe Clover Assistant can power better care for all Medicare beneficiaries broadly, improving clinical outcomes through earlier care management and lowering total cost of care at the same time.

Our Medicare Advantage plan allows us to rapidly iterate our technology in real-world clinical settings, and Counterpart enables us to scale those capabilities across the entire health care ecosystem. That combination gives us the ability to improve lives while strengthening the Medicare system itself, and we're excited about the opportunity ahead to deliver upon this.

Taken altogether, we believe Clover is well positioned to grow where others pull back, remain resilient across operating environments and stay focused on what matters most: delivering better, more affordable care for seniors while creating long-term value.

With that, we're happy to take your questions.

[Operator Instructions] Our first question comes from Jonathan Yong with UBS.

Can you hear me?

Yes, we can.

So just going to the gross profit margin. I guess to start, it looks like the gross profit margin is stepping down 150 bps year-on-year. And I guess, given the improving cohort economics and improving membership cohort, I'm a little surprised that it's declining. Can you kind of talk about what's the driver of that, especially given you're in a 4-star payment year?

Yes. Thanks, Jonathan. This is Peter. I'll answer this question. So really to look at it is really the leverage here as well as we grow. So the first step is, of course, the new cohort. We grew 53% in AEP. So that is a large group that we're taking on. And given our historical progression and actual results, we're very confident that we can improve the profitability of that group as it moves into year 2.

We do see, of course, the impact of last of the year before the AEP, from '24 going into '25. That maturity of the cohort is now in year 2. So we see that improvement. And then year 3 and beyond is improving as well. But I would say net-net, we really see volume leverage here. So...

Yes, Jonathan, this is Andrew. So I would just emphasize what Peter is saying here as well, which is we're actually pretty pleased about that, with the 4-star year, there's obviously quite significant growth with over 50% growth. And that new cohort is dilutive for us, I think less so than for other folks who would be more -- it will be harder for other models to bring on that level of first year cohort. So I think that having just a bit of a step down in the gross profit is perfectly reasonable from our perspective.

Okay. And then just turning to '27 with the flat rate update. Obviously, there's the benchmark upon, but the risk model change. Can you kind of talk about how the risk model component may or may not impact you guys? And then just conceptually, is that effective growth rate that is embedded in CMS' rate update, preliminarily at least, is that keeping up with cost trend for you? Kind of how would you frame that as you think about the go-forward rate?

Yes. Thanks for the question. So I'll take it sort of like in reverse order there on the advanced notice. I think based upon the trend, as I said in the commentary, we actually think it's actually a somewhat reasonable trend. I know that the industry was looking for a higher level trend coming in there. And CMS did a number of things, taking fraud, waste and abuse out, looking at just sort of like more recent data.

Now I think that there's an opportunity and potentially that the rate might move upwards a little bit, but we're certainly not relying upon that. So I think at the higher level benchmark rate, while perhaps others are looking for an even higher rate, we see that being pretty straightforward and reasonable.

The second thing I'll say about the risk adjustment is that, as I said in my notes, overall, we think that increasing the amount of linking of data between claims and clinical data is a really important thing to do. We think that there's great opportunity to improve on interoperability, which I think will be powerful as well.

The one area we would note is that we think there's a bit of an oversight from CMS, where on that first year with members coming towards us, especially for a fast-growing plan like us, when people are switching in from other MA plans, we think that CMS is not providing all the data we need to provide that linking that they want on the risk adjustment side.

So I'm pretty sure that they'll close that gap. Obviously, we've given them that feedback. And if and when they do so, we'll be -- we think that's a great thing for the industry.

Our next question comes from John Pinney with Canaccord Genuity.

Can you hear me?

We can hear you.

I guess just to start on this new cohort, I guess you announced the membership growth in January. I guess it's just like has anything surprised you in these first couple of months? Is there anything about this cohort that's any positive or negative in these first couple of months of getting to know what the cohort -- the cohort coming in?

Yes. Thank you for the question. Of course, it's early in the year. I would say, though, the profitability that we see for the new members is coming in line with expectations. We, of course, have the MMR files already, and it is in line with what we expected and planned for. And then also, we see utilization coming down so far in January, February year-to-date for the total population.

Okay. Great. I guess second question here is any update on like Counterpart Health and how much of like a contribution that is into 2026 guidance? Is it like anything material to call out at this point?

Yes. So we've always said, Peter and myself, that, like, we'll report in when we expect Counterpart to provide meaningful adjustments to our economics. I would say that our strategy right now, and we're very pleased with the progress, is to make sure that we bring a significant number of folks under Counterpart Assistant management, similar to -- in size to the bolus of folks that we have under Clover Assistant management, as I said in my remarks. So nothing to talk about yet on the economic guidance, but we are making good progress on rolling out Counterpart Assistant to more and more people.

And then in the prepared remarks also we had mentioned that the near-term goal is to bring an equal number of patients under Counterpart technology as we have currently under the Clover Assistant technology inside our own insurance plan. So I think that's an important marker to look at as well that, of course, precedes financial guidance.

Okay. And I guess one more for me. I think I heard in the prepared remarks that 2025, 2/3 of membership was being seen by a CA-empowered physician. I guess with such a large cohort coming in, what would be success for you as far as this new cohort, as far as this new cohort being seen by a CA-empowered physician? Do you expect that to -- it's probably going to dip a little bit, but how many are -- is there a percentage of them that are being seen by a Clover-empowered -- CA-empowered physician already? Or what would be success as far as proportion when we get to the end of 2026?

Yes, that's a good question. So I think that you're right that, as we grow, naturally, there will be a bit more pressure on that number. Now one thing that gives us confidence there is that, as we said, we focus a lot of our growth to be in the -- in our core markets. And so there, we would expect roughly about the same amount of CA penetration as we have historically. And so we feel pretty good about that.

Now I want that number to keep going upwards and upwards. The historic rate is -- we're very proud of it, but I want to be even higher because the more we can bring the clinical benefits of CA to everyone, that's fantastic. We did have some growth in some markets that are a little bit outside of our core.

So Georgia is obviously a great new market for us. We're growing over there. We're very focused on bringing and growing the CA network in Georgia. So there might be some pressure from Georgia, but that's part of our strategy there is to grow out the CA network there as well.

There are no further raised hands. [Operator Instructions] At this time, there are no further questions. This completes the allotted time for questions. I will now turn the call back over to Andrew Toy for any closing remarks.

All right. So thanks to everyone for joining us today and for the thoughtful questions. We appreciate the continued engagement with Clover, and I look forward to sharing our developments in subsequent quarters. Thanks, everyone. Have a great night.

Thank you for joining Clover Health's Fourth Quarter 2025 Earnings Call. You may now disconnect.

Good morning, everyone, and welcome again to the 44th Annual JPMorgan Healthcare Conference. My name is Matt Mckean, and I'm an associate here at JPM, and it's my pleasure to introduce our next presenting company, Clover Health. Joining us today from Clover is CEO, Andrew Toy; and CFO, Peter Kuipers. They'll be running us through a brief set of materials, and we ask that you hold off on any Q&A until the end.

With that, I'll hand it over to you guys.

All right. Thank you very much for joining us today. My name is Andrew Toy. Peter is sitting at the desk over there. I'm the CEO of Clover Health. I'd love to take you through where we are, what we think we achieved last year, where we're going this year. So the usual statements apply here. We're public, of course, like we may make some forward statements. So Clover, we're a Medicare Advantage company. We're a payer. Last year, I stood up here and I said, what are we really focused on doing?

So we are focused on the Medicare Advantage market. We are -- we had just reached adjusted EBITDA profitability. And we were saying to ourselves, okay, the core fundamentals of our model are differentiated. It's incredibly -- it's a varied approach, one that not many people are taking, but have huge advantages. And we think that if we can get the profitability, which we did, the next phase is going to be a return to growth.

That's why I talked about last year. We're going to be returning to growth. And so that's what we did, and we were very successful on that, and I'll talk about that. We are positioned this year. We are already adjusted EBITDA profitable, as I said. We are now aiming to deliver GAAP net income profitability this year. So that will be good to deliver profitability on GAAP. And we continue to deliver industry-leading clinical quality, and I'll talk about that as well. So the key thing about what we're doing is that we are going to succeed as a business, as a payer by doing the right thing in terms of improving our outcomes, the outcomes of our members. So the right-hand side about improving quality drives our business and drives our profitability and also drives our growth.

All of these things are connected, and these are the things that we're aiming to achieve. So in terms of our accomplishments, first of all, we delivered significantly above the market in terms of growth. We delivered 53% year-on-year growth. We had already been delivering 27% growth in the year before. And this year, we delivered 53% growth. We had very, very high retention. And we were mainly focused on MA switchers in our core markets, and we had also delivered on that as well. So this is a very high number. We're proud of it. And it's also growth not just for growth's sake, but it's disciplined growth in our core markets that enables us to feel good because our management capabilities around our technology and around improving clinical outcomes are all available in the markets where we grew. I already talked about the fact that we are going to sustain our adjusted EBITDA profitability and grow that in order to hit the GAAP profitability line this year.

We feel good about that. Also, HEDIS quality, a measure of clinical quality, we are the #1 PPO in the country in Medicare Advantage on HEDIS quality. We were -- that's for the second year in a row. So we're feeling very good about the fact that while we are improving the business, we are also improving the outcomes and the clinical quality that we deliver to our members. And then I will also talk about our Counterpart Health business, where we bring our technology platform to other plans, other payers. I'll talk about that at the end. But together, all of these things are based around the fact that we are, at our heart, oriented around technology, oriented around the assistant called Counterpart Assistant, Clover Assistant is another way we refer to it. And this technology, this AI-driven technology is at the core of all of these achievements. So what does that technology allow us to do?

We aim to empower every physician with technology, identify, manage and treat chronic diseases earlier. This is fundamentally what makes us different. We've talked about it for years and years. It is our technology vision. It's not technology for technology's sake. It's not AI for AI sake or data for data sake, it is bringing together interoperability, bringing together adding on AI, adding on capability tools for physicians, all to deliver this outcome, treating chronic diseases earlier, identifying them earlier which allows us to change the cost curve, which allows us to deliver that nation-leading HEDIS scoring.

So when you diagnose something earlier, you manage earlier, you manage it more cost effectively, you deliver a better outcome. That earlier dimension does a lot of work. So I think we're one of the only health plans to say, this is the core of our mission. I will also note that we -- the technology enables us to say every physician. Others sort of say, well, how do you use technology to identify the good ones, the bad ones and steers at the good ones, that's not what we aim to do.

What we aim to do is actually help physicians improve their own performance, and that's why we add that line. That technology can be in every physician thing and not a select your physicians thing. Those are very different rates and health plans often think it's selecting physicians versus helping them all improve, and we're about having them all improve.

That's how we deliver all these results. So we have our AI-powered Assistant. We have a significant addressable market. That's why we're able to grow so much within Medicare Advantage. We are able -- we are thinking very strategically about which markets we're going to grow within. And we are also delivering like our own clinical arm care into all settings. Every physician in the wide network and we have added care into the home as well, which is something we deliver through our own employees.

So we like we can deliver into almost every site with almost every clinician, all around the same clinical platform, the assistant. So this is a really important slide. This is what explains how it all together. So I'll space spend some time on it. My own background, I'm the CEO of Clover Health. I am a computer scientist by training. I'm probably one of the few, maybe I'm the only computer scientist really running a health plan.

And so when we think about this, there's a lot of people working on how do we bring AI to health care. But you need to bring it all the way into health care. You need to deliver a real result for a real human being. And so we are absolutely in my mind, the AI leader in Medicare Advantage. We are focused on using the data available to us longitudinal data via claims, interoperability networks that bring data that are -- better and better every month, bringing data into our systems, cleaning that data, analyze that data and applying AI to all of that, in the cleaning, in the aggregation, in the insight generation.

And we train our models to support improved clinical outcomes, that earlier detection I talked about, that earlier management that I talked about. That's built to be the core of what we do. From the very beginning, it's cloud native, it's ML native. And the nice thing about that technology is that as AI LLM technology improves, which we all know is improving every single day, we can add that to our core platform because it's not that we are building all of those models ourselves, we can use foundational models, we can add on top of foundational models, we can train our own models, we can do prompting modification. Because all of this is a rising tide that improves our own platform.

So as LLM have come online in the last couple of years, we have integrated those into our own clinical platform and use them to supplement our own data and our own insight because we already have the engine, and this is just a way to turbocharge that engine. When you have all those capabilities, when you are able to put those already at the fingertips of physicians, which is what we're able to do today. What that means is -- and that -- this is what the line of the top says, we can empower any doctor, any clinician on the wide network. So we often talk about the wide network. Why is that important? Because in our core business, which is health plan business, what people see is when they go shopping, they don't shop say, "Hey, I want an AI-powered health plan. Maybe one day they will, but they don't right now.

What they say is, "I want doctor choice. I would guess that the vast majority of people in the U.S. at this conference, all of you, when people pick their health plans, they generally pick the PPO, or if you pick the HMO, it's because you settle for the HMO. You don't pick the HMO, you settle for the H. But people want the PPO. And why is that because they want physician choice. They want to know that if there's an expert, they want to go to, they can go to the expert. They don't want referrals. They don't want to be keeping. They don't want all of these things. What they want is to think and know that they can go to any physician. And so that's what we focused on.

98% of our membership is within a PPO. Why is the PPO? Why isn't everyone just do the PPO? Well, many people have been going into the PPO over the last few years, and much of the industry retreated from the PPO last year. Why is that? Because it is very difficult to manage care on a wide network. Because instead of -- it's very easy, were very easy, but more straightforward to say, let's select those physicians and let's work with those than it is to say, here are all the physicians in a area, how do we improve those physicians?

So the PPO more challenging for cost of care. It is more challenging for HEDIS and clinical scores. What our technology approach on the left-hand side allows us to do because we are so focused on that as the core of the business, enables us to give that technology and we give it away effectively for free to physicians. When they use it, we see their performance improve, and I'll talk about that more in a second. But if you believe that we can give a technology to anybody and their performance improves, they're detecting the disease earlier, they're identifying diabetes earlier. What that means is, we are able to deliver the cost of care and clinical quality of an HMO within a PPO construct. We have effectively removed the trait of the PPO.

So we get the benefits that that's what people want as a product. We get the benefit of the HMO in terms of managing clinical quality and total cost of care. And what that means is taken together that we feel very comfortable that we can grow in a market segment that others find challenging in a market segment that is desired by the consumers and do that in a very sustainable way, improving operability, maintaining our business discipline.

So what does that mean on the clinical side? All of these are the great -- sort of the greatest hits of aging, right? As we all get older, we are to develop one or more of these conditions. That is just a function of being human. It is a function of aging. Diabetes metabolic syndrome, right, related. CHF heart disease, CKD, kidney disease, COPD, lung disease. They're not the only conditions that people will develop, but these are the major things, the diseases of aging. We have published a number of papers about -- and you can go find them on our website about how doctor using the assistant, Clover Assistant, are able to identify diseases earlier, manage them earlier and when they're mash earlier, we deliver better outcomes. When we identify -- a doctor using Clover Assistant is identifying kidney disease earlier and maintaining more year of healthy kidney function, identifying diabetes earlier making sure that AUMC is regulated earlier.

All of these things are things we published papers on that we see in our data, where we compare physicians using our tool to visitors are not using our tool. And we're constantly investing and making that better and better and better. So that's not point of time statistics, though the analysis at points of time. These are things that we are investing in every year and have invested in for multiple years. So all of that is tied to why we feel comfortable as we return to growth as we deliver profitability and are now growing significantly.

When we grow, we are going to grow in a disciplined way around where we're able to have a lot of physicians using Clover Assistant. And so this year, on the left-hand side, as you can see on this slide. We grew around 53%, going for about 100,000 members to about 150,000 members, just not from 150,000 members. At the same time, first year members who are typically the most challenging member when people first come to you, the first year they're with you is the year they're going to have the worst total cost of care, the worse clinical outcomes. That's because they're not yet managed by us, right? They come to us from another plan.

They're not yet fully managed by us. It takes a little bit of time for us to get them on to our management program. We still anticipate that this year, there will be a significant improvement in the contribution profit within that first membership -- first year cohort of membership. So between those 2 things because we feel really good about that contribution profit adjustment, that's a major driver of how we intend to deliver net income profitability this year, GAAP profitability this year.

So there's clear line of sight. We want to make sure that all this happens. Obviously, we'll talk about that more as we go through the year. But the key thing is, is that this is a huge amount of growth for almost any Medicare Advantage plan. The reason we feel good about it is, it's in our core markets. We had a lot of retention. We feel good about the contribution profit of first year members. So all these dimensions on this slide are the things that are affecting this how we feel the tailwinds that we feel we see in the industry.

First of all, we are going to have a 4-star payment year. And the first 4-star payment year that we have in 2026, I think that's obviously very important. Second of all, there was a very -- a significant CMS rate notice, affecting the benchmark and an increase in the Part D direct subsidy for payment year 2026 that's obviously a tailwind. In the growth season, we had very, very high retention, and our returning cohorts are the main drivers of our probability and contribution profit that high retention, the best retention, I think, amongst the best potential we've ever had, significant tailwind.

We increased Clover Assistant coverage last year in our core markets, and we feel good about that. And also, of course, we are still not fully at scale. We are still not fully mature. So I think that there's a lot of room for us to improve SG&A efficiency just as a company. And when you add in AI-driven efficiencies, I think even more opportunity. So you should see us constantly working on SG&A efficiencies through the next few years. So as we look at this, and I mentioned the cohorts just now, I think the major thing I would want people to take away is that new members are contribution profit negative. I want to get that to breakeven, but that's the negative right now. They're significantly negative last year. They're going to be less negative this year. That feels good. We constantly -- we're going to be focused on improving the contribution profit, meaning reducing the loss of those new members. That's not unique to Clover, that's just the industry that you get pressure from those first year members.

I think that we are going to have market leading, and I want us to have market-leading contribution profit loss on the new members. I want to get that to breakeven actually. We're still losing a bit. And I think that will be market leading. And I think our cohort -- returning cohorts, I would consider to already be really, really strong. So those are the core of our profit-generating engines, core of how we maintain adjusted EBITDA and net profitability is the fact that the returning cohorts improve generally year-on-year. And if you look on the right-hand side, that is largely driven by Clover Assistant.

If you look at these vintages of Clover Assistant joiners, the Clover Assistant managed members get more and more profitable year-on-year. And the reason they're getting more profitable is if you think about that early diagnosis and you think about the area under the curve. If you diagnose something earlier, it might even like cost you a little bit more money because they're not taking a medication they weren't taking before or they're not having a few more doctor visits that they weren't having before.

You have to invest in that earlier, right? If you find something earlier, you're going to start managing it. But if you think about the payoff because you started managing it earlier compared to the counterfactual, compared to someone who wasn't managed earlier, that year 2, 3, 4 and 5, that's where you're going to start to see the huge benefits of managing that earlier because you flattened the curve earlier. You reduced the progression of that disease earlier.

So compared to another plan who's not doing that, you're going to see significant improvements in the total cost of care and their clinical outcomes. So I think that's why you're seeing that our core philosophy driven by our technology, the earlier diagnosis, earlier management has that multiyear payoff and have that compounding effect. And the nice thing that we're also seeing is that as we have more and more of these cohorts coming in, being less profitable in the beginning and then improving over time, those are now layering the way you would expect them to layer.

So you have people from several years ago, driving a very mature vintage, a slightly less mature vintages slightly mature vintage, but all of them are improving year-on-year. And then as we add new member into the beginning of that stack, we continue to mature those new vintages and all of those can be improved by investments in our technology.

So to be very clear, I think that I want to say that. We have multiple cohorts. I am proud that those cohorts stack up. And I'm also proud that because our approach is based upon technology that we will be able to improve each of those cohorts, even the older vintages through developing features and releasing them within Clover Assistant. And that's something that's really, really interesting that others do know have access to. Because if you think about it from a network contracting standpoint, if you contract a certain physician group, then you -- your speed of improvement is constrained to how fast that physician group can improve, right? And so you're like what are they doing, what are they trying to do? They can think about it that way, that's not bad, but you're constraint to that. You roll out a new program.

You're constrained to how fast that vendor you're using care management program can improve. Because we are built on technology and the progress of each of these cohorts is driven by our own technology, we build it as things like AI get better and better, we can integrate that very quickly into our core technology stack. We're doing that every month, and we can see improvements within each of those cohorts, simply by pushing out new models and pushing out the features into our Clover Assistant work. That is a very, very different way of thinking about clinical management within a payer contract.

So which brings to counterpart health. So counterpart is a fully owned subsidiary, it's one of our divisions and counterpart is where we bring our own technology into plans that are not our own plan. So I have a clearer MA plan. That's the when I talked about just now that grew from 100,000 lives to 150,000 lives. Counterpart is where we make our technology, all the technology just talked about, available to other health plans.

Our vision here is that counterpart Health brings Clover's AI technology, the assistant to every Medicare eligible life. And there are a couple of ways we can do this. But the way I think about this is that we already have the #1 PPO in the country, I talked about that. We're very proud about that and clinical outcomes. There are many other lands who would love to improve the outcomes, their HEDIS scores within their population.

We have that really interesting compounding cohort dynamic because of the earlier diagnosis of disease within our patient cohorts. We can bring -- that's all by our technology. We can bring that to others. Remember, we did -- we built this from the very beginning, my background, the software engineer is in B2B software. We were cloud-native from the very beginning. We want it to be multi-tenant. We will end all the ML engines and the data engines are built in a perfectly modern way from the very big -- even for our own plan.

So we are in a great place where for a technology stack perspective, we could bring it to others. You might ask, Andrew, like, why would you bring it to others? Wouldn't you use this for a competitive advantage for your own plan? It is a competitive advantage for our own plan. Don't get me wrong. But remember, I said that we were very disciplined about where we grew. I think that's a really important dynamic. We want to still be focused on our core markets where we have a tremendous total addressable market. right? We have plenty of room to grow, plenty of room to grow in our core markets.

I do not feel constrained on that at all, and that will be our main profitability engine. So that's probably going to be us in, call it, 3 to 5 states is where we'll have our own plan. Counterpart, we will have in all the other locations. We're not going to grow our own plan to every single other state in the country. That's just physics of Medicare Advantage, where that's just challenging and not necessarily the best use of capital. We can invest the capital to drive our business and our market share in our core markets and counterpart can we bring our technology to plans in every other market in the U.S. by partnering with local plants and helping them see the same improvement in their clinical quality scores, see the same improvement in earlier diagnosis and see the same improvement in total cost of care.

So our software is ready, this is already running in multiple places that you announced this, I would say, like maybe coming up 2 years, the 18 months ago. And we are -- have done a number of pilots, a number of deployments. It's being used already in markets outside of our own plan. This is not a future-looking vision. This is already happening. I expect this to continue to have momentum continue to accelerate.

We're deploying more and more users every day. We are rolling out to more and more physicians every day in markets where we never would have had that because we don't have a plan. We are partnering with other plans to do this. So I think there's an extensive opportunity in this particular area. What customers are we targeting? This has moved around a little bit, right? So when you bring a new capability to market, you're not -- you might have confidence, but you want to know where your product market fit is.

I think we are seeing now we know where the resonance is. It's whoever is top of premium, and I mean that very specifically, top of premium means you carry the risk. Whoever is top of premium for Medicare Advantage. We're staying within Medicare Advantage. We're not bringing this to other things like Medicaid or ACA or commercial, maybe in the future, but not yet. We have been asked to do that, but we're not going to do that yet. We're staying within MA and MA payers or risk-bearing providers and aggregators who are taking on MA risk.

Those are very similar looking but different kinds of entities. Those are the 2 places we're seeing a lot of resonance for Counterpart. And so when we bring them Counterpart Assistant, we show them what it drives within our own plan, the kind of results that we can deliver, and we have a lot of that data, it's and longitude data, we feel very good that there's a tremendous amount of interest. Then people ask us, well, can you deploy this to another entity? We can show them like, yes, we have.

Multiple times, we deployed it to the other entity. What kind of data do you need from us as the customer? We can list what kind of data we need, and we can bring a large amount of the infrastructure needed to process that data. They just need to sort of give us certain feeds. And then we are then able to say, and I think we think we feel confident that if we deploy this into your region, you will see the same improvement. Often, we then start with a pilot and then we move into production.

Where -- what kind of challenges are they asking us to solve? MCR pressure, MLR, same kind of thing, like loss ratio pressure. Stars performance because they want much, much better HEDIS performance. They want us to help them utilize the data they have available because they're not -- they don't think they're using it appropriately. And the other thing that I will mention and coming back to that concept of the wide network is sometimes what they're saying is, what it is, Andrew, I just -- we just don't know how to manage all the doctors. Like if we don't do something, we're going to have to just focus on our HMO doctors, but we want to work with all the doctors in our region, and we have no way of doing that. Remember, I said that we want to be able to bring technology that works with any physician. That actually resonates with a lot of plans because they feel forced back to the HMO. They want to be on the PPO. And we're like we can let you stay on the PPO. We can let you work with these same doctors.

We can let you keep them in their network -- your network, and you don't have to give up on loss ratio on Stars in order to do that. So we really do think this is a very special offering is something that's developed within an MA plan. And so we can point to the results within our own MA plan. We can just say that we are MA specialists, and we know just about the Medicare -- as much about the Medicare Advantage program, sometimes more than the people that we're working with, and that's something that's very differentiated, unique in our offering.

We can talk in great detail about how they deploy it into their network because we have all of that experience from our own MA plan. And so when we show them the results, we have a lot of credibility, a lot of credibility that we can help them as well. Sounds a little bit magical because it's all based on technology, but that's the part that we feel really good that we can deliver on. So lots of momentum here. We're continuing to invest. The nice thing is this is really investing in a go-to-market team for counterpart. The core technology is fundamentally the same as what we develop for our own health plan. So as we develop more and more features for our own health plan, the first of ROI is already positive because we get that from Clover's MA plans. And then all of our counterpart customers get the benefit of that as well. That's a very interesting proposition because means that there's not a lot of traps that we have to make. We already know we're going to be able to invest in our technology. We know we can unlock head count and develop more and more features.

We know we can build more, more model to the works for us, it's going to work for others, and then we can then expand the TAM of our technology by bringing it to others via counterpart. So the beating heart of our plan gives us a huge advantage in terms of developing this software investing in this software and bring it out that I think is not replicable if the software department was just on a standalone.

So looking ahead, just repeating again what we've talked about today. We want to maintain our market-leading self-funding growth. So vastly -- growing vastly of market on a percentage basis. We feel good about that in our core markets. Self-funded means that we feel good that the profit -- those layering cohorts will be self-funding, meaning the returning cohorts will fund the addition of new cohorts and feels good because that's the engine you want for growth. We are looking to deliver for the first time this year, within financial year '26, GAAP net income profitability, and that's a big deal.

The last milestone was adjusted EBITDA profitability, and we have been profitable there for a while and cash profitable. We are going to be GAAP profitable. I'm very proud of that. We are going to maintain our industry-leading clinical performance. Again, number one in the country on the PPO, I think, is a massive accomplishment, big accomplishment for our health plan big selling driver for counterpart. And we are going to keep expanding and investing in there as well. So we will be looking to announce more around what we're doing there, et cetera, throughout the year. Counterparts on a different cadence in our MA plan, but we're very excited about what we see. We found our product market fit. It's about driving forward and making sure that those pilots keep expanding, keep expanding and then deploying more and more throughout the entire country. So you should hear more about counterpart nationwide presence as we go through the year, and those will better from all the features that we released within the assistant this year and next as well.

So that's our goal. It's about execution within the core plan is about maintaining disciplined profitable growth within our plan, investing deeply within our technology because the AI era allows us to -- there's a huge rising tide that drives the performance our own technology within -- and then bringing it to others through our third-party sales. brought it all together, I think this is a fairly -- it's a unique position that only Clover can offer. So I'm going to stop there and jump to -- jump over to the questions.

Great. So we have a few questions in the queue from the telecast. So we'll start there. So you just walked us through strong AUP results with the 53% membership year-over-year growth in Clover's [path] to its first full year of GAAP net income, profitability this year. As you look at the much larger new member cohort entering into 2026. What gives you confidence that underlying cohort economics improve year-over-year and that this growth is sustainable?

Yes, thanks. So I think there's one thing here where a lot of growth can be scary within the Medicare Advantage industry. And so a lot of people are asking this question right now, which is good about the growth, right? And the answer is yes, I do feel about the -- good about growth. And I think that coming back here, this is a simple way to look at that particular -- the answer to the question is, there's a number of different factors, not just one single factor that controls for that.

But this has a lot of them on there. We have a 4-star payment year this year. We have the CMS rate update, which was different, which was higher than last year. The Part D direct subsidy, which is higher than last year, which was revenue. We have really strong retention. Retention within core markets should be emphasized on this slide as well, which I think is fantastic and growth in core markets. CA performs better and better and better. and we are improving SG&A year-on-year.

So while we have a lot of growth, a lot of things are fundamentally different this year than last year as well. So I think that we are investing in growth, don't get me wrong, we're investing in that first year cohort. We want that cohort compounding that I talked about just now, but we also have a significant number of tailwinds are affecting this year that makes us feel very confident. And of course, we always look year-on-year to see how much we want to grow and how much we want to price -- how we want to price our product during the bid. But this year, we wanted to grow, and I think we delivered on that.

Great. And then there's obviously a lot of attention recently on AI across health care, including both consumer-facing and oriented tools focused on engagement and info access from your perspective. How do you think about the role of those tools relative to clinician-facing platform like Clover Assistant?

Yes, that's interesting one. So ChatGPT Health was announced like just before this conference, Claude, like [indiscernible] offerings were being offered. The way I think that is 2 different dimensions. Number one, all improvements to the core models, the foundational models accrue to benefit to us. We just use those foundational models. We're almost customers -- that target customers of those foundational models. So you should expect as those foundational models improve, that is a natural rising tide to what we provide. We do not compete with those models. If I was a startup, I might think of something that slightly differently because I have to say like, well, how do is what I offer differentiated to what the foundational models can offer, right?

That might be how I think about it, if I was a startup. I don't think about that at Clover because we have our own plan. And what that means is any advancement in the technology can be deployed for the benefit of our members and the benefit of our business. And I think that's a very nice place to be sitting right now. So fundamental models, all 4 progress, that makes a lot of sense. The second dimension is, is that any patient-facing model, any direct-to-consumer model, which tends to be where the financial models aim is highly complementary to what we do.

Remember, what we do is we use AI and data to make physicians better. We are a clinician-facing product. And we absolutely are able to do that because we sit so deeply within the care stack as a payer. So that's where we want to sit. Don't get me wrong, there's great things you can do with direct to patient, and we think about those things all the time. But is our core DNA direct-to-consumer? No. Our core DNA is direct to clinician, and that is the main thing we think about our tool. So a lot of these offerings actually are things we could roll out that supplement the assistant platform. It is not something that we necessarily are overlapping with our investments.

Great. Are there any questions from the audience before we keep pushing on the telecast?

Great. So on the AI topic, many health care AI tools are still in pilot phases or limited deployment. You've shown Clover Assistant operating at scale across a wide network of PPOs. What have you learned from deploying AI in clinical environments that others may be underestimating or misunderstanding?

Yes. So we talked about AI a lot, like I came from -- I was at Google before this, and I was in the cloud team, we talked about AI, we talked about ML, all kinds of things. The key thing that I think is really interesting that I love about being Clover about how our -- we approach this Clover is that we are focused on the results of AI. Well, there's talk a lot about AI. And don't get me wrong, like I think they're very focused into delivering stuff. That's great stuff that's happening. But we are focused on making people's lives better. We are focused on that earlier diagnosis. Our papers are about -- was there an earlier diagnosis.

Did something happen? It's not academic, did something literally happen? Our data is not based on model results or predictions or sandbox results. They're based upon when an actual doctor, not employed by us in the wide network used our tools, our software, our capabilities, did someone's life get better. And I think the answer is, yes, that is what's happening, that's very exciting. And that drives the business on total cost of care. That drives clinical outcomes. And so when we go out and we talk to members. Remember, I said earlier, we don't say, hey, don't you want AI, very people -- very few people say, "I want AI. Senior saying, "I want to feel better in my health. I want to live longer.

I want to be able to do more things. I want affordable health care, right? I want more access to health care. All of our AI capabilities drive our ability to offer them what they want, affordability, access, better outcomes. When we talk to physicians, they don't say, "I wish I had more AI and some of them do, but the majority do not. What they say is, I wish you could just have more information about my patient more quickly and give them that. I wish it was a simple way for me to know what I need to look at before I treat this particular patient in this encounter.

We can do that. I wish it was more a clinical approach to like and sort of engaging with the care plan and thinking about how this person is being managed, we can give them that. And so the interesting about what I think we've learned is that AI is critical as something that can be delivered, can be used to deliver things that clinicians want and that what patients want, but rarely is AI what they are asking for in and of itself. That tends to be like a VC thing or we think about it here, at this conferences like this. But we are using AI every day. We are using the data every day to drive performance in ways that doctors care about in ways that patients care about.

And then it seems like we have a question in the audience. So I think this will be the last one.

Yes. Great presentation. I'm wondering all the great things you're talking about how are people learning about this at the point when they're purchasing deciding which plan to enroll in AEP, especially how you differentiate -- If you have 0 premiums, so many MA plans have 0 premiums. How are they choosing Clover?

Yes. Great question. So at that point, 0 premiums, I think, is a little bit table stakes right now. So thank you for framing it that way. Yes, people stakes. Next, I think people do look at just -- they're sophisticated enough -- specifically to the buyers to look at co-pays and co-insurance. So what they'll look at number one is premium right? Then they'll look at PPO versus HMO. And I think a lot of them know because their doctors kind of tell them, they're like, hey, careful those HMOs, you might not be to see me anymore and stuff. So then they look to try and get a PPO.

So then the next behind that -- and a lot of you pull from PPO, don't get me wrong this year. Then they will look at the actual co-pay and coinsurance because a lot of PPOs, there might be a PPO, you might be able to see the doctor, but it might be like a $10 co-pay in network and like a 30% co-insurance out of that work. And so they'll look at that and estimate how much it actually costs. And so what I think you'll see in our plans because I talked about accessibility, it's so important, is that we try and keep those costs very, very manageable for people.

We're not trying to sort of smuggle them into the network, we're trying to actually improve the whole network, if that makes sense. And so I think that's what they're shopping on. We tend to talk a lot about supplemental benefits. I think that is important to people. They'll get -- but that's also moving into a little bit of table stakes. These days in our markets anyway, right? They're just looking for like the usual gym memberships like an OTC card, those are again in the table stakes range. I think we're out of time. I appreciate it. Thank you for the question. Thank you for that, and thank you to everyone for your interest in Clover.

Thanks all.

Good afternoon or good morning, everyone. Thank you for joining the Clover Health presentation here at the Citi Global Healthcare Conference. My name is Daniel Grosslight. I'm the health care technology and distribution analyst here at Citi, and I'm pleased to welcome Peter Kuipers, the CFO of Clover Health, today. Peter is going to give a brief presentation, and then we're going to open it up for some Q&A. Thanks.

Thanks, Daniel. Great to be here. So what is Clover? We are a health care insurance plan. We do have a differentiated vision and approach to improving health care for seniors in Medicare Advantage. So we are deploying technology so that physicians can earlier diagnose chronic diseases, earlier treat chronic diseases, drive better quality of care, better health outcomes, and also at total lower cost of care.

If you look at our total business, we are enabling physicians to perform at the top of the license using our software platform. Our software platform is powered by AI. We have developed this technology roughly over the last decade using large data sets, starting with machine learning, and now the last couple of years, also powered by AI. We have dozens of patents regarding our proprietary technology, powering our clinical platform. The market in Medicare Advantage is large. It's an over $500 billion market annually, with over 35 million seniors in Medicare Advantage today.

We are focusing on the PPO side of Medicare Advantage close to 100% of our members are in our PPO plans where members have freedom of choice to choose their physician, to choose their provider, which we believe is very important for quality of health care.

We are growing, that's also a differentiator in the market. We are growing from a membership perspective. We are focused on our core markets, which are New Jersey and Georgia. We are managing the growth as well and focusing on areas that we call top priority markets where we do have a combination of already a large member base, combined with a base of physicians that are using our software platform and also where we do have our own home care that can help our patients and members with a higher security, to make sure to get high-quality care.

On a year-to-date basis, we have grown as an exception in the MA market by 33% in membership, year-to-date. And that is a September 30 number year-to-date, while realizing $45 million of year-to-date adjusted EBITDA, which is also exceptional given the new membership growth, which typically come at a loss making first year.

We are looking at continued growth. We have high conviction of net income, GAAP net income profitability for fiscal 2026 with a number of drivers that I'll discuss in a bit as well.

Looking at the differentiated model, like how we actually have strategically designed the company, we are focusing at the front end, at the point of care at the time of care so that members can get the best clinical quality care. So we are enabling physicians with technology to use at the point of care to help them identify chronic disease earlier so they can get treated earlier with better health outcomes.

If you contrast that with more traditional approaches on the right side of this page, traditional approaches focus more on back office, administrative measures, denials, claims processing and technology there. As a result, the more traditional approach is, of course, delayed from a clinical perspective because it's back-office oriented with essentially very little or no clinical tools upfront.

We are managing a wide PPO network with free choice of members. Traditional approaches are more focused on HMO, which is a more narrow network with less choice for members. I would also point out that we are not focusing on risk delegation in the traditional sense, whereas that is a large focus for traditional players that they delegate risk.

So what you can see in our financial results, essentially is full risk of cost, if you will, and performance of our members in the P&L, powered by our software, proprietary software platform, clinically oriented. So that is direct proof that the model is working. So we're not a -- we don't just sell the software, actually using it for ourselves here, and you see it in the performance.

I would also say that from a differentiation perspective, we have a very strong leading home care business unit that is focusing on home care for our highest acuity patients, where our physicians become the primary care physician for that member with higher acuity. We, of course, use the same software where we can manage the disease, of course, better as well, whereas home care in the traditional settings is more nurse-led as well. So our practitioners are mostly MD-led pods, right? So direct clinical care at the appropriate level.

And lastly, again, pointing out that the exceptional performance growing 33% year-to-date in membership with $45 million of adjusted EBITDA is exceptional in the market, and that is because of our differentiated approach that I talked about earlier. If you look at that compared to industry average or traditional MA, or Medicare Advantage, we are roughly in the same ballpark as far as the cost ratios. That said, though, we are doing that with a 33% to 35% membership growth, which is exceptional whereas the industry overall by itself is roughly flat. So if they would have grown, the industry would grow at a much higher percentage, of course, there would be hundreds of basis points higher cost ratios for the larger MCO players as well. That's the way we look at it.

Now how does this actually work in reality here in practice, right? So I have a technology background. I'm very passionate about user interface and technology because I believe that technology needs to be elegant, easy to use for user adoption and for effectiveness as well. So this is actually a screenshot of our technology, Clover Assistant. What Clover Assistant does, it combines over 100 data sources, you can see on the top right, from various sources. So essentially, most major EHR systems, all pharmacy, all claims and almost all labs. So that is, first of all, the aggregation of all data, which is exceptional that takes years to combine, but then it's also synthesized, and captured and the most relevant medical indicators or items to look at our service for the physician.

So already, and this is, of course, powered by machine learning, proprietary technology and AI models. It helps the physician focus on particular areas. You cannot expect the physician to go through hundreds and hundreds of pages in EHR. So this helps the physician focus on very specific areas that require attention. Then also the ML-powered, the AI-powered models provide care management recommendations also. That typically is difficult to do for just -- if you just buy yourself as a physician. You can ask a second opinion, a third opinion, you have thousands of opinion aggregate to essentially here care management recommendation. Now the physician ultimately is still responsible for making a clinical decision. That's not what we do. We just empower the physician to perform at the top of their license.

Now another proof point or a number of proof points besides the financial performance are a number of clinical academic white papers that we have published over the last years. In general, I would summarize it as that our white papers compare a member group or a membership group that is on -- is treated under -- has coverage under the Clover Assistant technology versus a comparable group that is not covered by the technology, and we can do that because we are operating a sale for the last couple of years.

Roughly 2/3 of our membership base is covered by the software platform so we can actually compare, so it's a different AB testing, if you will. So statistically relevant. So in general, I would say there's 2 main results there.

So diagnosis of chronic diseases typically are earlier. So diabetes around 3 years earlier, chronic kidney disease, for example, here, 1.5 years earlier. So those are significant earlier diagnoses, which then gives the clinician, of course, the opportunity to start treatment earlier.

Generally, if you start treatment earlier, you can have better health outcomes as well. And also, generally, those treatments that are earlier, you have those at lower treatment cost also.

Then the second area that the white papers in general will highlight is really the lower hospital admissions and also lower -- significantly lower hospital readmissions. So these are very significant percentages as well, double digit to in the 20 percentage range as well, which is significant. In health care, again, that, of course, improves the quality of care, it improves health outcomes. And it also, of course, lowers total cost of care.

Now we're using this proprietary technology at our full economic risk for our own membership, mostly in New Jersey and in Georgia, but we also have very strong interest from third-party payers, both national and regional, very strong pipeline and also from risk-based providers.

Again, same software when implemented these third parties get the same benefits as far as earlier diagnosis, earlier treatment, better health outcomes, lower total cost of care, and of course, an MCR improvement as well. We have conviction that we can help these payers and providers when implemented, drive an over 1,000 basis point improvement in the medical cost ratio, which is very significant.

We are now in a phase of -- and this offering is called Counterpart Health. We are in a growth phase now where we are focusing on the number of total lives covered by the software within counterpart. So we're scaling that. Very strong product market fit, absolutely there. We're not in the phase yet where we will disclose the regular cohort metrics like AR and ARR. We will get there at some point, we'll disclose more. So lots of momentum on the counterpart side as well.

Of course, you can expect also that given the cost trends in the industry, Medicare Advantage that, of course, there's more interest as well this year.

If we then look at our performance year-to-date here, again, we've grown 35% in membership while delivering adjusted EBITDA of $45 million, while managing, of course, a large new membership cohort. We've also improved from a leverage perspective, fairly significantly. We've lowered SG&A as a percentage of revenue by 370 basis points. So we are managing through, of course, a higher cost trend that you see in the industry.

We have more new members, slightly more new members than we expected. I would say from our third quarter earnings call, we had expected to be even better. We did not achieve that quite yet. That said, though, if you normalize for PPD, you look at the underlying year-over-year cost trends. Excluding pharmacy, our cost on is roughly 4%, while growing 35% in membership. So that's an exceptional performance. Now looking forward, our large new membership cohort this year will be a returning membership cohort next year with improved financial performance.

Now let's look at the drivers of profitability growth next year and the next couple of years as well. We have disclosed in our last earnings call that we have very strong voluntary member retention, likely the highest in the industry of over 90%. That helps with the economic model, of course, as cohorts mature and become more profitable. That helps in that model too.

Going into '26, of course, we'll have a larger returning number of members in that cohort. And then we also believe, powered by both the technology further increase the home care and other initiatives from a quality perspective. We believe also that those cohorts by itself will also perform better.

Again, membership growth, strong growth this year, over 30% growth just in members. On the right side, you can see the membership mix here as far as returning a new, of course, looking at 2026, what we have said is that -- and we said this before the start of AEP, then we expect a roughly similar growth in new members as we had in the prior year AEP. We've also said that we're specifically focusing on priority markets where we have already a strong membership base where we have physicians using our software, and where we also have home care coverage, our own home care, and then also match with attractive MCR percentages in those specific pockets as well. We are managing the growth fee at that lens by allocating marketing dollars and marketing events, memory events in those specific areas where we want to grow. So we steer the growth to where we want the growth to be.

On the next page here, this is a cohort analysis of essentially the impact of the technology. So you can see here that on average, the medical cost ratio from year 1 to year 2, essentially from a new member to a year 2 or returning member, improves by about 700 basis points, which is significant. And then going from year 2 to year 3, there's another 700 basis points improvement to about 1,400 basis points improvement from year 1. That is significant. That is underlying the drive of the model also financially. So this is the foundation.

Then going one click further, we have disclosed now also what we call contribution profit per member per month. So you can see here that the contribution profit loss for new members is about $110 per member per month. And how is that defined? That is revenue per month minus MedEx per member per month, minus customer acquisition cost, minus also favorable SG&A to service that member, right? So it's a fully inclusive metric.

If we then look at returning members, so those cohorts generate about $217 profit PMPM, and we expect both numbers to improve in 2026 for a number of reasons that we'll get into in a second.

Looking into 2026 and beyond, again, we believe we can maintain strong voluntary retention from members, resulting that, of course, in even stronger returning cohort. We are performing well on financially on a 3.5-star level. Next year will be a 4-star payment year with the financial benefits and tailwinds there as well. We are further -- have initiatives to further increase the use of the technologies by providers and PCP specifically. We have a multiyear road map. Every quarter, we have new features and capabilities to make the platform -- proprietary platform even more impactful I would also say that, of course, from an industry perspective, next year, the CMS final rate notice will have, of course, a tailwind. Also Part D direct subsidy also has a substantial increase year-over-year. And then, of course, from a growth perspective, others are retreating specifically on the PPO side we expect to further optimize. We are optimizing SG&A.

Now that we are growing, and we will grow, we believe, for the next number of years into the foreseeable future, we have more leverage as far as negotiations with both providers, PBM, et cetera. So there will be more leverage there also just from a rate perspective. And then, of course, we will also have leverage from a volume perspective. So let's go to questions.

Great. Well, there's a lot to dig in there. Super interesting model, super interesting results, too, when the industry is still going through a lot of upheaval, but it does seem like there's green shoots, I guess, from a macro perspective in '26 and also in '27 for most MA plans. Maybe if we can start, and I know you're a tech guy, you come from the tech industry, I cover health care technology. So why don't we start with the technology because I do think that is 1 of the bigger differentiations that you guys bring to the market, and really, that's the Clover Assistant. And that graph that shows that 700 basis improvement in your MCR, I think, is really impressive.

Does that improvement include -- is that inclusive of your entire population? Or is it just of your Clover Assistant population? And if it's inclusive of everyone, can you bifurcate out what the improvement is on the Clover Assistant versus the non-Clover Assistant?

Yes. So it's both. It's a total population. We have not broken it out. So you can, of course, can assume, given the dynamics and the underlying math that impact for Clover Assistant itself, covered members is higher than that.

Yes, yes. That makes sense. And what percent of -- roughly speaking, what percent of your members after year 1 are being fully treated or fully on the with physicians on the Clover Assistant?

Yes. So there's -- we've given 2 metrics. So total population, roughly 2/3, up to like 70% of our total membership base, receives care under the Clover Assistant technology. We've also said that for the large group of new members joining us this year that over half by the end of September, already are under Clover Assistant technology care.

Okay. So it's happening more rapidly now where physicians are onboarding with Clover Assistant than historically?

Directionally, yes. So I think it's like for us, the way we look at it, like once we have new members, we want to get them earlier in the Clover Assistant care for all the benefits, not only financially, but also from a quality of care perspective, of course.

Yes, yes. Makes sense. And -- it does seem like you're continuously improving the Clover Assistant. I saw that you recently added AI scribing capabilities, which is, I think, a big area of investment within just the health tech industry at large. How are differentiated in your scribing or AI scribing? And how are you using other AI tools to further enhance Clover Assistant?

Yes. Subscribing capabilities fully integrated into Clover Assistant in our platform. What I would say differentials there that the integration helps, of course, but it also helps them with the administrative load and even further reduces the time spent on admin for PCP so that the physician can focus essentially on clinical activities.

Got it. And looking forward, are there any other kind of AI-based tools that you are poking around looking at adding to Clover Assistant?

Yes. I would say that the strength of our Clover Assistant technology is really the proprietary machine learning and AI models. So where might be existing models, of course, we use the cloud, et cetera, but the core technology is developed and protected by IP.

Yes. Yes. And I guess to that point, as I look at the industry more broadly, the managed care industry more broadly, I'm sure everyone is aware of what you're doing and they're seeing your results, what's to prevent some of these very large cash-rich managed care plans from coming in and doing what you're doing?

Yes. I would say there's a couple of aspects there, right? I think like 1 is really the vision and approach and culture. So we've taken a approach to really focus on best care, clinical care at the point of care, at the time of care empowering physicians. So that's a different mindset, right? So I think you need different teams and backgrounds to even start there. So that's a big cultural change.

And from a technology perspective, I would say that we've developed this close to over the last decade, this technology at large scale, but that will require time as well that I would say we have a defensive moat from a -- from an IP perspective also in a lot of these areas that you can think about as far as earlier diagnosis, earlier treatment. So that's an exceptional model mode. And then also, of course, our technology is available to third parties. So if there are other players, we have good interest, very interesting momentum we can also partner, right? We are focusing, of course, our go-to-market strategies, we focus on our markets that we're in, right? So that is, of course, New Jersey and Georgia. We're also in Texas and South Carolina, but outside of those 4 states, of course, we offer the software also from a service perspective.

Are within those. You're not going to compete against yourself in those states or...

We haven't so far, correct.

Okay. Yes. The other interesting aspect of your model that's a bit different than others in this space is the PPO. Most folks, especially now with costs being -- trending higher than initially anticipated over the past couple of years, we've seen more plans move to the HMO movers versus the PPO. What gives you confidence in that PPO model versus moving towards an HMO like most folks in the industry have done? And is this just a strategy that can succeed in your mature markets? Or as you potentially ranch out to newer markets, do you think the PPO model also works in newer markets?

Yes. So I think a couple of questions there, right? So the -- so HMO, of course, is easier to manage because you have kind of a more narrow network. We believe, though, that members need to have freedom of choice of where they get their care to get the quality care, if you will. Others are retreating from the PPO model because it's difficult if you focus on the back-office technology where the health -- the upfront health of a member is managed really with.

So that makes it more difficult for larger players to play and offer PPO plants. And our technology works really well there, right? So again, we focus, of course, on areas for PPO geographically, where we have a membership base, but we have physicians using our technology and where we all set home care. So that makes it really powerful.

Yes, yes. Let's pivot to the financial picture because that has been an issue, not just with Clover, but with the entire industry and thinking through a difficult couple of years. And now it seems like '26 is looking good from a macro perspective and '27 as well -- for '26, we'll stick with '26. I don't want to get too ahead of our skis here. But that was a good slide I thought you had up there. I think there was the move to a 4-star rating maturing member cohorts leverage you're getting out of SG&A. As we think about further improving profitability, further improving cash flow. Can you perhaps quantify maybe break down in a little bit more detail those specific drivers and their financial impact?

Yes, yes, absolutely. So if you look at the Part C final rate notice, if you click down on that, it's roughly, I think, a 5.5% increase for the cost trends. There's some other factors in there as well. But depending on where you are as an insurance plan in Medicare Advantage, you're going to get probably some of that back in benefits or not. So that won't be like a full fall through financially. The Part D direct subsidy is close to 40% year-over-year. We don't believe that inflation necessarily on the pharma side will be that high. We are looking at improving our Part D program and our collaboration and partnership with the PBM as well, but that is not because the risk corridors as well on Part D, so that's not a full fall-through to the bottom line as well. Our star rating increases to 4-star next year. That is almost a 5% increase to the top line.

Again, that won't be a full fall through to the bottom line either, right? So there's a lot of the quantifications there then from an SG&A perspective, we expect to have really 2 improvements. One is on just the rates that we have for external vendors. And then we also will, of course, have volume leverage. And then we'll continue to have additional impact from more technology features and capabilities in Clover Assistant as well as more coverage. So there's a lot there from a material perspective. Of course, we'll have new members, right? So new members will be last making next year, but also the returning group of members will be much larger as well. So we're managing it from that perspective.

What headwinds do you see? There's a lot of tailwinds, but what headwinds are still out there for next year that you're -- that kind of keeps you up at night?

Yes. Of course, we're closely watching, of course, the cost trend, right? So we disclosed that our cost trend normalized on the current basis for this year, year-to-date is 4%. If you look at some of the larger MCOs, they're roughly running at 7.5%, 8%, while not growing membership, but we are growing membership. So we're watching cost trends, of course, and utilization. I think we have pretty good visibility there, but that could be.

Yes. What about Part D? I know you mentioned that the indirect subsidy is increasing. So that should help offset some of these pressures. But there has been so much uncertainty around Part D costs with the change in benefit design and just utilization being higher than expected. How are you thinking about -- and you kind of referenced some changes you're making on the PBM side or the Part D side? How are you evolving on the Part D side to help manage some of those pressures?

Yes. So maybe we can start kind of where we are today on Part D. So I would say, first, delineate between stand-alone Part D plans and us because Part D is part of our total offering. We've said before that just on a gross profit or gross margin basis, in absolute dollars, we are actually profitable in Part D. But that is probably a difference, or differentiator versus stand-alone Part D plans, right?

Now we are working on initiatives to improve the performance of Part D. We're working with our PBM as far as kind of where the value is and coverage and base of course. We think there is improvement to be had there, especially because we are growing. We are growing again next year. We're growing the following year, et cetera. So there's more to be had there. We're also hiring talent specifically to manage pharmacy and then more and more talent, right? And then also, I would say, we're integrating more of Part D now also into Clover Assistant. Where you can imagine, of course, at the point of care, at the time of care where the physician has choice within Clover Assistant, of course, the best medication to be prescribed at the lowest total cost of care, of course, as well. That combination. So that's still to come, that's on the road map. So there's quite a bit of improvement to go. We believe we could be better even -- we could have been better this year, right? And we will be better next year. So there's a lot of work and momentum that we see. So more to see there, right? So more progress to see.

Let's talk about the profitability improvement. And again, I love those slides that you show because it is so start the improvement that you do see on a PMPM basis for contribution from year 1 to year 2 and beyond. I think, the slide was about $110 PMPM negative contribution yet for a new member going to 217 for recurring, and then each of those are a little higher for '26.

Exactly.

How long does it take you to get from that 110 to the 217? And what are the biggest drivers or the biggest levers you have to pull there?

Yes, exactly. There's like cohorts of vintage years in between here, between you on and then, of course, the returning member core on the right, that's the totality of the returning members. So that improves. I would say and there is some linearity in that like in the progression, if you will. We have a large enough cohorts now as well with multiple, multiple years of history to look at the performance there. What we, of course, look at here and the underlying performance on contribution profit is really a type of plan, type of benefits, of course, we can drive is, of course, Clover Assistant coverage, right?

So we could, of course, we're driving initiatives to engage and have more PCPs and providers use the technologies or Clover Assistant technologies. So it could be more the PCP practices, could be health system providers as well. Of course, underlying that, of course, is what do we actually the rates that we pay to providers as well. So that could, of course, impact the gross profit then, of course, also the CAC costs and what have we spent on marketing, broker commissions, of course, we're optimizing that, too.

And we can, of course, differentiate by geographical area as well, and then variable SG&A and what we pay vendors to help service our members, of course, we're negotiating, renegotiating rates on all major contracts as well, right? And we got some volume leverage. So there are a lot of levers there.

We're focusing on the main drivers. So we think they can improve year-over-year, even if you, of course, take out some of the macro drivers, but of course, like the rate notice and the Part D type of subsidy.

Yes. So on that returning member, I don't know if you disclosed this, is there like an average like years it takes to get to that 217 or any way to frame?

The older cohorts are higher than that, right? And the younger cohorts in that are lower than that. So it's average. This is the average.

Yes, average.

That's ages right, the history.

Okay. Let's talk a little bit about growth too, and how you're balancing growth and profitability. Like you said, very strong growth in '25, 33-ish percent year-to-date. You're going to do the same next year, which I think is interesting because a lot of your competitors are retrenching a bit from the MA market. How do you think about growth, both in terms of new markets, which is our existing markets, which it seems like you're really focused on versus potentially entering newer markets? And how do you balance that growth with potential drag on profitability?

Yes. So the way we look at our priority markets. So over 90% of our membership is in New Jersey. And then the second largest market for us is Georgia, a number of specific counties or areas exiting Georgia and not the totality of Georgia. For New Jersey, we are roughly at 13%, 14% market share in Medicare Advantage, while we're growing 30% plus. So there is a number of years of runway there to grow at really -- at these rates, if you will. And then the benefit, of course, is that in New Jersey, we do have a strong membership base already. We do have very strong Clover Assistant PCP coverage using our technology, and we also have a really strong and excellent home care coverage also. So much more growth to be had there.

Again, also in New Jersey, we're very precise on where we want to grow in submarkets. Similar to Georgia, we're only a couple of percent of the market, like low single digit. Again, there, we're very precise on where we want to grow, right? So we have, of course, tools to manage the growth where we want to grow from a marketing perspective, commission perspective, et cetera, right? So we use those tools, if you will. I would say, for other markets, except for those 2 priority markets in the Texas and South Carolina, we offer the counterpart software, right?

So there's no need for us, said another way, there's no need for us to be to start out other markets today from a Medicare Advantage plan perspective or our own plan.

Yes, you can access via this more capital-light SaaS.

Exactly, high margin.

What is the margin on that counterpart?

At scale, it will be higher, right, than, of course, the plan. We haven't disclosed what it is today, yes.

Hopefully, it will be higher than that. But typical SaaS like margins on that, you say? Is that fair?

Yes, I think it will probably be lower than kind of pure play like B2C SaaS margins, but substantially higher the plan today.

Let's talk a little bit about '27. I know there's not a lot you can say there, but there was kind of a downgrade from the 4-star to 3.5-star for the '27 payment year, which I think you mentioned was largely due to pharmacy issues, which we already talked about. But beyond working with your PBM, what operational changes and investments are you making to ensure that you remediate these measures and regain that for 4+-star rating in 2028?

Yes, there have a number of initiatives there. We are focusing more on stars, just in general. We have a number of Medicare Advantage, sorry, Medicare adherence programs in place as well that we also coordinate with the PBM. So a lot of focus on that, too.

Okay. And I think we're running just up on time now, but I do want to close it out with kind of a bigger picture question for you. What is the single most important milestone that you think investors should be watching for over the next 12 months or so? And what metrics are you going to track? Are you going to give Street to track to make sure that you achieve those long-term goals?

What I would say is our focus on how we manage the business, where we have -- how we allocate capital on resources is really focused on the contribution profit model, right? Again, how we can drive profitability and growth? So that's our focus and the kind of the net-net end result is really the conviction in 2026 GAAP net income profitability, as the proof point.

Well, we'll be watching closely. Peter, thank you so much for joining and sharing your thoughts.

Excellent. Thank you. Great to be here.

Okay. All right. Thanks for joining us here today. With us today, we have Clover Health. On stage is CFO, Peter Kuipers. I believe he's going to start off with the presentation.

Thank you, Jonathan. Great to be here. Thanks for having us. At Clover Health, our vision is to empower every position with advanced technology to earlier identify, manage and treat chronic diseases and drive better health outcomes and also lower total cost of care. And how are we doing that? We are led by technology, and we're proving the technology out in Medicare Advantage. We are a Medicare Advantage insurance plan led by technology.

We have developed over 7, 8 years, large machine learning models and now also powered by AI over the last couple of years., ,technology that can be used by physicians and is increasingly used by physicians to earlier identify, treat and manage chronic diseases.

Medicare Advantage is a large market. It's growing 35 million seniors in the U.S. are in that market. We operate our main insurance plan in an open network or a PPO network, mostly focused in our priority markets in New Jersey and Georgia. We are expecting to grow at a similar rate as the last AEP this year.

Then also, in addition, we are now bringing this technology also to market for third-party payers and risk-bearing providers. On the payer side, this includes national payers that are in the pipeline and also regional payers. For this year, our current outlook is that we're growing over 30%, 33% growth from membership while maintaining profitability from an EBITDA perspective.

Let's spend a minute and talk about our differentiated business model. We are different than the large players in Medicare Advantage. First of all, we are patient-facing from a clinical perspective. Our Clover Assistant technology is AI-enabled and is used at the point of care at the time of care by physicians. In contrast, the large players operate mostly insurance tech, so back office and delayed administration.

We'll show a real screen-shot of the technology in a bit here, but we believe our technology is elegant. It integrates insights and proposes care management proactively instead of a delayed reactive manner at the large players. We're able to do this also in a large network where our insurance members have a free choice of their physician as opposed to a narrow HMO approach.

We're not focused on risk delegation in the traditional sense. It means that the P&L you see our results are pure from an economic perspective. It also means that over time, the upside from a P&L perspective is also reflected in the P&L.

The Clover Assistant technology integrates essentially all available medical records from EHRs to pharma to claims to labs. What it actually means that we can also use this for our highest acuity members where Clover -- our Clover physicians become the main physician, and we can manage that care.

From a financial performance, our BER is roughly 89% expected this year, while growing 35% in membership, which we think is exceptional. If you compare it to the industry, they're running roughly at high 80s, low 90s percentage on the BER ratio, but that is with essentially a flat membership. Some of the players are decreasing membership. So if you normalize that, you likely end up much higher on the BER for the large players.

Now this is a screenshot of the actual technology called Clover Assistant. On the top right, you see that we the technology integrates real-time essentially all medical data from EHR systems, virtually all labs, all pharmacy data and almost all claims as well. It's not just data aggregation because that's just a bunch of data.

The machine learning and AI power algorithms synthesize and capture this data to the most important pieces of information for the PCP to use in a visit with his or her patient. And then during the visit can add additional data points, and the AI-powered solution suggests care management solutions and helps identify chronic diseases earlier so that they can be treated earlier as well, resulting in, we believe, better health outcomes at total -- at lower total cost of care. So very elegant and fast real-time solution. The UI is elegant. So we see our users, the PCPs who wanted to use this. We got very good feedback from a user perspective. The user base is growing at a really healthy rate as well.

Now I want to point out that the physician him or herself is in the end responsible for the care management and clinical choices. But this tool, this software stack helps the physician operate at the top of their license. And we've grown this over time at scale. So many insights are incorporated in here. It's -- the physician can essentially get a second opinion, third opinion, 1,000 opinion or many, many different opinions, right, all filtered in here. So -- and we believe that leads to better health outcomes.

We've also published a number of clinical white papers. So now that we are at scale and are growing 33% in membership this year, and we estimate a similar growth rate next year, we can compare results. So we are clinically at scale as well where the white papers that we published provided some really good evidence on the effectiveness of our software platform. So you see here 6 different white papers that we published over the last 2 years or so.

Main themes, I would point out really 2 main themes. So earlier diagnosis of chronic diseases, you see diabetes when the technology is used is generally diagnosed 3 years early on average. So what that means is that diabetes can be treated earlier, of course, is better health outcomes as well. And also if a disease is treated at an earlier stage, the cost of that treatment generally is also lower. So financially, that model works also from that perspective.

I would also point out significantly lower hospital admissions and lower hospital readmissions, very, very significant, not only for quality of care for care management, but also, of course, from a financial perspective.

And then lastly, I want to point out that from an HEDIS perspective, which is the quality measure within Stars, for the second -- for the consecutive year here, we are ranked #1 in the nation for PPO plans on clinical quality.

Now earlier, I talked a little bit about that we're offering the same software solution that now has proven at scale for a number of years, also to third-party payers and at-risk risk-bearing providers. Again, these payers and providers enjoy the same benefits for their plants themselves and also, of course, for their members.

Again, earlier identification, earlier and better management of chronic diseases and better health outcomes. We're offering this outside of our core markets that I discussed earlier is relatively lower start-up cost. We see the momentum. We see a very strong product market fit. That has proven now. We are scaling. The momentum is growing. We've hired some really deep experience and talented leadership as well that you can see in some of the announcement that we did.

From a commercial perspective, the HEDIS quality score that I talked about earlier, that is what draws these third parties in to really engage and start deploying this technology. And we have high confection that from a financial perspective, over time, we can help improve, if you look at the payer side, the financial performance by over 1,000 basis points.

If you look at the performance year-to-date for Clover, we have grown membership 35% year-over-year. Revenue is up close to 40%, while absorbing new members that come at higher costs and generally are loss-making on a gross profit perspective. We have achieved $45 million of year-to-date EBITDA, which we think is exceptional. We've also lowered the SG&A as a percentage of revenue. So we have leverage there as we scale.

That said, we have higher utilization than we expected originally, driven mostly by new members. So we have new members at higher utilization than the returning members versus expectation. I would also say that we have more new members just in the absolute number than expected, specifically here in the second year.

All that said, all in, while growing 40% of revenue, 35% of membership with more new members than expected, the underlying medical cost trends, excluding pharmacy on an incurred basis is around 4%. So that is significantly lower than industry average. Now that said, we had expected to be somewhat better than that, if you will. So we're definitely working on that. That said, the new members, the more new members that we have this year will be beneficial for next year's financial performance.

If we look at the increase in members, so 33% membership growth. We have a large new membership cohort this year, so around 26% year-to-date, our new members joining Clover. They're generally loss-making in year 1 from a financial perspective, but they will improve profitability over time as they return and come under Clover Assistant Technology Management. Year-to-date, these new members, more than half of these new members are already seeing a PCP using the technology.

From a financial perspective, if we look at -- so we -- our business model is based on cohort management. If we look at the MCR differential from essentially year 1, which is the baseline, which is essentially a new member, the MCR and then the BER improves by 700 basis points going from year 1 to year 2 and another 700 basis points from year 2 to year 3.

Now in the last earnings call, we gave a couple of additional data points from an economic perspective. We have disclosed now contribution profits per member per month for new members versus the returning member cohorts. And that is -- we define that as revenue PMPM, so per member per month minus medics or medical cost per member per month, also minus customer acquisition cost, which includes sales and marketing and also broker commissions.

So the full cost -- the full loaded cost of the channel. And what we have disclosed is that for new members this year, year-to-date, the contribution profit is $110 a negative or a loss, if you will. In year 1, and you see that the returning cohorts are around $217 of a contribution profit. So you can see the ratio there. As, of course, new members mature into a returning member, it is somewhere in between that, just on everything being equal perspective. However, '26 will be different. '26 will be different from a perspective that we expect specific tailwinds for Clover. And there's also, of course, tailwinds in the industry itself.

So talking about these specific tailwinds going into 2026. We have a very strong voluntary retention rate. We believe it's industry-leading. The voluntary retention rate we disclosed is above 90% this year. So very, very strong. And then we also expect, of course, a larger returning member cohort in absolute member numbers next year. We are going from a 3.5 star payment year this to a 4-star payment year next year that adds roughly 5% to the top line.

Of course, we are continuing to see further increased usage of the technology by PCPs, more PCPs, also more patients that these PCPs are seeing. We continue to invest strongly in the technology, adding capabilities to have further impact as well on better health care, better health outcomes. We believe we can manage the new members also better. We have plans in place for that as well.

From an industry perspective, the Part C, CMS final rate notice came out a couple of months ago. I think it's around 5.5% to 6% on the top line. Then the Part D direct subsidy is increasing about 40% next year. And then, of course, we see further growth opportunity also as other plants retreat. We continue to optimize SG&A. We're renegotiating and have renegotiated already a number of main contracts with all of our vendors.

Given that we are now for the foreseeable multiple years ahead, are a strong grower and a winner, if you will, in the Medicare Advantage market. So now we have more leverage as well and make sure we get appropriate rates. We're doing the same on some of the variable costs as well in MedEx. So more to come there. Some impact already is included in the third quarter and fourth quarter, but not annualized yet. So that will annualize next year. So we believe we're well positioned to both achieve GAAP net income positivity next year in fiscal '26 and also an increased adjusted EBITDA number.

So with that, over to you, Jonathan.

Okay. Great. That was a nice overview of everything. I guess starting with the results, to your point, the third quarter results did see elevated utilization trends broadly across the book, but obviously geared a little bit more towards the newer cohorts. Can you talk about the utilization that you saw? And was it accelerating throughout the quarter?

Yes. So generally, from a utilization perspective, we saw most elevated utilization in inpatient and outpatient. From an inpatient perspective, that was mostly on the surgery and the vascular side, outpatients was mostly oncology.

If you kind of -- if we click down and look at the metrics and then how we drive those and monitor those, the new members had a bigger proportion of the drive in the increase in utilization.

Now of course, we are learning the behaviors and the trends with this new member population as well. So we believe we can better manage that go forward as we go forward into next year, but again, a fairly large new membership group joining our plan.

Okay. I guess one of the items I was curious about is that Clover Assistant typically improves the BER. Where would you say kind of miss in terms of bending the trend and kind of where is the opportunity for improvement on CA kind of looking ahead moving forward?

Yes. I would say from a -- first of all, from a commercial perspective, we think we can improve our unit cost, which is the equation, of course, as well from -- from a financial perspective, we are expanding, of course, capabilities on the road map for Clover Assistant as well. I would say from a utilization perspective, again, it's mostly the new members.

I would also say that we've seen some trends of abnormalities in DME and, where we think from a payment integrity perspective and recovery perspective, we can improve the governance and potentially some recoveries there also.

Then last year, I think for us and probably for others as well, given the IRA and Part D being new this year as far as the risk corridors on top, there's optimization to be had as well with our PBM. So we're working with our PBM not only from a Medicare's perspective, from a Stars perspective, but also from a financial perspective, right?

So think about increased network management on kind of Part C and rates, if you will, more insights in utilization management for Part C. Part D, I would say, more dollarized and unit cost efficiencies there also. And then optimizing, of course, dental and DME. So I think it's across the board that we're doing that.

Okay. I guess when we think about your bid and approach for 2026, you likely made an assumption on trend and how much you could bend the trend. To the extent that you can talk about, did you price under the premise that trend would be similar to this year and you could bend it downwards? Just what's your view there?

Yes. I think it's a great question. I mean I think in general, we just -- we used industry-wide cost assumptions and cost trend assumptions for the bid.

Okay. And then to the slides that you just had, they're very helpful about the '25 cohort, how the older cohorts look in profitability and where they could be in '26. But with that, the newest cohort, at least based on the slide, still seems to imply that it is unprofitable, at least based on the slide. Is that accurate? And what's inhibiting the improvement year-over-year from, say, being unprofitable this year to at least breakeven next?

Yes. So we -- from an illustrative perspective on the slide, we're depicting there that we expect a significant step-up for new members. A part of that are the drivers that are Clover specific that we talked about and then industry-wide as well. And then, of course, part of the Clover specifics are that we're looking, of course, at member experience, looking at onboarding, make sure we have complete data of new members so they can come on the Clover Care, et cetera. So we have a number of initiatives there too, just a more practical onboarding perspective.

Okay. And then in the quarter, you recognized a $10 million mark-to-market equity investment in the quarter. I guess what's that investment that saw a substantial pickup? Was an ownership stake in the company or something else?

Yes, there was an equity stake we have in bio-character science. They specialize in precision medicine. So they had another financing round and we updated the market valuation for that.

Okay. And then there was new news out of the administration that Medicare could theoretically cover GLP-1s for weight loss at a reduced price. Obviously, there are a lot of details that are currently unknown right now. But can you talk about how you're thinking about this if you would have to cover GLP-1s for weight loss? And then do you have visibility into your membership that would indicate that a member would be eligible?

Yes. So I would say we have this insight, of course, because we have the full medical records if a member is covered by Clover Assistant. And again, as we have disclosed previously, around 70% or slightly higher percentage of our membership base is covered by Clover Assistant. So therefore, we have the medical records, if you will. So we have those insights. That said, there's a lot of unclarity quite yet on non-GLP-1 guidelines. It looks like it mostly will be -- most likely, it will be applicable for 2027. So we'll make sure we include that appropriately in the bid.

Okay. Great. And then can you talk about how AEP is trending for you thus far? You kind of mentioned similar growth trends to what you experienced this year? And how is the mix between switchers and new to MA?

Yes. So we haven't given a lot of detail, if you will, because AEP, we're right in the middle of AEP. What we said on the earnings call is that we see significant growth, roughly on par, same ZIP code as we experienced last year during AEP. I would also say very similar to last year, the split between switchers and kind of new is roughly the same. And last year was roughly 80% switchers.

Okay. And then going to the Stars, obviously, you took a step back in Stars for payment year '27. Can you talk about the specifics of what went wrong and what specific steps you're taking to remediate this to ideally get back to 4 Stars?

Yes. Our aspiration, of course, is to -- the strategy is to be scored at 4 Stars. So we have initiatives in place just in general on Stars, but very specifically on pharmacy. That is where we saw the decline. Now part of that is, of course, not fully in our hands because we have a PBM. So we're working with the PBM as well, of course, to drive Stars performance there.

That said, I want to point back to the prepared remarks and earnings. And then I think also in August, we did a press release on Stars as well. We believe the current Stars framework has inconsistencies that we're engaging on with CMS, specifically in some of the measures that really don't drive in our view, clinical outcomes and a number of those are in the pharmacy area.

Okay. So to point about pharmacy since that seems to be the culprit, maybe worth a minute talk about how the specific scoring works for that metric and what exactly you're trying to do to remediate it?

Yes. There could be some -- if you look at kind of prescribing, if you will, and the kind of the med adherence, it's really the -- is a medication picked up. I think it's in a 90-day window, if you will. But some of those measures don't get corrected if a medication cats de-prescribed -- if your PCP determines if your Medicare Advantage members, you don't need to use that medication anymore. The plan actually get dinged for that. So there's some inconsistencies there as well.

Got you. And then conceptually, given you would be influencing the PBM dynamic, how do you think about this theoretically impacting drug trend? Are you putting additional checks or measures in place to get ahead of any issues?

Yes. So a couple of things there. Like first, of course, there is formulary optimization. So we're working on that. We're working on pricing and unit costs as well on net cost with the PBM. And then also, of course, we can further integrate, of course, med management and medical costs from a Part D perspective, also in our Clover Assistant technology stack.

Okay. And then when thinking about Clover Assistant within the construct of pharmacy, is this something you're considering to bring to life within the organization? How quickly can something like this be stood up and any incremental costs, et cetera, related to it?

From a product road map perspective?

Yes.

Yes, of course, some of those initiatives are already on the product road map. I would say we'll continue to invest in pure R&D. Actually, I want to point out that we're probably pretty unique in the MCO space of actually being technology focused. We have a very talented and experienced software engineering team, which is quite exceptional to have that combined with the insurance business. So that's on the road map. I would say it's part of the assessment, and it's baked into our outlook for '26, where we believe that we can be -- that we will be net income -- GAAP net income positive for '26.

Okay. So despite the Stars hiccup, the company is poised for strong growth in '26, given the pullback from nationals and your relative positioning. How are you thinking about the level of growth where you're okay versus you've just taken on too much? How do you think about that breakpoint?

Yes, I would say we haven't given kind of a number there, but -- from a percentage growth perspective. What I would say, though, is that we are focused very specifically on what we call priority markets. So what is the priority market? We define the priority market as it could be a county or close from counties where we have -- already have membership or strong membership where we have PCPs, physicians and health systems using Clover Assistant technology and also where we have in-home care to treat our higher acuity members.

So we're focusing our efforts from a go-to-market perspective, broker engagement, member engagement in those geographical areas, right? So to some extent, we can manage the level of the growth, but it's also what type of growth you want as well. And so it's a very, very precise approach.

Okay. As we think about G&A savings that you think you can achieve via recontracting with the scale you have now compared to previously, should we think of the savings as similar magnitude in terms of dollars in terms of what we've seen? Or how should we think about this dynamic?

Yes. There's really 3 categories in SG&A from a cost perspective. So the first category of cost is what we call growth cost, growth SG&A, which includes sales and marketing and also broker commissions. Of course, we are fine-tuning broker commissions as well and increase the long-term value there and the payback -- and decrease the payback period. So we definitely see benefits there.

We're also making sure that we have the right quality metrics around how these brokers perform. It doesn't necessarily mean that, that's an efficiency, but we get more return for every dollar spent in that category from a variable SG&A perspective, which is mostly servicing kind of the back office side of the insurance plan mechanics, of course, because we now have more scale and our growth outlook for the next number of years shows really healthy growth, right? So it's a different discussion as far as the leverage we have there.

So I expect to see quite a bit of leverage there on the unit cost perspective. And then the third category of SG&A is fixed SG&A. So think about that as fixed infrastructure. It could be a vendor or partner base or it could also be kind of in-house headcount based. We definitely see, from a vendor perspective, more negotiation part from our perspective also. We see vendors in that cost category also using AI. So we see some AI efficiencies there as well.

And then internally, also, we are more and more deploying also AI with an AI strategy outside the clinical and outside the software platform to really not only for efficiency, drive costs and drive leverage, we also believe that it also improves really the employee engagement, right? It makes the jobs better by really automating, using AI for the more manual task. And we really believe that's really valuable for our employee and our team as well.

Okay. When you think about the growth plan -- growth that are in your plans, should we think about the recontracting that you're taking as more of a kind of last bolus of G&A reductions and then we move towards a more stable but constrained type of growth moving forward? how would you frame it?

From a top line perspective or cost perspective?

Cost perspective, cost, yes.

Yes. I would say, again, those 3 categories. I think there's more optimization to be had on the growth of SG&A as we continue to refine that. Variable SG&A, I think that will continue as well, and the biggest impact will be on the fixed SG&A. So I think it will be continuous. I think there is -- we had quite a bit of progress, I would say, in the last couple of months, and we'll continue to have that in the next couple of months. So see it as a step function for improvements across those 3. At the same time, I would say we'll continue that. We'll continue to work and optimize SG&A, of course.

Okay. Turning to counterpart. I guess, you made a -- the company has made a few announcements related to counterpart in terms of customers, but can you give an update on how things are progressing with your clients? Are these full expansions now? Or are we still in more of a pilot phase, I guess?

Yes. So again, like I said in the earlier -- early remarks, we believe product market fit is proven very, very strongly. There is strong external interest, specifically for payers that also operate a white network where it's difficult to manage from a quality and care management perspective and also cost perspective. So if you think about kind of large players in general, it's difficult to roll out technology.

So we've talked about this earlier as well publicly. So Clover Assistant, let's say, it's used by a counterpart using payer can ask their the PCPs that are in their network or not in the network, mostly in the network actually, to use this software. The software actually requires a training of 1 hour. So it's a fairly straightforward implementation.

We're also seeing the speed of the philosophy from initial start and the rollout, if you will, it's probably 2 to 3x faster than somewhat similar tech-enabled tools. So again, going back to your question, strong product market fit, strong interest. You've seen that we have hired additional talent and leaders as well. You can see that.

Now we're focused on scaling. So both from a leadership perspective, from an infrastructure perspective, implementation team perspective, customer care perspective. So we're scaling over time. We're not in a rinse-and-repeat phase yet where we would have the typical metrics around SaaS and tech-enabled services that you see in health care and other industries as far as ARR, car, et cetera, on a cohort basis. We definitely have that internally. At some point, we'll be in a rinse-and-repeat phase to start publishing that as well.

Okay. And then you've released a few white papers on the benefits to HEDIS scores from CA. Is there any proof points for your clients in terms of the benefit that they've seen so far in terms of the pilot phase? Or is it kind of really still within the Clover MA products where we would theoretically see this?

No, we see similar proof points from a clinical perspective and economic perspective already.

Okay. And then last 30 seconds here. You added an AI scribe to the offering. Given AI scribing has been growing and perhaps more ubiquitous today than it has ever been, I guess why did the company add this function as a doctor presumably has this? And how does this interact with current scrubbing technology and the EHR?

Yes. I think the important point we think is the full integration. So the -- what we looked at earlier, the screenshot of the technology. So scribing is fully integrated there. It's not a separate tool or a separate feed. So it helps the PCP, not only from an admin perspective, but really real-time being able to interact with the patient and not be distracted. So we also believe it's not only efficiency, but in the context of Clover Assistant technology, we believe it at also contributes to better quality of care.

Okay. Great. Well, with that, we're out of time. Thanks. Thanks for joining us, Peter.

Thank you, Jonathan. Great.

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 35% and revenue by nearly 50% year-over-year. That does meet our goal of profitable growth. Other plans which grew this much on the PPO have been pushed into retreat.

That said, I want to note that we did originally enter this year intending to have significantly higher overall adjusted EBITDA even with the growth. Ultimately, this adjusted EBITDA pressure came firstly from the higher-than-expected proportion of new members and the fact that we didn't bring them under management as quickly as we originally planned. And secondly, we saw increased utilization across both medical expenses and supplemental benefits similar to others in the industry. I'm going to focus on the first, and Peter will discuss more on the second.

On an adjusted EBITDA basis, our returning members continue to have a contribution profit, but this did not fully offset the dilution from our larger-than-expected new member growth. While we had anticipated this pressure from returning to growth, we captured additional market share as competitors retreated with the market disruption effectively accelerating our growth. This has led to reduced adjusted EBITDA profitability as the cost profile of first year members, which we see as a combination of marketing, commissions and first year MedEx, puts pressure on our results.

For the full year 2025, we now expect to add roughly 44,000 gross new members within an expected year-end 2025 population of approximately 113,000 net members. This has had a meaningful impact on our 2025 adjusted EBITDA profitability as we are scaling from a relatively smaller base and new members are generally loss-making for us in the first year.

That said, our cohort experience and strong historical retention demonstrates that this large new population will bring a larger contribution profit positive base of returning members in 2026 and beyond.

We also expect 2025 to be the peak year for this kind of effect. In our modeling, with our latest cohort data, we expect that we will be able to continue growth and have meaningful adjusted EBITDA profitability starting in 2026. That was our goal for 2025, but we were extrapolating new member performance as this was our first year of significant growth. Now that we have that under our belt, we feel more confident in our views on 2026 and beyond.

Ultimately, we believe the fundamentals of our business remain strong and the margin pressure we're seeing this year is driven by cohort dynamics. Each new member represents strong long-term value, but requires time to come under full Clover Assistant management. While that dynamic compresses margins in the near term, it's exactly what we believe builds the foundation for margin expansion and accelerated growth in the years ahead, where we anticipate rapid improvement in outcomes and cost performance in our cohorts.

Said differently, our returning Clover Assistant managed members remain strongly profitable and are effectively funding this reinvestment in acquiring and developing new member cohorts.

Our confidence in Clover's trajectory is rooted in a simple truth. We believe that our model delivers better Medicare Advantage results for more seniors. Clover Assistant is designed to identify and manage disease earlier, providing a multiyear improvement to total cost of care.

When paired with our care delivery assets and the close partnership of our Clover Assistant using network providers, we see consistent medical cost management year-over-year. We're continually focused on increasing physician adoption and remain on pace with increasing our Clover Assistant coverage across the book with more than half of our new members already having received a Clover Assistant visit this year, which is consistent with our internal targets.

The combination of strong retention, more members, more CA-engaged physicians, early disease detection leads to strong returning member cohort performance and reinforces the strength of our model and our ability to help manage conditions earlier and better for our members.

Next, I'd like to discuss the current annual enrollment period. While it's too early to provide an AEP update in detail, I would preliminarily note that we remain on track to once again deliver strong above-market membership growth and retention within our priority markets. These markets are the ones where we have strong CA network coverage, an existing membership base and our home care capability.

Our plan offerings reflect exactly what Clover stands for, low out-of-pocket costs, physician choice, and real value for seniors. While most of the industry is pulling back and narrowing networks, we've doubled down on maintaining a comprehensive PPO portfolio that prioritizes open access with stable, predictable benefits. We believe seniors deserve choice, access and simplicity, and our 2026 plans deliver all 3.

Turning now to star ratings. We received a 3.5-star rating for the 2026 ratings year. This does not represent our aspiration. We want a 4 star plan. That said, let me start by explaining how our model is built to perform well even in 3.5-star payment years.

Firstly, we do not view the star rating as an inhibitor for growth. Medicare eligibles are attracted to low out-of-pocket costs with wide physician choice. And based on our experience, we anticipate strong attraction to our plans on that basis, independent of star rating. We also don't perceive the star rating as a true measure of overall health care quality. Our focus remains on delivering meaningful improvements in care and outcomes for our members. And one way this commitment shows up is in our HEDIS results.

Clover Assistant once again powered Clover to the top of the industry for clinical quality with a HEDIS score of 4.72 for our PPO plans, making us the highest performing PPO in the country on HEDIS measures. This reflects the consistent data-driven care delivered through our technology and physician partnerships, which continue to improve members' health in measurable ways.

So while our focus remains on driving better patient outcomes, we believe that the current star ratings framework does not fully reflect the clinical quality of care our members receive. We continue to actively engage with CMS to advance how quality is measured and remain committed to working constructively toward a methodology that better captures true performance.

Ultimately, though, we want a 4-star plan. We are walking through all areas that we underperformed on and making sure that we have plans in place, plans that also incorporate the significant growth that we have had and will continue to have. For example, while we were the top-rated PPO plan in the country on HEDIS quality, we were greatly let down on our star scores because of very low 1 and 2-star scores on our pharmacy measures. We are very focused here and are intent on improving our performance in this area going forward.

Now, I'll provide a Counterpart Health update. The new organization continues to make strong progress expanding both the reach and capabilities of our technology. During Q3, we've rolled out major new capabilities such as integrated scribing and generative AI tools that help physicians better prepare for visits, reduce administrative burden, and stay focused on patient care.

Also powered by CA, and as I mentioned earlier, we've achieved industry-leading clinical quality HEDIS result for the second year in a row, and we've made this capability available as part of Counterpart's new enterprise offering.

And lastly, we're seeing good demand, and so we've expanded our go-to-market team and leadership to support new partnership opportunities with provider groups, health systems, and both regional and national payers. Together, these advancements further establish Counterpart Health as a leading technology partner for value-based care.

The key for Counterpart is this. Since its launch last year, we have seen tremendous resonance with health plans because our technology provides a capability to them that they've never had before. This capability is to engage smaller independent doctors who typically manage around 20% to 30% of a given plan book. These doctors are often great physicians, but do not have the infrastructure to be successful in value-based care and almost no plan [ has a ] strategy to successfully engage them.

Counterpart deployments have now shown in multiple states and for multiple customers that we can effectively serve this market, and we've heard that [ resonance ] with our target customers. We believe this remains a huge blue ocean opportunity for us and provides us the opportunity to bring our technology far beyond the reach of our owned and operated plans.

In overall summary, our long-term trajectory is unchanged. Our technology is scaling as we aim to empower more and more physicians with Clover Assistant, and we're focused on growing our profitable returning member cohorts. We anticipate having a large contribution profit positive base of returning members in 2026 and beyond, which will fund future new member growth. This year is just the start of that arc. And while we have several areas we need to improve, I feel strongly we are on the right path.

I'll now turn it over to Peter, who will walk through our financial performance in more detail and how we're positioning the business for adjusted EBITDA profitable growth in 2026 and beyond.

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. Returning member cohorts during the third quarter year-to-date 2025 period have generated approximately $217 of contribution profit per member per month as compared to a negative contribution of $110 per member per month for the new member cohorts, respectively.

For this reason, as new members mature into returning cohorts and we get more members under Clover Assistant-powered care, we are confident to deliver strong financial performance in the coming years. We also have conviction in our ability to deliver continued strong returning member retention in 2026. First, due to the continued industry disruption from competitor pullbacks that Andrew discussed. And secondly, we believe that our current 2025 retention rate remains industry-leading above 90%, reflecting the success of last year's AEP period and our ability to continually retain members. Both of these dynamics together reinforce our confidence to better manage next year's membership mix and continue improving profitability as our cohorts mature under Clover Assistant care management.

Furthermore, our model is designed to perform profitably even in 3.5-star payment years with 4-star years serving as upside rather than a dependency. We continue to see strong member demand for our wide network PPO offerings with low out-of-pocket cost, and our HEDIS score of 4.72 demonstrates that Clover Assistant consistently drives top-tier clinical quality and outcomes across an open access PPO network.

Taken in aggregate, driven by Clover Assistant and our differentiated model, our current view is that we expect to achieve full year positive GAAP net income in 2026 as our maturing, returning member cohorts and our technology-centered approach further enhance performance and expand margins.

Now, returning to the third quarter financials. Clover's Medicare Advantage membership grew 35% year-over-year to over 109,000 members, delivering insurance revenue of $479 million, an increase of 49% year-over-year. Year-to-date insurance revenue was $1.4 billion, up 39% year-over-year.

Next, I'll discuss the margin pressure we observed in the third quarter. Despite an elevated utilization trend and more new members compared to expectations, our year-to-date underlying incurred medical cost trends, excluding pharmacy, for our entire population remained strong with a 4% increase year-over-year.

On an adjusted EBITDA basis, returning members continue to be accretive to contribution profit, although this impact was partly offset by a negative contribution profit from our new member cohort. Impacting this trend is stronger-than-anticipated intra-year new member growth as we are expecting to absorb more than 44,000 gross new members this year from a relatively smaller returning member base.

This stronger growth was impacted by other plans dramatically shifting their offerings in 2025 by reducing benefits, shutting down commissions, and fully exiting markets earlier this year, resulting in lower new member core performance than initial expectations.

Specifically, medical costs in the third quarter were impacted from unfavorable claims development related to the first half of 2025 date of service. We saw higher medical cost trends across inpatient and outpatient services related to a number of high-cost claims, outpatient oncology, and inpatient cardiac and surgical procedures. This is consistent with broader industry reports related to elevated hospital utilization in recent months. Importantly, we feel that we have adequately accounted for these trend developments in our updated 2025 guidance.

Turning now to Part D. Comparing year-over-year performance is structurally difficult given the changes in the IRA this year. That said, the continued Part D pressures that we and others in the industry discussed last quarter, are higher versus expectations. We feel that we've performed well on Part D this year, but we expect it and intend to do better. In particular, we have seen pressure in branded and non-formulary pharmacy spend.

For this reason, we have launched ongoing initiatives around medication reconciliation, generic substitution and care coordination to optimize Part D in 2026, while maintaining access, and we feel confident that next year's higher Part D direct subsidy will also help normalize the pressures across the industry.

And lastly, we've seen some abnormal activity within both dental and DME that we're actively addressing and pursuing recovery and improvement activities for. We do not believe that this abnormal activity will persist into 2026. On a reported basis, year-to-date BER was 89.4%. This is a year-over-year increase of 880 basis points compared to the prior year period. That said, I want to emphasize that after normalizing for prior year developments in both reporting periods, the year-to-date BER increased by 400 basis points.

Moving next to SG&A. We continue to execute well with cost discipline, generating strong operating leverage. Third quarter adjusted SG&A totaled $71 million or 14% of revenue, representing a 440 basis point improvement or reduction year-over-year. Year-to-date adjusted SG&A was $237 million or 17% of revenue, improving 370 basis points year-over-year.

As discussed previously, our ongoing vendor contract reviews and negotiations with a focus on improved SLAs and benefits from pricing at scale are continuing. Our progress highlights the operating leverage we are achieving even as we continue to invest in growth, technology and higher quality care management.

Despite the aforementioned margin pressures, we have achieved both positive adjusted EBITDA and positive adjusted net income year-to-date. This underscores the resilience of our model and our ability to manage costs effectively while scaling the business. Both adjusted EBITDA and adjusted net income for the third quarter were $2 million, each down $17 million year-over-year. Year-to-date adjusted EBITDA and adjusted net income remained positive at $45 million and $44 million, respectively.

Our year-to-date adjusted EBITDA profitability, despite a higher proportion of new members relative to returning members, underscores the scalability of our model and our disciplined execution in managing our strong returning cohorts. That said, we do expect the elevated trend we've experienced during the third quarter to continue in the fourth quarter, along with typical fourth quarter Medicare Advantage seasonality.

Moving on to the balance sheet. We ended the third quarter with cash, cash equivalents, and investments totaling $396 million on a consolidated basis, with $122 million at the unregulated subsidiary level. During the third quarter of 2025, cash flow from operating activities was $12 million.

We expect that our cash balances will remain strong for the remainder of 2025, which will allow us to continue to operate from a position of strength as we invest in our growth model in 2026 and beyond. Importantly, we believe that we will continue to be self-funding as we execute on our growth strategy.

Turning to guidance. We are revising our full year 2025 outlook to reflect the membership growth and utilization trends we've seen year-to-date. We are increasing our Medicare Advantage membership guidance to now average between 106,000 and 108,000 members, reflecting 33% growth year-over-year at the midpoint and continued intra-year growth this year. We are increasing our insurance revenue guidance to be between $1.850 billion and $1.880 billion, reflecting year-over-year growth of 39% at the midpoint of the range.

We are improving our adjusted SG&A guidance to be between $325 million and $335 million. This represents adjusted SG&A as a percentage of total revenue of 17% to 18% and is an approximate 400 basis point decrease or improvement year-over-year at the midpoint of the range. This reflects our continued ability to gain operating leverage in our business as we grow.

We are lowering both adjusted EBITDA and adjusted net income guidance to be between $15 million and $30 million. This primarily reflects pressures related to a greater proportion of new members relative to our returning member base and higher utilization trends.

Lastly, we are updating our insurance BER guidance to a range of 90% to 91%, which reflects the elevated utilization trends we've seen this year as well as the impact of our strong new membership growth.

Our view of the long-term trajectory of the business and our confidence in our ability to achieve sustainable and increasing profitability is unchanged. We expect a meaningful increase in profitability in 2026, driven by multiple factors. First, we anticipate strong returning member retention with continued improved cohort economics of our expected larger, profitable returning member cohorts, along with continued favorable performance from our year 3 and older cohorts.

Second, a 4-star payment year for our PPO plans creates meaningful financial tailwinds as approximately 97% of our members are enrolled in wide network PPO offerings. Third, continued focus on increasing Clover Assistant coverage and PCP adoption and further investing in enhancing the platform's capabilities.

Fourth, a focus on more cost-efficient growth channels. Fifth, a favorable impact from the Part C CMS final rate notice announced earlier this year as well as from the significantly higher Part D direct subsidy. Lastly, we expect incremental efficiencies from continued SG&A leverage and optimization across variable, fixed and growth expense categories.

In summary, we continue to execute well against our long-term strategy. We are growing membership and revenue at an above-market pace while achieving adjusted EBITDA profitability year-to-date. Combined with our strong returning member cohort performance, Clover Assistant model differentiation, and multiple tailwinds, we believe that Clover is positioned well for meaningful adjusted EBITDA expansion in 2026 and beyond.

Now, I'll turn the call back to Andrew for closing comments.

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.