Ladies and gentlemen good afternoon, and welcome to the Clover Health Second Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. [Operator Instructions] And as a reminder, today's call is being recorded. I would now like to turn the call over to Ryan Schmidt, Investor Relations for Clover Health. Please go ahead, Mr. Schmidt.

Good afternoon, everyone. Joining me on our call today to discuss the company's second quarter 2024 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 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 will now turn the call over to Andrew.

Thank you, Ryan, and thanks to everyone joining our call. Today we're very pleased to report another set of strong financial results as well as improved full year guidance, driven by meaningful profitability from our core insurance plan operations. Underlying these strong results is our Assistant Care platform that enables physicians to identify and manage chronic disease earlier. We believe that this focus improves outcomes for our members improve total cost of care and therefore, drive our overall financial momentum. Ultimately, that is our goal. At Clover, we developed AI and data-driven technology that is differentiated at managing the clinical outcomes and total cost-of-care for people with chronic diseases. We believe our financial results demonstrate that our model is working with physicians in our own MA plan. Next, we intend to bring our approach via our counterpart offering to physicians who serve other plans as well. On that note, let me begin with some high-level takeaways from our second quarter performance. First, we achieved meaningful profitability this quarter, highlighted by our increasing adjusted EBITDA, as well as positive net income for the first time as a public company. We're very proud to have achieved this milestone. Given these results we fully expect to deliver profitability this year on an adjusted EBITDA basis and are happy to update our full year guidance to reflect this strong performance, which Peter will walk you through later in the call. Second, we've again delivered double-digit top-line revenue growth with further margin improvement in our core insurance offering. Our impressive Medicare Advantage performance is driving our ability to deliver consistent, meaningful adjusted EBITDA profitability this year. Third, our performance improves upon our already healthy balance sheet, allowing us to operate from a position of strength. We expect to be able to self-fund meaningful growth in…

Thank you Andrew. Before diving into our results, I would like to share a few quick notes on the company from my perspective, as I've settled into my role. Overall, I'm very pleased to join Clover at such an exciting time and I'm continually impressed by the industry-leading AI power technology, talent and general business momentum of the company. I believe that our business is steadily improving its profitability profile, and I am excited to be part of a company that has created a unique framework to improve the lives of people with chronic diseases while simultaneously building an attractive and scalable financial opportunity. I'm also excited by the opportunity to expand the use of our proven technology through our Counterpart Health SaaS and tech-enabled services offering. Turning back to our earnings conference. I will first cover the second quarter financial highlights and then review our improved guidance for full year 2024. Clover's core fundamentals as strong. As Andrew mentioned, the second quarter was Clover's first positive GAAP net income from continuing operations quarter as a public company. Second quarter GAAP net income was a profit of $7 million as compared to a GAAP net loss of $29 million in the second quarter of last year. Similarly, adjusted EBITDA improved to a profit of $36 million in the second quarter of this year compared to $10 million in the second quarter of last year. Year-to-date, we have significantly improved our year-over-year profitability profile, driven by strong MA planned momentum and a continued focus on optimizing adjusted SG&A. As a result, we've incorporated this first half capability into our full year outlook, to significantly improve our adjusted EBITDA profitability guide for full year '24. As a reminder, last quarter we shared that we would introduce a new operational metric to further…

Thanks, Peter. In conclusion, I'm very pleased with our performance during the first half of the year, I would like to thank the entire Clover team for their continued efforts in delivering such strong financial results. Before we head to Q&A, let me reiterate the key takeaways of the quarter from my perspective. One, we delivered positive net income for the first time as a public company and improved our full year 2024 adjusted EBITDA outlook. Two, business fundamentals are strong with double-digit top-line revenue growth and industry-leading loss ratios. Three, we improved our already healthy balance sheet and believe that we have the ability to self-fund future membership growth; four, we're well positioned for long-term growth in Medicare Advantage via our PPO centric approach. And five, our strong performance in our own MA plan is driving interest in our Counterpart third-party offerings. Today's results demonstrate that we're able to perform well where others don't. We thrive in fragmented markets, and we don't rely on anchor health systems or value-based contracts. For most MA plans, these are challenging dynamics, but our technology-centric approach allows us to profitably sustain a benefit-rich wide network PPO plan. We are generating meaningful adjusted EBITDA profitability at a 3.5-star rating, positioning us well for even better results if and when we achieve higher ratings. And unlike almost every other MA plan, we see ourselves accountable for the total cost of care for our entire book of business as opposed to others who heavily rely on risk delegation and capitation. Our strong insurance fundamentals, coupled with our Counterpart offerings, make for an exciting time to be a part of the Clover Health journey. Once again, thank you to everyone. and I very much look forward to providing more updates later in the year, as we continue to execute against our goals. With that, let's go to questions.

Thank you Mr. Toy. Ladies and gentlemen we will now be taking questions from Clover’s Research Analyst. [Operator Instructions]. We'll go first this afternoon to Richard Close of Canaccord Genuity.

Yes. Thanks for the questions. Congratulations on the execution. Peter, I was wondering if you could comment a little bit just from a modeling perspective, as we think about it. Salary and benefits looks like it decreased about $3 million sequentially. And I was just curious if there's anything specific there that drove that? And how we should think about that I guess, in the second half? Is it pretty much steady state at the second quarter levels, I’ll leave it there.

Hi Richard, glad to be here. Thanks for the question. So overall, I would say, SG&A of course, we continue to optimize as we scale as well. If you kind of look at [quarterization] (ph) for your own model purposes, of course there's some seasonality in the fourth quarter as we make investments, both the quality and otherwise.

But nothing specific to the second quarter, why that went down so much sequentially?

It is continued optimization.

Okay. Andrew, maybe as my follow-up question on the Home Care business, there's been several, I guess articles out in the journal about home visits and I guess questioning the validity of that. I was curious if you could just walk us through the Home Care business for Clover, what you are doing there and maybe how it's different than I guess, the home visits that are referenced in the journal articles.

Yes. Thanks. Richard. And just on your previous question, I just want to note that, as Peter says, there is nothing new that we're doing. But for year-over-year comparisons on SG&A, we have spoken for several quarters. Prior to Peter joining as well, I talked about how we were transitioning to a new operating infrastructure with our partnerships and how we are moving some operations to some partners. And I think that you're seeing some of that effect flow through just as we discussed about a year ago at this point. So nothing new, but I just want to remind everybody that -- that's us executing upon our plans that we discussed starting from the middle of last year. Regarding the Home Care and how we do things differently, I think there is a couple of different dimensions here that I want to emphasize. Number one, we are very focused on looking after the sickest and most complicated within -- members within the home. And we believe that the home setting is the best place for that. That's why we have in our Home Care system, we do have nurse practitioners, but we also have MDs we have DOs, and we are actually taking over primary care for a lot of the folks in our Home Care practice. So we see the sickest as being looked at there -- from a primary care perspective, and that is our focus, and that's what I discuss a lot. We also do some nursing visits, but a lot of the times those nurses are looking at chronic diseases, making sure that they are being managed properly and then most importantly, referring into that primary care system. So if we think that someone is getting sicker, and they need more close attention, we take over that primary care relationship. And I think that's very different on a very different Home Care strategy than what you see others basically focusing on. I think another dimension that we should talk about here is that our technology Clover Assistant and the Assistant platform brings together the care team between primary care, nursing visits, and to make sure that data is moving back and forth between these various areas. And so when you get a visit from a member of our Home Care – Care team, our members are being looked after in their home, but that information and data we also share to any user of CA and that's available within the interoperability ecosystem in a longitudinal way using Clover Assistant. So I think both those things are very key aspects that differentiate our program from others. As a final note, we are very proud that our Home Care program has an extremely high Net Promoter Score and that is something we monitor very closely in terms of whether people would recommend the program to others.

That’s very helpful. Thank you.

Thank you Richard.

Thank you. We go next now to Jason Cassorla at Citi.

Great. Thanks. Good afternoon. Peter, can you give us a sense on what the [MRA] (ph) true-up adjustment was in the quarter. And I wanted to double check on the normalized BER for 2024. It sounds like that would be in the mid-80s range, excluding this favorable reserve development. Is that the right baseline we should be thinking about to jump off next year? And then in guidance kind of would suggest a bit of a steep step-up in cost trends in the back half of '24. Just is there anything kind of outside of normal seasonality or your conservative posturing that you are seeing and maybe what you're seeing just maybe just broadly cost trend wise for July would be helpful. Thanks.

Thank you for the question. I think there's about five in there, so we'll try to and to all of them. As far as BER, like in the prepared remarks, we expect on an incurred basis to be around the mid-80s percentage. As far as developments in the month of July, we do see more processing of IBNR and pay claims. The volume is picking up nicely in the month of July. And as far I think as far as the adjustment in this year, I don't think we have previously disclosed that, and I don't think we will on this call either.

Okay. So just to be clear for other one. Just the mid-80s incurred is the right jump off? Are there other nuances?

Yes. We haven't given specific guidance yet for fiscal payment year 2025, if you will, but for 2024, we expect BER on a current basis to be in the mid-80s percentage. If you [pass it on] (ph) total year, yes, of course, it is a jump off point into '25, but I think we want to be clear that we haven't necessarily commented on 2025 yet.

Sure. Of course. Okay. Got it. And then maybe just as my follow-up. I want to make sure I heard this right, too. It sounds like you are looking to perhaps spend away incremental upside on MCR for business reinvestment purposes. I just want to make sure, did I hear that correctly? And then maybe in that context, can you walk us through the unregulated cash bridge for '24? It sounds like you're still keeping that $145 million to $165 million expectation for year-end. Obviously, you had a better EBITDA result kind of year-to-date than expected. I was just hoping you could bridge the cash for us as well. Thanks.

Yes. Thank you for those two questions. So maybe start with the cash first, right? So as for the prepared remarks, we have $201 million of unregulated cash and as you walk that forward to the end of the year, we have an ACO REACH repayment, if you will of the deposit of around $39 million, as I can [sit here around] (ph) $160 million of unregulated cash. So being a little bit conservative on the second half in the outlook, if you will but we feel good overall. So that gets you to that range if you will. As far as investments in the business for long-term profitability and growth. So we're increasing over time, of course, the capacity and the capability of the model to produce increase in profitability. And so you should think about quality investments, as well system investments, right? And of course, also sales investments over time. But I will say shy of discussing specifically our sales strategies as we go to market later this year.

Okay, thank you.

[Operator Instructions]. We'll go next now to Whit Mayo at Leerink Partners.

Hi, thanks. Good afternoon. I know you don't want to disclose the MRA payment, but I just wanted to maybe understand what's driving it. It seems like you confirmed that you did have an MRA payment, which happens in the second quarter. And was there a higher than average favorability in that payment this year.

Yes. I don't think we disclose that necessarily.

Okay. Maybe just second question. There is been a lot of industry chatter on the two midnight rule and just curious if you're seeing any noticeable movement there that you can detect this.

Yes. We've been following vendor two midnight like we've been following the rule, obviously, for a little while. We've always been following the CMS guidance on this. And so I think, we've been a little less perturbed by this as others. And so things are basically proceeding as we foresee no real net impact for us.

Okay, thanks guys.

Just one quick point as well. I think that as we look at all these and as we introduced the various numbers here, having -- we used the MCR before and a few of you are asking about the BER number here. I think that the idea is that I would note that we are sharing the incurred number into be the mid-80s and that incurred number would be obviously not carrying forth any TPD. And so that's why that number will be slightly different than the number in the guidance.

Andrew, can I follow up on one other thing.

Sure.

Just when you talk about July, I'm not exactly sure I follow exactly what you mean by more claims processing. Is that -- is this a good thing, bad thing? Maybe just elaborate a little bit more on what you're saying.

Yes, I can answer that one. So as you saw in the prepared remarks for this quarter, but also last quarter, both because of the changed health care incident, if you will plus then our switchover to a new provider a new partner, we have elevated IBNR levels in the unpaid claims, right? So that comp at regard to July is really that we see good progress in the processing volume of those unpaid claims. So we expect that balance to further reduce through this quarter and [technical difficulty].

Okay. So that wasn't a comment on utilization. It was a comment on working through the back.

Yes.

Thank you. [Operator Instructions]

All right, folks. Thanks for all the questions. So just to reiterate, we believe that we are the only technology powered managed care company in the market that's aiming to deliver better clinical outcomes, better cost of care, as well as physician choice. Really, we believe that this is the future of Medicare Advantage, and we look forward to continuing to lead in this aspect via Clover's unique tailwinds and technology-powered care platform. Thank you all again for joining our call today, and I look forward to sharing more on our achievements in the second half of the year. Thanks, everyone.

Thank you, Mr. Toy. This concludes today's Clover Health second quarter 2024 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day. Goodbye.