Clover Health Investments, Corp 2026 Q2 Earnings Call

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. Thanks everyone for joining our call today. At Clover, we've always believed the greatest opportunity for AI in healthcare 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 six 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's order and CMS's subsequent recalculation, all of our Medicare Advantage members are now enrolled in plans rated four and a half 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 four and a half star plans. To be clear, four and a half stars matters. It gives us more room to reinvest in members, maintain a highly competitive product, support growth, and expand profitability. 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.

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 healthcare 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. 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 healthcare 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 toward 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 four and a half star rating strengthens our ability to put forth a compelling product, particularly across our core New Jersey and Georgia markets. 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 one to year two. 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 three, and our 2026 cohort will be in year two. That means a much larger portion of our membership base will have had at least one 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. While we're 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 four and a half 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. 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, 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 one members, where utilization is tracking below the comparable new member cohort from a year ago.