Q3 2021 Clover Health Investments Corp Earnings Call

[music].

Good day and thank you for standing by welcome to the Clover House third where 2021 earnings conference call. At this time, all participants are in listen only mode.

After the Speakers' presentation, there will be a question and answer session to ask a question during that session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your first speaker today, Derrick Neuman, Vice President of Investor Relations. Thank you.

Please go ahead.

Yeah.

Good afternoon, everyone. Joining me on the call today is our CEO Vivek Air Kelley, our president and CTO Andrew Choi.

And our interim CFO, Mark Herbers will discuss third quarter results recent trends and answer your questions.

The call today is being recorded before we get started I would like to remind you that our third quarter earnings materials.

Cleaning that really are available on our website Clover house Dot com.

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.

Factors that may cause these actual results to differ materially from expectations are detailed in our SEC filings.

Including in the risk factors section of our annual report on Form 10-K for the year ended December 31, 2020, and in our periodic SEC filings, including our quarterly report on Form 10-Q for the quarter ended September 32021.

Information about non-GAAP financial measures referenced including a reconciliation of those measurement to GAAP measures can also be found in earnings materials available on our website.

With that I will now turn over the call to be back.

Thanks, Derek and thanks, everyone for joining us today corporate wide network and the assistant platform helped drive record growth in the third quarter and was complemented by a significant decrease in MCR we.

We believe our technology enables us to deliver lower cost plans without compromising access or quality, while also addressing head on one of the most important public policy issues health equity.

Our mission to improve every life is firmly on track as is our objective to create a health care company that is sustainable for all of our stakeholders.

We serve a broader variety of communities than is typical.

<unk>, 66% of our members living communities in the top half of the area of deprivation index and approximately 49% of our members who self identify our minorities and we're proud that we had been identified as a high performing and they plan based on a prototype of the health equity summary score we publish them.

Extensive white paper on Friday, the details how our approach works to create a more equitable health care system and a strongly recommend you all read it.

Getting into the key highlights from the quarter.

Our revenue was $427 million up 153% year over year lives undercover management more than doubled year over year due to the launch of a direct contracting and our EMEA business continued to grow well above industry averages.

Our GAAP MAA MCR improved by 850 basis points compared to the second quarter and we saw a similar improvement in direct contracting where we are nearing breakeven margins.

The Covid assistant continues to be a differentiator with the MAA MCR differential up over 1000 basis points for returning members, who see a see a PCP versus those who don't.

And we are doing this while operating on a wide network and driving a positive impact on health equity with more minority or underserved beneficiaries than typical for Medicare providers of scale.

Colbert is building a next generation health care company centered around technology, and physician enablement, which we believe gives us access to a much larger serviceable addressable marketing Medicare than our competitors have this has helped us drive significant year over year growth in revenue and lives under management via both Medicare advantage and original Medicare fee.

For service, we believe we can pursue the full potential of the trillion dollars Medicare market as evidenced by our ability to use the corporate assistant in both the Medicare advantage market.

And the fee for service market via direct contracting.

Our wide open network provides us with the ability to grow in geographic areas, most traditional incumbents and new upstart to historically avoided. This is important as we think about sustainable growth not just in the next year or two but also over the next five to 10 years as we continue to increase physician access while driving more affordability and <unk>.

Improved clinical decision, making.

A recent proof point that our approach is working as the recent upgrade of our MAA PPO plan to three five stars.

We were able to accomplish this in spite of operating on a wide network and what that minority member a population that is significantly higher than the MAA average not only does the stars upgrade highlight our approach and operational execution, but it will also have a significant financial benefit in 2023.

Our focus is now towards achieving 4.0 stars something which we are striving to accomplish measurement in year 2022.

I'm proud of our recent results and the stars upgrade I am.

We are excited about how Medicare policy is evolving to support our approach.

First COVID-19 has focused policymakers on improving health equity for the Medicare population Clover is a leader in health equity nearly 50% of our members who self identify our minorities and we were identified as a high performing MA plan based on the prototype of the Medicare advantage health equity summary score.

We expect there will be increased scrutiny on practices that increase incentives towards the risk adjustment factor directly or indirectly.

<unk> from full competition to employment base models and also narrow network models.

<unk> model is designed to ensure that our payment model focuses on clinical value with zero incentives for increased coating. We vigorously support any policy proposals that create dramatically heightened rigor around risk adjustment, especially when it comes to perverse incentives.

Finally, we believe there will be growth challenges for narrow network plans as we discussed earlier Hoover assistance ability to support care management on a wide open network is a true differentiator, which unlocks populations that are not financially attractive for competitors.

Another validation of our approach is demonstrated by the growth of the PPO market, which has grown at a roughly double the CAGR compared to the HMO markets since 2016.

This is important as it highlights we are competing in the right part of the MAA in short, we believe <unk> ability to improve health care for a broader swath of Medicare eligible reaffirms our approach and our massive long term potential with that let me handover the call to Andrew to talk about corporate assistant and specifics around how it is driving a difference.

Thanks Vivek.

I am, particularly proud of the results we reported this quarter.

As a reminder, our vision is to transform health care through personalized data driven primary care powered by the quiver assistance.

And unlike most other approaches C. A allows us to manage that care over a wide open network of positions that give broad flexibility and choice to our quiver members.

I have to clearer assistance evolves, we believe it will continue to help drive better outcomes for all constituents physicians patients and the government.

We are absolutely focused on developing and shipping fee. A features improved physician enablement throughout our wide network driving things like care gap closure personal life evidence based medication recommendations earlier double diagnosis and care planning all of which we believe lead to better outcomes book whoever members at lower.

Cost to society.

This is best highlighted by the fact that MA members with Cobra Assistant primary care providers had an empty yard it was over 1000 basis points lower than those with a non fee a primary care provider.

Further we believe the impact of the Clipper assistance compounds over time during 2021 members with Pvp, You've got went live on Cobra assistant in 2019 had a lower MTR than members with Covid piece, you went live on Quivira system in 2020, and the corresponding 2018 cohort had a low.

MTR than the 2019 cohort.

Additionally, the differential between the 2018 cohort I'm the non fee a P. C. P cohorts, what's significant at over 1500 basis points, highlighting the value of the quiver assistant.

In short our data suggests that the longer a P. P uses the Cooper assistance for care management, the lowered the MCR of that patient.

The important point is that we will continue to focus on executing on our strategy deploying culebra system continuing to roll out features that make it easier for people to make data driven care decisions I'm driving other operational milestones such as around starts.

Another key statistic lives under management grew 223% year over year to approximately 94000.

Was driven by an increase in the number of clinicians that use the clover assistance to approximately 2900 in the third quarter.

Approximately 45% from a year ago, and we expect this to increase as many new direct contracting providers come onto our platform on January one.

We are also increasing engagement.

Our system has surfaced approximately $1 3 billion in production recommendations since its launch I am Kluver assistance visits grew 73% year over year in the third quarter. This is important as these visits and physician interactions provide us with a feedback loop to help us constantly improve the platform.

Over the past quarter. We also began the rollout of a significant update at the clipper assisted aimed at improving primary care physician workflows and adding.

Interoperability features enabling the clover assistant to integrate electronic health record systems.

We intend to further develop these features including key capabilities around single sign on charter integration and other features that we believe will drive up engagement, even further by improving physician quality of life.

We've also launched an exciting new feature to enable people to have easy access to care management support services are Ralph oncology.

We believe this is a really powerful capability off the clever assistance, where we can leverage our high engagement with P. C piece I put advanced care management capabilities provided by experts at their fingertips.

Oncology is the first area, we are supporting and we plan to continue to launch similar capability to cover additional conditions.

To close I believe the <unk> system is working as envisioned on our wide network. The rollout of an upgrade to our latest major release of <unk> is almost complete and this new framework will allow us to rollout clinical features even more quickly our software based scaling model allows us to target underserved segments in Medicare advantage expand.

Our direct contracting entity faster than most and achieve synergies with physicians, who benefit by rolling <unk> out to both M. A N D C Austin simultaneously.

With that I will now how does the mark for the financial update.

Thanks, Andrew we delivered $427 million in revenue in the third quarter up 153% year over year.

This growth was driven by the launch of direct contracting and growth in our M. A membership.

As of quarter end.

Now have approximately 129100 lives under management roughly doubled third quarter of 2020.

This was comprised of <unk> membership and direct contracting lives of 67281.

61818, respectively.

Moving to MCR, our net medical claims incurred for the quarter were $436 million down from last quarter and up year over year, primarily due to the inclusion of direct contracting.

Our MH gap MCR was 102, 5%.

850 basis points from the second quarter.

The sequential decrease was driven largely by operational efficiencies a decline in direct COVID-19 costs and seasonal trends.

Also our non-GAAP normalized and a N C. R was 94, 8% down 150 basis points as compared to the second quarter.

We also recognized a premium deficiency reserve in the quarter equating to an expense of $20 8 million.

Direct contracting medical claims incurred on a GAAP basis were $228 million and our margin improved significantly and our second quarter of operation.

102, 4%.

Excluding direct COVID-19 costs and prior period development.

Non-GAAP adjusted direct contracting margin.

Was 101, 4%, which puts us near breakeven and what represents a significant improvement over last quarter.

Third quarter, non-GAAP, adjusted operating expenses, which excludes noncash stock based compensation.

Salaries and benefits plus general and administrative expenses were $72 3 million, representing 17% of total revenues.

Compared to $45 million.

27% of total revenues in the third quarter of 2020.

We expect adjusted operating expenses become a smaller portion of revenue as we can.

And private efficiencies, which is a key focus in our 28 operating strategy.

Our adjusted EBITDA loss for the third quarter was $102 3 million compared to $138 7 million in the second quarter.

And $20 million in the year ago quarter.

After excluding gross loss from direct contracting and normalizing our EMEA business for the MTR impact of Covid, our normalized adjusted EBITDA loss for the quarter was $61 1 billion.

Our GAAP net loss for the quarter up $34 5 million compared to net income of $12 8 million for the third quarter of 2020.

This included a noncash benefit of $134 5 million relating to a change in the fair value of the warrant liability.

Clover had approximately $414 6 million shares outstanding at the end of the third quarter, including nine four.

Additional million shares related to our warrant redemption.

Our cash cash equivalents and investments totaled.

Told us totaled $588 6 million as of September 32021.

Now moving to guidance.

For the full year 2021.

Total revenues are expected to be in the range of $1 four 2 billion to $1 47 billion.

This reflects and they revenue of 780 million to $790 million.

And Medicare direct contracting revenue, a $640 million to 680 billion.

Medicare advantage membership is expected to be in the range of 67000 368000 <unk>.

Remember 31 2021.

Direct contracting beneficiaries are expected to remain roughly flat for the remainder of the year.

Normalized non-GAAP MCR for Medicare advantage, which again adjusts for the impacts of COVID-19.

As expected to be in the range of 94% to 96% for full year 2021.

We estimate full year non-GAAP, adjusted operating expenses, which excludes stock based compensation expense.

<unk> will be between 270 $280 million.

Non-GAAP normalized adjusted EBITDA loss is expected to be in the range of $250 million to $230 million.

Wrapping up we had a good quarter with strong revenue growth.

Medical expenses and significant operational execution, and planning, which will benefit us in future quarters.

I'm going to pass the call back to Vivek in a minute, but first I just want to quickly clarify something I said in my prepared remarks, and make one final comment.

I misspoke earlier, the noncash benefit relating to a change in fair value of the warrant liability was actually a $115 $2 million.

The $134 5 million previously mentioned.

And we had approximately 426 million shares outstanding at the end of the third quarter.

Which as I mentioned before includes the additional nine 4 million shares related to our warrant redemption.

Finally, I just want to reiterate that we improved our gap MAA MCR by 850 basis points in Q3 compared to Q2.

As our MCR is reverting to the mean in contrast, other public companies, who have reported as of today have reported plus or minus approximately 100 basis points change quarter over quarter.

With an overall average up 31 basis points.

We believe this highlights that our NCR is reverting to the mean and that our core New Jersey market has had more variability than most other markets.

Vivek will now provide some details on 2022 around M&A and overall expected operating efficiencies.

Thank you Mark before taking questions I just wanted to provide some high level thoughts on 2022, mostly focused around our Ma business.

We expect another strong year of above market growth driven by continued success in our second year of direct contracting.

For Medicare advantage, we preliminarily expect our membership to averaged 82000 for the full year next year, representing an acceleration in year over year growth to more than 20%. This is being driven by continued market share gains in new Jersey, and strong growth in Georgia, where we expect to double members to a projected 2022 average.

Of the 8500.

Direct contracting we expect significant growth in 2022 up from current levels and plan to provide more details as expected lives are finalized similar to this year almost all growth will come through claims alignment.

At the same time, we expect meaningful reductions in MCR as we drive continued clinical program enhancements improved risk scores and as COVID-19 becomes less of a direct and indirect impact. We expect this to lead to MA GAAP MCR in the range of 95% to 99% and an improved direct contracting margins both of which are well below where it.

We have been throughout 2021.

Further as we look beyond 2022, we expect three five star so having meaningful impact on 2023, MAA MCR and we currently expect that impact to be in the range of 300 basis points to 500 basis points importantly, the potential achievement of three five to 4.0 stars would have an even higher fee.

Benefit to MAA MCR than the movement from three point O to three five stars.

Finally, despite the Covid impact this year Clover has made significant strides in its planning towards achieving profitability as we head into the new year. We are excited about our planning process focused on the following three phases number one leverage our physician centric model, which will create unique operating cost synergies across multiple lines of business and they in D. C.

He start number two continued favorable negotiations with vendors, who see the business value of having <unk> as a partner and number three leverage human assisted automation technology to achieve efficiencies that are unique to quarters organic growth. We believe we'll make significant progress over the next 18 months that will also show in our operating.

Over time, we believe we are executing on our mission to improve every life and that our results. This past quarter, our early proof points of that execution.

Before we get to questions. A reminder, that we published an extensive white paper on Friday. The details how our approach works to create a more equitable health care system I strongly recommend that you all read it with that let's take questions.

Thank you Sir as a reminder.

You will now begin the question and answer session as you've done in the past who will be taking questions first from analyst followed by reading answering questions do you see from read it.

To all participants if you have a question. Please press star one on your telephone keypad again, that's star one on your telephone keypad. However, if your question has been answered or you wish to remove yourself from the key please press the pound key standby, while we compile the Q&A roster.

Your first question is from Kevin Fischbeck with Bank of America. Your line is open.

Okay, great. Thanks.

I guess looking at the 2022 guidance.

I guess when I think about the normalized M. A MCR that your guidance for this year I kind of think that the gap MAA MCR for next year should be comparable but youre looking for MLR to be up next year on that basis.

Is there something we should be thinking about as far as next year's GAAP MLR or is there a reason why MLR would be higher than the normalized MLR this year.

So we've embedded next year.

A few hundred basis points of a potential COVID-19 costs next year.

Okay.

Okay. That's helpful is that kind of just pro rata or do you really get more in the first half year or.

Any color on that.

Yeah, I think we didn't.

Attempts to make assumptions as to how COVID-19 costs would would trend next year.

So we did a reasonable estimate kind of throughout next year.

And we think were pretty modest in terms of how we've assumed.

The impact of clinical program enhancements risk adjustment.

The goal is to really put forward what we felt really comfortable is an estimate and we feel really good about it I am at the same time as we mentioned Kevin.

We none of US really know what what is going to be an impact of Covid next year at the same time, we thought it was.

Appropriate to embed some some reasonable assumption baked into next year's numbers. So I wouldn't view next year's gap.

Estimated as normalized so we would still we're still assuming there'd be a meaningful spread between.

GAAP MCR next year and normalized M&A MCR next year and so that's right.

Our focus just on GAAP projection for next year.

Okay, but is there a way to think about that it sounds like.

In the commentary was that you expect improvement.

I wasn't clear what you were just saying improvement.

Versus this year's GAAP M M N C or do you expect that.

GAAP versus less from 'twenty to 'twenty. One is normalized is relatively flattish or do you think it will actually show improvement off of the normalized normalized normalized too.

Yeah. So we purposefully showed gap for next year as part of our guidance and so we're comparing GAAP to GAAP.

So just from from a expectations perspective, we think it makes sense to stick to gap as it relates to projected guidance, but our goal would be to to surface.

Normalized MCR numbers as we report next year.

But to be clear, we did we did bake in a few hundred basis points of Covid impact next year.

Yeah.

Okay.

Helpful and then I guess as we think about the.

The D C performance.

Why.

Do you think that it is that the.

The numbers of growth, there's still going to be driven largely by.

Direct attribution.

Are there structural reasons why or is the delay in getting the other kind or.

How should we think about that.

Yes, I think also.

I know theres a lot of talk about kind of voluntary alignment models. The actual public policy intent of direct contracting was not meant to focus on voluntary alignment claims alignment is really should be the driver.

Linemen for direct contracting.

We do think.

And folks are going to look closely at that from a policy perspective.

Purpose of voluntary alignment is really to take into account those who were switching from practice to practice speed or a year are those aging into Medicare into a practice.

So again can't comment on on kind of other organizations models, but put simply claims alignment should be the bulk of the enrollment.

And then voluntary alignment you know over the course of your tends to.

Even out as it relates to.

At least what we've seen those who churn out of a practice or <unk>.

Mortality.

But as we've talked about and kind of from a guidance perspective.

We as long as the lives numbers get finalized we will expect to share that guidance and we feel really good about.

The D C growth.

From this year going into Jan one next year.

Okay.

Yes.

The membership numbers for next year.

They're looking for largely in line with what we were expecting but I guess, maybe just any color I know last year, you talked about how.

Covid disrupting some of the in person marketing and just maybe give some commentary about how you are feeling about the in person marketing versus the.

<unk>.

More and more online and telephonic broker engagement.

Yes, so we.

Frame them in kind of two different ways, where we believe that in terms of paying for digital leads.

Not an area that we focus on we know many or most competitors.

A lot of money for digital leads our reluctance with that.

If there has been a very high growth rate, 20%, 30% compounded growth rate in digital lead costs over the last three or four years, we have not relied on that so all of our growth is what we would call pure MAA growths driven by <unk>.

Field sales, which obviously was impacted last year a bit this year.

In terms of what we'll see I think but definitely a meaningful recovery from last year and then just inbound calls from.

Clover marketing.

And that's been effective as well I think part and parcel to that as we get as we described.

In.

The guidance part.

He has been our.

Main market for many years.

We're very unusual in the sense of there's very few MA plans across the country that have gotten to as large market share in a significant market like clover. So we're now.

Building upon what metrics you look at where.

There are number two in individual MA non decent market share in New Jersey up from 078 years ago as Youll see in Georgia and will share more numbers as the year goes on early next year.

We.

We believe we'll double going into next year and Georgia membership now.

Looks very familiar to me in the sense of how new Jersey was tracking in the first four to five years. So it's really exciting for corporate to really establish now not just a flag in any market, but in a state that we think is going to have a similar trajectory to two new Jersey over the next many years.

Okay, and then maybe last question.

Slide with a bridge to kind of longer term MLR improvements helpful.

Should we think about stars improvement leading.

Leading to MLR improvement that way or is there some balance.

Reinvestment back into benefits.

Over time as you get to four stars.

I I think it's fair to two.

We shared the graph that you referenced in the year to date through September 32021 long term pro format MCR graph in the earnings release so.

The way I would view it just from a modeling perspective is to assume that that goes straight to gross margin for a couple of reasons. So we share in kind of three to 500 basis point estimate for three and a half stars.

Given where we were we've been well below the benchmark, we think 500 basis point plus going from three and a half to four stars is fairly logical and straightforward and easy math to run.

The reason, we believe a lot of that is going to go to two straight to gross margin as we have an embedded in that long term pro forma illustrative example, any assumptions around improved hoover assisting coverage or improved and new features to corporate assistant.

Which we're super excited about in terms of what we're gonna be rolling out over the next 18 months or so.

We would expect.

Value, that's driven from there our goal would be to take some of that and give it back to consumers in the form of better benefit design. So that's where we think that will come from in terms of.

Improved value to consumers.

Yeah.

Thank you.

Your next question is from the line of Ralph Giacobbe with Citi. Your line is open.

Yeah.

Thanks, Good afternoon, just wanted to follow up on the.

2022 MLR in gist.

Make sure I'm following.

GAAP MLR next year, Youre, saying is 95% to 99% you said a few hundred basis points sort of from a COVID-19 next year, so again, not a sale or.

For a spot estimate, but if you take 300 basis points off that would be sort of a 92% to 96 range would that be comparable to the 94 to 96 normalized MLR from this year is that a way to look at it or we're now.

No I don't I don't think that's a wrong way to look at I think that's a fair summary.

Okay Alright, great.

And then I guess.

From a non COVID-19 utilization standpoint can you give us.

You know, where we are relative to 2019 baseline and maybe how you see that playing out in 'twenty two or what your assumptions include for sort of non COVID-19 related utilization.

Yeah, Yeah. So.

So Marc referenced this in his summary, we definitely see.

A very large reversion to the mean happening just to reiterate what Mark had said earlier, we had an 850 basis point drop in MCR from Q2 to Q3.

That is unheard of in Medicare advantage, clearly, it's driven by a reversion to the mean.

And that's something we've been talking about throughout this year.

The uniqueness of the New Jersey market you look at all the players that are publicly traded M&A.

None of them had anywhere close to that drop in fact, most of them were actually up a little bit in terms of MTR.

I mean, we've done some work just basic analysis on our side, we probably share some of this in terms of the graphs, but when we look at just our P. M. P. M Med X by quarter, we actually had a when we compare it back half of 19, because they're in the back half of 18, we actually had a pnp on the allowed cost drop and Med X.

And then 2020 and 2021 happened.

And accretive wild gyrations.

We're reasonably confident that the reversion to mean is going to continue.

And I think Q Q2 to Q3 is a perfect example of that.

We expect.

That to continue going into Q4.

Throughout next year now again.

There's just there's no way to kind of estimate Covid impact next year, but we've done our best to do that in terms of the gap and see our guidance for next year.

And just wanted to clarify I mean I appreciate the comparison to some of the publicly traded managed care companies Youre talking directly sort of Medicare related MLR, because I think the commentary from most of the publicly traded was that commercial was was up in Medicare actually still remained fairly.

Fairly well below baseline so just want to make sure I'm comparing sort of apples to apples in that comment.

Yeah. So if you look at Humana for example, they went from 85, 8% MCR to two they ticked up to 87, 1% MCR in third quarter.

That's about 130 basis point move.

To the wrong side Q2 to Q3, I know theyre not a pure play and a plan, but they are probably closest to a pure play and a plan that is national So I think that's a good comparable to see that they.

Went worse by 130 basis points, and we went better by 50 basis points I'm, only saying that to demonstrate the impact of the new Jersey, specifically and a reversion to the mean that we're now experiencing.

Okay, Alright makes sense that's helpful and then last one for me.

In terms of I mean, you know membership now you expanded into a number of counties for next year I think above original expectations, but when I looked at your sort of expected that MA lives of 82000, it's below the original targets, which I don't know how much we should be sort of looking at benchmarking against that original.

But I guess.

Is there anything you sort of attribute to maybe the lower capture initially than what you originally thought or are how you can build that sort of presence and scale as you think about things going forward. Thanks.

Yeah, no. It's a great question, we feel really good about our growth for two two reasons.

There are almost no MA plans in the United States that are as high market share in a region like I was in New Jersey. An example that are maintaining the growth rate that we're maintaining so typically a growth rate is pretty high when you're at.

At the bottom of market share so you're growing over a small base so to see us still have really strong growth in a market like New Jersey, where we keep it up.

We think we can get to number one share over time in New Jersey, when you take into account the synergy of our business. So when we think about Medicare advantage, we think about it really in terms of.

Physicians that we get on corporate assistant and then lives being being actually managed by corporate assistant so.

We're not too far off in New Jersey, we're.

Clover It will have the most Medicare lives in the state being manage when you include fee for service and MA and that's a pretty impressive accomplishment and then when we looked at Georgia.

That's a market that we're growing off of a fairly large base.

Where we think we're going to double or more going into January one and that trajectory. We think is going to set us up pretty well.

To replicate what we've done in New Jersey.

And that's as we think is unique and very hard to build is to get to really high share in large markets and that sort of goal versus just spreading everywhere and getting minimal share across a bunch of markets. At the same time, just referencing kind of a point I made earlier I do really believe a lot of the growth that's happening in MAA outside of corporates not of high.

Quality, there's a lot of dollars being poured into purchasing digital leads.

It is not a game, we're gonna play because we don't view it as sustainable would be the Capex is sustainable and so we view all of our MA growth is truly pure.

Versus buying leads at ever increasing costs and we just view that the game is going to end over the next two to three years.

Okay got it alright helpful. Thank you.

Sure.

Your next question is from Jonathan Young with Credit Suisse. Your line is open.

Thanks I appreciate the question I'm sorry to go back to this just back on the 2022 MLR I appreciate the comments about 100 bps of coffee costs.

But I guess, you've broken out kind of excess utilization now are you assuming any excess utilization in 2022, and then similarly are you expecting the MRA headwind from this year to effectively reverse all of next year or is there still some lingering component out there for 2022.

Yeah.

We do expect it to.

Burst to what we think would have been normal for for this year.

We think we've been pretty reasonable and our projection there.

And then when we when we described Covid impact it's meant to be a catch all the same we kind of view it this year, so direct and indirect COVID-19 costs.

And then also.

Pent up demand that could continue into into next year.

Again, it's hard to be.

Precise on that.

And we didn't want to get overly precise on the guidance and kind of the GAAP estimate versus just trying to get a normalized NCR estimate that's our that's our thought process.

We do feel really good about the range that we gave.

Okay, Great and then just kind of on the membership growth from notes here.

You called out Georgia as most of the growth that you've that you're kind of expecting to come through is that more kind of on the existing footprint or is that to the county expansion component.

Obviously, you're spending until a lot of counties for 2022, So just curious on that.

Yeah. It's it's continued share in in the counties that we're in but also growth in the new counties.

We will.

We'll definitely share more.

Once open enrollment is completed but we just wanted to give folks a sense as to where we felt pretty good.

For next year in terms of your overall numbers.

Okay, and then I guess, just turning to the tech side.

Andrew You mentioned, some care management capabilities and integration with EMR is kind of what else is coming down the pipe and just on that care management is that is that all in house built towers that third party work.

Or are you hiring a third party administrator for that time.

Facilitating that do dumb things.

Yeah. So everything we're doing around there is steered and architected by us as part of the corporates. The platform. We do have some partners who are able to provide specific areas like integration or elect commodity sort of far API integration, where we can use those partners to actually pull in data faster, but we always considered that to be part of our COO.

<unk> assistant platform. So that goes for backend data interrupt that also goes for EHR integrations that we talked about you'll see us launch more and more of the EHR integration to make sure that we are comfortably focusing on physician workflow.

And engagement and driving those numbers up into the right.

In addition in terms of the critical future load we have a full back in terms of what we're looking to do there we'll announce those as those features come out, but what youll see US do is always be oriented towards is the visual condition therapeutics drug around where we see that we can do better in terms of personalized data driven.

Management.

Oh, Lord I mentioned also in the call we have more of those come in.

Where we can pick a large swath of our population and gives them a better more personalized care management care planning experience and those will all launched within the whoever assistance surface.

Great. Thanks.

Yeah.

Your next question is from Colin its turn it with JP Morgan Your line is open.

Yeah, Hi, good afternoon.

Just a couple of quick ones for me.

First on the D C E commentary in the press release.

They're expecting a significant step up next year.

Can you help give us any sense for just sort of the magnitude for how much enrollment and you're sort of expecting to come through in terms of the voluntary Hogan.

Yeah, we we.

We believe it'll be a.

Significant growth I think from a guidance perspective CMI is.

<unk> their initial.

Our lives estimates for it for Dcs.

The next week or so so we need the decision was hold off on specific guidance till we get that that first vial.

Okay understood.

<unk>.

Just a quick note here you don't forget that because you asked about homecare alignment just that's a quicker by the Calvin that.

We actually also grow by starting up new providers and so even with the claims alignment we will grow with claims alignment because we havent you providers come again.

A quick note that that's how we also ground.

Okay.

And the other thing I want to ask was.

So you mentioned the big drop in MLR sequentially and that came in a little bit better than what we were looking for but then you still had the PDR in the quarter.

Can you talk about what's driving that and whether the PDR is primarily driven by Medicare advantage or direct contracting.

Yeah.

The PDR I think was was.

MAA.

Mark just correct me if I'm wrong on that yes. It is M. A and it's essentially a timing issue between when we receive claims and what we expect the IP in order to run out to be.

Alright, thanks very much.

Yeah.

Your next question is from the line of Gary Taylor with Cowen Your line is open.

Yeah.

Gary are you there.

So you might have your line on mute.

I'm sorry can you hear me now.

So yes, we can hear policies.

Just following up on the PDR question So I.

Do you think it's the second quarter in a row theirs, they're spin months when you think about your 'twenty two ml.

MLR guidance, which you generally putting MLR, excluding any PD or theres, none contemplated.

In addition to that gap.

<unk> guidance is that correct.

That's correct.

And another question is.

Apologize I missed maybe the first five minutes of the call, but why did.

Why did the direct contracting.

Economic performance improve so much sequentially. When I think we're still you know eight or nine months out from a CMS reconciliation what allows you to to book closer to breakeven result, there.

Yeah, no. It's a great question.

There is a large part of it.

And as much again as a reversion to the mean in our markets on med ex trend as well.

<unk> guided throughout the year indicated theres been a unique impact in some of our markets, where we're obviously an MAA wishes Jersey.

But also in direct contact we do have meaningful lives.

New Jersey, New York area. So that's one.

Area, Secondly, hard to estimate the exact impact, but we're now at about a 60% kloeckner assistant visit rate.

Indirect contracting and we hope to kind of get to.

Meaningfully above 70% by the end of the year as.

As we shared in our going public process.

Our MCR cohort data with physicians.

There's a pretty significant impact that COVID-19 assistant has on med X as well, which is the entire crux of the direct contracting model.

Got it and then last question did I Miss parent cash for the quarter I presume that'll be in the Q, which I might've seen that flashes and a chance to look at a few of parent cash for quarter end.

[noise] unregulated I think.

Yeah.

We don't but we can follow up with you on that.

I don't think we've looked at it and I think there's.

We'll probably be in the filings.

Thank you.

Yeah.

As there are no additional questions from the phone lines, we will now shift to take questions from ready with that I'll hand, the call back to Derek sure.

Thank you. So our first question comes from flat do 88.

I'd like to know the general market hasn't he seems to hinge on the previously reported MCR.

Does the company have guidance on a path to lowering MTR.

This new business model, what MTR would be deemed a success and leadership side, what adjustments have you made to reaching this goal.

I'll be back.

Yep Thanks, Eric.

Question two.

To answer very specifically and go through some details.

We'd love to get to and we think very very achievable is mid mid eighties MCR.

But paired with.

Really phenomenal plan designs, even more improved from where we're at now so when we think about our normalized MCR now where we're in the low nineties kind of 94 or so 94%.

When you pro forma that for three and a half stars. We're now kind of at the 90% number when you pro forma that for 4.0 stars were that in the low to mid eighties already that doesn't take into account again any improvement croutons coming from corporate assistant.

Or improve corporate system coverage.

I think there's two really interesting dynamics going on one is there are clear heavy heavy public policy headwinds against all of the large.

Players and all players that rely on narrow networks or competition type of relationships.

Those are going be tailwind for us as those come to fruition over time.

On the Star rating side, it's just a matter of time and.

And we can be patient about this we're happy to be where.

Our health equity summary score is going to drive impact on star ratings are eventually is our belief.

And even despite that we feel really good about achieving these numbers.

Without having those policy changes made but inevitably there is going to happen at some point in time.

Yeah.

Okay.

Our next question comes from Winky 86.

So we know that the Clover assistant.

It provided in getting a more comprehensive look at patient.

But I would like to see some metrics or key performance indicators on how often it's being used what has asked me to do and maybe areas things medical issues were addressed that would not have addressed if it wasn't for clever assistant being in place Andrew.

Yeah. Thanks, Nikki appreciate that so our product team at Tech team are looking at metrics like these all the time.

Absolutely vital to us.

To keep building the platform looking at how we iterate look at how we can provide better value in terms of credit management.

Sure some additional facts.

We said it today that we grew 223% year over year.

Whoever sits that lives on their management, we showed up before about 2500 M P either using the whoever it which is around 45% year over year.

So there's a lot of impact that we see really good engagement really good growth in the clover assessed that footprint. The number of visits have also increased about 33% year over year in the third quarter.

Surface about $1 3 million recommendations to physicians.

That's kind of the corporate so that's something that we're really really proud of it all of it with high engagement of that wide network right. We're constantly growing morphia users growing that engagement within the CAGR is a cohort I will launching clinical content into the actual just that all the time right along the lines of what was stated in the question.

Like we showed a lot of information, we make evidenced based suggestions to say have you considered personalized care plans et cetera, et cetera, and so we have a roadmap with those things we don't share engagement statistics around those it's something I'll bring back could affect people see whether we can maybe put up some additional information for people who are interested about what we are.

We're seeing it I'm sure some more of that we don't do that during earnings, but we'll think about it going forward. We're really proud of what we've achieved so far though like you said and where we continue to drive that up to the right.

Our next question comes from Bruce Lever, how is the CFO search is going and do you foresee an announcement in 2021, maybe I'll hand, it to mark.

Yeah, the churches actively underway.

Each search carries its own life.

So it's hard to predict when it will be concluded but it is active.

We are receiving are candidates to evaluate so it's well underway.

In the meantime.

I will remain in place until that transition begins.

Okay.

I'll just add in the Mark the team that.

That we've assembled and then some.

Thanks, Mark has brought on has given us a lot of <unk>.

Bandwidth and runway to be patient and really bring on to the next great candidates.

Great. We have another question from low brow high standards. When you say your mission is to improve every life does this mean you envision the future of clever assistant expanding its radius beyond Medicare advantage individual.

Can one expect that clever how it grows to eventually see the clever assistant deployed for the use of the general population.

If so what metrics are you waiting for it to expand into the open market.

Andrew why don't you take this question.

Yeah I'll jump in first and then talk to Vivek.

Whoever assistant perspective, our goal here is to help as many people as possible.

It was built to help manage chronic disease to help them manage a popular repeat precision medicine to a large population of that wide network and those concepts are applicable to pretty much all of health care. So while we do use Cobra assistant first within our Medicare advantage plan, but then we launched it within direct contracting to the fee for service population as well.

And I think you'll see that we're able to bring it into the future and so many other places, including potentially third party Payors, who could also use whoever system or any what repairing risk.

There's a ways that we can actually help them have those folks be managed with CA as well that's why we shared the lives under Clover assistant statistic.

I'll stick of any particular business line I, we're always looking for ways to increase the total number of lives under corporate assistant management, because that's what we built it to do.

Vic do you want to add anything yeah, yeah. The only thing I would add is since the founding of the company. Many years ago, we've always been clear and very intentional about saying every life and not every Medicare life as their mission.

And our mission our mission is where we want to get too over the long term.

And.

We feel while ambitious it's something that we will achieve over time.

Great. Our last question comes from slight diet.

This club intends to expand into managed care plans for Medicaid and any of the 50 states.

Or to license Clover assistance companies that provide that such coverage.

Vivek.

Great question.

We definitely especially of late been actively thinking about.

Ways to drive massive positive impact into Medicaid.

From a mission perspective and ability to drive unique impact there. We think we can be well positioned particularly around the COVID-19 assistant infrastructure the goal.

I'll stop there, but we will we'll share more on that.

Future.

Yes.

I'll be back you want to give any closing comments.

The big Big Thank you to the team for a really.

Tremendous quarter and huge improvement versus Q2.

And we're excited about.

What's happening on the growth side on MAA and fee for service.

Really really big milestone for us to get to pretty mass attraction in Georgia, and we think that's really exciting for the next many years.

Yeah.

This concludes today's conference call. Thank you for joining you may now disconnect have a great day.

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Thanks.

Okay.

Okay.

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Good day, and thank you for standing by welcome to the Clover House third quarter 2021 earnings conference call. At this time all participants are in understand only mode.

After the Speakers' presentation, there will be a question and answer session to ask a question during that session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your first speaker today, Dark Neuman, Vice President of Investor Relations. Thank you.

Please go ahead.

Yeah.

Good afternoon, everyone. Joining me on the call today is our CEO Vivek Air Pally, our president and CTO, Andrew light and our interim CFO Mark Herbers will discuss third quarter results recent trends and answer your questions.

The call today is being recorded before we get started I would like to remind you that our third quarter earnings materials, including that really are available on our website Clover house Dot com.

I'd also like to caution you that we may make forward looking statements during todays call that are subject to risks and uncertainties factors that may cause. These actual results to differ materially from expectations are detailed in our SEC filings, including in the risk factors section of our annual report on Form 10-K for the year ended December 31 two.

20, and in our periodic SEC filings, including our quarterly report on Form 10-Q for the quarter ended September 32021.

Information about non-GAAP financial measures referenced including a reconciliation of those measurement to GAAP measures can also be found in earnings materials available on our website.

With that I will now turn over the call to be back.

Thanks, Derek and thanks, everyone for joining us today corporate wide network and the Coker assistant platform helped drive record growth in the third quarter and was complemented by a significant decrease in MCR.

We believe our technology enables us to deliver lower cost plans without compromising access or quality, while also addressing head on one of the most important public policy issues health equity.

Our mission to improve every life is firmly on track as is our objective to create a health care company that is sustainable for all of our stakeholders.

We serve a broader variety of communities than is typical in Ma.

Approximately 66% of our members living communities in the top half of the area of deprivation index and approximately 49% of our members who self identify our minorities and we are proud that we had been identified as a high performing and a plan based on a prototype of the health equity summary score we.

Published an extensive white paper on Friday that details how our approach works to create a more equitable health care system and a strongly recommend you all read it.

Getting into the key highlights from the quarter.

Our revenue was $427 million up 153% year over year lives undercover management more than doubled year over year due to the launch of a direct contracting and our EMEA business continued to grow well above industry averages.

Our GAAP MAA MCR improved by 850 basis points compared to the second quarter and we saw a similar improvement in direct contracting where we are nearing breakeven margins.

The Covid assistant continues to be a differentiator with EMEA MCR differential over 1000 basis points for returning members, who see a P C P versus those who don't.

And we are doing this while operating on a wide network and driving a positive impact on health equity with more minority or underserved beneficiary has been typical for Medicare providers of scale.

Colbert is building a next generation health care company centered around technology, and physician enablement, which we believe gives us access to a much larger serviceable addressable market in Medicare that our competitors have this has helped us drive significant year over year growth in revenue and lives under management be in both Medicare advantage and original Medicare fee.

For service, we believe we can pursue the full potential of the trillion dollars Medicare market as evidenced by our ability to use the club assistant in both the Medicare advantage market.

And the fee for service market via direct contracting.

Our wide open network provides us with the ability to grow in geographic areas, most traditional incumbents and new upstart to historically avoided. This is important as we think about sustainable growth not just in the next year or two but also over the next five to 10 years as we continue to increase physician access while driving more affordability and <unk>.

Improved clinical decision, making.

A recent proof point that our approach is working as the recent upgrade of our PPO plan to three five stars.

We were able to accomplish this in spite of operating on a wide network and what that minority member population that is significantly higher than the MAA average not only does the stars upgrade highlight our approach and operational execution, but it will also have a significant financial benefit in 2023.

Focus is now towards achieving 4.0 stars something which we are striving to accomplish measurement of year 2022.

I am proud of our recent results and the stars upgrade.

Equally excited about how Medicare policy is evolving to support our approach.

First COVID-19 has focused policymakers on improving health equity for the Medicare population Clover is a leader in health equity nearly 50% of our members who self identify our minorities and we were identified as a high performing MA plan based on a prototype of the Medicare advantage health equity summary score.

Second we expect there will be increased scrutiny on practices that increase incentives towards the risk adjustment factor directly or indirectly ranging from full capitation to employment based models and also narrow network models.

<unk> model is designed to ensure that our payment model focuses on clinical value with zero incentives for increased coating. We vigorously support any policy proposals that create dramatically heightened rigor around risk adjustment, especially when it comes to perverse incentives.

Finally, we believe there will be growth challenges for narrow network plans as we discussed earlier Hoover assistance ability to support care management on a wide open network is a true differentiator, which unlocks populations that are not financially attractive for competitors.

Another validation of our approach is demonstrated by the growth of the PPA market, which is M. A has grown at a roughly double the CAGR compared to the HMO markets since 2016.

This is important as it highlights we are competing in the right part of M. A in short we believe covers ability to improve health care for a broader swath of Medicare eligible reaffirms our approach and our massive long term potential with that let me handover the call to Andrew to talk about Clover assistant and specifics around how it is driving a difference.

Thanks Vivek.

Similarly proud of the results we reported this quarter.

As a reminder, our vision is to transform health care through personalized data driven primary care powered by the quiver assistance.

And unlike most other approaches C. A allows us to manage that care over a wide open network of positions that give broad flexibility and choice to our quiver members.

I have to clearer assistant evolves, we believe it will continue to help drive better outcomes for all constituents physicians patients and the government.

We are absolutely focused on developing and shipping fee. A features improved physician enablement throughout our wide network driving things like care gap closure personal life evidence based medication recommendations earlier double diagnosis and care planning all of which we believe lead to better outcomes book whoever members at lower.

Cost to society.

This is best highlighted by the fact that it may members, where Cobra is that primary care providers have MTR that was over a 1000 basis points lower than those with a non fee a primary care provider.

Further we believe the impact of the Clipper assistance compounds over time during 2021 members with PV piece that went live on Clover assistant in 2019 have had a lower MTR that members with PV P. If you went live on Quivira system in 2020, and the corresponding 2018 cohort had a low.

MTR than the 2019 cohort.

Additionally, the differential between the 2018 cohort and the non C. A P. C. P cohorts, what's significant at over 500 basis points, highlighting the value of the COO over assistant.

In short our data suggests that the longer a P. C. P uses the Cobra assistance for care management, the lowered the MCR of that patient.

The important point is that we will continue to focus on executing on our strategy deploying <unk> systems continuing to rollout features to make it easier for people to make data driven care decisions are driving other operational milestones such as a round start.

Another key statistic lives under Cobra Assistant management grew 223% year over year to approximately 94000.

Driven by an increase in the number of clinicians that use the clearer assistance to approximately 2900 in the third quarter.

Approximately 45% from a year ago, and we expect this to increase as many new direct contracting providers come onto our platform on January one.

We are also increasing engagement.

Our system has surfaced approximately $1 3 billion in production recommendations since its launch on Clover assistance visits grew 73% year over year in the third quarter. This is important as these visits and physician interactions provide us with a feedback loop to help us constantly improve the platform.

Over the past quarter. We also began the rollout of a significant update opex over a system.

That improving primary care physician workflows, and adding interoperability features enabling the clover assistant to integrate with electronic health record systems.

We intend to further develop these features including key capabilities around single sign on charter integration and other features that we believe will drive up engagement, even further by improving physician quality of life.

We've also launched an exciting new feature to enable people to have easy access to care management support services are Ralph oncology.

We believe this is a really powerful capability all the clever assistance, where we can leverage our high engagement with P. C piece I put advanced care management capabilities provided by expert at their fingertips.

Oncology is the first area, we are supporting and we plan to continue to launch similar capability to cover additional conditions.

To close I believe the Clover assistant is working as envisioned on our wide network the rollout and upgrade to our latest major release of CA is almost complete and this new framework will allow us to rollout clinical features even more quickly our software based scaling model allows us to target underserved segments in Medicare advantage.

Expand our direct contracting entity factor that most and achieve synergies with physicians who benefit by role include risks set out to both M. A M D C Austin simultaneously.

With that I will now how does the market for the financial update.

Thanks, Andrew we delivered $427 million in revenue in the third quarter.

153% year over year.

This growth was driven by the launch of direct contracting and growth in our M. A membership.

As of quarter end.

Now have approximately 129100 lives under management roughly doubled third quarter of 2020.

This is comprised of <unk> membership and direct contracting lives of 67281.

And 61818, respectively.

Moving to MCR, our net medical claims incurred for the quarter were $436 million down from last quarter and up year over year, primarily due to the inclusion of direct contracting.

R M. A gap MCR was 102, 5%.

850 basis points from the second quarter.

The sequential decrease was driven largely by operational efficiencies a decline in direct COVID-19 costs and seasonal trends.

Also our non-GAAP normalized and a N C. R was 94, 8% down 150 basis points as compared to the second quarter.

We also recognized a premium deficiency reserve in the quarter equating to an expense of $28 million.

Direct contracting medical claims incurred on a GAAP basis were $228 million and our margin improved significantly and our second quarter of operation to a 102, 4%.

Excluding direct COVID-19 costs and prior period development.

Non-GAAP adjusted direct contracting margin.

101, 4%, which puts us near breakeven and what represents a significant improvement over last quarter.

Third quarter, non-GAAP, adjusted operating expenses, which excludes noncash stock based compensation.

From salaries and benefits plus general and administrative expenses were $72 3 billion.

Presenting 17% of total revenues.

It's a $45 million and 27% of total revenues in the third quarter of 2020.

We expect adjusted operating expenses become a smaller portion of revenue as the CRO and drive efficiency, which is a key focus in our 28, new operating strategy.

Our adjusted EBITDA loss for the third quarter was $102 3 billion compared to $138 7 million in the second quarter.

And $20 million in the year ago quarter.

After excluding gross loss from direct contracting and normalizing a bit.

For the MTR impact of Covid.

Normalized adjusted EBITDA loss for the quarter was $61 1 billion.

Our GAAP net loss for the quarter up $34 5 million compared to net income of $12 8 million for the third quarter of 2020.

This included a noncash benefit of $134 5 million relating to a change in the fair value of the warrant liability.

Clover had approximately $414 6 million shares outstanding at the end of the third quarter, including $9 four.

Additional million shares related to our warrant redemption.

Our cash cash equivalents and investments.

Hold up totaled $588 6 million as of September 32021.

Now moving to guidance.

For the full year 2021.

Total revenues are expected to be in the range of 1.42 billion to $1 $4 7 billion.

This reflects and they revenue of $780 million to $790 million.

And Medicare direct contracting revenue, a $640 million to $680 million.

Medicare advantage membership is expected to be in the range of 67000 368000 by December 31 2021.

Direct contracting beneficiaries are expected to remain roughly flat for the remainder of the year.

Normalized non-GAAP MCR for Medicare advantage, which again adjusts for the impacts of COVID-19.

As expected to be in the range of 94% to 96% for full year 2021.

We estimate full year non-GAAP, adjusted operating expenses, which exclude stock based compensation expense.

We'll be between 270 and $280 million.

Non-GAAP normalized adjusted EBITDA loss is expected to be in the range of two.

$150 million to $230 million.

Wrapping up we had a good quarter with strong revenue growth.

Lower medical expenses, and significant operational execution, and planning, which will benefit us in future quarters.

I'm going to pass the call back to Vivek in a minute, but first I just wanted to quickly clarify something I said in my prepared remarks, and make one final comment.

I misspoke earlier, the noncash benefit relating to a change in fair value of the warrant liability was actually a $115 $2 million not the $134 5 million previously mentioned.

And we had approximately 426 million shares outstanding at the end of the third quarter.

Which as I mentioned before includes the additional nine 4 million shares related to our warrant redemption.

Finally, I just want to reiterate that we improved our gap MAA MCR by 850 basis points in Q3 compared to Q2.

As our MCR is reverting to the mean in contrast, other public companies, who have reported as of today have reported plus or minus approximately 100 basis points change quarter over quarter.

With an overall average up 31 basis points we.

We believe this highlights that our NCR is reverting to the mean and that our core New Jersey market has had more variability than most other markets.

Vivek will now provide some details on 2022 around M&A and overall expected operating efficiencies.

Thank you Mark before taking questions I just wanted to provide some high level thoughts on 2022, mostly focused around our Ma business.

We expect another strong year of above market growth driven by continued success in our second year of direct contracting for Medicare advantage.

Vantage, we preliminarily expect our membership to average 82000 for the full year.

Next year, representing an acceleration in year over year growth to more than 20%. This is being driven by continued market share gains in new Jersey, and strong growth in Georgia, where we expect to double members to a projected 2022 average of 8500.

In direct contracting we expect significant growth in 2022 up from current levels and plan to provide more details as expected lives are finalized similar to this year almost all growth will come through claims alignment.

At the same time, we expect meaningful reduction that MCR as we drive continued clinical program enhancements improved risk scores and as COVID-19 becomes less of a direct and indirect impact. We expect this to lead to MA GAAP MCR in the range of 95% to 99% and an improved direct contracting margin both of which are well below.

Where we've been throughout 2021.

Further as we look beyond 2022, we expect three five stars so having meaningful impact on 2023 M. A M. C. R and we currently expect that impact to be in the range of 300 basis points to 500 basis points importantly, the potential achievement of three five to 4.0 stars would have an even higher.

Future benefit to MAA MCR than the movement from $3 <unk> to three five stars.

Finally, despite the Covid impact this year Clover has made significant strides in its planning towards achieving profitability as we head into the new year. We are excited about our planning process focused on the following three phases number one leverage our physician centric model, which will create unique operating cost synergies across multiple lines of business and they in D. C.

He he start number two continued favorable negotiations with vendors, who see the business value of having Cobra is a partner and number three leverage human assisted automation technology to achieve efficiencies that are unique to quarters organic growth. We believe we'll make significant progress over the next 18 months that will also show in our operating.

Over time, we believe we are executing on our mission to improve every life and then our results this past quarter, our early proof points of that execution.

Sure we get the question as a reminder, that we publish an extensive white paper on Friday the details how our approach works to create a more equitable health care system.

We recommend that you all read it with that let's take questions.

Thank you Sir as a reminder.

You will now begin the question and answer session as you've done in the past who'll be taking questions first from analysts followed by reading answering questions do you see from read it.

To all participants if you have a question. Please press star one on your telephone keypad again, that's star one on your telephone keypad. However, if your question has been answered or you wish to remove yourself from the queue. Please press the pound key standby, while we compile the Q&A roster.

Your first question is from Kevin Fischbeck with Bank of America. Your line is open.

Okay, great. Thanks, I guess looking at the 2022 guidance.

I guess when I think about the normalized MAA MCR that your guidance for this year I kind of think that the gap MAA MCR for next year should be comparable but youre looking for MLR to be up next year on that basis.

Is there something we should be thinking about as far as next year's GAAP MLR or is there a reason why MLR would be higher than the normalized MLR this year.

So we've embedded next year.

A few hundred basis points of a potential COVID-19 costs next year.

Yeah.

Okay. That's helpful is that kind of just pro rata or do you really.

In the first half year or so.

Any color on that.

Yeah, I think we didn't.

Attempts to make assumptions as to how COVID-19 costs were would trend next year.

So we did a reasonable estimate kind of throughout next year.

And we think were pretty modest in terms of how we've assumed.

Impact of clinical program enhancements risk adjustment.

The goal is to really put forward, what we felt really comfortable as an estimate and we feel really good about it I am at the same time as we mentioned Kevin.

None of US really know what what is going to be an impact of Covid next year at the same time, we thought it was.

Appropriate to embed some some reasonable assumption baked into next year's numbers. So I wouldn't view next year's gap.

Estimates as normalized so we would still we're still assuming there'd be a meaningful spread between.

M. A GAAP MCR next year and normalized M&A MCR next year and so that's right.

Our focus just on GAAP projection for next year.

Okay, but is there a way to think about that it sounds like.

In the commentary was that you expect improvement.

I wasn't clear what you were just saying improvement versus this year's GAAP M. M N C or where do you expect that gap versus less from 'twenty to 'twenty. One is normalized is relatively flattish or do you think it will actually show improvement off of a normalized normalized normalized too.

Yes, so we purposefully showed gap for next year as part of our guidance and so we're comparing GAAP to GAAP.

So just from from a expectations perspective, we think it makes sense to stick to gap is only projected guidance, but our goal would be to to surface.

Normalized MCR numbers as we report next year.

But to be clear, we did we did bake in a few hundred basis points of Covid impact next year.

Yeah.

Okay.

That's helpful and then I guess as we think about the D.

D C performance.

<unk>.

Why.

Do you think that it is that the new membership growth, there's still going to be driven largely by direct.

Direct attribution.

Are there structural reasons why or is the delay in getting the other kind or.

How should we think about that.

Yes, I think also.

I know, there's a lot of talk about kind of voluntary alignment models. The actual public policy intent. The direct contracting was not meant to focus on voluntary alignment claims alignment is really should be the driver.

<unk> for direct contracting.

We do think.

And folks are going to look closely at that from a policy perspective.

Purpose of voluntary alignment is really to take into account those who are switching from back to say the practice speed or a year are those aging into Medicare into a practice.

So again can't comment on on kind of other organizations models, but put simply claims alignment should be the bulk of the enrollment.

And then voluntary alignment over the course of your tends to.

Even out as it relates to.

At least what we've seen those who churn out of a practice or <unk>.

Mortality.

But as we talked about and kind of from a guidance perspective.

We as long as the lives numbers get finalized we will expect to share that guidance and we feel really good about.

The D C E growth.

From this year going into Jan one next year.

Okay.

Yes.

The membership numbers for next year.

Are you looking for largely in line with what we were expecting but I guess, maybe just any color.

Last year, you talked about how COVID-19.

Covid disrupted some of you in person marketing and just maybe give some commentary about how you are feeling about the in person marketing versus the.

No.

More and more online and telephonic broker engagement.

Yes, so we.

I'd frame.

Frame it in kind of two different ways, where we believe that in terms of paying for digital leads.

It's not an area that we focus on we know many.

Most competitors.

Pay a lot of money for digital leads our our reluctance with that.

There has been a very high growth rate 20, 30% compounded growth rate in digital lead costs over the last three or four years, we have not relied on that to all of our growth is what we would call pure MA growth so driven by field.

Field sales, which obviously was impacted last year a bit this year.

In terms of what we'll see I think but definitely a meaningful recovery from last year.

Then just inbound calls from.

Clover marketing and.

And that's been effective as well I think part parcel to that as we get as we described.

In.

And the guidance part.

He has been our.

Main market for many years.

Very unusual in the sense of there's very few MA plans across the country that have gotten to as large market share in a significant market like clover. So we're now.

Depending upon what metrics you look at.

Were number two in individual MA non D SNP market sharing in New Jersey up from zero seven.

Seven eight years ago.

As Youll see in Georgia, and will share more numbers as the year goes on early next year.

We are we believe will double going into next year and Georgia membership now.

Looks very familiar to me in the sense of how new Jersey was tracking in the first four to five years. So it's really exciting for corporate to fully establish now not just a flag in any market, but in a state that we think is going to have a similar trajectory to two new Jersey over the next many years.

Okay, and then maybe last question.

Slide with a bridge to kind of longer term MLR improvements helpful.

Should we think about stars improvement leading.

Leading to MLR improvement that way or is there some balance.

Reinvestment back into benefits.

Overtime as you get to four stars.

I I think it's fair to to.

We shared the graph that you are referencing the year to date through September 32021 long term pro forma in MCR graph in the earnings release so.

The way I would view it just from a modeling perspective is to assume that that goes straight to gross margin for a couple of reasons. So we share in kind of three to 500 basis point estimate for three and a half stars.

Given where we where we bid well below the benchmark, we think 500 basis point plus going from three and a half to four stars is fairly logical and straightforward and easy math to run.

The reason, we believe a lot of that is going to go to two straight to gross margin as we have an embedded in that long term pro forma illustrative example, any assumptions around improved quiver assisting coverage or improved and new features to quote for assistant.

Which we're super excited about in terms of what we're gonna be rolling out over the next 18 months or so.

We would expect.

Value, that's driven from there our goal would be to take some of that and give it back to consumers in the form of better benefit design. So that's where we think that will come from in terms of <unk>.

Improved value to consumers.

Yeah.

Thank you.

Your next question is from the line of Ralph Giacobbe with Citi. Your line is open.

Thanks, Good afternoon, just wanted to follow up on the.

2022 MLR and just.

Make sure I'm following GAAP MLR next year, you're saying is 95% to 99% you said a few hundred basis points sort of from a COVID-19 next year, so they're not in the deal or for a spot estimate, but it would take 300 basis points off that it would be sort of a 92 to 96 range would that be comparable to the 94 to 90.

Six normalized <unk>.

Far from this year is that a way to look at it or or now.

No I don't I don't think that's a wrong way to look at I think that's a fair summary.

Okay Alright, great.

And then I guess from.

From a non COVID-19 utilization standpoint can you give us.

You know, where we are relative to 2019 baseline and maybe how you see that playing out in 'twenty two or what your assumptions include four you know sort of non COVID-19 related utilization.

Yeah, Yeah. So.

So Marc referenced this in his summary, we definitely see.

A very large reversion to the mean happening just to reiterate what Mark had said earlier, we had an 850 basis point drop in MCR from Q2 to Q3.

That is unheard of in Medicare advantage, clearly, it's driven by a reversion to the mean.

And that's something we've been talking about throughout this year is that.

Uniqueness of the New Jersey market you look at all that the players that are publicly traded M&A.

None of them had anywhere close to that drop in fact, most of them were actually up a little bit in terms of NCR.

I mean, we've done some more just basic analysis on our side probably share some of this in terms of the graphs, but when we look at just our P. M. P. M med acts by quarter, we actually had a when we compare back half of <unk> 19, compared to back half of 18, we actually had a pnp on allowed cost drop and Fedex.

And then 2020 in 2021 happened.

And creative Wild gyrations.

We're reasonably confident that the reversion to the mean is going to continue.

And I think Q Q2 to Q3 is a perfect example of that.

We expect.

That to continue going into Q4.

Throughout next year now again.

You know, there's there's there's no way to kind of estimate COVID-19 impact next year, but we've done our best to do that in terms of the gap and see our guidance for next year.

But I just wanted to clarify I mean I appreciate the comparison to some of the publicly traded managed care companies Youre talking directly sort of Medicare related MLR, because I think the commentary from most of the publicly traded was that commercial was was up in Medicare actually still remains fairly.

Fairly well below baseline so just want to make sure I'm comparing sort of apples to apples in that comment.

Yeah. So if you look at Humana for example, they went from 85, 8% MCR to two they ticked up to 87, 1% MCR in third quarter.

It's about 130 basis point move.

To the wrong side Q2 to Q3 I know there are not a pure play I'm a plan, but they're probably closest to a pure play and a plan that is national So I think that's a good comparable to see that they are.

Went worse by 130 basis points, and we went better by 50 basis points I'm, only saying that to demonstrate the impact of the new Jersey, specifically and a reversion to the mean that we're now experiencing.

Okay, Alright makes sense that's helpful and then last one for me.

Just in terms of I mean, you know membership now that you expanded into a number of counties for next year I think above original expectations going that I looked at your sort of expected MMA lives of 82000, it's below the original targets, which I don't know how how much we should be sort of looking at benchmarking against that original.

Target, but I guess.

Is there anything you sort of attribute to maybe the lower capture initially than what you originally thought or are how you can build that sort of presence and scale as you think about things going forward. Thanks.

Yeah. That's a great question, we feel really good about our growth to two reasons.

There are almost no MA plans, the United States that are as high market share in a region like I was in New Jersey. An example that are maintaining the growth rate that we're maintaining them. So typically a growth rate is pretty high when you're at.

At the bottom of market share so you're growing over a small base so to see us still have really strong growth in a market like New Jersey, where we keep it up.

We think we can get the number one share over time in New Jersey, when you take into account the synergy of our business. So when we think about Medicare advantage, we think about it really in terms of <unk>.

Physicians that we get on Clover assistant and then lives being being actually managed by corporate assistance. So.

We're not too far off in New Jersey, where our.

Clover It will have the most Medicare lives in the state being manage when you include fee for service and MA and that's a pretty impressive accomplishment and then when we looked at Georgia.

That's a market that we're growing off of a fairly large base.

Where we think we're going to double or more going into January one and that trajectory. We think is going to set us up pretty well.

To replicate what we've done in New Jersey.

And that's as we think is unique and very hard to build is to get to really high share in large markets and that sort of goal versus just spreading everywhere and getting minimal share across a bunch of markets. At the same time, just referencing kind of point I made earlier I do really believe a lot of the growth that's happening in M&A outside of Covid is not of high.

Quality, there was a lot of dollars being poured into purchasing digital leads.

It is not a game, we're gonna play because we don't view it as sustainable we don't see the Capex is sustainable and so we view all of our MA growth is truly pure.

Versus buying leads that ever increasing costs and we just view that that game is going to end over the next two to three years.

Okay got it alright helpful. Thank you.

Sure.

Your next question is from Jonathan Young with Credit Suisse. Your line is open.

Thanks I appreciate the question I'm sorry to go back to this just back on the 2022 MLR I appreciate the comments about 100 bps of coffee costs.

But I guess, you've broken out kind of excess utilization now are you assuming any excess utilization in 2022, and then similarly are you expecting the MRI headwind from this year to effectively reverse all of next year or is there still some lingering component out there for 2022.

Yeah.

We do expect it to reverse to what we think would have been normal for for this year.

We think we've been pretty reasonable and our projection there.

And then when we described Covid impact it's meant to be a catch all the same way, we kind of view it this year, so direct and indirect COVID-19 costs.

And then also.

Pent up demand that could continue into into next year.

Again, it's hard to be.

Precise on that.

And we didn't want to get overly precise on the guidance and it's kind of a GAAP estimate versus just trying to get a normalized MCR estimate, but that's our that's our thought process, but we do feel really good about the range that we gave.

Okay, Great and then just kind of on the membership growth from nuts here since you called out Georgia as most of the growth that you thought you were kind of expecting to come through is that more kind of on the existing footprint or is that to the county expansion component.

Obviously, you expand until a lot of counties for 2022, So just curious on that.

Yeah. It's it's continued share in in the counties that we're in but also growth in the new counties.

We will.

We'll definitely share more.

Once open enrollment is completed but we just wanted to give folks a sense as to where we felt pretty good.

For next year in terms of overall numbers.

Okay, and then I guess, just turning to the tech side.

Andrew You mentioned, some some care management capabilities and integration with EMR is kind of what else is coming down the pipe and just on that care management is that is that all in house built towers that third party work that you are are you hiring a third party administrator for that and facilitating that do dumb things.

Yeah. So everything we're doing around there is scared and architected by us as part of the corporate platform. We do have some partners who are able to provide specific areas like integration or elect commodity after the fire API integration, where we can use those partners to actually pool of data faster, but we all consider that to be part of our COO.

<unk> platform. So that goes for backend data interrupt that also goes for EHR integrations that we talked about you'll see us launch more and more of the EHR integration to make sure that we are clearly focusing on physician workflow experience and engagement and driving those numbers up into the right.

In addition in terms of the critical future load we have a full back in terms of what we're looking to do there we'll announce those as those features come out, but what youll see US do is always be oriented towards is the visual condition therapeutics drugs around where we see that we can do better in terms of personalized data driven care.

Management a real.

A real war, so I mentioned all co with the call we have more of those come in.

Where we can pick a large swath of our population and give them a better more personalized care management and care planning experience and those will all launched within the whoever assistance surface.

Great. Thanks.

Your next question is from Calvin certainly with J P. Morgan Your line is open.

Yeah, Hi, good afternoon.

Just a couple of quick ones for me.

First on the D C E commentary in the press release.

Stretching a significant step up next year.

Can you give us any sense for just sort of the magnitude for how much enrollment and youre sort of expecting to come through in terms of the voluntary Hogan.

Yes.

We believe it'll be a <unk>.

Significant growth I think from a guidance perspective.

CMI is finalizing their initial.

Our lives estimates for it for Dcs over the next week or so so we made the decision to hold off on specific guidance till we get that that first vial.

Yeah.

Okay understood.

Yeah.

Just a quick note. However, you don't forget that because you asked about homecare alignment just because that's a quicker by the Calvin.

We actually also grow by starting up new providers and so even with the claims alignment we will grow with claims alignment because we have two providers come again, just a quick note that that's how we also ground.

Okay.

And then the other thing I want to ask was.

You mentioned, the big drop in MLR sequentially and that came in a little bit better than what we were looking for but then you still had the PDR in the quarter.

Can you talk about what's driving that and whether the PDR is primarily driven by Medicare advantage or direct contracting.

Yeah.

P. R. I think was was.

MAA.

Mark just correct me if I'm wrong on that yes. It is it is M. A and it's essentially a timing issue between when we receive claims and what we expect the IP in order to run out to be.

Alright, thanks very much.

Yeah.

Your next question is from the line of Gary Taylor with Cowen Your line is open.

Gary are you there.

So you might have your line on mute.

I'm sorry can you hear me now.

Yes, Sir we can hear you apologies.

Just following up on the PDR questions. So.

Do you think its a second quarter in a row theirs, they're spin months when you think about your 'twenty two.

MLR guidance, which you generally reporting MLR, excluding any P. D R theres none contemplated.

In addition to that gap MLR guidance is that correct.

That's correct.

And another question is.

I apologize I missed maybe the first five minutes of the call, but why did well.

Well I did the direct contracting.

Economic performance improve.

So much sequentially when I think we're still you know.

Eight or nine months out from a CMS reconciliation, what what's allowed you to to book a closer to a breakeven result, there.

Yeah, no. It's a great question.

There is a large part of it part estimate as much again as a reversion to the mean in our markets on med ex trend as.

We've guided throughout the year indicated theres been a unique impact in some of our markets, where we're obviously an MAA wishes Jersey.

But also in direct contact we do have meaningful lives.

New Jersey, New York area. So that's one.

Area, Secondly, hard to estimate the exact impact, but we're now at about a 60% clover assistant visit rate.

Indirect contracting and we hope to kind of get to.

Meaningfully above 70% by the end of the year.

As we shared in our going public process.

Our MCR cohort data with physicians.

There is a pretty significant impact that correlation has on med X as well, which is the entire crux of the direct contracting model.

Got it and then last question did I Miss parent cash for the quarter I presume that'll be in the Q, which I might have seen that flashes and a chance to look at a few of parent cash for quarter end.

Unregulated I think.

We don't but we can follow up with you on that.

I don't think we've looked at it and I think it'll probably be in the filings.

Thank you.

Yeah.

As there are no additional questions from the phone lines, we will now shift to take questions from ready with that I'll hand, the call back to Derek sure.

Thank you. So our first question comes from flat do 88.

I'd like to know the general market Hasnt seemed to hinge on the previously reported MCR.

The company have guidance on a popular MTR.

This new business model, what MTR would be deemed a success and leadership side, what adjustments have you made to reach in the fall.

I'll be back.

Yes, Thanks, Eric.

Question two.

To answer it very specifically and go through some details.

We'd love to get to and we think very very achievable is mid mid eighties MCR.

But paired with <unk>.

Really phenomenal plan designs, even more improved from where we're at now so when we think about our normalized MCR now where we're in the low nineties kind of 94 or so 94%.

When you pro forma that for three and a half stars. We're now kind of at the 90% number when you pro forma that for 4.0 stars were that in the low to mid eighties already that doesn't take into account again any improvement prudent coming from corporate assistant.

Or improve corporate system coverage.

I think there's two really interesting dynamics going on one is there are clear heavy heavy public policy headwinds against all of the large.

Players and all players that rely on narrow networks or capitation type of relationships.

Those are going to be tailwind for us as those come to fruition over time.

On the Star rating side, it's just a matter of time and.

And we can be patient about this we're happy to be where.

Our health equity summary score is going to drive and impact on star ratings are eventually is our belief.

And even despite that we feel really good about achieving these numbers.

Without having those policy changes made but inevitably there is going to happen at some point in time.

Yeah.

Our next question comes from Winky 86.

So we know that the clover assistant assist providers in getting a more comprehensive look at patients out.

But I would like to see some metrics or key performance indicators on how often it's being used what has asked me to do and maybe areas things medical issues were addressed that would not have interest if it wasn't for clever assistant being at quite Andrew.

Yeah. Thanks, I appreciate that so our product team at Tech team are looking at metrics like these all the time.

Absolutely vital to us.

To keep building the platform looking at how we iterate looking at how we can provide better value in terms of care management.

Sure some additional facts.

We said it today that we grew 22% year over year to whoever says that lives on their management. We've said it before about 'twenty 900 M P either using the whoever it which is around 45% year over year and so the water <unk>.

The impact that we see really good engagement really good growth in the Clover assessed that footprint. The number of visits have also increased about 33% year over year in the third quarter.

Let me start with about $1 3 million recommendations to physicians.

That's another quote breakfast, there's nothing that we're really really proud of it all of it with high engagement of that why network right. We're constantly growing morphia users growing that engagement within the CAGR is a cohort I will launching clinical content into.

Two the actual.

That's all the time right along the lines of what was stated in the question like we showed a lot of information we'd make evidenced based suggestions to say have you considered personalized care plans et cetera, et cetera, and so we have a roadmap with those things we don't share engagement statistics around those it's something I'll bring back could affect whether we can maybe put.

Some additional information for people who are interested about what we're seeing it I'm sure. Some more of that we don't do that during earnings, but we'll think about it going forward. We're really proud of what we've achieved so far though like you said and where we continue to drive that up to the right.

Our next question comes from Bruce lever.

How is the CFO search is going and do you foresee an announcement in 2020, one maybe I'll hand, it to mark.

Yes.

Arches actively underway.

Each search carries its own life.

So it's hard to predict when it will be concluded but it is active.

We are receiving are candidates to evaluate so it's well underway.

In the meantime.

I will remain in place until that transition begins.

Okay.

I'll just add.

And the Mark the team that.

That we've assembled an.

And some additional thoughts Mark has brought on has given us a lot of <unk>.

Bandwidth run way to to be patient and really bring on to the next great candidates.

Great. We have another question from low brow high standards when you.

You say your mission is to improve every life.

Does this mean you envision the future of club assistant expanding its radius beyond Medicare advantage individual.

Can one expect as clever outgrows. So eventually see the clever assistant deployed but it used to the general population. If so what metrics are you waiting for it to expand into the open market.

Andrew why don't you take this question.

Yeah I'll jump in first and that's also the feedback that we're here for.

The quiver system perspective, our goal here is to help as many people as possible.

It was built to help manage chronic disease to help them manage a population.

Medicine to a large population of that wide network and those concepts are applicable to pretty much all of health care. So while we do use Cobra and first within our Medicare advantage, but then we launched it within direct contracting to the fee for service population as well and I think you'll see that we're able to bring it into the future. So many other places including potential.

Third party Payors, who could also use whoever system or anyone repairing risk.

There's ways that we can actually help them have those folks that'd be managed with VA as well that's why we shared the lives under Clover assistant statistic.

I'll pick up any particular business line I, we're always looking for ways to increase the total number of lives under corporate assistant management, because that's what we built it.

Do you.

You want to add anything yeah, yeah. The only thing I would add is since the founding of the company. Many years ago, we've always been clear and very intentional about saying every life and not every Medicare life as their mission.

And our mission our mission is where we want to get too over the long term.

And we.

We feel while ambitious it's something that we will achieve over time.

Great. Our last question comes from soy diet.

Club intends to expanded their managed care plans for Medicaid and any of the 50 states.

Licensed Clover assistance companies that provide that such coverage.

Vivek.

Great question.

We definitely are especially of late been actively thinking about.

Ways to drive massive positive impact into Medicaid.

From a mission perspective and ability to drive unique impact there. We think we can be well positioned particularly around the kovar assistant infrastructure the goal.

I'll stop there, but we'll we'll share more on that.

Sure.

Great I'd be back you want to give any closing comments.

A big thank you to the team for a really.

Tremendous quarter and huge improvement versus Q2.

And we're excited about.

What's happening on the growth side.

And fee for service.

Really really big milestone for us to get to pretty massive traction in Georgia, and we think that's really exciting for the next many years.

Okay.

This concludes today's conference call. Thank you for joining you may now disconnect have a great day stay safe.