Ladies and gentlemen, good afternoon, and welcome to the Clover Health First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Ryan Schmidt, Investor Relations for Clover Health. Please go ahead.

Good morning, everyone. Joining me on our call today to discuss the company's first quarter results are Andrew Toy, Clover Health's Chief Executive Officer; and Scott Leffler, the company's Chief Financial Officer. You can find today's press release and the accompanying supplemental slides in the Investor Events and Presentations section of our website at investors.cloverhealth.com. This webcast is being recorded, and a replay will be available in the Investor Relations section of the Clover Health website. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties, including expectations about future performance. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K. Information about non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be found in the earnings materials available on our website. With that, I'll now turn the call over to Andrew.

Thank you, Ryan, and thanks, everyone, for joining us today. We're very excited to be reporting our first quarter results, which marked an extremely strong start to the year and highlight the progress we're making towards our goals for 2023 and beyond. Starting with the headlines. We're excited to have delivered strong results in key areas of our business. We performed very well on Insurance revenue growth, which has increased year-over-year by approximately 14% in the first quarter. This revenue growth has also helped deliver favorable Q1 Insurance MCR of 86.6% and will flow through to a strong projected full-year Insurance MCR as well. And of course, all of this results in significant improvement in our adjusted EBITDA. This overall strong performance was driven by thoughtful plan optimization, significant enhancements to core operations, a focus on member retention as well as the improvement in our Star rating. We have been anticipating this step function change in our performance since we shifted to a profitability mindset. And I'm very pleased with how our team has executed. We also believe that our focus here has room for even more upside as the year progresses. We've aligned the organization to prioritize profitability, create shareholder and societal value and continue to enhance our Clover Assistant technology platform. We've meaningfully improved MCR and have delivered Q1 gross profit on both our Insurance and Non-Insurance lines of business. While not yet reflected in our Q1 performance, we've also recently announced important steps to drive operational efficiencies and thereby reduce SG&A. We believe that the combination of these effects demonstrates the power and sustainability of our model, and we see a path to achieving positive adjusted EBITDA in 2024. Speaking more on our Insurance line of business. We're very pleased with our MCR of 86.6% as compared…

Thanks, Andrew. I'll first touch on this quarter's financial highlights and then review our updated outlook for the full year 2023. The first quarter of 2023 was highlighted by another period of significant MCR and gross profit improvement for both lines of business, strong Insurance revenue growth, and the rollout of operating efficiencies that will result in meaningful SG&A savings once implemented. Starting with our Insurance segment, MCR improved to 86.6% this quarter from 96.4% in Q1 of last year. Our year-over-year improvement of nearly 1,000 basis points was driven by continued operational enhancements, including improved performance from Clover Assistant, more efficient managed care activity, a favorable mix of new versus returning members, a balanced and sustainable plan design, and an improved star rating for our flagship PPO plan. Revenue for the Insurance line of business grew 14% to $317 million in the first quarter, and we continue to focus on Insurance revenue growth. This quarter, Non-Insurance revenue decreased to $206 million, primarily driven by our strategy to focus on a narrower group of participant providers. We recently received an updated view of our aligned beneficiary count from CMS, which came in slightly below our initial estimate. This slightly lower beneficiary count will have a minor impact on our revenue for the year, though this revenue effect may potentially be offset by other program factors as CMS finalizes them. Our Non-Insurance segment MCR in the first quarter was 96.1%, which compares favorably to MCR of 99.8% in the prior year period. As mentioned by Andrew, this result does include some favorable prior period development, but we remain optimistic about overall improvements in 2023. I also note that because the ACO reach relies on retrospective benchmarks, we'll likely be exposed to meaningful upside or downside prior period risk as final benchmarks…

Thanks, Scott. Before we take questions, I'd like to quickly discuss our Clover Assistant progress. As a reminder, Clover Assistant's differentiated ability is to change the timeline of care through helping physicians with the early identification and management of chronic disease. We continue to see a significant MCR benefit from physicians using Clover Assistant. In the past, we've shared the 1,000-basis point MCR differential for returning members whose PCPs used Clover Assistant as compared to members whose PCPs do not. We continue to see this. And actually, our data shows that differential is often materially higher. This is due to our constant focus on making Clover Assistant the leading platform in helping physicians identify and manage disease earlier. In addition, we've recently seen a significant improvement in the world of healthcare interoperability, and this increased access to data, combined with recent improvement in AI technologies, make us very excited about progress on the Clover Assistant front. With that, let's move on to Q&A.

We will be taking questions first from Clover's research analysts. [Operator Instructions] Our first question will come from Jonathan Yong with Credit Suisse. Your line is open.

Thanks, for taking my question. I just wanted to ask on the improved MLR there. What did you kind of see in the quarter was -- did the COVID headwinds really abate a lot? How is the mix of inpatient utilization versus outpatient, et cetera, if you could provide any color on that? Thanks.

Yes, sure. So, we definitely saw -- thanks for the question. So, the COVID environment we're seeing is relatively stabilized, I think, at this point. We're not expecting to see anything materially happening according to our data. And I think that even from compared to a year ago, we're definitely seeing that things have stabilized. Nothing really strongly to note on the COVID front.

Okay. But I guess just in terms of general core utilization, are you seeing a bounce back with seniors going back to see their PCPs? Are you seeing more inpatient volume at all? Is it a little bit less than it would normally be, in your mind?

Yes. So, I don't think we're -- we're not seeing any suppressed utilization, definitely. We're seeing that sort of like going back, I think, on trend with the numbers looking a little bit like where we would see prior to COVID. And so, I think that on trend is what we'd say, controlling for the fact that COVID came in between 2019 and now, that we're seeing approximately what we would expect to see. So, I don't think we're seeing extra utilization. I don't think we're seeing suppressed utilization either.

Okay. Great. And then just my second question is on UST. I guess is the reason for the initiatives not yielding anything in '23 is more a contract timeline? Or I guess how come we wouldn't see any benefit in '23 at this time? Or is it more logistical? Thanks.

Jonathan, this is Scott. So really that's just a function of the implementation timeline. These back office and related non-core operations that we are moving over to UST are fairly complex operations and the transition in a manner that ensures mitigating any potential risk to the planned operations. And so that being the case, we really target largely an early 2024 implementation timeline for the majority of the work streams that we're moving over.

[Operator Instructions] And our next question will come from Richard Close with Canaccord Genuity. Your line is open.

This is John Pinney on for Richard. So, thanks for the question. So, with the Clover Home Care, you say it's like -- is it all in New Jersey at this point? And for 2023 for the foreseeable future, is it like expected to stay in New Jersey? And where exactly would be any type of expansion plans for that?

Yes. Thanks, Jonathan. So, with Clover Home Care, I'd remind that we're really excited about that particular initiative, and it is mainly serving in our New Jersey markets right now, which is where we launched the program. We've matured it there. We're excited by the results that we see. So, we have planned and thoughts about how we might bring it to other markets. Certainly, it's a core part of our care management service. It uses Clover Assistant. And so, we want to pass that operating in any market in which we have a strong material presence. But right now, it does operate mainly in New Jersey. Like I said in my remarks, we believe it's one of the largest home care-focused practices in New Jersey. We have plans to bring it to other markets, but we haven't formally announced anything there yet.

Okay. Great. And then also just on MA MCR, is there any type of like cadence quarter-on-quarter that you guys can call out or anything when we're thinking about modeling?

Regarding seasonality, basically?

Yes.

Yes. So, we would typically expect to see slightly elevated MCR levels in Q1, more pronounced in Q4 with kind of a flatter level of performance in the middle part of the year.

Okay. Great, thank you.

[Operator Instructions] There are no further questions in the queue at this time. I would now like to turn the call back over to Andrew Toy for any additional or closing remarks.

Sure. So, thanks for the questions so far. Just I'd like to end the call with just some thoughts on why I'm incredibly excited about the moment we're at within the healthcare industry and our ability at Clover to use our technology to power an incredible acceleration in physician capabilities. As a reminder, I've been involved with some of the most transformative moments of the last few decades. Moving to our technology has really created a step functional change in the capabilities of human beings. The previous company I founded helped deliver the mobile revolution, a revolution that has a lab, almost every person have access to supercomputing capability pretty much at all times. Next, at Google, I spent time focused on bringing the capability of the cloud to businesses all around the world to provide a level of real-time data interconnectedness that we've never really had before. And the final piece of this puzzle has always been my work around Artificial Intelligence and machine learning, incredible capabilities that I truly believe will be powerfully additive to the capabilities of all of us as human beings. These experiences are intersecting. And I truly believe that the time is now for the realization of these benefits in health care. At Clover, we built Clover Assistant to be literally that, an assistant to physicians to give them superpowers and let them access the power of cloud data, telemedicine, machine learning, and AI, all at once. And as a technologist, I knew that the key to this would be to make sure we get our platform implemented and used every day by actual real-world physicians on a wide network that has many different kinds of user personas. And in that slow-moving world of health care technology, this is no small feat. So, I…

Thank you, ladies and gentlemen. This concludes today's Clover Health's First Quarter 2023 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.