Ladies and gentlemen, good afternoon, and welcome to the Clover Health First Quarter 2024 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 afternoon, everyone. Joining me on our call today to discuss the company's first quarter 2024 results are Andrew Toy, Clover Health's Chief Executive Officer; and Terry Ronan, the company's Interim Chief Financial Officer. You can find today's press release and the accompanying supplemental slides in the Investor Events & 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 like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties, including expectations about future performance. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K and other SEC filings. Information about non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can be found in the earnings materials available on our website. With that, I'll now turn the call over to Andrew.

Thank you, Ryan. Clover is off to a strong start to 2024, and I'm very excited to share our results and improved full year guidance with you all today. Overall, first quarter insurance revenue and adjusted EBITDA performance exceeded our expectations. We believe this is evidence that our strategy and strong fundamentals are preparing us well for the future of the Medicare Advantage program. Let's begin with the overarching themes of our results today. Firstly, Clover was profitable in Q1 on an adjusted EBITDA basis, and we also have high confidence in achieving full year 2024 adjusted EBITDA profitability. Secondly, we have grown revenues in our profitable insurance business by 8% year-over-year. Thirdly, given our favorable business outlook, we feel very comfortable in our strong liquidity position, and we maintain our view that Clover has sufficient capital for our operating and growth needs. As such, we are pleased to announce that our Board of Directors has authorized a share repurchase program of up to $20 million of the company's Class A common stock over the next 2 years. Fourthly, we believe our strong performance continues to highlight our unique ability to operate a profitable Medicare Advantage plan on a wide network PPO chassis powered by our clearly differentiated care model, leveraging Clover Assistant's patented technology and Clover Home Care's high-touch clinical capabilities. Next, I'd like to give more color on our core profitability metric, adjusted EBITDA. During the first quarter of 2024, we delivered $7 million of positive adjusted EBITDA. We expect this momentum to continue and feel very confident that we will deliver full year adjusted EBITDA profitability. We have, therefore, significantly improved our guidance for the full year 2024 to a range of positive $10 million to $30 million. Our profitability performance was driven by continued outperformance in…

Thanks, Andrew. The first quarter of 2024 was, first and foremost, highlighted by significant year-over-year progress to our GAAP net loss from continuing operations, which improved $57 million to a net loss from continuing operations of $23 million from $80 million. And adjusted EBITDA improved from a loss of $38 million in Q1 of 2023 to a profit of $7 million during Q1 2024. Both of these results reflect Clover continuing to make impressive progress on its path to full year 2024 adjusted EBITDA profitability driven by solid insurance results and better management of spend and adjusted SG&A. Starting with our insurance performance. MCR improved to 77.9% this quarter from 86.6% in Q1 of last year, with insurance revenue growing 8% year-over-year to $342 million. As a reminder, our MCR does not include the quality improvement expenses that Andrew mentioned earlier, and we intend in the future to improve our transparency here to align better with industry standard loss ratio calculations. That said, this MCR improvement of nearly 900 basis points and incremental revenue growth was driven by a continued focus on optimizing operations, maturing processes to increase the accuracy of claims payment and risk adjustment, the added benefit of our transformation to refine and re-platform our insurance operations and also impacted by favorable prior period development flowing in from our strong 2023 performance. We have also focused on significantly increasing value delivered through our care management platform underpinned by Clover System and Clover Home Care, which helps us to deliver proactive care management at scale and bends the cost curve for our sickest members. On the adjusted SG&A front, I'm equally excited about the durable progress we've shown in our operating expenses, generating a year-over-year reduction in adjusted SG&A of 12% this quarter at $75 million as compared to…

Thanks, Terry. Before we head to Q&A, let me summarize the key points of the quarter and give some high-level forward-looking commentary. One, we exceeded our expectations on adjusted EBITDA and we're adjusted EBITDA profitable in Q1 and have high conviction that we will be profitable for the full year 2024. And as such, we have significantly increased our full year 2024 adjusted EBITDA guidance. Two, in the first quarter, we also exceeded our expectations for insurance revenue, which we grew by 8% year-over-year, and we improved our full year insurance revenue outlook. Three, we feel good about our balance sheet and liquidity profile and believe we do not need additional capital at this time. Given the tremendous improvement in our fundamental insurance operations and profitability mark, I'd like to give some commentary around our forward-looking strategy, particularly in light of some recent regulatory shifts. Firstly, we are in the middle of planning for a critical 2025 year. There are a number of changes in the industry, including the continued phase-in of the HCC V28 changes I mentioned earlier, the introduction of the IRA changes to Part D, as well as having a 3-star plan year for Clover. Overall, I believe that we are in a good position regarding these changes. As I said before, our Clover Assistant platform already conforms with many of the V28 changes, so we feel we are better positioned than others in the industry in that regard. With respect to Part D, we believe we have a powerful asset in Clover Home Care, which already services our most vulnerable members. These are the same at-risk members who often have very high Part D costs and enter the catastrophic phase. As such, we are already looking at ways to serve this population even better. Given that…

We will now be taking questions from Clover's research analysts. [Operator Instructions] We'll take our first question from Richard Close with Canaccord Genuity.

Andrew, congratulations on the progress. I was wondering if you could just sort of walk us through your thoughts on the progression of adjusted EBITDA through the rest of the year. I guess there's a lot of moving parts, obviously, what you're doing with respect to the Change Healthcare hack and some of the other dynamics. So if you could just walk us through maybe the quarter, how you're thinking about the quarterly progression, that would be helpful.

Yes. Thanks, Richard. Appreciate it. So as we said in remarks, a couple of different dimensions. First of all, development from 2023 went well from our perspective, and we feel comfortable about trend. And so that's what flows now into our forecasting for this year, that gives us confidence in the guide and the improvement in the guide that we provided today. We do have that higher IBNR related to Change and our operational transition that I alluded to. And so what that basically means is that we feel good on the trend, but there's a little bit less visibility than we would normally have, and we expect that to clear out through the rest of the year. So we'll provide more updates there as the year progresses, but we are clearing out that backlog now. What I would say also is that Q2 generally for us would have a more favorable seasonality in our normal trend. And so what that would mean is that we would have more favorable EBITDA progression in Q2, and we would generally have a less favorable progression in Q4. And between all of that seasonal aspects, that would flow into our guide.

Okay. And then with respect to the new calculation, I guess, getting more in line with the competitors out there. Will you be providing that, I guess, on a quarterly historical basis so we can see that trend? Or any comments there would be helpful.

Yes. Great question. Our intention is, yes, to provide that with a backward look as well, so you can see how that actually progressed historically, and so it would match up with how we provide the MCR in the past. You could see how the BER would flow as well.

And will that be in the 10-Q filing? Or is that something that comes next quarter when you report?

Yes. This is more of a heads-up for that. This will happen next quarter. So for now, it's the way we've always done with the MCR, and then we will provide the new BER calculation with some of the historical numbers next quarter.

[Operator Instructions] We'll take our next question from Jason Cassorla with Citigroup.

You have Daniel obviously on the line for Jason. So just revisiting that comment on the quarterly cadence for 2024 MLR under the new definition. You mentioned the IBNR adjudication normalization. But can you give us a sense of maybe the magnitude of these step changes over the next few quarters?

The magnitude of the BER, you mean?

Yes. And the step up, step down quarter-to-quarter.

Yes. So we're not providing any quarter-to-quarter information there right now. Like I said, for the BER new calculation, we will provide that next quarter. But what I did say in the comments was roughly, you could think about the full year BER mapping to our MCR guidance, that the BER would be in the low to mid-80s, and that would provide a more apples-to-apples comparison to industry peers.

[Operator Instructions] And we will take a follow-up from Richard Close with Canaccord Genuity.

Yes. I had two follow-ups really quick. Considering, I guess, the higher utilization that has been plaguing the sector over the last several quarters, I'm curious how the provider market is reacting. And I guess specifically, are they more receptive to utilizing Clover Assistant now? Have you noticed any change over the last couple of quarters?

Great question there. I think the way we think about Clover Assistant is that it's a great way for providers to improve their clinical capabilities. It's also a great way for them to enter into value-based care. So that's definitely something which we're exploring and we're seeing a lot of interest in our model because I think that some of the other ways of approaching value-based care in MA are coming into a little bit more of a challenging environment. So overall, I think that, yes, there is definitely interest in looking at other models on the provider side.

Okay. And then my second question is the emergence of this affiliate that you talked about in terms of your operating structure and focusing on New Jersey. Can you just go into a little bit more on that? Exactly what is that? What was the genesis of it? Why only New Jersey? And then it sounds like you're looking to market that to other managed care organizations. If you can just go into that, that would be helpful.

Yes. When we talk about that affiliate organization, what we're looking at there is we feel like we have a tremendous way to deliver quality in New Jersey, clinical quality, through technology, through services that include Clover Assistant but other technologies as well, as well as our Home Care capabilities. And so between all those capabilities that we have in market in New Jersey, we believe that we are already investing so much in that, that it makes sense to perhaps offer that to third-parties in the future. No more to share there right now, but that's the genesis of that thinking.

And this concludes the Q&A portion for today's conference. I would now like to turn the call back over to Andrew Toy for any additional and closing remarks.

All right. Well, thank you for the questions. I appreciate them as always. So to close, we believe that Clover Health, as it stands today, is really at an inflection point. In summary, firstly, we exceeded our expectations for Q1 results on insurance revenue and adjusted EBITDA. Secondly, we've improved our insurance revenue and adjusted EBITDA guidance for full year 2024. And lastly, we announced that our Board of Directors has authorized a share repurchase program of up to $20 million of the company's Class A common stock over the next 2 years. We believe that we are the only technology powered managed care company via our differentiated care management platform in Clover Assistant and Clover Home Care that aims to deliver better care on a wide network PPO chassis. This is the future of Medicare Advantage, and we look forward to continuing to lead in this aspect. Thank you all for your continued interest in our company, and I look forward to updating you on our progress towards achieving our goals in the coming quarters. Thanks again.

This concludes today's Clover Health First Quarter 2024 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.