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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File Number: 001-39252
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Clover Health Investments, Corp.
(Exact Name of Registrant as Specified in its Charter)
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Delaware |
98-1515192 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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3401 Mallory Lane,
Suite 210
Franklin,
Tennessee
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37067 |
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(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code: (201)
432-2133
________________________________________
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading
Symbol(s)
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Name of each exchange on which registered |
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Class A Common Stock, par value $0.0001 per share |
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CLOV |
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The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
x
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Accelerated filer |
o |
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Non-accelerated filer |
o |
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Smaller reporting company |
o |
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Emerging growth company |
o |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of November 2, 2022, the registrant had
383,548,896
shares of Class A Common Stock, $0.0001 par value per share, and
94,394,852 shares of Class B Common Stock, $0.0001 par value per
share, issued and outstanding.
Table of Contents
As used in this report, "Company," "Clover," "Clover Health," "we,"
"us," "our," and similar terms refer to Clover Health Investments,
Corp. and its consolidated subsidiaries, unless otherwise noted or
the context otherwise requires.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). All statements
contained in this document other than statements of historical
fact, including statements regarding our future results of
operations, financial position, market size and opportunity, our
business strategy and plans, the factors affecting our performance
and our objectives for future operations, are forward-looking
statements. The words "believe," "may," "will," "estimate,"
"continue," "anticipate," "intend," "could," "should," "would,"
"can," "expect," "project," "outlook," "forecast," "objective,"
"plan," "potential," "seek," "grow," "target," "if," and the
negative or plural of these words and similar expressions are
intended to identify forward-looking statements. We have based
these forward-looking statements largely on our current
expectations and projections about future events and trends that we
believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and
objectives and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties and assumptions,
including the risk factors described in our filings with the
Securities and Exchange Commission (the "SEC"). Moreover, we
operate in a very competitive and rapidly changing environment. New
risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of
all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements
we may make. In light of these risks, uncertainties and
assumptions, the future events and trends discussed in this
document may not occur, and actual results could differ materially
and adversely from those anticipated or implied in the
forward-looking statements. Forward-looking statements contained in
this document involve a number of judgments, risks and
uncertainties, including, without limitation, risks related
to:
•our
expectations regarding results of operations, financial condition,
and cash flows;
•our
expectations regarding the development and expansion of our
Insurance and Non-Insurance businesses;
•our
ability to successfully enter new service markets and manage our
operations;
•anticipated
trends and challenges in our business and in the markets in which
we operate;
•our
ability to expand our beneficiary base and provider
network;
•our
ability to maintain and increase adoption and use of Clover
Assistant;
•the
anticipated benefits associated with the use of Clover Assistant,
including our ability to utilize the platform to manage our medical
care ratios;
•our
ability to develop new features and functionality that meet market
needs and achieve market acceptance;
•our
ability to retain and hire necessary employees and staff our
operations appropriately;
•the
timing and amount of certain investments in growth;
•the
effect of uncertainties related to the global COVID-19 pandemic on
our business, results of operations, and financial
condition;
•the
outcome of any known and unknown litigation and regulatory
proceedings;
•any
current, pending, or future legislation, regulations or policies
that could have a negative effect on our revenue and businesses,
including rules, regulations, and policies relating to healthcare
and Medicare;
•our
ability to maintain or improve our Star Ratings or otherwise
continue to improve the financial performance of our
business;
•our
ability to maintain, protect, and enhance our intellectual
property; and
•general
economic conditions and uncertainty, including the societal and
economic impact of the COVID-19 pandemic and its variants,
inflation, and geopolitical uncertainty and
instability.
We caution you that the foregoing list of judgments, risks, and
uncertainties that may cause actual results to differ materially
from those in the forward-looking statements may not be complete.
You should not rely upon forward-looking statements as predictions
of future events. The events and circumstances reflected in the
forward-looking statements may not be achieved or occur or may be
materially different from what we expect. Although we believe that
the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance, or achievements. Except as required by law, we
undertake no obligation to update any of these forward-looking
statements after the date of this document or to conform these
statements to actual results or revised expectations.
This document contains estimates, projections, and other
information concerning our industry, our business, and the markets
for our products. We obtained the industry, market, and similar
data set forth in this document from our own internal estimates and
research and from industry research, publications, surveys, and
studies conducted by third parties, including governmental
agencies, and such information is inherently subject to
uncertainties. Actual events or circumstances may differ materially
from events and circumstances that are assumed in this information.
You are cautioned not to give undue weight to any such information,
projections, or estimates.
As a result of a number of known and unknown risks and
uncertainties, including without limitation, the important factors
described in our reports filed with the SEC, including the
discussion under "Risk Factors" in our Annual Report on Form 10-K
for the year ended December 31, 2021, as filed with the SEC, our
actual results or performance may be materially different from
those expressed or implied by these forward-looking
statements.
Additional Information
Our website address is www.cloverhealth.com. Our filings with the
SEC are posted on our website and available free of charge as soon
as reasonably practical after they are electronically filed with,
or furnished to, the SEC. The content on our website or on any
other website referred to in this document is not incorporated by
reference in this document. Further, the Company's references to
website URLs are intended to be inactive textual references
only.
Channels for Disclosure of Information
Investors and others should note that we routinely announce
material information to investors and the marketplace using filings
with the SEC, press releases, public conference calls,
presentations, webcasts, and the investor relations page of our
website. We use the investor relations page of our website for
purposes of compliance with Regulation FD and as a routine channel
for distribution of important information, including news releases,
analyst presentations, financial information, and corporate
governance practices. We also use certain social media channels as
a means of disclosing information about the Company and our
products to our customers, investors, and the public, including
@CloverHealth and #CloverHealth on Twitter, and the LinkedIn
account of our President, Andrew Toy. The information posted on
social media channels is not incorporated by reference in this
report or in any other report or document we file with the SEC.
While not all of the information that we post to the investor
relations page of our website or to social media accounts is of a
material nature, some information could be deemed to be material.
Accordingly, we encourage investors, the media, and others
interested in the Company to review the information that we share
at the "Investors" link located on our webpage at
https://investors.cloverhealth.com/investor-relations and to sign
up for and regularly follow our social media accounts. Users may
automatically receive email alerts and other information about the
Company when enrolling an email address by visiting "Email Alerts"
in the "Investor Resources" section of our website at
https://investors.cloverhealth.com/investor-relations.
Part I
Item 1. Financial Statements and Supplementary Data
CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
|
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|
September 30, 2022
(Unaudited)
|
|
December 31, 2021 |
|
Assets |
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Current assets |
|
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Cash and cash equivalents |
$ |
382,869 |
|
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$ |
299,968 |
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Short-term investments |
153,799 |
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|
293,851 |
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Investment securities, available-for-sale (Amortized cost: 2022:
$179,774; 2021: $21,142)
|
175,116 |
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|
21,131 |
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|
Investment securities, held-to-maturity (Fair value: 2022: $0;
2021: $307)
|
— |
|
|
305 |
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Accrued retrospective premiums |
13,894 |
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|
34,923 |
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Other receivables |
23,085 |
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|
14,282 |
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Healthcare receivable |
58,886 |
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|
48,042 |
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Non-Insurance performance year receivable |
585,901 |
|
|
— |
|
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Surety bonds and deposits |
11,844 |
|
|
12,613 |
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Prepaid expenses |
17,816 |
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|
9,409 |
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Other assets, current |
36,782 |
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|
18,022 |
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Total current assets |
1,459,992 |
|
|
752,546 |
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Investment securities, available-for-sale (Amortized cost: 2022:
$76,339; 2021: $177,527)
|
70,237 |
|
|
175,604 |
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|
Investment securities, held-to-maturity (Fair value: 2022: $596;
2021: $364)
|
700 |
|
|
335 |
|
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Equity method investment |
970 |
|
|
— |
|
|
Property and equipment, net |
2,526 |
|
|
2,287 |
|
|
Operating lease right-of-use assets |
4,259 |
|
|
5,367 |
|
|
Goodwill and other intangible assets |
4,233 |
|
|
4,233 |
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Other assets, non-current |
14,762 |
|
|
10,432 |
|
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Total assets |
$ |
1,557,679 |
|
|
$ |
950,804 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
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September 30, 2022
(Unaudited)
|
|
December 31, 2021 |
|
Liabilities and Stockholders' Equity |
|
|
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Current liabilities |
|
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Unpaid claims |
$ |
140,276 |
|
|
$ |
138,604 |
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Due to related parties, net |
1,661 |
|
|
2,320 |
|
|
Non-Insurance performance year obligation, current |
655,849 |
|
|
36,891 |
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Non-Insurance payable |
147,132 |
|
|
37,773 |
|
|
Accounts payable and accrued expenses |
37,735 |
|
|
28,129 |
|
|
Accrued salaries and benefits |
19,636 |
|
|
15,147 |
|
|
Deferred revenue |
96,358 |
|
|
— |
|
|
Operating lease liabilities |
2,000 |
|
|
3,059 |
|
|
|
|
|
|
Premium deficiency reserve |
27,657 |
|
|
110,628 |
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Other liabilities, current |
42 |
|
|
73 |
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|
Total current liabilities |
1,128,346 |
|
|
372,624 |
|
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|
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|
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Notes and securities payable, net of discounts and deferred
issuance costs |
19,965 |
|
|
19,938 |
|
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|
|
|
|
|
|
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Long-term operating lease liabilities |
4,267 |
|
|
4,830 |
|
|
Other liabilities, non-current |
13,121 |
|
|
14,095 |
|
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Total liabilities |
1,165,699 |
|
|
411,487 |
|
|
Commitments and Contingencies (Note 15)
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Stockholders' equity |
|
|
|
|
Class A Common Stock, $0.0001 par value; 2,500,000,000 shares
authorized as of September 30, 2022, and December 31,
2021; 383,526,634 and 352,645,626 issued and outstanding as of
September 30, 2022, and December 31, 2021,
respectively
|
37 |
|
|
34 |
|
|
Class B Common Stock, $0.0001 par value; 500,000,000 shares
authorized as of September 30, 2022, and December 31,
2021; 94,394,852 and 118,206,768 issued and outstanding as of
September 30, 2022, and December 31, 2021,
respectively
|
9 |
|
|
12 |
|
|
Additional paid-in capital |
2,280,697 |
|
|
2,154,187 |
|
|
Accumulated other comprehensive loss |
(10,760) |
|
|
(1,934) |
|
|
Accumulated deficit |
(1,871,536) |
|
|
(1,616,738) |
|
|
Less: Treasury stock, at cost; 2,041,948 and 14,730 shares held as
of September 30, 2022,
and December 31, 2021, respectively
|
(6,467) |
|
|
(147) |
|
|
Clover stockholders' equity |
391,980 |
|
|
535,414 |
|
|
Noncontrolling interest |
— |
|
|
3,903 |
|
|
Total stockholders' equity |
391,980 |
|
|
539,317 |
|
|
Total liabilities and stockholders' equity |
$ |
1,557,679 |
|
|
$ |
950,804 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Unaudited)
(Dollars in thousands, except per share and share
amounts)
|
|
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|
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|
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|
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|
|
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|
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|
|
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|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
Revenues: |
|
|
|
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|
|
|
|
|
|
Premiums earned, net (Net of ceded premiums of $116 and $120 for
the three months ended September 30, 2022 and 2021, respectively;
net of ceded premiums of $354 and $370 for the nine months ended
September 30, 2022 and 2021, respectively)
|
$ |
267,892 |
|
|
$ |
203,657 |
|
|
$ |
814,566 |
|
|
$ |
598,390 |
|
|
|
|
Non-Insurance revenue |
585,311 |
|
|
222,647 |
|
|
1,757,579 |
|
|
439,020 |
|
|
|
|
Other income |
3,614 |
|
|
859 |
|
|
5,751 |
|
|
2,550 |
|
|
|
|
Total revenues |
856,817 |
|
|
427,163 |
|
|
2,577,896 |
|
|
1,039,960 |
|
|
|
|
|
|
|
|
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|
|
|
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|
|
Operating expenses: |
|
|
|
|
|
|
|
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Net medical claims incurred |
839,799 |
|
|
436,325 |
|
|
2,560,307 |
|
|
1,109,248 |
|
|
|
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|
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|
|
|
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|
|
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|
Salaries and benefits |
70,142 |
|
|
73,364 |
|
|
209,724 |
|
|
201,555 |
|
|
|
|
General and administrative expenses |
47,832 |
|
|
45,846 |
|
|
152,569 |
|
|
130,110 |
|
|
|
|
Premium deficiency reserve (benefit) expense |
(27,657) |
|
|
20,761 |
|
|
(82,971) |
|
|
48,661 |
|
|
|
|
Depreciation and amortization |
616 |
|
|
120 |
|
|
2,028 |
|
|
398 |
|
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Other expense |
— |
|
|
— |
|
|
— |
|
|
191 |
|
|
|
|
Total operating expenses |
930,732 |
|
|
576,416 |
|
|
2,841,657 |
|
|
1,490,163 |
|
|
|
|
Loss from operations |
(73,915) |
|
|
(149,253) |
|
|
(263,761) |
|
|
(450,203) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrants payable |
— |
|
|
(115,152) |
|
|
— |
|
|
(66,146) |
|
|
|
|
Interest expense |
404 |
|
|
404 |
|
|
1,197 |
|
|
2,790 |
|
|
|
|
Amortization of notes and securities discounts |
9 |
|
|
22 |
|
|
27 |
|
|
13,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on investment |
980 |
|
|
— |
|
|
(10,187) |
|
|
— |
|
|
|
|
Net loss |
$ |
(75,308) |
|
|
$ |
(34,527) |
|
|
$ |
(254,798) |
|
|
$ |
(400,555) |
|
|
|
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|
|
|
|
|
|
|
|
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|
Per share data: |
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Class A and Class B common
stockholders – basic and diluted
(1)
|
$ |
(0.16) |
|
|
$ |
(0.08) |
|
|
$ |
(0.54) |
|
|
$ |
(0.98) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of Class A and Class B
common shares and common share equivalents outstanding
(1)
|
477,690,204 |
|
|
414,572,706 |
|
|
475,609,571 |
|
|
410,417,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on available-for-sale investments |
$ |
(2,407) |
|
|
$ |
(197) |
|
|
$ |
(8,826) |
|
|
$ |
(620) |
|
|
|
|
Comprehensive loss |
$ |
(77,715) |
|
|
$ |
(34,724) |
|
|
$ |
(263,624) |
|
|
$ |
(401,175) |
|
|
|
(1)
Because the Company had a net loss during the three and nine months
ended September 30, 2022 and 2021, the Company's potentially
dilutive securities, which include stock options, restricted stock,
preferred stock, and warrants to purchase shares of common stock
and preferred stock, have been excluded from the computation of
diluted net loss per share, as the effect would be
anti-dilutive.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands, except share amounts)
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Convertible Preferred stock |
|
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Class A Common Stock
(1)
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Class B Common Stock
(1)
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Treasury Stock |
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Additional paid-in capital |
|
Accumulated
deficit |
|
Accumulated
other
comprehensive
income (loss) |
|
Noncontrolling
interest |
|
Total stockholders' equity (deficit) |
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Shares
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Amount |
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Shares |
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Amount |
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Shares
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Amount |
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Shares
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Amount |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
139,444,346 |
|
|
$ |
447,747 |
|
|
|
— |
|
|
$ |
— |
|
|
89,206,266 |
|
|
$ |
9 |
|
|
— |
|
|
$ |
— |
|
|
$ |
411,867 |
|
|
$ |
(1,028,982) |
|
|
$ |
10 |
|
|
$ |
3,903 |
|
|
$ |
(613,193) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issuance for exercise of stock options, net of early exercise
liability |
— |
|
|
— |
|
|
|
761,480 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,282 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,282 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
42,713 |
|
|
— |
|
|
— |
|
|
— |
|
|
42,713 |
|
|
Unrealized holdings loss on investment securities,
available-for-sale |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(493) |
|
|
— |
|
|
(493) |
|
|
Preferred stock conversion |
(139,444,346) |
|
|
(447,747) |
|
|
|
— |
|
|
— |
|
|
139,444,346 |
|
|
14 |
|
|
— |
|
|
— |
|
|
447,733 |
|
|
— |
|
|
— |
|
|
— |
|
|
447,747 |
|
|
Issuance of common stock related to exercises of legacy
warrants |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
7,205,490 |
|
|
1 |
|
|
— |
|
|
— |
|
|
97,781 |
|
|
— |
|
|
— |
|
|
— |
|
|
97,782 |
|
|
Convertible debt conversion and other issuances |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
75,084,703 |
|
|
7 |
|
|
— |
|
|
— |
|
|
16,052 |
|
|
— |
|
|
— |
|
|
— |
|
|
16,059 |
|
|
Issuance of common stock in connection with Business Combination
and PIPE offering |
— |
|
|
— |
|
|
|
146,373,904 |
|
|
15 |
|
|
(49,975,104) |
|
|
(5) |
|
|
— |
|
|
— |
|
|
666,232 |
|
|
— |
|
|
— |
|
|
— |
|
|
666,242 |
|
|
Conversion from Class B Common Stock to Class A Common
Stock |
— |
|
|
— |
|
|
|
1,143,863 |
|
|
— |
|
|
(1,143,863) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Capital contribution for extinguishment of debt |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
126,795 |
|
|
— |
|
|
— |
|
|
— |
|
|
126,795 |
|
|
Acquisition of public and private placement warrants |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(147,582) |
|
|
— |
|
|
— |
|
|
— |
|
|
(147,582) |
|
|
Net loss |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(48,417) |
|
|
— |
|
|
— |
|
|
(48,417) |
|
|
Balance, March 31, 2021 |
— |
|
|
$ |
— |
|
|
|
148,279,247 |
|
|
$ |
15 |
|
|
259,821,838 |
|
|
$ |
26 |
|
|
— |
|
|
$ |
— |
|
|
$ |
1,662,873 |
|
|
$ |
(1,077,399) |
|
|
$ |
(483) |
|
|
$ |
3,903 |
|
|
$ |
588,935 |
|
|
Stock issuance for exercise of stock options, net of early exercise
liability |
— |
|
|
— |
|
|
|
204,366 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
435 |
|
|
— |
|
|
— |
|
|
— |
|
|
435 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
43,026 |
|
|
— |
|
|
— |
|
|
— |
|
|
43,026 |
|
|
Unrealized holdings gain on investment securities,
available-for-sale |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
70 |
|
|
— |
|
|
70 |
|
|
Conversion from Class B Common Stock to Class A Common
Stock |
— |
|
|
— |
|
|
|
77,364 |
|
|
— |
|
|
(77,364) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net loss |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(317,611) |
|
|
— |
|
|
— |
|
|
(317,611) |
|
|
Balance, June 30, 2021 |
— |
|
|
$ |
— |
|
|
|
148,560,977 |
|
|
$ |
15 |
|
|
259,744,474 |
|
|
$ |
26 |
|
|
— |
|
|
$ |
— |
|
|
$ |
1,706,334 |
|
|
$ |
(1,395,010) |
|
|
$ |
(413) |
|
|
$ |
3,903 |
|
|
$ |
314,855 |
|
|
Stock issuance for exercise of stock options, net of early exercise
liability |
— |
|
|
— |
|
|
|
2,893,802 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,830 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,830 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
46,803 |
|
|
— |
|
|
— |
|
|
— |
|
|
46,803 |
|
|
Vested restricted stock units |
— |
|
|
— |
|
|
|
34,888 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Unrealized holdings loss on investment securities,
available-for-sale |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(197) |
|
|
— |
|
|
(197) |
|
|
Conversion from Class B Common Stock to Class A Common
Stock |
— |
|
|
— |
|
|
|
117,425,763 |
|
|
12 |
|
|
(117,425,763) |
|
|
(12) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Issuance of common stock related to exercises of public and private
placement warrants |
— |
|
|
— |
|
|
|
9,408,264 |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
81,672 |
|
|
— |
|
|
— |
|
|
— |
|
|
81,673 |
|
|
Treasury Stock |
— |
|
|
— |
|
|
|
(14,730) |
|
|
— |
|
|
— |
|
|
— |
|
|
14,730 |
|
|
(147) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(147) |
|
|
Net loss |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(34,527) |
|
|
— |
|
|
— |
|
|
(34,527) |
|
|
Balance, September 30, 2021
|
— |
|
|
$ |
— |
|
|
|
278,308,964 |
|
|
$ |
28 |
|
|
142,318,711 |
|
|
$ |
14 |
|
|
14,730 |
|
|
$ |
(147) |
|
|
$ |
1,838,639 |
|
|
$ |
(1,429,537) |
|
|
$ |
(610) |
|
|
$ |
3,903 |
|
|
$ |
412,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred stock |
|
|
Class A Common Stock
(1)
|
|
Class B Common Stock
(1)
|
|
Treasury Stock |
|
Additional paid-in capital |
|
Accumulated
deficit |
|
Accumulated
other
comprehensive
income (loss) |
|
Noncontrolling
interest |
|
Total stockholders' equity (deficit) |
|
Shares
|
|
Amount |
|
|
Shares |
|
Amount |
|
Shares
|
|
Amount |
|
Shares
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021
|
— |
|
|
$ |
— |
|
|
|
352,645,626 |
|
|
$ |
34 |
|
|
118,206,768 |
|
|
$ |
12 |
|
|
14,730 |
|
|
$ |
(147) |
|
|
$ |
2,154,187 |
|
|
$ |
(1,616,738) |
|
|
$ |
(1,934) |
|
|
$ |
3,903 |
|
|
$ |
539,317 |
|
|
Stock issuance for exercise of stock options, net of early exercise
liability |
— |
|
|
— |
|
|
|
151,620 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
331 |
|
|
— |
|
|
— |
|
|
— |
|
|
331 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
40,640 |
|
|
— |
|
|
— |
|
|
— |
|
|
40,640 |
|
|
Vested restricted stock units |
— |
|
|
— |
|
|
|
2,275,946 |
|
|
— |
|
|
1,677,873 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Vested performance restricted stock units |
— |
|
|
— |
|
|
|
8,951 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Unrealized holdings loss on investment securities,
available-for-sale |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,324) |
|
|
— |
|
|
(5,324) |
|
|
Conversion from Class A Common Stock to Class B Common
Stock |
— |
|
|
— |
|
|
|
25,436,433 |
|
|
3 |
|
|
(25,436,433) |
|
|
(3) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired |
— |
|
|
— |
|
|
|
(1,879,063) |
|
|
— |
|
|
— |
|
|
— |
|
|
1,879,063 |
|
|
(5,939) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,939) |
|
|
Issuance of common stock under Employee Stock Purchase
Plan |
— |
|
|
— |
|
|
|
214,797 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Derecognition of noncontrolling interest |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,903) |
|
|
(3,903) |
|
|
Net loss |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(75,309) |
|
|
— |
|
|
— |
|
|
(75,309) |
|
|
Balance, March 31, 2022 |
— |
|
|
$ |
— |
|
|
|
378,854,310 |
|
|
$ |
37 |
|
|
94,448,208 |
|
|
$ |
9 |
|
|
1,893,793 |
|
|
$ |
(6,086) |
|
|
$ |
2,195,158 |
|
|
$ |
(1,692,047) |
|
|
$ |
(7,258) |
|
|
$ |
— |
|
|
$ |
489,813 |
|
|
Stock issuance for exercise of stock options, net of early exercise
liability |
— |
|
|
— |
|
|
|
4,016,336 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
563 |
|
|
— |
|
|
— |
|
|
— |
|
|
563 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
41,927 |
|
|
— |
|
|
— |
|
|
— |
|
|
41,927 |
|
|
Vested restricted stock units |
— |
|
|
— |
|
|
|
122,672 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired |
— |
|
|
— |
|
|
|
(37,744) |
|
|
— |
|
|
— |
|
|
— |
|
|
37,744 |
|
|
(105) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(105) |
|
|
Unrealized holdings gain on investment securities,
available-for-sale |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,095) |
|
|
— |
|
|
(1,095) |
|
|
Conversion from Class A Common Stock to Class B Common
Stock |
— |
|
|
— |
|
|
|
53,040 |
|
|
— |
|
|
(53,040) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net loss |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(104,181) |
|
|
— |
|
|
— |
|
|
(104,181) |
|
|
Balance, June 30, 2022 |
— |
|
|
$ |
— |
|
|
|
383,008,614 |
|
|
$ |
37 |
|
|
94,395,168 |
|
|
$ |
9 |
|
|
1,931,537 |
|
|
$ |
(6,191) |
|
|
$ |
2,237,648 |
|
|
$ |
(1,796,228) |
|
|
$ |
(8,353) |
|
|
$ |
— |
|
|
$ |
426,922 |
|
|
Stock issuance for exercise of stock options, net of early exercise
liability |
— |
|
|
— |
|
|
|
190,052 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
408 |
|
|
— |
|
|
— |
|
|
— |
|
|
408 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
42,641 |
|
|
— |
|
|
— |
|
|
— |
|
|
42,641 |
|
|
Vested restricted stock units |
— |
|
|
— |
|
|
|
438,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired |
— |
|
|
— |
|
|
|
(110,411) |
|
|
— |
|
|
— |
|
|
— |
|
|
110,411 |
|
|
(276) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(276) |
|
|
Unrealized holdings gain on investment securities,
available-for-sale |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,407) |
|
|
— |
|
|
(2,407) |
|
|
Conversion from Class A Common Stock to Class B Common
Stock |
— |
|
|
— |
|
|
|
316 |
|
|
— |
|
|
(316) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net loss |
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(75,308) |
|
|
— |
|
|
— |
|
|
(75,308) |
|
|
Balance, September 30, 2022
|
— |
|
|
$ |
— |
|
|
|
383,526,634 |
|
|
$ |
37 |
|
|
94,394,852 |
|
|
$ |
9 |
|
|
2,041,948 |
|
|
$ |
(6,467) |
|
|
$ |
2,280,697 |
|
|
$ |
(1,871,536) |
|
|
$ |
(10,760) |
|
|
$ |
— |
|
|
$ |
391,980 |
|
(1)
The presentation of Common Stock has been updated to separately
disclose the changes in Class A and Class B common stock in all
periods.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2022 |
|
2021 |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
$ |
(254,798) |
|
|
$ |
(400,555) |
|
|
|
|
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
Depreciation and amortization expense |
2,028 |
|
|
398 |
|
|
|
|
Amortization of notes and securities discounts and debt issuance
costs |
27 |
|
|
13,708 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
125,211 |
|
|
132,542 |
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrants payable and amortization of
warrants |
— |
|
|
(66,146) |
|
|
|
|
|
|
|
|
|
|
Accretion, net of amortization |
(730) |
|
|
142 |
|
|
|
|
Net realized losses on investment securities |
18 |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
Gain on investment |
(10,187) |
|
|
— |
|
|
|
|
Premium deficiency reserve |
(82,971) |
|
|
48,661 |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accrued retrospective premiums |
21,029 |
|
|
4,645 |
|
|
|
|
Other receivables |
(8,803) |
|
|
(9,759) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surety bonds and deposits |
769 |
|
|
(13,165) |
|
|
|
|
Prepaid expenses |
(8,407) |
|
|
(4,347) |
|
|
|
|
Other assets |
(19,263) |
|
|
(10,291) |
|
|
|
|
Healthcare receivables |
(10,844) |
|
|
4,089 |
|
|
|
|
Operating lease right-of-use assets |
1,750 |
|
|
2,636 |
|
|
|
|
Unpaid claims |
1,013 |
|
|
36,465 |
|
|
|
|
Accounts payable and accrued expenses |
9,606 |
|
|
1,386 |
|
|
|
|
Accrued salaries and benefits |
4,489 |
|
|
9,458 |
|
|
|
|
Deferred revenue |
96,358 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
(1,005) |
|
|
1,013 |
|
|
|
|
Performance year obligation |
33,057 |
|
|
23,861 |
|
|
|
|
Non-Insurance payable |
109,359 |
|
|
26,233 |
|
|
|
|
Operating lease liabilities |
(2,264) |
|
|
(3,179) |
|
|
|
|
Net cash provided by (used in) operating activities |
5,442 |
|
|
(202,150) |
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Purchases of short-term investments, available-for-sale, and
held-to-maturity securities |
(276,848) |
|
|
(705,598) |
|
|
|
|
Proceeds from sales of short-term investments and
available-for-sale securities |
9,710 |
|
|
126,862 |
|
|
|
|
Proceeds from maturities of short-term investments,
available-for-sale, and held-to-maturity securities |
350,455 |
|
|
250,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
(590) |
|
|
(485) |
|
|
|
|
Acquisition of Character Biosciences, Inc. Series A preferred
shares |
(250) |
|
|
— |
|
|
|
|
Net cash provided by (used in) investing activities |
82,477 |
|
|
(328,956) |
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of notes payable principal |
— |
|
|
(30,925) |
|
|
|
|
Issuance of common stock, net of early exercise
liability |
1,302 |
|
|
5,547 |
|
|
|
|
Proceeds from reverse recapitalization, net of transaction
costs |
— |
|
|
666,242 |
|
|
|
|
|
|
|
|
|
|
Proceeds received for the exercise of public and private
warrants |
— |
|
|
390 |
|
|
|
|
|
|
|
|
|
|
Payment for the redemptions of public warrants |
— |
|
|
(85) |
|
|
|
|
Treasury stock acquired |
(6,320) |
|
|
(147) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
(5,018) |
|
|
641,022 |
|
|
|
|
Net increase in cash and cash equivalents |
82,901 |
|
|
109,916 |
|
|
|
|
Cash and cash equivalents, beginning of period |
299,968 |
|
|
92,348 |
|
|
|
|
Cash and cash equivalents, end of period |
$ |
382,869 |
|
|
$ |
202,264 |
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance year receivable |
$ |
(585,901) |
|
|
$ |
(220,738) |
|
|
|
|
Performance year obligation |
585,901 |
|
|
220,738 |
|
|
|
|
Conversion of preferred stock to common stock |
— |
|
|
447,747 |
|
|
|
|
Issuance of common stock related to convertible debt |
— |
|
|
16,059 |
|
|
|
|
Capital contribution for extinguishment of debt |
— |
|
|
126,795 |
|
|
|
|
Issuance of common stock related to warrants exercised |
— |
|
|
97,782 |
|
|
|
|
Acquisition of public and private warrants |
— |
|
|
147,582 |
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease
liabilities |
642 |
|
|
582 |
|
|
|
|
Recognition of equity method investments and preferred
stock |
8,644 |
|
|
— |
|
|
|
|
Derecognition of noncontrolling interest |
3,903 |
|
|
— |
|
|
|
|
Conversion of Character Biosciences, Inc. convertible note to
preferred stock |
250 |
|
|
— |
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
CLOVER HEALTH INVESTMENTS, CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial
Statements
1. Organization and Operations
Clover Health Investments, Corp. (collectively with its affiliates
and subsidiaries, "Clover" or the "Company") is singularly focused
on creating great, sustainable healthcare to improve every life.
Clover has centered its strategy on building and deploying
technology through its flagship software platform, Clover
Assistant, to help America's seniors receive better care at lower
costs.
Clover provides affordable, high-quality Medicare Advantage ("MA")
plans, including Preferred Provider Organization ("PPO") and Health
Maintenance Organization ("HMO") plans, through its regulated
insurance subsidiaries. The Company's regulated insurance
subsidiaries consist of Clover Insurance Company and Clover HMO of
New Jersey Inc., which operate the Company's PPO and HMO health
plans, respectively. On April 1, 2021, the Company's subsidiary,
Clover Health Partners, LLC, began participating as a Direct
Contracting Entity ("DCE") in the Global and Professional Direct
Contracting Model ("DC Model") of the Centers for Medicare and
Medicaid Services ("CMS"), an agency of the United States
Department of Health and Human Services, through which the Company
provides care to aligned Original Medicare beneficiaries (the
"Non-Insurance Beneficiaries"). Medical Service Professionals of
NJ, LLC, houses Clover's employed physicians and the related
support staff for Clover's in-home care program. Clover's
administrative functions and insurance operations are primarily
operated by its Clover Health, LLC and Clover Health Labs, LLC
subsidiaries.
Clover's approach is to combine technology, data analytics, and
preventive care to lower costs and increase the quality of health
and life of Medicare beneficiaries. Clover's technology platform is
designed to use machine learning-powered systems to deliver data
and insights to physicians at the point of care in order to improve
outcomes for beneficiaries and drive down costs. Clover's MA plans
generally provide access to a wide network of primary care
providers, specialists, and hospitals, enabling its members to see
any doctor participating in Medicare willing to accept them. Clover
focuses on minimizing members' out-of-pocket costs and offers many
plans that allow members to pay the same co-pays for primary care
provider visits regardless of whether their physician is in- or
out-of-network. Through its Non-Insurance operations, the Company
assumes full risk (i.e., 100.0% shared savings and shared losses)
for the total cost of care of aligned Non-Insurance Beneficiaries,
empowers providers with Clover Assistant, and offers a variety of
programs aimed at reducing expenditures and preserving or enhancing
the quality of care for Non-Insurance Beneficiaries. For additional
information related to the Company's Non-Insurance operations, see
Note 16 in this report.
The Company was originally incorporated as a Cayman Islands
exempted company on October 18, 2019, as a special purpose
acquisition company under the name Social Capital Hedosophia
Holdings Corp. III ("SCH"). On October 5, 2020, SCH entered into a
Merger Agreement (the "Merger Agreement") with Clover Health
Investments, Corp., a corporation originally incorporated on July
17, 2014, in the state of Delaware ("Legacy Clover"). Pursuant to
the Merger Agreement, and a favorable vote of SCH's stockholders at
an extraordinary general meeting on January 6, 2021 (the "Special
Meeting"), on January 7, 2021, Asclepius Merger Sub Inc., a
Delaware corporation and a newly formed, wholly-owned subsidiary of
SCH ("Merger Sub"), merged with and into Legacy Clover. The
separate corporate existence of Merger Sub ceased, Legacy Clover
survived and merged with and into SCH, with SCH as the surviving
corporation, and SCH was redomesticated as a Delaware corporation
and renamed Clover Health Investments, Corp. (the "Business
Combination"). The Business Combination was accounted for as a
reverse recapitalization in accordance with generally accepted
accounting principles in the United States ("GAAP"). Under the
guidance in Accounting Standards Codification ("ASC") 805, Legacy
Clover is treated as the "acquirer" for financial reporting
purposes, Legacy Clover is deemed the accounting predecessor of the
combined business, and Clover Health Investments, Corp., as the
parent company of the combined business, is the successor
Securities and Exchange Commission ("SEC") registrant, meaning that
Legacy Clover's financial statements for previous periods are
disclosed in periodic reports filed with the SEC.
The Business Combination has had a significant impact on the
Company's reported financial position and results as a consequence
of the reverse recapitalization. The Business Combination closed on
January 7, 2021, and on the following day the Company's
Class A Common Stock and then outstanding public warrants were
listed on the Nasdaq Global Select Market ("Nasdaq") under the
symbols "CLOV" and "CLOVW," respectively, for trading in the public
market.
For additional information, see Note 1 (Organization and
Operations) and Note 3 (Business Combination) included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 2021 (the "2021 Form 10-K").
2. Summary of Significant Accounting Policies
Basis of presentation
The Company's interim condensed consolidated financial statements
have been prepared in conformity with GAAP and include the accounts
of the Company and its wholly-owned subsidiaries. In the opinion of
management, the Company has made all necessary adjustments, which
include normal recurring adjustments necessary for a fair
presentation of its financial position and its results of
operations for the interim periods presented. All material
intercompany balances and transactions have been eliminated in
consolidating these financial statements. Investments over which we
exercise significant influence, but do not control, are accounted
for using the applicable accounting treatment based on the nature
of the investment. These interim condensed consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements and related notes to the
financial statements included in the 2021 Form 10-K.
Use of estimates
The preparation of the condensed consolidated financial statements
in conformity with GAAP requires management to make estimates and
assumptions that impact the amounts reported in the condensed
consolidated financial statements and the accompanying
notes.
The areas involving the most significant use of estimates are the
amounts of incurred but not reported claims. Many factors can cause
actual outcomes to deviate from these assumptions and estimates,
such as changes in economic conditions, changes in government
healthcare policy, advances in medical technology, changes in
treatment patterns, and changes in average lifespan. Accordingly,
the Company cannot determine with precision the ultimate amounts
that it will pay for, or the timing of payment of actual claims, or
whether the assets supporting the liabilities will grow to the
level the Company assumes prior to payment of claims. If the
Company's actual experience is different from its assumptions or
estimates, the Company's reserves may prove inadequate. As a
result, the Company would incur a charge to operations in the
period in which it determines such a shortfall exists, which could
have a material adverse effect on the Company's business, results
of operations, and financial condition. Other areas involving
significant estimates include risk adjustment provisions related to
Medicare contracts and the valuation of the Company's investment
securities, goodwill and other intangible assets, reinsurance,
premium deficiency reserve, warrants, embedded derivative related
to convertible securities, stock-based compensation, recoveries
from third parties for coordination of benefits, Direct Contracting
benchmark, specifically cost trend and risk score estimates that
can develop over time, and final determination of medical cost
adjustment pools.
Deferred revenue
Premiums earned, net is recognized as income in the period members
are entitled to receive services, risk adjustment revenue, and
other ancillary income. Premiums received in advance of the service
period are reported as deferred revenue on the Condensed
Consolidated Balance Sheets and recognized within Premiums earned,
net once earned. Premiums anticipated to be received within twelve
months based on the documented diagnostic criteria of the Company's
members are estimated and included in revenue for the period
including the member months for which the payment is designated by
CMS.
Equity method of accounting and variable interest
entities
Investments in entities in which the Company does not have control
but its ownership falls between 20.0% and 50.0%, or it has the
ability to exercise significant influence over operating and
financial policies, are accounted for under the equity method of
accounting.
The Company continuously assesses its partially-owned entities to
determine if these entities are variable interest entities ("VIEs")
and, if so, whether the Company is the primary beneficiary and,
therefore, required to consolidate the VIE. To make this
determination, the Company applies a qualitative approach to
determine whether the Company has both the power to direct the
activities of the VIE that most significantly impact the VIE's
economic performance and the obligation to absorb losses of, or the
rights to receive benefits from, the VIE that could potentially be
significant to that VIE. If the Company has an interest in a VIE
but is determined to not be the primary beneficiary, the Company
accounts for the interest under the equity method of
accounting.
Segment information
Operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated
on a regular basis by the chief operating decision maker ("CODM")
in deciding how to allocate resources to an individual segment and
in assessing performance. The Company's CODM is its Chief Executive
Officer. The Company has two reporting segments: Insurance and
Non-Insurance.
Performance guarantees
Certain of the Company's arrangements with third-party providers
require it to guarantee the performance of its care network to CMS.
As a result of the Company's participation in the DC Model, the
Company determined that it was making a performance guarantee with
respect to providers under the Non-Insurance arrangement that
should be recognized in the financial statements. The performance
guarantee identified relates to the Company guaranteeing the
performance of the third-party medical providers. Thus, the
contract with CMS is accounted for as a performance guarantee under
ASC 460-Guarantees. Accordingly, a liability for the performance
guarantee was recorded on the Condensed Consolidated Balance Sheet.
Each month, as the performance guarantee is fulfilled, the
guarantee is amortized on a straight-line basis for the amount that
represents the completed performance. With respect to each
performance year in which the DCE is a participant, the final
consideration due to the DCE from CMS ("shared savings") or the
consideration due to CMS from the DCE ("shared loss") is reconciled
in the subsequent years following the performance year. The shared
savings or loss is measured periodically and will be applied to the
Non-Insurance performance obligation or Non-Insurance performance
receivable if the Company is in a probable loss position or
probable savings position, respectively. The DCE has entered into a
surety bond agreement with CMS and a third-party surety to cover
the financial threshold determined by CMS. The surety bond is
partially collateralized by a cash deposit from the
Company.
Capitalized software development costs - cloud computing
arrangements
The Company's cloud computing arrangements are mostly comprised of
hosting arrangements that are service contracts, whereby the
Company gains remote access to use enterprise software hosted by
the vendor or another third party on an as-needed basis for a
period of time in exchange for a subscription fee. Implementation
costs for cloud computing arrangements are capitalized if certain
criteria are met and consist of internal and external costs
directly attributable to developing and configuring cloud computing
software for its intended use. These capitalized implementation
costs are presented in the Condensed Consolidated Balance Sheets in
other assets, and are generally amortized over the fixed,
non-cancelable term of the associated hosting arrangement on a
straight-line basis.
Deferred acquisition costs
Acquisition costs directly related to the successful acquisition of
new business, which are primarily made up of commissions costs, are
deferred and subsequently amortized. Deferred acquisition costs are
recorded as other assets on the Condensed Consolidated Balance
Sheet and are amortized over the estimated life of the related
contracts. The amortization of deferred acquisition costs is
recorded in general and administrative expenses in the Condensed
Consolidated Statement of Operations and Comprehensive Loss. As of
September 30, 2022, and December 31, 2021, there were no
deferred acquisition costs as a result of the acceleration of
amortization for deferred acquisition costs due to the recognition
of a premium deficiency reserve. For the three and nine months
ended September 30, 2022, charges related to deferred
acquisition costs of $1.9 million and $15.6 million, respectively,
were recognized in general and administrative expenses. For the
three and nine months ended September 30, 2021, charges
related to deferred acquisition costs of $1.1 million and $9.6
million, respectively, were recognized in general and
administrative expenses.
COVID-19
The societal and economic impact of the Coronavirus Disease 2019
("COVID-19") pandemic and its variants are continuing to evolve,
and the ultimate impact on the Company's business, results of
operations, financial condition, and cash flows is uncertain and
difficult to predict. The global pandemic has severely impacted
businesses worldwide, including many in the health insurance
sector. In response to the pandemic, the Company has implemented
additional steps related to its care delivery, member support, and
internal policies and operations.
Recent accounting pronouncements
Accounting pronouncements effective in future periods
In August 2018, the FASB issued ASU 2018-12,
Financial Services - Insurance (Topic 944): Targeted Improvements
to the Accounting for Long-Duration Contracts,
which was subsequently amended by ASU 2019-09,
Financial Services—Insurance (Topic 944): Effective Date
and ASU 2020-11,
Financial Services—Insurance (Topic 944): Effective Date and Early
Application.
ASU 2020-11 was issued in consideration of the implications of
COVID-19 and to provide transition relief and additional time for
implementation by deferring the effective date by one year. The
amendments in ASU 2018-12 make changes to a variety of areas to
simplify or improve the existing recognition, measurement,
presentation, and disclosure requirements for long-duration
contracts issued by an insurance entity. The amendments require
insurers to annually review the assumptions they make about their
policyholders and update the liabilities for future policy benefits
if the assumptions change. The amendments also simplify the
amortization of deferred acquisition costs and add new disclosure
requirements about the assumptions used to measure liabilities and
the potential impact to future cash flows. The amendments related
to the liability for future policy benefits for traditional and
limited-payment contracts and deferred acquisition costs are to be
applied to contracts in force as of the beginning of the earliest
period
presented, with an option to apply such amendments retrospectively
with a cumulative-effect adjustment to the opening balance of
retained earnings as of the earliest period presented. The
amendments for market risk benefits are to be applied
retrospectively. ASU 2020-11 is effective for public entities for
periods beginning after December 15, 2022. The Company is currently
evaluating the effects the adoption of ASU 2018-12 and ASU 2020-11
will have on its financial statements.
3. Investment Securities
The following tables present amortized cost and fair values of
investments as of September 30, 2022, and December 31,
2021, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
Amortized cost |
|
Accumulated unrealized gains |
|
Accumulated unrealized losses |
|
Fair value |
|
|
|
(in thousands)
|
|
Investment securities, held-to-maturity
|
|
|
|
|
|
|
|
|
|
U.S. government and government agencies and
authorities
|
|
$ |
700 |
|
|
$ |
— |
|
|
$ |
(104) |
|
|
$ |
596 |
|
|
Investment securities, available-for-sale
|
|
|
|
|
|
|
|
|
|
U.S. government and government agencies and
authorities
|
|
232,189 |
|
|
18 |
|
|
(10,539) |
|
|
221,668 |
|
|
Corporate debt securities |
|
23,924 |
|
|
4 |
|
|
(243) |
|
|
23,685 |
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$ |
256,813 |
|
|
$ |
22 |
|
|
$ |
(10,886) |
|
|
$ |
245,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Amortized cost |
|
Accumulated unrealized gains |
|
Accumulated unrealized losses |
|
Fair value |
|
|
|
(in thousands)
|
|
Investment securities, held-to-maturity
|
|
|
|
|
|
|
|
|
|
U.S. government and government agencies and
authorities
|
|
$ |
640 |
|
|
$ |
40 |
|
|
$ |
(9) |
|
|
$ |
671 |
|
|
Investment securities, available-for-sale
|
|
|
|
|
|
|
|
|
|
U.S. government and government agencies and
authorities
|
|
198,669 |
|
|
10 |
|
|
(1,944) |
|
|
196,735 |
|
|
Total investment securities
|
|
$ |
199,309 |
|
|
$ |
50 |
|
|
$ |
(1,953) |
|
|
$ |
197,406 |
|
The following table presents the amortized cost and fair value of
debt securities as of September 30, 2022, by contractual
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
Held-to-maturity |
|
Available-for-sale |
|
|
|
Amortized cost |
|
Fair value |
|
Amortized cost |
|
Fair value |
|
|
|
(in thousands) |
|
Due within one year |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
179,774 |
|
|
$ |
175,116 |
|
|
Due after one year through five years |
|
590 |
|
|
502 |
|
|
76,339 |
|
|
70,237 |
|
|
Due after five years through ten years |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Due after ten years |
|
110 |
|
|
94 |
|
|
— |
|
|
— |
|
|
Total |
|
$ |
700 |
|
|
$ |
596 |
|
|
$ |
256,113 |
|
|
$ |
245,353 |
|
For the three and nine months ended September 30, 2022 and
2021, respectively, net investment income, which is included within
other income in the Condensed Consolidated Statements of Operations
and Comprehensive Loss, was derived from the following
sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
(in thousands) |
|
Cash and cash equivalents |
|
$ |
1,428 |
|
|
$ |
— |
|
|
$ |
1,567 |
|
|
$ |
— |
|
|
|
|
Short-term investments |
|
879 |
|
|
62 |
|
|
1,001 |
|
|
139 |
|
|
|
|
Investment securities |
|
543 |
|
|
117 |
|
|
1,057 |
|
|
201 |
|
|
|
|
Investment income, net |
|
$ |
2,850 |
|
|
$ |
179 |
|
|
$ |
3,625 |
|
|
$ |
340 |
|
|
|
Gross unrealized losses and fair values aggregated by investment
category and length of time that individual securities have been in
a continuous unrealized loss position were as follows at
September 30, 2022, and December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
Less than 12 months |
|
Greater than 12 months |
|
Total |
|
|
|
Fair value |
|
Unrealized loss |
|
Fair value |
|
Unrealized loss |
|
Fair value |
|
Unrealized loss |
|
|
|
(in thousands, except number of positions) |
|
U.S. government and government agencies and authorities |
|
$ |
141,377 |
|
|
$ |
(4,723) |
|
|
$ |
65,926 |
|
|
$ |
(5,920) |
|
|
$ |
207,303 |
|
|
$ |
(10,643) |
|
|
Corporate debt securities |
|
19,624 |
|
|
(243) |
|
|
— |
|
|
— |
|
|
6,997 |
|
|
(243) |
|
|
Total |
|
$ |
161,001 |
|
|
$ |
(4,966) |
|
|
$ |
65,926 |
|
|
$ |
(5,920) |
|
|
$ |
214,300 |
|
|
$ |
(10,886) |
|
|
Number of positions |
|
36 |
|
|
18 |
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Less than 12 months |
|
Greater than 12 months |
|
Total |
|
|
|
Fair value |
|
Unrealized loss |
|
Fair value |
|
Unrealized loss |
|
Fair value |
|
Unrealized loss |
|
|
|
(in thousands, except number of positions) |
|
U.S. government and government agencies and authorities |
|
$ |
187,251 |
|
|
$ |
(1,555) |
|
|
$ |
7,902 |
|
|
$ |
(398) |
|
|
$ |
195,153 |
|
|
$ |
(1,953) |
|
|
Total |
|
$ |
187,251 |
|
|
$ |
(1,555) |
|
|
$ |
7,902 |
|
|
$ |
(398) |
|
|
$ |
195,153 |
|
|
$ |
(1,953) |
|
|
Number of positions |
|
18 |
|
|
4 |
|
|
22 |
|
The Company did not record any credit allowances for debt
securities that were in an unrealized loss position as of
September 30, 2022, and December 31, 2021.
As of September 30, 2022, all securities were investment
grade, with credit ratings of BBB+ or higher by S&P Global or
as determined by other credit rating agencies within the Company's
investment policy. Unrealized losses on investment grade securities
are principally related to changes in interest rates or changes in
issuer or sector related credit spreads since the securities were
acquired. The gross unrealized investment losses as of
September 30, 2022, were assessed, based on, among other
things:
•The
relative magnitude to which fair values of these securities have
been below their amortized cost was not indicative of an impairment
loss;
•The
absence of compelling evidence that would cause the Company to call
into question the financial condition or near-term prospects of the
issuer of the applicable security; and
•The
Company's ability and intent to hold the applicable security for a
period of time sufficient to allow for any anticipated
recovery.
Proceeds from sales and maturities of investment securities,
inclusive of short-term investments, and related gross realized
gains (losses) which are included within other income in the
Condensed Consolidated Statements of Operations and Comprehensive
Loss, were as follows for the three and nine months ended
September 30, 2022 and 2021, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
(in thousands) |
|
Proceeds from sales of investment securities |
|
$ |
3,829 |
|
|
$ |
89,997 |
|
|
$ |
9,710 |
|
|
$ |
126,862 |
|
|
|
|
Proceeds from maturities of investment securities |
|
60,000 |
|
|
50,000 |
|
|
350,455 |
|
|
250,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
— |
|
|
8 |
|
|
5 |
|
|
25 |
|
|
|
|
Gross realized losses |
|
(2) |
|
|
— |
|
|
(23) |
|
|
(80) |
|
|
|
|
Net realized losses |
|
$ |
(2) |
|
|
$ |
8 |
|
|
$ |
(18) |
|
|
$ |
(55) |
|
|
|
As of September 30, 2022, and December 31, 2021, the
Company had $14.2 million and $11.1 million, respectively, in
deposits with various states and regulatory bodies that are
included as part of the Company's investment balances.
4. Fair Value Measurements
The following tables present a summary of fair value measurements
for financial instruments as of September 30, 2022, and
December 31, 2021, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total fair
value
|
|
|
|
(in thousands) |
|
U.S. government and government agencies |
|
$ |
— |
|
|
$ |
221,668 |
|
|
$ |
— |
|
|
$ |
221,668 |
|
|
Corporate debt securities |
|
— |
|
|
23,685 |
|
|
— |
|
|
23,685 |
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
— |
|
|
$ |
245,353 |
|
|
$ |
— |
|
|
$ |
245,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total fair
value
|
|
|
|
(in thousands) |
|
U.S. government and government agencies |
|
$ |
— |
|
|
$ |
196,735 |
|
|
$ |
— |
|
|
$ |
196,735 |
|
|
Total assets at fair value |
|
$ |
— |
|
|
$ |
196,735 |
|
|
$ |
— |
|
|
$ |
196,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of Legacy Clover's convertible securities was based
on Level 3 inputs, which were unobservable and reflected
management's best estimate of what market participants would use
when pricing the asset or liability, including assumptions about
risk. There was no fair value associated with convertible
securities at September 30, 2022, due to the conversion of the
securities to shares of the Company's common stock upon the
completion of the Business Combination.
There were no changes in balances of Legacy Clover's Level 3
financial liabilities during the nine months ended September 30,
2022. The changes in balances of Legacy Clover's Level 3 financial
liabilities during the nine months ended September 30, 2021, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible securities |
|
Derivative liabilities |
|
Warrants payable |
|
Total |
|
(in thousands) |
|
Balance, December 31, 2020
|
$ |
949,553 |
|
|
$ |
44,810 |
|
|
$ |
97,782 |
|
|
$ |
1,092,145 |
|
|
Issuances |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Settlements |
(949,553) |
|
|
(44,810) |
|
|
(97,782) |
|
|
(1,092,145) |
|
|
Transfers in |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Transfers out |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Total realized losses (gains) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Balance, September 30, 2021
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
In addition to the Level 3 financial liabilities in the table
above, on September 25, 2020, Seek Insurance Services, Inc.
("Seek"), a field marketing organization and an indirect
wholly-owned subsidiary of the Company, entered into a note
purchase agreement with a third-party investor and issued a note
(the "Seek Convertible Note") in the principal amount of $20.0
million, for which the carrying value is approximately the same as
the fair value. For additional information, see Note 8 (Notes and
Securities Payable). As of September 30, 2022, and
December 31, 2021, both the carrying value, which includes
accrued interest, and the fair value of the Seek Convertible Note
were $23.2 million and $22.0 million, respectively, and these were
considered Level 3 financial liabilities. Seek is currently in the
process of winding down its operations.
There were no transfers in or out of Level 3 financial assets or
liabilities for the nine months ended September 30, 2022 or
2021.
Warrants
Warrants were accounted for as liabilities in accordance with ASC
815-40 and are presented within warrants payable on the Condensed
Consolidated Balance Sheet. The warrant liabilities were measured
at fair value at inception and measured on a recurring basis, with
changes in fair value presented within change in fair value of
warrants payable in the Condensed Consolidated Statement of
Operations and Comprehensive Loss. The Company determined that the
public warrants assumed in connection with the Business Combination
were classified within Level 1 of the fair value hierarchy as the
fair value was equal to the publicly traded price of the public
warrants, and the private placement warrants, also assumed in
connection with the Business Combination, were classified within
Level 2 of the fair value hierarchy as the fair value was estimated
using the price of the public warrants. On July 22, 2021, the
Company issued a press release stating that it would redeem all of
its public and private placement warrants. In connection with the
redemption, effective August 24, 2021, the public warrants were
delisted and classified within Level 2 of the fair value hierarchy
as the fair value of the public warrants was based on proportional
changes in the price of the Company's common stock. The end of the
redemption period was September 9, 2021, at which time the Company
redeemed all unexercised public and private placement warrants at a
price of $0.10 per warrant. Following the redemption, no public or
private placement warrants were outstanding. For additional
information, see Note 5 (Fair Value Measurements) and Note 13
(Warrants Payable) in the 2021 Form 10-K.
5. Healthcare Receivables
Healthcare receivables include pharmaceutical rebates which are
accrued as they are earned and estimated based on contracted rebate
rates, eligible amounts submitted to the manufacturers by the
Company's pharmacy manager, pharmacy utilization volume, and
historical collection patterns. Also included in healthcare
receivables are Medicare Part D settlement receivables, member
premium receivables, and other CMS receivables. The Company
reported $58.9 million and $48.0 million of healthcare
receivables at September 30, 2022, and December 31, 2021,
respectively.
6. Related Party Transactions
Related party agreements
The Company has various contracts with IJKG Opco LLC (d/b/a
CarePoint Health - Bayonne Medical Center), Hudson Hospital Opco,
LLC (d/b/a CarePoint Health - Christ Hospital) and Hoboken
University Medical Center Opco LLC (d/b/a CarePoint Health -
Hoboken University Medical Center), which collectively do business
as the CarePoint Health System ("CarePoint Health"), for the
provision of inpatient and hospital-based outpatient services.
CarePoint Health was ultimately held and controlled by Vivek
Garipalli, the Company's Chief Executive Officer and a significant
stockholder of the Company. In May 2022, Mr. Garipalli and his
family completed a donation of their interest in CarePoint Health
to a non-profit organization called CarePoint Health Systems,
Inc.
Following the donation, Mr. Garipalli has remained a Manager of
Hudson Hospital Propco, LLC, an affiliate of Hudson Hospital Opco,
LLC. Additionally, certain affiliates of Mr. Garipalli are owed
certain money from CarePoint Health for prior obligations, and Mr.
Garipalli has an indirect interest in Sequoia Healthcare Services,
LLC, which provides healthcare services to CarePoint Health.
Expenses and fees incurred related to Clover's contracts with
CarePoint Health, recorded in net medical claims incurred, were
$3.2 million and $1.7 million for the three months ended September
30, 2022 and 2021, respectively, and $8.9 million and $9.2 million
for the nine months ended September 30, 2022 and 2021,
respectively. Additionally, $1.7 million and $2.3 million were
payable to CarePoint Health as of September 30, 2022, and
December 31, 2021, respectively.
The Company has contracted with Rogue Trading, LLC ("Rogue"), a
marketing services provider. The Company's President, Andrew Toy,
is related to the Chief Executive Officer of Rogue. There were no
expenses and fees related to these contracts for the three and nine
months ended September 30, 2022. Expenses and fees incurred related
to these contracts were $0.3 million for the three and nine months
ended September 30, 2021.
The Company has a contract with Medical Records Exchange, LLC
(d/b/a ChartFast) pursuant to which the Company receives
administrative services related to medical records via ChartFast's
electronic applications and web portal platform. ChartFast is
ultimately owned and controlled by Mr. Garipalli. Expenses and fees
incurred related to this agreement were $0.1 million for the three
months ended September 30, 2022 and 2021, and $0.2 million and $0.1
million for the nine months ended September 30, 2022 and 2021,
respectively.
On July 2, 2021, the Company entered into a contract with Thyme
Care, Inc. ("Thyme Care"), an oncology benefit management company,
through which Thyme Care was engaged to provide concierge cancer
coordination services to the Company's Insurance members in New
Jersey and develop a provider network to help ensure member access
to high-value oncology care. Mr. Garipalli is a member of the board
of directors of Thyme Care and holds an equity interest of less
than five percent (5%) of that entity. Expenses and fees incurred
related to this agreement were $0.5 million and $1.3 million for
the three and nine months ended September 30, 2022, respectively.
Additionally, $0.3 million and $0.1 million were payable to Thyme
Care as of September 30, 2022, and December 31, 2021,
respectively.
7. Unpaid Claims
Activity in the liability for unpaid claims, including claims
adjustment expenses, for the nine months ended September 30, 2022
and 2021, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
|
|
(in thousands) |
|
|
|
|
|
|
Gross and net balance, beginning of period
(1)
|
|
$ |
136,317 |
|
|
$ |
103,976 |
|
|
Incurred related to: |
|
|
|
|
|
Current year |
|
773,530 |
|
|
617,035 |
|
|
Prior years |
|
(36,149) |
|
|
17,095 |
|
|
Total incurred |
|
737,381 |
|
|
634,130 |
|
|
Paid related to: |
|
|
|
|
|
Current year |
|
649,223 |
|
|
494,045 |
|
|
Prior years |
|
89,055 |
|
|
109,362 |
|
|
Total paid |
|
738,278 |
|
|
603,407 |
|
|
|
|
|
|
|
Gross and net balance, end of period
(1)(2)
|
|
$ |
135,420 |
|
|
$ |
134,699 |
|
(1) Includes
amounts due to related parties.
(2) Differs
from the total unpaid claims amount reported on the Condensed
Consolidated Balance Sheets due to the fact the figure here
excludes unpaid claims for the Company's Non-Insurance operations
of $6.5 million and $4.6 million as of September 30, 2022 and
December 31, 2021, respectively.
Unpaid Claims for Insurance Operations
Unpaid claims for Insurance operations were $135.4 million as
of September 30, 2022. During the nine months ended September
30, 2022, $89.1 million was paid for incurred claims
attributable to insured events of prior years. A favorable
development of $36.1 million was recognized during the nine
months ended September 30, 2022, resulting from the Company's
actual experience with claims developing differently as compared to
the Company's estimates as of December 31, 2021. An unfavorable
development of $17.1 million was recognized during the nine
months ended September 30, 2021, resulting from the Company's
actual experience with claims developing differently as compared to
the Company's estimates as of December 31, 2020. Original estimates
are increased or
decreased, as additional information becomes known regarding
individual claims. The ratio of current year medical claims paid as
a percentage of current year net medical claims incurred was 83.9%
for the nine months ended September 30, 2022, and 80.1% for the
nine months ended September 30, 2021. This ratio serves as an
indicator of claims processing speed, indicating that claims were
processed at a faster rate during the nine months ended September
30, 2022, than during the nine months ended September 30,
2021.
The Company uses a variety of standard actuarial techniques to
establish unpaid claims reserves. Management estimates are
supported by the Company's actuarial analysis. The Company utilizes
an internal actuarial team to review the adequacy of unpaid claim
and unpaid claim adjustment expense. The estimation of claim costs
is inherently difficult and requires significant judgment. The
estimation has considerable inherent variability and can fluctuate
significantly depending upon several factors, including medical
cost trends and claim payment patterns, general economic
conditions, and regulatory changes. The time value of money is not
taken into account for the purposes of calculating the liability
for unpaid claims. Management believes that the current reserves
are adequate based on currently available information.
8. Notes and Securities Payable
Seek Convertible Note
On September 25, 2020, Seek issued the Seek Convertible Note
in the principal amount of $20.0 million. The note bears simple
interest at an annual rate of 8.0% and matures on September 25,
2023, unless earlier accelerated, converted, or paid in full. The
outstanding principal and any accrued but unpaid interest will
become immediately due and payable at the election of the note
holder upon the occurrence of any event of default as defined in
the note. The outstanding principal and accrued but unpaid interest
will convert into an equity interest in Seek if prior to maturity,
repayment, or conversion of the note: (1) the note holder elects to
convert the note, (2) upon the closing of Seek's next equity
financing; or (3) upon consummation of an initial public offering
of Seek's common stock or a SPAC or reverse merger transaction with
Seek. The Seek Convertible Note is not guaranteed by Clover Health
Investments, Corp. or any of its subsidiaries, other than
Seek.
The Company analyzed the embedded features for derivative
accounting consideration and determined that the features are
clearly and closely related to the debt host and do not require
separate accounting as a derivative.
The carrying amount of the note was $20.0 million and $19.9 million
at September 30, 2022, and December 31, 2021,
respectively. The Company capitalized $0.1 million of issuance
costs which are being amortized using the effective interest method
over the term of the note. Unamortized debt issuance costs were
less than $0.1 million and $0.1 million at
September 30, 2022, and December 31, 2021. Amortization
of the debt issuance costs and interest expense on the note was
$0.4 million and $0.4 million during the three months ended
September 30, 2022 and 2021, respectively, and $0.8 million and
$1.2 million during the nine months ended September 30, 2022 and
2021, respectively.
The effective interest rate was 8.2% during the three months ended
September 30, 2022 and 2021, respectively, and 8.2% during the nine
months ended September 30, 2022 and 2021,
respectively.
The below table summarizes maturities of the Company's securities
payable over the next five years as of September 30,
2022:
|
|
|
|
|
|
|
(in thousands) |
|
2023 |
$ |
20,000 |
|
|
2024 |
— |
|
|
2025 |
— |
|
|
2026 |
— |
|
|
2027 |
— |
|
|
Total |
$ |
20,000 |
|
Seek is currently in the process of winding down its operations.
Upon the dissolution of Seek, the Seek Convertible Note will be
deemed waived and all outstanding amounts thereunder will be
cancelled and forgiven and all other rights, covenants and
obligations shall terminate.
9. Letter of Credit
On April 19, 2018, the Company entered into a secured letter
of credit agreement (the "Letter") required for its subsidiary,
Clover HMO of New Jersey, Inc., for an aggregate amount of up to
$2.5 million with a commercial lender that renews on an annual
basis. The
Letter bears interest at a rate of 0.75%. There was an unused
balance of $2.5 million at both September 30, 2022, and
December 31, 2021.
10. Stockholders' Equity and Convertible Preferred
Stock
Stockholders' Equity
The Company was authorized to issue up to 2,500,000,000 shares of
Class A common stock as of September 30, 2022, and
December 31, 2021, and up to 500,000,000 shares of Class B
common stock as of September 30, 2022, and December 31,
2021. As of September 30, 2022, and December 31, 2021,
there were 383,526,634 and 352,645,626 shares of Class A common
stock issued and outstanding, respectively. There were 94,394,852
and 118,206,768 shares of Class B common stock issued and
outstanding as of September 30, 2022, and December 31,
2021, respectively. Class B common stock has 10 votes per share,
and Class A common stock has one vote per share. The Company had
2,041,948 and 14,730 shares held in treasury as of
September 30, 2022, and December 31, 2021, respectively.
These amounts represent shares withheld to cover taxes upon vesting
of employee stock-based awards.
The Company is authorized to issue 25,000,000 shares of preferred
stock having a par value of $0.0001 per share, and the Company's
board of directors (the "Board") has the authority to determine the
rights, preferences, privileges, and restrictions, including voting
rights, of those shares. As of September 30, 2022, there were
no shares of preferred stock issued and outstanding.
Issuance of Common Stock
In November 2021, the Company sold 52,173,913 shares of Class A
common stock at a public offering price of $5.75 per share for
gross proceeds of approximately $300.0 million, before
deducting underwriting discounts and commissions and other expenses
payable by the Company, of $16.2 million.
Convertible Preferred Stock
Each share of Legacy Clover's preferred stock was convertible at
the option of the holder, at any time and from time to time, and
without the payment of additional consideration by the holder
thereof, into fully paid and non-assessable shares of common
stock.
Pursuant to the Merger Agreement, all outstanding shares of Legacy
Clover's preferred stock automatically converted into 139,444,346
shares of Class B Common Stock upon the closing of the Business
Combination. For additional information, see Note 3 (Business
Combination) in the 2021 Form 10-K.
11. Variable Interest Entity and Equity Method of
Accounting
On February 4, 2022, Character Biosciences, Inc. (f/k/a Clover
Therapeutics Company) ("Character Biosciences"), a subsidiary of
the Company, completed a private capital transaction in which it
raised $17.9 million from the issuance of 16,210,602 shares of
its preferred stock. Upon completion of the transaction, the
Company owned approximately 25.46% of Character Biosciences. As a
result, the Company reassessed its interest in Character
Biosciences and determined that while Character Biosciences is a
VIE, the Company is not considered as the primary beneficiary of
the VIE because it does not have the power, through voting or
similar rights and the license agreements, to direct the activities
of Character Biosciences that most significantly impact Character
Biosciences' economic performance.
The Company determined that it does have a significant influence
over Character Biosciences and, therefore, it began accounting for
its common stock investment in Character Biosciences using the
equity method on February 4, 2022. The Company derecognized all of
Character Biosciences' assets and liabilities from its balance
sheet and its noncontrolling interest related to Character
Biosciences, and recognized the retained common stock and preferred
stock equity interests at fair values of $3.7 million and
$4.9 million, respectively, which are included in equity
method investment and other assets on the Condensed Consolidated
Balance Sheets, and recognized a loss of $1.0 million and gain
of $10.2 million, respectively, which is included in loss
(gain) on investment on the Condensed Consolidated Statements of
Operations and Comprehensive Loss for the three and nine months
ended September 30, 2022.
As the Company applies the equity method to account for its common
stock interest in Character Biosciences, the initial value of the
investment is adjusted periodically to recognize (1) the
proportionate share of the investee's net income or losses after
the date of investment, (2) additional contributions made and
dividends or distributions received, and (3) impairment losses
resulting from adjustments to net realizable value. The Company
eliminates all intercompany transactions in accounting for equity
method investments and records the proportionate share of the
investee's net income or loss in equity in loss on investment on
the Condensed Consolidated Statements of Operations and
Comprehensive Loss.
With respect to the Company's preferred stock equity interest in
Character Biosciences, the Company elected the measurement
alternative to value this equity investment without a readily
determinable fair value in accordance with ASC 321,
Investments – Equity Securities.
The carrying amount of the investment is included in other assets
in the Condensed Consolidated Balance Sheets. In accordance with
ASC 321, for each reporting period, the Company completes a
qualitative assessment considering impairment indicators to
evaluate whether the investment is impaired.
12. Employee Benefit Plans
Employee Savings Plan
The Company has a defined contribution retirement savings plan (the
"401(k) Plan") covering eligible employees, which includes safe
harbor matching contributions based on the amount of employees'
contributions to the 401(k) Plan. The Company contributes to the
401(k) Plan annually 100.0% of the first 4.0% compensation that is
contributed by the employee up to 4.0% of eligible annual
compensation after one year of service. The Company's service
contributions to the 401(k) Plan amounted to approximately $0.4
million and $0.3 million for the three months ended September 30,
2022 and 2021, respectively, and $1.1 million and $0.9 million for
the nine months ended September 30, 2022 and 2021,
respectively, and are included in salaries and benefits on the
Condensed Consolidated Statements of Operations and Comprehensive
Loss. The Company's cash match is invested pursuant to the
participant's contribution direction. Employer contributions are
immediately 100.0% vested.
Stock-based Compensation
The Company's 2020 Equity Incentive Plan (the "2020 Plan") provides
for grants of restricted stocks units ("RSUs") and options to
acquire shares of the Company's common stock, par value $0.0001 per
share, to employees, directors, officers, and consultants of the
Company, and the Company's 2020 Management Incentive Plan (the
"2020 MIP") provides for grants of RSUs to our Chief Executive
Officer and President. During the year ended December 31, 2021, the
Company approved the 2020 Plan and the 2020 MIP, and the Company's
2014 Equity Incentive Plan (the "2014 Plan") was terminated. On
March 9, 2022, the Board adopted the 2022 Inducement Award Plan
(the "Inducement Plan" and, collectively with the 2020 Plan, the
2020 MIP, and the 2014 Plan, the "Plans") and reserved 11,000,000
shares of Class A common stock for issuance under the Inducement
Plan. The Inducement Plan was adopted by the Board without
stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq
Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq
Listing Rules, awards under the Inducement Plan may be made only to
an employee who has not previously been an employee or member of
the Board, or following a bona fide period of non-employment, if he
or she is granted such award in connection with his or her
commencement of employment with the Company, and such grant is an
inducement material to his or her entering into employment with the
Company.
The maximum number of shares of the Company's common stock reserved
for issuance over the term of the Plans, shares outstanding under
the Plans, and shares remaining under the Plans as of
September 30, 2022, and December 31, 2021, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
Shares Authorized Under Plans |
|
Shares Outstanding Under Plans |
|
Shares Remaining Under Plans |
|
2014 Plan |
|
54,402,264 |
|
|
36,662,098 |
|
|
N/A |
|
2020 Plan |
|
31,884,272 |
|
|
22,576,925 |
|
|
7,608,767 |
|
|
2020 MIP |
|
33,426,983 |
|
|
30,084,285 |
|
|
— |
|
|
Inducement Plan |
|
11,000,000 |
|
|
11,000,000 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Shares Authorized Under Plans |
|
Shares Outstanding Under Plans |
|
Shares Remaining Under Plans |
|
2014 Plan |
|
54,402,264 |
|
|
41,905,875 |
|
|
N/A |
|
2020 Plan |
|
30,641,401 |
|
|
6,690,048 |
|
|
23,442,323 |
|
|
2020 MIP |
|
33,426,983 |
|
|
33,426,983 |
|
|
— |
|
|
|
|
|
|
|
|
Effective as of the closing of the Business Combination, the 2014
Plan was terminated, at which time the outstanding awards
previously granted thereunder were assumed by the Company, and no
new awards are available for grant under the 2014 Plan. Shares that
are expired, terminated, surrendered, or canceled under the 2014
Plan without having been fully exercised are available for awards
under the 2020 Plan. Shares may be issued from authorized but
unissued Company stock.
The Plans are administered by the Talent and Compensation Committee
of the Board (the "Compensation Committee"). The options are
subject to the terms and conditions applicable to options granted
under the Plans, as described in the applicable Plan and the
applicable stock option grant agreement. The exercise prices,
vesting, and other restrictions applicable to the stock options are
determined at the discretion of the Compensation Committee, except
that the exercise price per share of incentive stock options may
not be less than 100.0% of the fair value of a share of common
stock on the date of grant. Stock options awarded under the Plans
expire 10 years after the grant date. Incentive stock options and
non-statutory options granted to employees, directors, officers,
and consultants of the Company typically vest over
four or five years. RSU awards are subject to the terms and
conditions set forth in the Plans and the applicable RSU grant
agreement. Vesting and other restrictions applicable to RSU awards
are determined at the discretion of the Compensation Committee. The
number of shares of common stock subject to an RSU award is
determined by dividing the cash value of an RSU award by the
average closing price of a share of the Company's Class A common
stock over a specified period through the date of grant, and such
awards typically vest over four years from the grant date. The
total estimated fair value is amortized as an expense over the
requisite service period as approved by the Compensation
Committee.
The Company recorded stock-based compensation expense for options,
RSUs, and performance restricted stock units ("PRSUs") granted
under the Plans, the Inducement Plan, and discounts offered in
connection with the Company's 2020 Employee Stock Purchase Plan
("ESPP") of $42.6 million and $46.8 million during the three months
ended September 30, 2022 and 2021, respectively, and $125.2 million
and $132.5 million during the nine months ended September 30, 2022
and 2021, respectively, and such expenses are presented in salaries
and benefits in the accompanying Condensed Consolidated Statements
of Operations and Comprehensive Loss. Compensation cost presented
in salaries and benefits in the accompanying Condensed Consolidated
Statements of Operations and Comprehensive Loss were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
2022 |
|
2021 |
|
|
|
|
|
(in thousands) |
|
Stock options |
|
$ |
1,051 |
|
|
$ |
1,665 |
|
|
|
|
RSUs |
|
19,499 |
|
|
17,396 |
|
|
|
|
PRSUs |
|
21,903 |
|
|
27,675 |
|
|
|
|
ESPP |
|
188 |
|
|
67 |
|
|
|
|
Total compensation cost recognized for stock-based compensation
plans |
|
$ |
42,641 |
|
|
$ |
46,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2022 |
|
2021 |
|
|
|
|
|
(in thousands) |
|
Stock options |
|
$ |
3,530 |
|
|
$ |
6,734 |
|
|
|
|
RSUs |
|
54,782 |
|
|
45,725 |
|
|
|
|
PRSUs |
|
66,461 |
|
|
80,016 |
|
|
|
|
ESPP |
|
435 |
|
|
67 |
|
|
|
|
Total compensation cost recognized for stock-based compensation
plans |
|
$ |
125,208 |
|
|
$ |
132,542 |
|
|
|
As of September 30, 2022, there was approximately $381.0
million of unrecognized stock-based compensation expense related to
unvested stock options, RSUs, PRSUs, and the ESPP, estimated to be
recognized over a period of 3.96 years.
Stock Options
No stock options were granted during the nine months ended
September 30, 2022. The assumptions that the Company used in
the Black-Scholes option-pricing model to determine the grant-date
fair value of stock options granted for the nine months ended
September 30, 2021, respectively, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
|
|
Weighted-average risk-free interest rate |
|
|
|
1.06 |
% |
|
|
|
Expected term (in years) |
|
|
|
6.06 |
|
|
|
Expected volatility |
|
|
|
37.74 |
% |
|
|
|
Expected dividend yield |
|
|
|
— |
|
|
|
A summary of option activity under the 2020 Plan during the nine
months ended September 30, 2022, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
Weighted-average exercise price |
|
Outstanding, January 1, 2022
|
1,753,799 |
|
|
$ |
8.88 |
|
|
Granted during 2022
|
— |
|
|
— |
|
|
Exercised |
— |
|
|
— |
|
|
Forfeited |
(295,549) |
|
|
8.88 |
|
|
Outstanding, September 30, 2022
|
1,458,250 |
|
|
$ |
8.88 |
|
A summary of option activity under the 2014 Plan during the nine
months ended September 30, 2022, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
Weighted-average exercise price |
|
Outstanding, January 1, 2022
|
31,155,742 |
|
|
$ |
2.35 |
|
|
Granted during 2022
|
— |
|
|
— |
|
|
Exercised |
(4,358,008) |
|
|
0.22 |
|
|
Forfeited |
(882,509) |
|
|
2.69 |
|
|
Outstanding, September 30, 2022
|
25,915,225 |
|
|
$ |
2.69 |
|
The aggregate intrinsic value of stock options is calculated as the
difference between the exercise price of the stock options and the
fair value of the Company's common stock for those stock options
that had exercise prices lower than the fair value of the Company's
common stock.
The weighted-average grant date fair value of stock options granted
during the nine months ended September 30, 2021, was $3.36 per
share.
As of September 30, 2022, outstanding stock options,
substantially all of which are expected to vest, had an aggregate
intrinsic value of $0.8 million, and a weighted-average remaining
contractual term of 6.54 years. As of September 30, 2022,
there were 21,039,422 options exercisable under the Plan, with an
aggregate intrinsic value of $0.8 million, a weighted-average
exercise price of $2.86 per share, and a weighted-average remaining
contractual term of 6.29 years. The total value of stock options
exercised during the nine months ended September 30, 2022 and
2021, was $11.3 million and $36.4 million, respectively. Cash
received from stock option exercises during the nine months ended
September 30, 2022 and 2021, totaled $1.0 million and $5.5 million,
respectively.
Pursuant to the terms of the applicable Plan and stock option award
agreement, employees may exercise options at any time after grant
while maintaining the original vesting period. The proceeds from
exercise of unvested options are recorded as a liability until the
option vests at which time the liability is reclassified to equity.
If the employee terminates or otherwise forfeits an unvested option
that has been exercised, the Company must redeem those shares at
the original exercise price and remit payment of the forfeited
portion of shares back to the employee.
Restricted Stock Units
A summary of total RSU activity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of RSUs |
|
Weighted-average grant date fair value per share |
|
Outstanding, January 1, 2021
|
|
— |
|
|
$ |
— |
|
|
Granted during 2021
|
|
21,035,614 |
|
|
14.77 |
|
|
Released |
|
(131,766) |
|
|
— |
|
|
Forfeited |
|
(35,935) |
|
|
8.52 |
|
|
Outstanding, September 30, 2021
|
|
20,867,913 |
|
|
$ |
14.78 |
|
|
|
|
|
|
|
|
Outstanding, January 1, 2022
|
|
21,294,841 |
|
|
$ |
14.60 |
|
|
Granted during 2022
|
|
30,094,480 |
|
|
2.62 |
|
|
Released |
|
(4,518,984) |
|
|
14.31 |
|
|
Forfeited |
|
(1,460,459) |
|
|
5.31 |
|
|
Outstanding, September 30, 2022
|
|
45,409,878 |
|
|
$ |
6.99 |
|
Performance Restricted Stock Units
The Company has granted certain PRSUs which become eligible to vest
if prior to the vesting date the average closing price of one share
of the Company's common stock for 90 consecutive days equals or
exceeds a specified price (the "Market PRSUs"). Additionally, the
Company has granted PRSUs that vest based on pre-established
milestones including Company performance. The grant date fair value
of the Market PRSUs is recognized as expense over the vesting
period under the accelerated attribution method and is not adjusted
in future periods for the success or failure to achieve the
specified market condition. The Company has also determined the
requisite service period for the PRSUs with multiple performance
conditions to be the longest of the explicit, implicit, or derived
service period for each tranche.
There were no Market PRSUs granted prior to 2021. The grant date
fair value of Market PRSUs was determined using a Monte Carlo
simulation model that incorporated multiple valuation assumptions,
including the probability of achieving the specified market
condition and the following assumptions:
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2022 |
|
|
|
Expected volatility
(1)
|
|
40.7 |
% |
|
Risk-free interest rate
(2)
|
|
0.5 |
|
|
Dividend yield
(3)
|
|
— |
|
(1)
Expected volatility is based on a blend of peer group company
historical data adjusted for the Company's leverage.
(2)
Risk-free interest rate based on U.S. Treasury yields with a term
equal to the remaining Performance Period as of the grant
date.
(3)
Dividend yield was assumed to be zero as the Company does not
anticipate paying dividends.
A summary of PRSU activity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of PRSUs |
|
Weighted-average grant date fair value per share |
|
Non-vested, January 1, 2021
|
|
— |
|
|
$ |
— |
|
|
Granted during 2021
|
|
27,699,171 |
|
|
9.65 |
|
|
Non-vested at September 30, 2021
|
|
27,699,171 |
|
|
$ |
9.65 |
|
|
|
|
|
|
|
|
Non-vested, January 1, 2022
|
|
27,818,524 |
|
|
$ |
9.58 |
|
|
Granted during 2022
|
|
— |
|
|
— |
|
|
Vested |
|
(13,264) |
|
|
8.90 |
|
|
|