CLOVER HEALTH INVESTMENTS, CORP. /DE [CLOV] Filings

10-Q 1 clov-20240630.htm 10-Q clov-20240630

0001801170FALSEQ2202412/31CLOVER HEALTH INVESTMENTS, CORP. /DEhttp://fasb.org/us-gaap/2024#GainLossOnInvestmentsP4YP1YSubsequent Events

None.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________________________

FORM 10-Q

________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


o			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

________________________________________

Clover Health Investments, Corp.

(Exact Name of Registrant as Specified in its Charter)

________________________________________


Delaware			98-1515192
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3401 Mallory Lane, Suite 210 Franklin, Tennessee			37067
(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:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

CLOV

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, a 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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

At July 31, 2024, the registrant had 407,819,384 shares of Class A Common Stock, $0.0001 par value per share, and 89,649,365 shares of Class B Common Stock, $0.0001 par value per share, issued and outstanding.



		Page
PART I.	FINANCIAL INFORMATION	5

Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets at June 30, 2024, and December 31, 2023	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss ) for the three and six months ended June 30, 2024 and 2023	7
	Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity for the three and six months ended June 30, 2024 and 2023	8
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023	10
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION	43

Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

Signatures		45

As used in this report, "Company," "Clover," "Clover Health," "we," "us," "our," "our company," 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 management of our Insurance business;

•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 effectively manage our beneficiary base and provider network;

•our ability to maintain and increase adoption and use of Clover Assistant, including the expansion of Clover Assistant for external payors and providers under the brand name Counterpart 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 expectations regarding costs and expenses associated with our exit from the ACO Reach Program;

•our ability to maintain or improve our Medicare Star ratings or otherwise continue to improve the financial performance of our business;

•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 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;

•fluctuations in the price of our Class A common stock and our ability to comply with Nasdaq's listing requirements;

•our ability to maintain, protect, and enhance our intellectual property;

•general economic conditions and uncertainty; and

•persistent high inflation and interest rates.

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, 2023, 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 practicable 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 at investors.cloverhealth.com. 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 X (formerly known as Twitter), and the LinkedIn account of our Chief Executive Officer, 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 on our investor relations page of our website at investors.cloverhealth.com 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 investors.cloverhealth.com.

Part I

Item 1. Financial Statements and Supplementary Data

CLOVER HEALTH INVESTMENTS, CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)


	June 30, 2024 (Unaudited)		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	254,771	$	116,407
Short-term investments	9,661		12,218
Investment securities, available-for-sale (Amortized cost: 2024: $112,328; 2023: $101,412)	111,325		100,702
Investment securities, held-to-maturity (Fair value: 2024: $3,281; 2023: $6,778)	3,295		6,902
Accrued retrospective premiums	53,892		22,076
Other receivables	21,231		16,666
Healthcare receivables	66,739		64,164
Surety bonds and deposits	542		542
Prepaid expenses	14,517		14,418
Other assets, current	3,539		1,404
Assets related to discontinued operations (Note 17)	10,064		72,471
Total current assets	549,576		427,970

Investment securities, available-for-sale (Amortized cost: 2024: $104,229; 2023: $121,868)	102,973		120,208
Investment securities, held-to-maturity (Fair value: 2024: $694; 2023: $692)	791		793
Property and equipment, net	5,276		5,082
Operating lease right-of-use assets	2,858		3,382
Other intangible assets	2,990		2,990
Other assets, non-current	9,746		10,246
Total assets	$	674,210	$	570,671

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)


	June 30, 2024 (Unaudited)		December 31, 2023
Liabilities and Stockholders' Equity
Current liabilities
Unpaid claims	$	199,266	$	135,737
Due to related parties, net	1,284		1,363
Accounts payable and accrued expenses	40,441		37,184
Accrued salaries and benefits	32,400		20,951
Deferred revenue	13		3,099
Operating lease liabilities	1,491		1,665

Other liabilities, current	843		1,017
Liabilities related to discontinued operations (Note 17)	48,773		60,099
Total current liabilities	324,511		261,115


Long-term operating lease liabilities	2,519		2,998
Other liabilities, non-current	22,292		20,164
Total liabilities	349,322		284,277
Commitments and contingencies (Note 13)

Stockholders' equity
Class A Common Stock, $0.0001 par value; 2,500,000,000 shares authorized at June 30, 2024 and December 31, 2023; 406,486,444 and 401,183,882 issued and outstanding at June 30, 2024 and December 31, 2023, respectively	41		40
Class B Common Stock, $0.0001 par value; 500,000,000 shares authorized at June 30, 2024 and December 31, 2023; 89,649,365 and 87,867,732 issued and outstanding at June 30, 2024 and December 31, 2023, respectively	9		9
Additional paid-in capital	2,517,959		2,461,238
Accumulated other comprehensive loss	(2,259)		(2,370)
Accumulated deficit	(2,171,556)		(2,159,794)
Less: Treasury stock, at cost; 14,574,401 and 7,912,750 shares held at June 30, 2024 and December 31, 2023, respectively	(19,306)		(12,729)


Total stockholders' equity	324,888		286,394
Total liabilities and stockholders' equity	$	674,210	$	570,671

The accompanying notes are an integral part of these condensed consolidated financial statements.

CLOVER HEALTH INVESTMENTS, CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands, except per share and share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues:
Premiums earned, net (Net of ceded premiums of $102 and $113 for the three months ended June 30, 2024 and 2023, respectively; net of ceded premiums of $203 and $235 for the six months ended June 30, 2024 and 2023, respectively)	$	349,900	$	314,383	$	691,622	$	631,469
Other income	6,360		5,755		11,560		10,661
Total revenues	356,260		320,138		703,182		642,130

Operating expenses:
Net medical claims incurred	248,347		244,262		513,509		519,051
Salaries and benefits	55,499		62,437		114,722		131,418
General and administrative expenses	44,424		41,710		88,993		99,354
Premium deficiency reserve benefit	—		(5,138)		—		(6,948)
Depreciation and amortization	330		999		648		1,278
Restructuring costs	473		4,750		826		6,557
Total operating expenses	349,073		349,020		718,698		750,710
Income (loss) from continuing operations	7,187		(28,882)		(15,516)		(108,580)

Change in fair value of warrants	17		—		17		—
Interest expense	—		7		—		7
Loss on investment	—		—		467		—
Net income (loss) from continuing operations	7,170		(28,889)		(16,000)		(108,587)
Net income from discontinued operations (Note 17)	238		75		4,238		7,167
Net income (loss)	$	7,408	$	(28,814)	$	(11,762)	$	(101,420)

Per share data:
Basic weighted average number of Class A and Class B common shares and common share equivalents outstanding	487,483,087		479,163,752		487,575,520		479,819,237
Diluted weighted average number of Class A and Class B common shares and common share equivalents outstanding	495,179,955		479,163,752		487,575,520		479,819,237
Continuing operations:
Basic earnings (loss) per share	$	0.01	$	(0.06)	$	(0.03)	$	(0.23)
Diluted earnings (loss) per share	0.01		(0.06)		(0.03)		(0.23)
Discontinued operations:
Basic earnings per share	0.00		0.00		0.01		0.01
Diluted earnings per share	0.00		0.00		0.01		0.01

Net unrealized gain on available-for-sale investments	301		316		111		2,659
Comprehensive income (loss)	$	7,709	$	(28,498)	$	(11,651)	$	(98,761)

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)



































	Class A Common Stock			Class B Common Stock			Treasury Stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total stockholders' equity
	Shares	Amount		Shares	Amount		Shares	Amount
Balance, December 31, 2023	401,183,882	$	40	87,867,732	$	9	7,912,750	$	(12,729)	$	2,461,238	$	(2,159,794)	$	(2,370)	$	286,394
Stock issuance for exercise of stock options, net of early exercise liability	83	—		—	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		—	—		28,798		—		—		28,798
Vested restricted stock units	8,672,362	1		1,781,633	—		—	—		—		—		—		1
Unrealized holdings gain on investment securities, available for sale	—	—		—	—		—	—		—		—		(190)		(190)
Treasury stock acquired	(3,700,995)	—		—	—		3,700,995	(3,359)		—		—		—		(3,359)
Net loss	—	—		—	—		—	—		—		(19,170)		—		(19,170)
Balance, March 31, 2024	406,155,332	$	41	89,649,365	$	9	11,613,745	$	(16,088)	$	2,490,036	$	(2,178,964)	$	(2,560)	$	292,474
Stock issuance for exercise of stock options, net of early exercise liability	61,212	—		—	—		—	—		23		—		—		23
Stock-based compensation	—	—		—	—		—	—		27,900		—		—		27,900
Vested restricted stock units	3,003,054	—		—	—		—	—		—		—		—		—
Unrealized holdings gain on investment securities, available for sale	—	—		—	—		—	—		—		—		301		301
Treasury stock acquired	(1,122,347)	—		—	—		1,122,347	(1,446)		—		—		—		(1,446)
Issuance of Common Stock under Employee Stock Purchase Plan	227,502	—		—	—		—	—		—		—		—		—
Repurchases of Common Stock	(1,838,309)	—		—	—		1,838,309	(1,772)		—		—		—		(1,772)
Net income	—	—		—	—		—	—		—		7,408		—		7,408
Balance, June 30, 2024	406,486,444	$	41	89,649,365	$	9	14,574,401	$	(19,306)	$	2,517,959	$	(2,171,556)	$	(2,259)	$	324,888


	Class A Common Stock			Class B Common Stock			Treasury Stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total stockholders' equity
	Shares	Amount		Shares	Amount		Shares	Amount
Balance, December 31, 2022	383,998,718	$	37	94,394,852	$	9	2,072,752	$	(6,509)	$	2,319,157	$	(1,955,582)	$	(9,374)	$	347,738
Change in accounting policy	—	—		—	—		—	—		—		9,149		—		9,149

Stock issuance for exercise of stock options, net of early exercise liability	1,240	—		—	—		—	—		848		—		—		848
Stock-based compensation	—	—		—	—		—	—		38,617		—		—		38,617
Vested restricted stock units	5,390,973	—		1,773,104	—		—	—		—		—		—		—

Unrealized holdings gain on investment securities, available for sale	—	—		—	—		—	—		—		—		2,343		2,343
Conversion from Class B Common Stock to Class A Common Stock	7,672,463	—		(7,672,463)	—		—	—		—		—		—		—
Treasury stock acquired	(2,933,721)	—		—	—		2,933,721	(2,982)		—		—		—		(2,982)
Net loss	—	—		—	—		—	—		—		(72,606)		—		(72,606)
Balance, March 31, 2023	394,129,673	$	37	88,495,493	$	9	5,006,473	$	(9,491)	$	2,358,622	$	(2,019,039)	$	(7,031)	$	323,107
Stock issuance for exercise of stock options, net of early exercise liability	1,241	—		—	—		—	—		270		—		—		270
Stock-based compensation	—	—		—	—		—	—		36,108		—		—		36,108
Vested restricted stock units	1,180,084	—		—	—		—	—		—		—		—		—
Unrealized holdings gain on investment securities, available for sale	—	—		—	—		—	—		—		—		316		316
Conversion from Class B Common Stock to Class A Common Stock	627,761	—		(627,761)	—		—	—		—		—		—		—
Treasury Stock	(439,241)	—		—	—		439,241	(417)		—		—		—		(417)
Issuance of Common Stock under Employee Stock Purchase Plan	271,152	—		—	—		—	—		—		—		—		—
Net loss	—	—		—	—		—	—		—		(28,814)		—		(28,814)
Balance, June 30, 2023	395,770,670	$	37	87,867,732	$	9	5,445,714	$	(9,908)	$	2,395,000	$	(2,047,853)	$	(6,715)	$	330,570

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)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(11,762)	$	(101,420)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	648		1,278
Stock-based compensation	56,698		74,725
Change in fair value of warrants and amortization of warrants	17		—
Accretion, net of amortization	(1,618)		(1,853)
Accrued interest earned	(463)		(289)
Net realized gains on investment securities	(5)		(19)

Loss on investment	467		—

Premium deficiency reserve	—		(6,948)
Changes in operating assets and liabilities:
Accrued retrospective premiums	(31,816)		18,324
Other receivables	(4,565)		6,960


Prepaid expenses	(99)		2,901
Other assets	(2,125)		2,861
Healthcare receivables	(2,575)		19,341
Operating lease right-of-use assets	524		157
Unpaid claims	63,450		(20,814)
Accounts payable and accrued expenses	3,257		7,474
Accrued salaries and benefits	11,449		(4,311)
Deferred revenue	(3,086)		113,537
Other liabilities	1,954		281
Operating lease liabilities	(653)		(508)

Net cash provided by operating activities from continuing operations	79,697		111,677
Net cash (used in) provided by operating activities from discontinued operations (Note 17)	(9,005)		20,528
Net cash provided by operating activities	70,692		132,205

Cash flows from investing activities:
Purchases of short-term investments, available-for-sale, and held-to-maturity securities	(51,670)		(74,156)
Proceeds from sales of short-term investments and available-for-sale securities	—		60,436
Proceeds from maturities of short-term investments, available-for-sale, and held-to-maturity securities	66,651		90,997

Purchases of property and equipment	(842)		(605)
Net cash provided by investing activities	14,139		76,672

Cash flows from financing activities:
Issuance of common stock, net of early exercise liability	23		1,118
Repurchases of common stock	(1,772)		—
Treasury stock acquired	(4,805)		(3,399)
Net cash used in financing activities	(6,554)		(2,281)

Net increase in cash, cash equivalents, and restricted cash for discontinued and continuing operations	78,277		206,596
Cash, cash equivalents, and restricted cash, beginning of period for discontinued and continuing operations	176,494		186,213
Cash, cash equivalents, and restricted cash, end of period for discontinued and continuing operations	$	254,771	$	392,809

Reconciliation of cash and cash equivalents and restricted cash for discontinued and continuing operations
Cash and cash equivalents	$	254,771	$	310,079
Restricted cash	—		82,730
Total cash, cash equivalents, and restricted cash for discontinued and continuing operations	$	254,771	$	392,809



Supplemental disclosure of non-cash activities
Performance year receivable	$	—	$	(377,239)
Performance year obligation	—		377,239

The accompanying notes are an integral part of these condensed consolidated financial statements.

CLOVER HEALTH INVESTMENTS, CORP.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Operations

Clover Health Investments, Corp. (collectively with its affiliates and subsidiaries, "Clover" or the "Company") is focused on empowering physicians to identify and manage chronic diseases early. 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 aims to provide affordable, high-quality Medicare Advantage 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 ("Health Partners"), 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 had previously provided care to aligned Medicare fee-for-service ("FFS") beneficiaries (the "Non-Insurance Beneficiaries") through our prior participation in ACO REACH Program, as defined herein. CMS redesigned the DC Model and renamed it the Accountable Care Organization ("ACO") Realizing Equity, Access, and Community Health ("REACH") ("ACO REACH") Model effective January 1, 2023. On December 1, 2023, the Company notified CMS that it will no longer participate as a REACH ACO in the CMS ACO Reach Program, effective as of the end of the 2023 performance year. The Company’s exit from the ACO REACH Program follows its November 2022 announcement of a strategic reduction in the number of ACO REACH participating physicians in 2023, and was made after the Company determined that it is in the Company's best interest to fully exit the ACO REACH Program starting with the 2024 performance year. The activity recognized during 2024 relates to prior performance years with CMS and are presented in discontinued operations for all periods presented in the condensed consolidated financial statements. See Note 17 for further discussion of discontinued operations. 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.

For any information following the aforementioned paragraph, the Company will refer to its participation in ACO REACH Model or the Company's participation in the predecessor DC Model as ACO REACH Model henceforth.

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 in order to improve outcomes for beneficiaries through the early identification and management of chronic disease 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.

During the second quarter of 2024, the Company launched Counterpart Health, Inc., a New Software-as-a-Service (“SaaS”) and Tech Enabled Services Solution to bring the power of CA Technology to Medicare Advantage payors and providers. This external offering aims to equip clinician users with the Company's already built, clinician-centric, and AI-powered care management platform. Strategically, Counterpart Health, Inc., a subsidiary of Clover Health, aims to extend the benefits of data-driven proven technology and personalized care to a wider audience, enabling enhanced patient outcomes and reduced healthcare costs across the nation. Counterpart Health is complementary to Clover Health, and enables the Company to deploy and expand the reach of its existing technology asset for new potential growth and high margin business opportunities, with low startup costs.

For additional information, see Note 1 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K").

2. Summary of Significant Accounting Policies

Basis of presentation

The Company's condensed consolidated financial statements have been prepared in conformity with the generally accepted accounting principles in the United States ("GAAP") as well as in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) 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 condition and its results of operations for the 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 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 2023 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, reinsurance, premium deficiency reserve, stock-based compensation, recoveries from third parties for coordination of benefits, and final determination of medical cost adjustment pools.

Reclassifications

Certain amounts in the prior year's Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current year's presentation, primarily related to Surety bonds and deposits and Change in restricted cash related to surety bonds, deposits, and escrow accounts. In addition, certain amounts have also been reclassified related to Accretion, net of amortization and Accrued interest earned.

Discontinued Operations

The results of operations for the Company's former Non-Insurance segment have been reclassified as discontinued operations for all periods presented in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Assets and liabilities related to the Company's former Non-Insurance segment have been reclassified as discontinued operations for all periods presented in the Condensed Consolidated Balance Sheets. Refer to Note 17 - Discontinued Operations for additional information.

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.

When the Company's carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company's condensed consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

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. At June 30, 2024, the Company has one reportable segment, Insurance. Beginning in 2024, the Company exited the ACO REACH Model and as a direct result, the reportable operating segment formerly known as Non-Insurance no longer meets the criteria of a required reportable operating segment.

Capitalized software development costs - cloud computing arrangements

The Company's cloud computing arrangements are mostly comprised of hosting arrangements that are mostly 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 within Prepaid expenses 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 within Other assets, current in the Condensed Consolidated Balance Sheets and are amortized over the estimated life of the related contracts. The amortization of deferred acquisition costs is recorded within General and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). For the three months ended June 30, 2024 and 2023, charges related to deferred acquisition costs of $1.8 million and $1.0 million, respectively. For the six months ended June 30, 2024 and 2023, charges related to deferred acquisition costs of $2.8 million and $4.9 million, respectively, were recognized in General and administrative expenses.

Restructuring Activities

Restructuring related expenses, which are recorded within Restructuring costs in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), include employee termination benefits, vendor costs associated with restructuring activities, and other costs associated with the business transformation initiatives. Restructuring costs are determined based on estimates, which are prepared at the time the restructuring actions are approved by management and are periodically reviewed and updated for changes in estimates. The Company applies the provisions of ASC 420, Exit or Disposal Cost Obligations ("ASC 420") as these costs meet the criteria of a one-time benefit. Under ASC 420-10, the Company establishes a liability for a cost associated with an exit or disposal activity, including employee termination benefits and other restructuring related costs, when the liability is incurred, rather than at the date that the Company commits to an exit plan. At each reporting date, there is an evaluation of the liability to ensure the amount is still appropriate. See Note 16 (Restructuring costs) for further discussion.

Recent accounting pronouncements

Recently adopted accounting pronouncements

There have been no new accounting pronouncements adopted during the six months ended June 30, 2024 that have had a material impact the Company's condensed consolidated financial statements.

Accounting pronouncements effective in future periods

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718); Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock (“ASU 2023-03”). This ASU amends or supersedes various SEC paragraphs within the applicable codification to conform to past SEC staff announcements. This ASU does not provide any new guidance. Accordingly, the Company adopted ASU 2023-03 immediately upon its issuance. The adoption of ASU 2023-03 did not have any impact on its condensed consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update aim to improve reportable segment disclosures by requiring enhanced disclosures around significant segment expenses that are regularly provided to the chief operating decision maker. Additionally, ASU 2023-07 requires that all existing annual disclosures about segment profit or loss must be provided on an interim basis and clarifies that single reportable segment entities are subject to the disclosure requirement under Topic 280 in its entirety. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years beginning after December 15, 2024. A public entity should apply ASU 2023-07 retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update aim to provide more transparency regarding tax disclosures mainly related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of ASU 2023-09 on its condensed consolidated financial statements and related disclosures.

3. Investment Securities

The following tables present amortized cost and fair values of investments at June 30, 2024 and December 31, 2023, respectively:


June 30, 2024	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	$	4,086	$	—	$	(111)	$	3,975
Investment securities, available-for-sale
U.S. government and government agencies and authorities	142,234		104		(2,319)		140,019
Corporate debt securities	72,415		49		(93)		72,371
Other	1,908		—		—		1,908
Total held-to-maturity and available-for-sale investment securities	$	220,643	$	153	$	(2,523)	$	218,273


December 31, 2023	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	$	7,695	$	—	$	(225)	$	7,470
Investment securities, available-for-sale
U.S. government and government agencies and authorities	126,071		713		(3,070)		123,714
Corporate debt	95,354		165		(176)		95,343
Other	1,855		—		(2)		1,853
Total held-to-maturity and available-for-sale investment securities	$	230,975	$	878	$	(3,473)	$	228,380

The following table presents the amortized cost and fair value of debt securities at June 30, 2024, by contractual maturity:


June 30, 2024	Held-to-maturity				Available-for-sale
	Amortized cost		Fair value		Amortized cost		Fair value
	(in thousands)
Due within one year	$	3,295	$	3,281	$	112,328	$	111,325
Due after one year through five years	681		607		104,229		102,973
Due after five years through ten years	—		—		—		—
Due after ten years	110		87		—		—
Total	$	4,086	$	3,975	$	216,557	$	214,298

For the three and six months ended June 30, 2024 and 2023, respectively, net investment income, which is included in Other income in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), was derived from the following sources:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(in thousands)
Cash and cash equivalents	$	3,446	$	2,405	$	5,632	$	4,034
Short-term investments	143		823		316		1,315
Investment securities	2,145		1,668		4,253		3,482
Investment income, net	$	5,734	$	4,896	$	10,201	$	8,831

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 June 30, 2024, and December 31, 2023, respectively:


June 30, 2024	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	$	46,447	$	(119)	$	62,877	$	(2,311)	$	109,324	$	(2,430)
Corporate debt securities	30,170		(47)		18,569		(46)		48,739		(93)
Total	$	76,617	$	(166)	$	81,446	$	(2,357)	$	158,063	$	(2,523)
Number of positions	47				42				89


December 31, 2023	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	$	12,584	$	(32)	$	61,628	$	(3,259)	$	74,212	$	(3,291)
Corporate debt securities	61,007		(175)		5,017		(7)		66,024		(182)
Total	$	73,591	$	(207)	$	66,645	$	(3,266)	$	140,236	$	(3,473)
Number of positions	69				27				96

The Company did not record any credit allowances for debt securities that were in an unrealized loss position at June 30, 2024 and December 31, 2023.

At June 30, 2024, 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 at June 30, 2024, 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 in Other income in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows for the three and six months ended June 30, 2024 and 2023, respectively:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(in thousands)
Proceeds from sales of investment securities	$	—	$	45,435	$	—	$	60,436
Proceeds from maturities of investment securities	32,916		27,673		66,651		90,997

Gross realized gains	4		38		5		38
Gross realized losses	—		(19)		—		(19)
Net realized gains	$	4	$	19	$	5	$	19

At June 30, 2024 and December 31, 2023, the Company had $14.9 million and $14.7 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 at June 30, 2024 and December 31, 2023, respectively:


June 30, 2024	Level 1		Level 2		Level 3		Total fair value
	(in thousands)
U.S. government and government agencies	$	—	$	140,019	$	—	$	140,019
Corporate debt securities	—		72,371		—		72,371
Other	1,908		—		—		1,908
Warrants receivable	—		—		797		797
Total assets at fair value	$	1,908	$	212,390	$	797	$	215,095


December 31, 2023	Level 1		Level 2		Level 3		Total fair value
	(in thousands)
U.S. government and government agencies	$	—	$	123,714	$	—	$	123,714
Corporate debt securities	—		95,343		—		95,343
Other	1,853		—		—		1,853
Warrants receivable	—		—		814		814
Total assets at fair value	$	1,853	$	219,057	$	814	$	221,724

The changes in balances of Clover's Level 3 financial assets and liabilities during the six months ended June 30, 2024 were as follows:


	Warrants receivable		Total
	(in thousands)












Balance, December 31, 2023	$	814	$	814





Total unrealized losses	17		17
Balance, June 30, 2024	$	797	$	797

There were no transfers in or out of Level 3 financial assets or liabilities for the six months ended June 30, 2024 or June 30, 2023.

Private Warrants

At June 30, 2024, the Company had exercisable private warrants which were embedded in several agreements as derivatives. These private warrants were accounted for as assets in accordance with ASC 815-40 and are presented in Other assets, non-current in the Condensed Consolidated Balance Sheets. The warrant assets are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented in Change in fair value of warrants in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). These private warrants were classified within Level 3 due to the subjectivity and use of estimates in the calculation of their fair value. These warrants at measurement date, December 31, 2023, were assessed to have a fair value of $0.8 million, with no other activity for the three months ended June 30, 2024. The Company reassesses the fair values of the warrants based on updated estimates and for the six months ended June 30, 2024, there was less than $0.1 million unrealized losses recognized.

5. Healthcare Receivables

Healthcare receivables include pharmaceutical rebates that 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 $66.7 million and $64.2 million within Healthcare receivables at June 30, 2024, and December 31, 2023, 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 Executive Chairman 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 and Sequoia Healthcare Management, LLC, which both provide services to CarePoint Health. Expenses and fees incurred related to Clover's contracts with CarePoint Health, recorded in Net medical claims incurred, in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), were $2.3 million and $2.9 million for the three months ended June 30, 2024 and 2023, respectively, and $2.8 million and $6.6 million for the six months ended June 30, 2024 and 2023, respectively. Additionally, $1.3 million and $1.4 million were payable to CarePoint Health at June 30, 2024, and December 31, 2023, respectively.

The Company has a contract with Medical Records Exchange, LLC (formerly known as "ChartFast," now d/b/a Credo) pursuant to which the Company receives administrative services related to medical records retrieval via Credo's electronic applications and web portal platform. Expenses and fees incurred related to this agreement were $0.3 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively, and $0.4 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively. Vivek Garipalli, the Company's Executive Chairman and significant stockholder of the Company, is an indirect owner of Medical Records Exchange, LLC.

Since July 2, 2021, the Company has contracted with Thyme Care, Inc. ("Thyme Care"), an oncology care management company, through which Thyme Care was engaged to provide cancer care management services to the Company's Insurance members and develop a provider network to help ensure member access to high-value oncology care. The Company and Thyme Care have amended the terms of the engagement, effective April 1, 2023, to include additional clinical services available to Clover members as well as the value based payment terms. The Company entered into an agreement with Thyme Care effective September 23, 2020 where the Company purchased 1,773,049 shares (less than five percent (5%) of its class A common stock). The fair value of these shares is $0.5 million at June 30, 2024, and is recognized in Other assets, non-current, in the Condensed Consolidated Balance Sheets. In accordance with ASC 321, any changes in fair value associated with these shares are recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). 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 $2.3 million and $0.4 million for the three months ended June 30, 2024 and 2023, respectively, and $2.3 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively. Additionally, $2.7 million and $0.2 million were payable to Thyme Care at June 30, 2024, and December 31, 2023, respectively.

7. Unpaid Claims

Activity within the liability for Unpaid claims, including claims adjustment expenses, for the six months ended June 30, 2024 and 2023, respectively, is summarized as follows:


Six Months Ended June 30,	2024		2023
	(in thousands)

Gross and net balance, beginning of period (1)	$	137,100	$	137,395
Incurred related to:
Current year	531,627		515,089
Prior years	(28,021)		(3,168)
Total incurred	503,606		511,921
Paid related to:
Current year	359,462		409,780
Prior years	80,694		122,956
Total paid	440,156		532,736

Gross and net balance, end of period (1)	$	200,550	$	116,580

(1) Includes amounts due to related parties.

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.

Unpaid Claims for Insurance Operations

Unpaid claims for Insurance operations were $200.6 million at June 30, 2024. During the six months ended June 30, 2024, $80.7 million was paid for incurred claims attributable to insured events of prior years. A favorable development of $28.0 million was recognized during the six months ended June 30, 2024, resulting from the Company's actual experience with claims developing differently as compared to the Company's estimates at December 31, 2023. A favorable development of $3.2 million was recognized during the six months ended June 30, 2023, resulting from the Company's actual experience with claims developing differently as compared to the Company's estimates at December 31, 2022. 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 67.6% for the six months ended June 30, 2024, and 79.6% for the six months ended June 30, 2023. This ratio serves as an indicator of claims processing speed, indicating that claims were processed at a slower rate during the six months ended June 30, 2024, than during the six months ended June 30, 2023. As a result of slower claims processing, unpaid claims liability increased which was primarily due to claim submission and payment process disruptions related to a third-party cyber incident.

8. 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 at June 30, 2024 and December 31, 2023, respectively, and up to 500,000,000 shares of Class B common stock at June 30, 2024 and December 31, 2023. At June 30, 2024 and December 31, 2023, there were 406,486,444 and 401,183,882 shares of Class A common stock issued and outstanding, respectively. There were 89,649,365 and 87,867,732 shares of Class B common stock issued and outstanding at June 30, 2024 and December 31, 2023, respectively. Class B common stock has 10 votes per share, and Class A common stock has one vote per share. The Company had 14,574,401 and 7,912,750 shares held in treasury at June 30, 2024 and December 31, 2023, respectively. These amounts represent shares withheld to cover taxes upon vesting of employee stock-based awards.

On May 6, 2024, the Board of Directors of the Company authorized the repurchase of up to $20,000,000 in shares of the Company’s outstanding Class A Common Stock over a two year period. The timing, manner, price and amount of any repurchases are determined by the discretion of management, depending on market conditions and other factors. Repurchases may be made through open market purchases, including through Rule 10b5-1 trading plans, block trades or privately negotiated purchases or otherwise. The exact number of shares to be repurchased by the Company, if any, is not guaranteed, and there is no minimum number of shares that the Company is required to purchase. Depending on market conditions and other factors, these repurchases may be commenced, suspended or discontinued at any time or periodically without prior notice.

Shares repurchased by the Company are accounted for on the settlement date. Upon settlement, repurchased shares are held as treasury shares and are no longer considered outstanding. The total cost to repurchase shares includes any direct costs incurred, including broker commissions and excise taxes, and is recorded as a reduction to additional paid in capital in the Condensed Consolidated Balance Sheets. During the three months ended June 30, 2024, the Company repurchased 1,838,309 shares for an aggregate total of $1.8 million.

At June 30, 2024, the Company was authorized to issue 25,000,000 shares of preferred stock having a par value of $0.0001 per share, and the Company's Board has the authority to determine the rights, preferences, privileges, and restrictions, including voting rights, of those shares. At June 30, 2024, there were no shares of preferred stock issued and outstanding.

9. Variable Interest Entity and Equity Method of Accounting

On February 4, 2022, Character Biosciences, Inc. (f/k/a Clover Therapeutics Company) ("Character Biosciences"), an affiliate 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 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. On January 23, 2023, Character Biosciences, completed a second private capital transaction in which it raised additional capital from the issuance of additional shares of its preferred stock. Upon completion of this transaction, the Company's ownership percentage in Character Biosciences decreased to 23.92%.

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, non-current in the Condensed Consolidated Balance Sheets. For the year ended December 31, 2022, the Company recognized a gain on investment of $9.2 million which is included in Loss (gain) on investment in the Consolidated Statements of Operations and Comprehensive Income (Loss). For the year ended December 31, 2023, the Company recognized a loss on investment of $4.7 million.

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 (i) the proportionate share of the investee's net income or losses after the date of investment, (ii) additional contributions made and dividends or distributions received, and (iii) 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 in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In accordance with ASC 323 Investments - Equity Method and Joint Ventures (“ASC 323”), the Company recognized the proportionate share of Character Bioscience's net loss up to the investment carrying amount. As a result, the Company did not recognize any shared gain or loss for the three months ended June 30, 2024 and 2023, respectively, and recognized a loss of $0.5 million and none for the six months ended June 30, 2024 and 2023, respectively. The equity method investment in Character Biosciences was reduced to zero during the three months ended March 31, 2024 and no further losses can recorded in the Company's condensed consolidated financial statements as the Company did not guarantee obligations of the investee company nor has not committed additional funding. The Company will begin recognizing its share of net income only when it is greater than the cumulative net losses not recognized during the period the equity method was suspended.

10. 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 $0.5 million and $0.4 million for the three months ended June 30, 2024 and 2023, respectively, and $1.1 million and $0.9 million for the six months ended June 30, 2024 and 2023, respectively, and are included in Salaries and benefits in the Condensed Consolidated Statements of Operations and Comprehensive Income (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"), performance-based restricted stock units ("PRSUs") and stock options to acquire shares of the Company's common stock, to employees, directors, officers, and non-employee consultants of the Company and its affiliates, and the Company's 2020 Management Incentive Plan (the "2020 MIP") provides for grants of RSUs and PRSUs to the Company's Executive Chair and CEO. 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. When the 2014 Plan was terminated, 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. On March 9, 2022, the Board adopted the Company's 2022 Inducement Award Plan (the "Inducement Plan" and, collectively with the 2020 Plan, the 2020 MIP, and the 2014 Plan, the "Plans") without stockholder approval in accordance with Nasdaq Listing Rules. Under the Inducement Plan, the Company may grant non-qualified stock options, RSUs, stock appreciation rights, and other stock or cash-based awards to an employee in connection with his or her commencement of employment, or following a bona fide period of non-employment, with the Company or an affiliate.

The 2020 Plan has an evergreen provision that requires the number of shares available for issuance under the plan to be increased on the first day of each fiscal year beginning with the 2022 fiscal year and ending on (and including) the last day of the 2024 fiscal year, in each case, in an amount equal to the lesser of (i) seven percent (7%) of the outstanding shares of Class A common Stock on the last day of the immediately preceding fiscal year and (ii) such number of shares of Class A common Stock determined by the Board; provided that for each fiscal year beginning with the 2025 fiscal year through the fiscal year that includes the expiration date of the plan, each such increase shall be reduced to the lesser of five percent (5%) of the outstanding shares of Class A common Stock on the last day of the immediately preceding fiscal year or such number of shares as determined by the Board.

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 at June 30, 2024 were as follows:


June 30, 2024	Shares Authorized Under Plans	Shares Outstanding Under Plans	Shares Remaining Under Plans
2014 Plan	54,402,264	34,616,068	N/A
2020 Plan	86,604,581	43,871,475	20,514,172
2020 MIP	33,426,983	23,398,889	—
Inducement Plan	11,000,000	6,487,403	—

The Plans are administered by the Talent and Compensation Committee of the Board (the "Compensation Committee"). Stock options granted under the Plans are subject to the terms and conditions 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 market 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 and generally vest over four or five years. The number of stock options granted is determined by dividing the approved grant date dollar value of an option by the Black Scholes option pricing value per share (as further discussed below). 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, but generally vest over one to four years from the date of the grant. The number of RSUs granted 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. The total estimated grant date fair value is amortized over the requisite service period.

The Company recorded Stock-based compensation for stock options, RSUs, and PRSUs granted under the Plans, and discounts offered in connection with the Company's 2020 Employee Stock Purchase Plan ("ESPP") of $27.9 million and $36.1 million during the three months ended June 30, 2024 and 2023, respectively, and $56.7 million and $74.7 million during the six months ended June 30, 2024 and 2023, respectively, and such expenses are presented in Salaries and benefits in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Compensation cost presented in Salaries and benefits in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were as follows:


Three Months Ended June 30,	2024		2023
	(in thousands)
Stock options	$	530	$	748
RSUs	20,400		20,936
PRSUs	6,944		14,398
ESPP	26		26
Total compensation cost recognized for stock-based compensation plans	$	27,900	$	36,108


Six Months Ended June 30,	2024		2023
	(in thousands)
Stock options	$	1,148	$	2,089
RSUs	41,317		41,936
PRSUs	14,157		30,593
ESPP	76		107
Total compensation cost recognized for stock-based compensation plans	$	56,698	$	74,725

At June 30, 2024, there was approximately $401.0 million of unrecognized stock-based compensation expense related to unvested stock options, unvested RSUs, unvested PRSUs, and the ESPP, estimated to be recognized over a period of four years.

Stock Options

The Company did

CLOVER HEALTH INVESTMENTS, CORP. /DE [CLOV] Filings
10-Q	[2024-08-08]
10-Q	[2024-05-07]
10-K	[2024-03-14]
10-Q	[2023-11-06]
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-03-01]
10-Q	[2022-11-07]
10-Q	[2022-08-08]
10-Q	[2022-05-09]
10-K	[2022-02-28]
S-1	[2021-11-15]
10-Q	[2021-11-09]
10-Q	[2021-08-11]
10-Q	[2021-05-17]
10-K	[2021-03-31]
S-1	[2021-01-13]
10-Q	[2020-11-16]
10-Q	[2020-08-13]
10-Q	[2020-06-04]
S-1	[2020-02-28]