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Form 10-Q CLOVER HEALTH INVESTMENT For: Jun 30

August 8, 2022 4:23 PM EDT

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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, 2022
OR
oTRANSITION 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)
________________________________________
Delaware98-1515192
(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 shareCLOVThe 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.
Large accelerated filer
x
Accelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
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 August 2, 2022, the registrant had 383,247,718 shares of Class A Common Stock, $0.0001 par value per share, and 94,395,168 shares of Class B Common Stock, $0.0001 par value per share, issued and outstanding.


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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, including the societal and economic impact of the COVID-19 pandemic and its variants, 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.

3


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 and available on its website at www.sec.gov, 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 SEC's website, www.sec.gov, contains reports, proxy statements and other information regarding issuers that file electronically with 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 intend to 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 at the bottom of 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.
4



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, 2022
(Unaudited)
December 31, 2021
Assets
Current assets
Cash and cash equivalents$324,471 $299,968 
Short-term investments104,005 293,851 
Investment securities, available-for-sale (Amortized cost: 2022: $80,608; 2021: $21,142)
79,997 21,131 
Investment securities, held-to-maturity (Fair value: 2022: $0; 2021: $307)
 305 
Accrued retrospective premiums34,768 34,923 
Other receivables14,485 14,282 
Healthcare receivable77,967 48,042 
Non-Insurance performance year receivable1,164,682  
Surety bonds and deposits14,756 12,613 
Prepaid expenses20,266 9,409 
Other assets, current25,649 18,022 
Total current assets1,861,046 752,546 
Investment securities, available-for-sale (Amortized cost: 2022: $181,788; 2021: $177,527)
174,046 175,604 
Investment securities, held-to-maturity (Fair value: 2022: $361; 2021: $364)
351 335 
Equity method investment1,950  
Property and equipment, net2,376 2,287 
Operating lease right-of-use assets4,496 5,367 
Goodwill and other intangible assets4,233 4,233 
Other assets, non-current14,708 10,432 
Total assets$2,063,206 $950,804 

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

5


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)


June 30, 2022
(Unaudited)
December 31, 2021
Liabilities and Stockholders' Equity
Current liabilities
Unpaid claims$160,151 $138,604 
Due to related parties, net1,536 2,320 
Non-Insurance performance year obligation, current1,214,312 36,891 
Non-Insurance payable120,365 37,773 
Accounts payable and accrued expenses30,108 28,129 
Accrued salaries and benefits14,696 15,147 
Operating lease liabilities2,073 3,059 
Premium deficiency reserve55,314 110,628 
Other liabilities, current111 73 
Total current liabilities1,598,666 372,624 
Notes and securities payable, net of discounts and deferred issuance costs19,956 19,938 
Long-term operating lease liabilities4,594 4,830 
Other liabilities, non-current13,068 14,095 
Total liabilities1,636,284 411,487 
Commitments and Contingencies (Note 15)
Stockholders' equity
Class A Common Stock, $0.0001 par value; 2,500,000,000 shares authorized as of June 30, 2022, and December 31, 2021; 383,008,614 and 352,645,626 issued and outstanding as of June 30, 2022, and December 31, 2021, respectively
37 34 
Class B Common Stock, $0.0001 par value; 500,000,000 shares authorized as of June 30, 2022, and December 31, 2021; 94,395,168 and 118,206,768 issued and outstanding as of June 30, 2022, and December 31, 2021, respectively
9 12 
Additional paid-in capital2,237,648 2,154,187 
Accumulated other comprehensive loss(8,353)(1,934)
Accumulated deficit(1,796,228)(1,616,738)
Less: Treasury stock, at cost; 1,931,537 and 14,730 shares held as of June 30, 2022, and December 31, 2021, respectively
(6,191)(147)
Clover stockholders' equity426,922 535,414 
Noncontrolling interest 3,903 
Total stockholders' equity426,922 539,317 
Total liabilities and stockholders' equity$2,063,206 $950,804 


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


6


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(Dollars in thousands, except per share and share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Revenues:
Premiums earned, net (Net of ceded premiums of $119 and $126 for the three months ended June 30, 2022 and 2021, respectively; net of ceded premiums of $238 and $250 for the six months ended June 30, 2022 and 2021, respectively)
$268,505 $195,357 $546,674 $394,733 
Non-Insurance revenue577,370 216,373 1,172,268 216,373 
Other income825 742 2,137 1,691 
Total revenues846,700 412,472 1,721,079 612,797 
Operating expenses:
Net medical claims incurred858,786 458,503 1,720,508 672,923 
Salaries and benefits70,491 62,167 139,582 128,191 
General and administrative expenses47,040 45,646 104,737 84,264 
Premium deficiency reserve (benefit) expense(27,657)27,900 (55,314)27,900 
Depreciation and amortization586 118 1,412 278 
Other expense   191 
Total operating expenses949,246 594,334 1,910,925 913,747 
Loss from operations(102,546)(181,862)(189,846)(300,950)
Change in fair value of warrants payable 134,512  49,006 
Interest expense390 1,211 793 2,386 
Amortization of notes and securities discounts18 26 18 13,686 
Loss (gain) on investment1,227  (11,167) 
Net loss$(104,181)$(317,611)$(179,490)$(366,028)
Per share data:
Net loss per share attributable to Class A and Class B common stockholders – basic and diluted (1)
$(0.22)$(0.78)$(0.38)$(0.93)
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)
476,061,809 408,156,682 474,553,609 395,422,849 
Net unrealized (loss) gain on available-for-sale investments$(1,095)$70 $(6,419)$(423)
Comprehensive loss$(105,276)$(317,541)$(185,909)$(366,451)
(1) Because the Company had a net loss during the three and six months ended June 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.
7


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except share amounts)
Convertible Preferred stockClass A and Class B Common StockTreasury StockAdditional paid-in capitalAccumulated
deficit
Accumulated
other
comprehensive
income (loss)
Noncontrolling
interest
Total stockholders' equity (deficit)
Shares
AmountSharesAmount
Shares
Amount
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— — 96,398,800 10 — — 666,232 — — — 666,242 
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 $ 408,101,085 $41  $ $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 
Net loss— — — — — — — (317,611)— — (317,611)
Balance, June 30, 2021
 $ 408,305,451 $41  $ $1,706,334 $(1,395,010)$(413)$3,903 $314,855 
Balance, December 31, 2021
 $ 470,852,394 $46 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— — 2,074,756 — — — — — — — — 
Vested performance restricted stock units— — 8,951 — — — — — — — — 
Unrealized holdings loss on investment securities, available-for-sale— — — — — — — — (5,324)— (5,324)
Treasury stock acquired— — — — 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 $ 473,302,518 $46 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 
8


Vested restricted stock units— — 84,928 — — — — — — — — 
Treasury stock acquired— — — — 37,744 (105)— — — — (105)
Unrealized holdings gain on investment securities, available-for-sale— — — — — — — — (1,095)— (1,095)
Net loss— — — — — — — (104,181)— — (104,181)
Balance, June 30, 2022
 $ 477,403,782 $46 1,931,537 $(6,191)$2,237,648 $(1,796,228)$(8,353)$ $426,922 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
20222021
Cash flows from operating activities:
Net loss$(179,490)$(366,028)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense1,412 278 
Amortization of notes and securities discounts and debt issuance costs18 13,686 
Stock-based compensation expense82,567 85,739 
Change in fair value of warrants payable and amortization of warrants 49,006 
Accretion, net of amortization(35)87 
Net realized losses on investment securities16 63 
Gain on investment(11,167) 
Premium deficiency reserve(55,314)27,900 
Changes in operating assets and liabilities:
Accrued retrospective premiums155 (2,390)
Other receivables(203)(12,289)
Performance year receivable12,739  
Surety bonds and deposits(2,143)(15,578)
Prepaid expenses(10,857)(6,705)
Other assets(7,529)(4,600)
Healthcare receivables(29,925)6,887 
Operating lease right-of-use assets1,513 1,720 
Unpaid claims20,763 28,752 
Accounts payable and accrued expenses1,979 (1,978)
Accrued salaries and benefits(451)6,272 
Other liabilities(989)870 
Performance year obligation 18,809 
Non-Insurance payable82,592 14,530 
Operating lease liabilities(1,864)(2,055)
Net cash used in operating activities(96,213)(157,024)
Cash flows from investing activities:
Purchases of short-term investments, available-for-sale, and held-to-maturity securities(169,889)(323,451)
Proceeds from sales of short-term investments and available-for-sale securities5,881 36,865 
Proceeds from maturities of short-term investments, available-for-sale, and held-to-maturity securities290,455 200,265 
Purchases of property and equipment(331)(290)
Acquisition of Character Biosciences, Inc. Series A preferred shares(250) 
Net cash provided by (used in) investing activities125,866 (86,611)
Cash flows from financing activities:
Payment of notes payable principal (30,925)
Issuance of common stock, net of early exercise liability894 1,717 
Proceeds from reverse recapitalization, net of transaction costs 666,242 
Treasury stock acquired(6,044) 
Net cash (used in) provided by financing activities(5,150)637,034 
Net increase in cash and cash equivalents24,503 393,399 
Cash and cash equivalents, beginning of period299,968 92,348 
Cash and cash equivalents, end of period$324,471 $485,747 
Supplemental cash flow disclosures
Cash paid during the period for interest$ $1,677 
Supplemental disclosure of non-cash activities
Performance year receivable$(1,177,421)$(436,334)
Performance year obligation1,177,421 436,334 
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 liabilities642 204 
Recognition of equity method investments and preferred stock8,644  
Derecognition of noncontrolling interest3,903  
Conversion of Character Biosciences, Inc. convertible note to preferred stock250  
The accompanying notes are an integral part of these consolidated financial statements.
10


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.
Clover 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 and will have a significant impact on the Company's future 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
11


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.
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. 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 reserve requirement of fifty percent. The reserve requirement is determined by CMS.
12


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 June 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 six months ended June 30, 2022, charges related to deferred acquisition costs of $1.9 million and $13.7 million, respectively, were recognized in general and administrative expenses. For the three and six months ended June 30, 2021, charges related to deferred acquisition costs of $6.7 million and $8.5 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 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.

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3. Investment Securities
The following tables present amortized cost and fair values of investments as of June 30, 2022, and December 31, 2021, respectively:
June 30, 2022Amortized costAccumulated unrealized gainsAccumulated unrealized lossesFair value
(in thousands)
Investment securities, held-to-maturity
U.S. government and government agencies and authorities
$351 $36 $(26)$361 
Investment securities, available-for-sale
U.S. government and government agencies and authorities
241,182 29 (8,372)232,839 
Corporate debt securities21,214 8 (18)21,204 
Total investment securities
$262,747 $73 $(8,416)$254,404 

December 31, 2021Amortized costAccumulated unrealized gainsAccumulated unrealized lossesFair 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)$197,406 
The following table presents the amortized cost and fair value of debt securities as of June 30, 2022, by contractual maturity:
June 30, 2022Held-to-maturityAvailable-for-sale
Amortized costFair valueAmortized costFair value
(in thousands)
Due within one year$ $ $80,608 $79,997 
Due after one year through five years241 215 181,788 174,046 
Due after five years through ten years    
Due after ten years110 146   
Total$351 $361 $262,396 $254,043 
For the three and six months ended June 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
June 30,
Six Months Ended
June 30,
2022202120222021
(in thousands)
Cash and cash equivalents$136 $ $138 $ 
Short-term investments50 40 121 77 
Investment securities277 37 514 84 
Investment income, net