Clover Health Investments(CLOV) - 2024 Q2 - Quarterly Report

Form 10-Q Filing Information Provides key filing details for Clover Health's Quarterly Report on Form 10-Q, including company identifiers and stock information - Clover Health Investments, Corp. filed its Quarterly Report on Form 10-Q for the period ended June 30, 2024, trading under the symbol CLOV on The NASDAQ Stock Market LLC[1][2] Filing Details | Indicator | Value | | :---------- | :---- | | Commission File Number | 001-39252 | | State of Incorporation | Delaware | | I.R.S. Employer Identification No. | 98-1515192 | | Principal Executive Offices | 3401 Mallory Lane, Suite 210, Franklin, Tennessee 37067 | | Registrant's Telephone Number | (201) 432-2133 | | Class A Common Stock Outstanding (July 31, 2024) | 407,819,384 shares | | Class B Common Stock Outstanding (July 31, 2024) | 89,649,365 shares | Cautionary Note Regarding Forward-Looking Statements Highlights inherent risks and uncertainties in forward-looking statements, emphasizing potential material differences in actual results - This document contains forward-looking statements subject to risks, uncertainties, and assumptions, including those described in SEC filings, where actual results may differ materially due to factors like financial condition, market trends, and regulatory changes[6][7][10] - Key risks include expectations regarding results of operations, financial condition, cash flows, development and management of the Insurance business, ability to enter new markets, manage beneficiary base and provider network, maintain and increase adoption of Clover Assistant (including Counterpart Assistant), manage medical care ratios, costs associated with exiting the ACO Reach Program, Medicare Star ratings, development of new features, employee retention, investment timing, litigation, regulatory changes, stock price fluctuations, intellectual property, and general economic conditions including inflation and interest rates[6] Additional Corporate Information Details how Clover Health makes SEC filings and material information publicly available through its website and investor relations channels - Clover Health's SEC filings are available free of charge on its website, www.cloverhealth.com[11](index=11&type=chunk) - The company uses its investor relations page (investors.cloverhealth.com) and social media channels (@CloverHealth on X, Andrew Toy's LinkedIn) for routine disclosure of material information, in compliance with Regulation FD[12] PART I. FINANCIAL INFORMATION Presents Clover Health's comprehensive financial data, including statements and management's analysis, for the reporting period Item 1. Financial Statements (Unaudited) This section presents Clover Health's unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income (loss), statements of changes in stockholders' equity, and statements of cash flows for the periods ended June 30, 2024 and 2023, along with detailed notes explaining significant accounting policies, investment securities, related party transactions, unpaid claims, equity, and discontinued operations Condensed Consolidated Balance Sheets Summarizes Clover Health's financial position, detailing assets, liabilities, and equity at specific reporting dates Balance Sheet Summary | Asset/Liability Category | June 30, 2024 (Unaudited) ($ thousands) | December 31, 2023 ($ thousands) | Change ($ thousands) | % Change | | :----------------------- | :-------------------------------------- | :------------------------------ | :------------------- | :------- | | Assets | | | | | | Cash and cash equivalents | 254,771 | 116,407 | 138,364 | 118.9% | | Total current assets | 549,576 | 427,970 | 121,606 | 28.4% | | Total assets | 674,210 | 570,671 | 103,539 | 18.1% | | Liabilities | | | | | | Unpaid claims | 199,266 | 135,737 | 63,529 | 46.8% | | Total current liabilities | 324,511 | 261,115 | 63,396 | 24.3% | | Total liabilities | 349,322 | 284,277 | 65,045 | 22.9% | | Stockholders' Equity | | | | | | Total stockholders' equity | 324,888 | 286,394 | 38,494 | 13.4% | - Total assets increased by $103.5 million, or 18.1%, primarily driven by a significant increase in cash and cash equivalents and total current assets[14][16] - Total liabilities also increased by $65.0 million, or 22.9%, largely due to a rise in unpaid claims[14][16] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Presents Clover Health's revenues, expenses, and net income or loss over specific reporting periods Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2024 ($ thousands) | Three Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Premiums earned, net | 349,900 | 314,383 | 691,622 | 631,469 | | Total revenues | 356,260 | 320,138 | 703,182 | 642,130 | | Net medical claims incurred | 248,347 | 244,262 | 513,509 | 519,051 | | Salaries and benefits | 55,499 | 62,437 | 114,722 | 131,418 | | Total operating expenses | 349,073 | 349,020 | 718,698 | 750,710 | | Income (loss) from continuing operations | 7,187 | (28,882) | (15,516) | (108,580) | | Net income (loss) | 7,408 | (28,814) | (11,762) | (101,420) | | Basic earnings (loss) per share (continuing ops) | 0.01 | (0.06) | (0.03) | (0.23) | | Diluted earnings (loss) per share (continuing ops) | 0.01 | (0.06) | (0.03) | (0.23) | - For the three months ended June 30, 2024, Clover Health reported a net income of $7.4 million, a significant improvement from a net loss of $28.8 million in the prior year period, driven by an 11.3% increase in total revenues and stable total operating expenses[20] - For the six months ended June 30, 2024, the company reduced its net loss to $11.8 million from $101.4 million in the prior year, primarily due to a 9.5% increase in total revenues and a 4.3% decrease in total operating expenses[20] Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity Details changes in Clover Health's equity components, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity | Equity Component | Balance, Dec 31, 2023 ($ thousands) | Stock Issuance/Compensation ($ thousands) | Treasury Stock Acquired ($ thousands) | Net Income (Loss) ($ thousands) | Balance, June 30, 2024 ($ thousands) | | :----------------- | :---------------------------------- | :---------------------------------------- | :------------------------------------ | :------------------------------ | :----------------------------------- | | Class A Common Stock | 40 | 1 | 0 | 0 | 41 | | Class B Common Stock | 9 | 0 | 0 | 0 | 9 | | Additional paid-in capital | 2,461,238 | 56,721 | 0 | 0 | 2,517,959 | | Accumulated deficit | (2,159,794) | 0 | 0 | (11,762) | (2,171,556) | | Treasury stock | (12,729) | 0 | (6,577) | 0 | (19,306) | | Total stockholders' equity | 286,394 | 56,722 | (6,577) | (11,762) | 324,888 | - Total stockholders' equity increased by $38.5 million from December 31, 2023, to June 30, 2024, reaching $324.9 million, primarily driven by additional paid-in capital from stock-based compensation and stock issuance, partially offset by net loss and treasury stock acquisitions[22][23] Condensed Consolidated Statements of Cash Flows Reports Clover Health's cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | Change ($ thousands) | % Change | | :----------------- | :------------------------------------------- | :------------------------------------------- | :------------------- | :------- | | Operating activities (continuing ops) | 79,697 | 111,677 | (31,980) | (28.6%) | | Operating activities (discontinued ops) | (9,005) | 20,528 | (29,533) | (143.9%) | | Total operating activities | 70,692 | 132,205 | (61,513) | (46.5%) | | Investing activities | 14,139 | 76,672 | (62,533) | (81.6%) | | Financing activities | (6,554) | (2,281) | (4,273) | 187.3% | | Net increase in cash, cash equivalents, and restricted cash | 78,277 | 206,596 | (128,319) | (62.1%) | | Cash, cash equivalents, and restricted cash, end of period | 254,771 | 392,809 | (138,038) | (35.1%) | - Net cash provided by operating activities decreased by $61.5 million, or 46.5%, for the six months ended June 30, 2024, primarily due to a decrease in cash from discontinued operations and lower cash generation from continuing operations[28] - Investing activities also saw a significant decrease in cash provided[28] - Financing activities used more cash, increasing from $2.3 million in 2023 to $6.6 million in 2024, mainly due to treasury stock acquisitions and common stock repurchases[28] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures regarding the accounting policies, significant estimates, and specific financial statement line items, offering crucial context for understanding the company's financial position and performance 1. Organization and Operations Clover Health focuses on empowering physicians to manage chronic diseases early through its Clover Assistant technology, providing Medicare Advantage PPO and HMO plans. The company exited the ACO REACH Program effective January 1, 2024, reclassifying related activities as discontinued operations. In Q2 2024, Clover launched Counterpart Health, Inc., a new SaaS and Tech Enabled Services Solution, to extend its AI-powered care management platform to external payors and providers - Clover Health's core strategy is to use its Clover Assistant software platform to help physicians identify and manage chronic diseases in Medicare beneficiaries, aiming for better care at lower costs[29][32] - The company provides affordable, high-quality Medicare Advantage (MA) plans (PPO and HMO) through its regulated insurance subsidiaries[30] - Clover Health exited the ACO REACH Program effective January 1, 2024, with all related 2024 activity presented as discontinued operations[30][31] - In Q2 2024, Clover launched Counterpart Health, Inc., a new Software-as-a-Service (SaaS) and Tech Enabled Services Solution, to offer its AI-powered care management platform to external Medicare Advantage payors and providers, aiming for new growth and high-margin business opportunities with low startup costs[33] 2. Summary of Significant Accounting Policies The financial statements are prepared in accordance with GAAP and SEC regulations, requiring significant management estimates, particularly for incurred but not reported claims and risk adjustment provisions. The company reclassified its former Non-Insurance segment as discontinued operations and adopted ASU 2023-03, with ASU 2023-07 and ASU 2023-09 under evaluation for future impact - The condensed consolidated financial statements are prepared in conformity with GAAP and SEC rules, requiring significant management estimates, especially for incurred but not reported claims, risk adjustment provisions, and investment valuations[35][36][37] - The results of operations, assets, and liabilities for the former Non-Insurance segment have been reclassified as discontinued operations for all periods presented[39] - The company adopted ASU 2023-03, which had no material impact, and is currently evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), effective in future periods[47][48][49] - As of June 30, 2024, Clover Health operates with one reportable segment: Insurance, following its exit from the ACO REACH Model[43] 3. Investment Securities Clover Health's investment portfolio primarily consists of U.S. government and corporate debt securities, classified as held-to-maturity and available-for-sale. The total fair value of these securities decreased slightly from December 31, 2023, to June 30, 2024. Net investment income increased, driven by higher interest rates. All securities are investment grade, and unrealized losses are primarily due to interest rate changes, not credit impairment Investment Portfolio Fair Value | Investment Category | June 30, 2024 Fair Value ($ thousands) | December 31, 2023 Fair Value ($ thousands) | Change ($ thousands) | % Change | | :------------------ | :------------------------------------- | :----------------------------------------- | :------------------- | :------- | | Held-to-maturity | 3,975 | 7,470 | (3,495) | (46.8%) | | Available-for-sale | 214,298 | 220,890 | (6,592) | (3.0%) | | Total | 218,273 | 228,380 | (10,107) | (4.4%) | Net Investment Income | Investment Income Source | Three Months Ended June 30, 2024 ($ thousands) | Three Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ 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 | | Total investment income, net | 5,734 | 4,896 | 10,201 | 8,831 | - Net investment income increased by 17.1% for the three months and 15.5% for the six months ended June 30, 2024, primarily due to a higher interest rate environment[52] - All investment securities were investment grade (BBB+ or higher) at June 30, 2024, with unrealized losses attributed to changes in interest rates or credit spreads, not impairment, as the company has the ability and intent to hold these securities for recovery[54] 4. Fair Value Measurements The company measures financial instruments at fair value using a three-level hierarchy. Most assets are classified as Level 2 (observable inputs), while warrants receivable are classified as Level 3 (unobservable inputs). The fair value of warrants receivable decreased slightly due to unrealized losses Assets at Fair Value | Financial Instrument | June 30, 2024 Total Fair Value ($ thousands) | December 31, 2023 Total Fair Value ($ thousands) | | :------------------- | :------------------------------------------- | :----------------------------------------------- | | U.S. government and government agencies | 140,019 | 123,714 | | Corporate debt securities | 72,371 | 95,343 | | Other | 1,908 | 1,853 | | Warrants receivable | 797 | 814 | | Total assets at fair value | 215,095 | 221,724 | - Warrants receivable, classified as Level 3 financial assets due to subjective estimates, had a fair value of $0.8 million at June 30, 2024, experiencing less than $0.1 million in unrealized losses during the six months ended June 30, 2024[57][58] 5. Healthcare Receivables Healthcare receivables, primarily consisting of pharmaceutical rebates, Medicare Part D settlement receivables, member premium receivables, and other CMS receivables, increased slightly to $66.7 million at June 30, 2024, from $64.2 million at December 31, 2023 Healthcare Receivables | Metric | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | Change ($ millions) | % Change | | :------- | :------------------------- | :----------------------------- | :------------------ | :------- | | Healthcare receivables | 66.7 | 64.2 | 2.5 | 3.9% | - Healthcare receivables are estimated based on contracted rebate rates, utilization volume, historical collection patterns, and include Medicare Part D settlements and member premiums[59] 6. Related Party Transactions Clover Health engages in various transactions with related parties, including CarePoint Health System, Medical Records Exchange, LLC (Credo), and Thyme Care, Inc. These transactions involve services such as inpatient/outpatient care, medical records retrieval, and oncology care management. Expenses and payables to these entities varied, with Thyme Care expenses increasing significantly in 2024 Related Party Expenses | Related Party | Three Months Ended June 30, 2024 ($ millions) | Three Months Ended June 30, 2023 ($ millions) | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | | :-------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | CarePoint Health (Net medical claims incurred) | 2.3 | 2.9 | 2.8 | 6.6 | | Medical Records Exchange (Expenses) | 0.3 | 0.2 | 0.4 | 0.3 | | Thyme Care (Expenses) | 2.3 | 0.4 | 2.3 | 0.8 | - Payables to CarePoint Health were $1.3 million at June 30, 2024, and $1.4 million at December 31, 2023[60] - Payables to Thyme Care increased from $0.2 million at December 31, 2023, to $2.7 million at June 30, 2024[62] - Vivek Garipalli, the Company's Executive Chairman, has indirect interests in CarePoint Health, Medical Records Exchange, LLC, and Thyme Care, Inc., establishing these as related party transactions[60][61][62] 7. Unpaid Claims The liability for unpaid claims for Insurance operations significantly increased to $200.6 million at June 30, 2024, from $137.1 million at the beginning of the period. This was influenced by a favorable development of $28.0 million from prior years' estimates and a slower claims processing speed in 2024, partly due to third-party cyber incident disruptions Unpaid Claims Activity | Metric | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | | Gross and net balance, beginning of period | 137,100 | 137,395 | | Total incurred | 503,606 | 511,921 | | Total paid | 440,156 | 532,736 | | Gross and net balance, end of period | 200,550 | 116,580 | - A favorable development of $28.0 million was recognized in the first six months of 2024 due to actual claims experience differing from prior estimates, compared to $3.2 million in 2023[65] - The ratio of current year medical claims paid as a percentage of current year Net medical claims incurred decreased to 67.6% for the six months ended June 30, 2024, from 79.6% in 2023, indicating slower claims processing, partly due to claim submission and payment process disruptions related to a third-party cyber incident[65] 8. Stockholders' Equity and Convertible Preferred Stock Clover Health's Class A common stock outstanding increased to 406.5 million shares, and Class B common stock to 89.6 million shares at June 30, 2024. The Board authorized a $20 million share repurchase program for Class A Common Stock over two years, under which the company repurchased 1.8 million shares for $1.8 million during Q2 2024 Outstanding Shares | Stock Class | June 30, 2024 Outstanding Shares | December 31, 2023 Outstanding Shares | | :---------- | :------------------------------- | :----------------------------------- | | Class A Common Stock | 406,486,444 | 401,183,882 | | Class B Common Stock | 89,649,365 | 87,867,732 | | Treasury Stock | 14,574,401 | 7,912,750 | - On May 6, 2024, the Board authorized a $20 million share repurchase program for Class A Common Stock over a two-year period[68] - During the three months ended June 30, 2024, the company repurchased 1,838,309 shares of Class A Common Stock for an aggregate total of $1.8 million[69] 9. Variable Interest Entity and Equity Method of Accounting Clover Health accounts for its investment in Character Biosciences, Inc. (23.92% ownership) using the equity method, as it has significant influence but not control. The company recognized a loss of $0.5 million for the six months ended June 30, 2024, and its equity method investment was reduced to zero, suspending further loss recognition - Clover Health owns approximately 23.92% of Character Biosciences, Inc. and accounts for this investment using the equity method, as it has significant influence but is not the primary beneficiary of this Variable Interest Entity (VIE)[70][71] - For the six months ended June 30, 2024, the company recognized a loss of $0.5 million from its equity method investment in Character Biosciences, with the investment carrying amount reduced to zero, suspending further loss recognition until subsequent income equals previously unrecognized losses[73] 10. Employee Benefit Plans Clover Health offers a 401(k) Plan with matching contributions and various equity incentive plans (2020 Plan, 2020 MIP, Inducement Plan, ESPP) for stock-based compensation. Total stock-based compensation expense decreased to $27.9 million for Q2 2024 and $56.7 million for H1 2024, primarily due to lower PRSU and RSU expenses. Unrecognized stock-based compensation expense was approximately $401.0 million at June 30, 2024 Stock-Based Compensation Expense | Compensation Type | Three Months Ended June 30, 2024 ($ thousands) | Three Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Stock options | 530 | 748 | 1,148 | 2,089 | | RSUs | 20,400 | 20,936 | 41,317 | 41,936 | | PRSUs | 6,944 | 14,398 | 14,157 | 30,593 | | ESPP | 26 | 26 | 76 | 107 | | Total compensation cost | 27,900 | 36,108 | 56,698 | 74,725 | - Total stock-based compensation expense decreased by 22.7% for the three months and 24.1% for the six months ended June 30, 2024, primarily driven by a decrease in PRSU and RSU expenses[79] - At June 30, 2024, approximately $401.0 million of unrecognized stock-based compensation expense remains, to be recognized over four years[79] - The company's 401(k) Plan contributions were $0.5 million for Q2 2024 and $1.1 million for H1 2024[74] 11. Income Taxes Clover Health's consolidated effective tax rate was 0.0% for the three and six months ended June 30, 2024 and 2023. Despite reporting net income for Q2 2024, the company remains in a net operating loss position for H1 2024 and has recorded a full valuation allowance against its net deferred tax assets - The consolidated effective tax rate was 0.0% for both the three and six months ended June 30, 2024 and 2023[90] - A valuation allowance has been recorded to reduce the net deferred tax assets to zero, reflecting the company's net operating loss position for the six months ended June 30, 2024[90] 12. Net Income (Loss) per Share For the three months ended June 30, 2024, Clover Health reported basic and diluted earnings per share from continuing operations of $0.01, a significant improvement from a loss of $0.06 in the prior year. For the six months, the loss per share from continuing operations decreased to $0.03 from $0.23. Potentially dilutive securities were included in EPS calculations for Q2 2024 due to net income, but excluded in other periods due to net losses Earnings Per Share | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS (continuing operations) | $0.01 | $(0.06) | $(0.03) | $(0.23) | | Diluted EPS (continuing operations) | $0.01 | $(0.06) | $(0.03) | $(0.23) | | Basic EPS (discontinued operations) | $0.00 | $0.00 | $0.01 | $0.01 | | Diluted EPS (discontinued operations) | $0.00 | $0.00 | $0.01 | $0.01 | | Basic weighted average shares outstanding | 487,483,087 | 479,163,752 | 487,575,520 | 479,819,237 | | Diluted weighted average shares outstanding | 495,179,955 | 479,163,752 | 487,575,520 | 479,819,237 | - For the three months ended June 30, 2024, the company had net income from continuing operations, leading to the inclusion of dilutive securities (RSUs, PRSUs, Stock Options) in the diluted EPS calculation[91] - For all other periods presented, potentially dilutive securities were excluded from diluted EPS calculations as their effect would be anti-dilutive due to net losses from continuing operations[91] 13. Commitments and Contingencies Clover Health is involved in various legal actions, including SEC investigations, securities class actions, and shareholder derivative lawsuits. The securities class action was settled for $22 million in October 2023, funded by insurance proceeds. Shareholder derivative actions were settled in June 2023, with final court approval in July 2024, involving corporate governance enhancements and a $2.5 million payment to plaintiffs' counsel, with no monetary payment from the company. A bylaw litigation was mooted by a company amendment in June 2024 - The company is cooperating with an ongoing SEC investigation related to certain disclosures and business aspects, including matters discussed in a Hindenburg Research article[95] - A securities class action lawsuit was settled for $22 million, approved in October 2023, with $19.5 million funded by insurance proceeds[96][97] - Shareholder derivative actions were settled in June 2023, with final court approval in July 2024, involving corporate governance enhancements and a $2.5 million payment to plaintiffs' counsel, with no monetary payment from Clover Health[104] - A class action suit challenging a company bylaw was voluntarily dismissed in June 2024 after the company adopted an amendment to its bylaws, mooting the litigation[105] 14. Operating Segments Starting in 2024, Clover Health manages its operations as a single reportable segment: Insurance, which provides PPO and HMO plans to Medicare Advantage members. The former Non-Insurance segment no longer meets reporting criteria due to the company's exit from the ACO REACH Model. Corporate/Other includes other clinical services and corporate overhead - As of 2024, Clover Health operates with one reportable segment: Insurance, which focuses on Medicare Advantage PPO and HMO plans[106] - The former Non-Insurance segment is no longer a reportable operating segment due to the company's exit from the ACO REACH Model[43][106] Segment Performance | Segment Metric | Three Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | | :------------- | :--------------------------------------------- | :------------------------------------------- | | Insurance Segment | | | | Premiums earned, net | 349,900 | 691,622 | | Net medical claims incurred | 249,406 | 515,482 | | Gross profit | 104,538 | 183,911 | | Total assets | 431,231 | 431,231 | | Corporate/Other | | | | Other income | 42,269 | 57,950 | | Net medical claims incurred | 4,965 | 9,903 | | Gross profit (loss) | 88,504 | 147,712 | | Total assets | 881,633 | 881,633 | 15. Dividend Restrictions Clover Health's regulated insurance subsidiaries are subject to state regulations that limit the timing and amount of dividends they can pay to the parent company, requiring prior approval from regulatory bodies. As of June 30, 2024, neither subsidiary had been authorized to pay nor had paid any dividends - Regulated insurance subsidiaries are subject to state regulations that restrict dividend payments to the parent company, requiring prior approval from authorities like the New Jersey Department of Banking and Insurance[112] - As of June 30, 2024, neither of the regulated insurance subsidiaries had been authorized to pay nor had paid any dividends[112] 16. Restructuring costs Clover Health incurred restructuring costs of $0.5 million for Q2 2024 and $0.8 million for H1 2024, a significant decrease from the prior year, primarily due to reduced employee termination benefits. These costs are associated with business transformation initiatives, including transitioning its MA operational platform to UST HealthProof and a workforce reduction in April 2023 Restructuring Costs | Restructuring Cost Category | Three Months Ended June 30, 2024 ($ thousands) | Three Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Employee termination benefits | 0 | 3,337 | 0 | 4,562 | | Vendor related costs | 473 | 1,122 | 822 | 1,921 | | Other | 0 | 291 | 4 | 74 | | Total restructuring costs | 473 | 4,750 | 826 | 6,557 | - Restructuring costs decreased by 90% for the three months and 87.4% for the six months ended June 30, 2024, primarily due to a decrease in employee termination related expenses following a workforce reduction in April 2023[113][114] - The remaining liability for restructuring costs at June 30, 2024, was $3.5 million, primarily for vendor-related costs[116] 17. Discontinued Operations Clover Health exited the ACO REACH Program effective January 1, 2024, reclassifying all related activities as discontinued operations. The remaining activities primarily involve settlement with CMS for prior performance years. Discontinued operations generated net income of $0.2 million for Q2 2024 and $4.2 million for H1 2024, but used $9.0 million in cash from operating activities for H1 2024 - Clover Health ceased participation in the ACO REACH Program effective January 1, 2024, and all related activities are now classified as discontinued operations[118][125] Discontinued Operations Performance | Metric | Three Months Ended June 30, 2024 ($ thousands) | Three Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Non-Insurance revenue | (1,045) | 193,490 | 5,779 | 399,273 | | Net medical claims incurred | (1,502) | 192,692 | 733 | 390,393 | | Net income | 238 | 75 | 4,238 | 7,167 | - Discontinued operations generated net income of $0.2 million for the three months and $4.2 million for the six months ended June 30, 2024, but used $9.0 million in cash from operating activities during the six-month period[119][121] - The remaining assets and liabilities related to discontinued operations, including a $5.8 million performance year obligation, are classified as current, with settlement expected within one year[118][127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Clover Health's financial condition and results of operations, highlighting the company's strategy, recent developments, key performance measures for its Insurance segment, and a detailed comparison of financial results for the three and six months ended June 30, 2024 and 2023 Overview Clover Health aims to empower Medicare physicians to manage chronic diseases early through its Clover Assistant platform, offering PPO and HMO Medicare Advantage plans in five states and 200 counties, serving 80,261 members at June 30, 2024. The company exited the ACO REACH Program effective January 1, 2024 - Clover Health's vision is to empower Medicare physicians to identify and manage chronic diseases early using its proprietary software platform, Clover Assistant[134] - The company operates PPO and HMO Medicare Advantage plans in five states and 200 counties, with 80,261 members at June 30, 2024[135][136] - Clover Health exited the ACO REACH Program effective January 1, 2024, with remaining activity related to prior performance years[136] Recent Developments Clover Health's PPO Medicare Advantage plans received a recalculated 2024 Star rating of 3.5 Stars from CMS, an increase of 0.5 Star. The company also launched Counterpart Health, Inc. in Q2 2024, a new SaaS and Tech Enabled Services Solution, to offer its AI-powered care management platform to external Medicare Advantage payors and providers. The exit from the ACO REACH Program was finalized, leading to its reclassification as discontinued operations - CMS recalculated Clover Health's 2024 Star ratings for its PPO Medicare Advantage plans, increasing them by 0.5 Star to a revised rating of 3.5 Stars for the 2025 payment year[137] - In Q2 2024, Clover Health launched Counterpart Health, Inc., a new SaaS and Tech Enabled Services Solution, to extend its AI-powered care management platform to external Medicare Advantage payors and providers[138] - The company's exit from the ACO REACH Program was effective January 1, 2024, and this line of business now meets the definition of discontinued operations[139] Key Performance Measures of Our Operating Segments Clover Health now operates with a single reportable segment, Insurance, which focuses on Medicare Advantage plans. Key performance indicators for this segment include member count, premiums earned (gross and net), medical claims incurred (gross and net), and Medical Care Ratio (MCR). The company also uses a Non-GAAP Benefits Expense Ratio (BER) to reflect investments in healthcare quality - Clover Health's sole reportable operating segment is Insurance, providing PPO and HMO plans to Medicare Advantage members[140][141] Insurance Segment Key Performance Indicators | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Insurance members at period end () | 80,261 | 82,526 | | Premiums earned, net ($ thousands) | 691,622 | 631,469 | | Insurance net medical claims incurred ($ thousands) | 515,482 | 517,343 | | Medical care ratio, net | 74.5% | 81.9% | | Benefits expense ratio, net (non-GAAP) | 79.6% | 87.6% | - The net Medical Care Ratio (MCR) improved to 74.5% for the six months ended June 30, 2024, from 81.9% in the prior year, indicating improved underwriting performance[141] - The Non-GAAP Benefits Expense Ratio (BER) improved to 79.6% for the six months ended June 30, 2024, from 87.6% in the prior year, reflecting a more comprehensive view of costs related to maintaining and improving care quality[141][149] Results of Operations Clover Health significantly improved its financial performance, reporting net income of $7.4 million for Q2 2024 (vs. $28.8 million loss in Q2 2023) and reducing its net loss to $11.8 million for H1 2024 (vs. $101.4 million loss in H1 2023). This was driven by increased net premiums earned, stable medical claims, and reduced salaries and benefits, and restructuring costs Results of Operations (Three Months) | Metric | Three Months Ended June 30, 2024 ($ thousands) | Three Months Ended June 30, 2023 ($ thousands) | Change ($ thousands) | % Change | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------------------- | :------- | | Premiums earned, net | 349,900 | 314,383 | 35,517 | 11.3% | | Total revenues | 356,260 | 320,138 | 36,122 | 11.3% | | Net medical claims incurred | 248,347 | 244,262 | 4,085 | 1.7% | | Salaries and benefits | 55,499 | 62,437 | (6,938) | (11.1%) | | General and administrative expenses | 44,424 | 41,710 | 2,714 | 6.5% | | Restructuring costs | 473 | 4,750 | (4,277) | (90.0%) | | Net income (loss) | 7,408 | (28,814) | 36,222 | 125.7% | Results of Operations (Six Months) | Metric | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | Change ($ thousands) | % Change | | :------------------------------------ | :------------------------------------------- | :------------------------------------------- | :------------------- | :------- | | Premiums earned, net | 691,622 | 631,469 | 60,153 | 9.5% | | Total revenues | 703,182 | 642,130 | 61,052 | 9.5% | | Net medical claims incurred | 513,509 | 519,051 | (5,542) | (1.1%) | | Salaries and benefits | 114,722 | 131,418 | (16,696) | (12.7%) | | General and administrative expenses | 88,993 | 99,354 | (10,361) | (10.4%) | | Restructuring costs | 826 | 6,557 | (5,731) | (87.4%) | | Net loss | (11,762) | (101,420) | 89,658 | (88.4%) | - The increase in premiums earned, net, was primarily due to an increase in risk adjustment revenue driven by the company's focus on member retention[155][164] - Salaries and benefits decreased due to lower share-based compensation expense, and general and administrative expenses decreased due to lower non-recurring legal expenses[158][168][169] Liquidity and Capital Resources Clover Health manages its liquidity through cash, investments, and cash flows, expecting sufficient resources for the next 12 months. Total restricted and unrestricted cash, cash equivalents, and investments were $482.8 million at June 30, 2024. Operating activities provided $70.7 million in cash for H1 2024, while investing activities provided $14.1 million, and financing activities used $6.6 million, primarily for treasury stock and share repurchases - Clover Health expects its cash, cash equivalents, restricted cash, short-term investments, and projected cash flows to be sufficient to meet operating and regulatory requirements for the next 12 months[173] Cash and Investments | Cash & Investment Category | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :------------------------- | :------------------------- | :----------------------------- | | Total restricted and unrestricted cash, cash equivalents, and investments (all entities) | 482.8 | 417.3 | | Unregulated Entities (Parent company & unregulated subsidiaries) | 201.0 | 136.8 | | Regulated Entities (Regulated subsidiaries) | 281.9 | 280.5 | Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | | :----------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities (total) | 70,692 | 132,205 | | Net cash provided by investing activities | 14,139 | 76,672 | | Net cash used in financing activities | (6,554) | (2,281) | - Financing activities used $6.6 million in H1 2024, primarily due to $4.8 million in treasury stock acquisitions and $1.8 million in Class A Common Stock repurchases[183] About Non-GAAP Financial Measures Clover Health uses the Non-GAAP Benefits Expense Ratio (Insurance BER) to provide a clearer understanding of its financial performance, particularly regarding investments in healthcare quality and member engagement. This measure is supplemental to GAAP and used by management for assessment, planning, and forecasting - Clover Health uses the Non-GAAP Benefits Expense Ratio (Insurance BER) to enhance understanding of its financial performance and investment in healthcare quality[192][193] - The Non-GAAP measure is supplemental to GAAP and is used by management for assessing performance, planning, and forecasting[192] Item 3. Quantitative and Qualitative Disclosures About Market Risk Clover Health's primary market risk is interest rate risk associated with fixed-maturity investments. The company manages credit risk by investing in high-quality, diversified securities, with substantially all of its investment portfolio in U.S. Treasury fixed maturity securities, all rated investment grade or higher at June 30, 2024 - The primary market risk for Clover Health is interest rate risk from its fixed-maturity investments[194] - Credit risk is managed by investing in high-quality, diversified securities; substantially all of the investment portfolio is in U.S. Treasury fixed maturity securities[195] - At June 30, 2024, all fixed maturity securities in the portfolio were investment grade (BBB+ or higher)[54][195] Item 4. Controls and Procedures Clover Health's Certifying Officers concluded that the company's disclosure controls and procedures were effective as of June 30, 2024. There were no material changes in internal control over financial reporting during the most recent fiscal quarter - Clover Health's Certifying Officers evaluated and concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[196] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[198] - Disclosure controls provide reasonable, not absolute, assurance and are subject to inherent limitations[197] PART II. OTHER INFORMATION Covers additional disclosures beyond financial statements, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings Clover Health is subject to various legal proceedings, investigations, and claims in the ordinary course of business. Information regarding these matters, including SEC investigations, securities class actions, and shareholder derivative litigation, is incorporated by reference from Note 13 of the financial statements - The company is subject to various legal proceedings, investigations, and claims incidental to its highly regulated business[199] - Details on legal proceedings, including SEC investigations, securities class actions, and shareholder derivative litigation, are provided in Note 13 (Commitments and Contingencies) of the condensed consolidated financial statements[199] Item 1A. Risk Factors There have been no material changes to Clover Health's risk factors from those disclosed in its 2023 Form 10-K. The company continues to be exposed to various recurring and new risks that could materially adversely affect its business, financial condition, and results of operations - No material changes have occurred in the company's risk factors since the 2023 Form 10-K[200] - The company is exposed to various risks that could adversely affect its financial results and condition, as detailed in the 2023 Form 10-K and the 'Cautionary Note Regarding Forward-Looking Statements' section[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Clover Health's Board authorized a $20 million share repurchase program for Class A Common Stock over two years, commencing May 6, 2024. During Q2 2024, the company repurchased 1,838,309 shares for an average price of $0.95-$0.98 per share, with approximately $18.2 million remaining under the program - On May 6, 2024, the Board of Directors authorized a share repurchase program of up to $20,000,000 of Class A Common Stock over a two-year period[201] Share Repurchase Program Activity | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining Under Program ($) | | :------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------- | | May 1 - May 31, 2024 | 1,513,869 | $0.95 | 18,564,309 | | June 1 - June 30, 2024 | 324,440 | $0.98 | 18,246,205 | | Total | 1,838,309 | | | Item 3. Defaults Upon Senior Securities Clover Health reported no defaults upon senior securities for the period - There were no defaults upon senior securities[202] Item 4. Mine Safety Disclosures This item is not applicable to Clover Health - Mine Safety Disclosures are not applicable to the company[202] Item 5. Other Information During the three months ended June 30, 2024, none of Clover Health's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2024[203] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[204] - Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) and the Cover Page Interactive Data File (104) are also filed as exhibits[204] SIGNATURES Confirms the official signing and submission of the Form 10-Q by the company's principal executive and financial officers - The Form 10-Q was signed on August 8, 2024, by Andrew Toy, Chief Executive Officer, and Peter Kuipers, Chief Financial Officer[207]