What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-01 · 137 added, 167 removed, 334 unchanged (48% of the section changed)

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For a discussion of these items and comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.

This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of this Form 10-K.

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At Clover Health, our vision is to empower Medicare physicians to identify and manage chronic diseases early.

Our strategy is to improve the care of our Medicare beneficiaries, develop wide physician networks, and provide technology to help empower physicians.

Our strategy is to improve the care of people with Medicare, develop wide physician networks, and provide technology to help empower physicians.

Our proprietary software platform, Clover Assistant, helps us execute this strategy by enabling physicians to detect, identify, and manage chronic diseases earlier than they otherwise could.

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This software is used in both our Insurance segment and our Non-Insurance segment.

We operate Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") Medicare Advantage ("MA") plans for Medicare-eligible consumers.

We operate Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") Medicare Advantage ("MA") plans for Medicare-eligible individuals.

We aim to provide high-quality, affordable healthcare for all Medicare beneficiaries.

We offer most members in our MA plans (the "members") among the lowest average out-of-pocket costs for primary care provider and specialist co-pays, drug deductibles and drug costs in their markets.

Among plans with similar major characteristics, we offer most members in our MA plans (the "members") among the lowest average out-of-pocket costs for primary care provider and specialist co-pays in their markets.

We strongly believe in providing our members provider choice, and we consider our PPO plan to be our flagship insurance product.

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We believe the use of Clover Assistant and related data insights allows us to improve clinical decision-making through a highly scalable platform.

At January 1, 2023, we operated our MA plans in eight states and 220 counties, with 84,138 members.

On April 1, 2021, our 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"), which transitioned to the Accountable Care Organization Realizing Equity, Access, and Community Health Model ("ACO REACH Model" or "ACO REACH") in January 2023.

Our DCE assumes full risk (i.e., 100.0% shared savings and shared losses) for the total cost of care of aligned Original Medicare beneficiaries (the "Non-Insurance Beneficiaries" and, collectively with the members, "Lives under Clover Management" or the "beneficiaries").

Through our Direct Contracting operations, we focus on leveraging Clover Assistant to enhance healthcare delivery, reduce expenditures, and improve care for our Non-Insurance Beneficiaries.

At December 31, 2022, we had approximately 1,560 contracted participant providers who manage primary care for our Non-Insurance Beneficiaries in 21 states.

Additionally, at December 31, 2022, we had approximately 1,675 preferred providers and preferred facilities in our DCE network.

In connection with the 2023 performance year, we strategically reduced the number of ACO REACH participating physicians, which resulted in a shift in our beneficiary alignment.

At the beginning of January 2023, we had approximately 605 contracted participant providers who manage primary care for our Non-Insurance Beneficiaries in 13 states.

Additionally, at the beginning of January 2023, we had approximately 1,540 preferred providers and preferred facilities in our ACO REACH network.

Our participation in the DC Model has enabled us to move beyond the MA market and target the Medicare fee-for-service ("FFS") market, which is the largest segment of Medicare.

We believe that expanding into the FFS market is not only a strategic milestone for Clover but also demonstrates the scalability of Clover Assistant.

Furthermore, we believe that offering providers multiple options within CMS' "Pathways to Success" will enable us to be accessible to more practices.

Beyond ACO REACH, exploring other additional plans such as MSSP-A ("Medicare Shared Savings Program BASIC level A") and Medicare Shared Savings Plan ENHANCED ("MSSP Enhanced"), would diversify our portfolio, allow for potential growth in lives under management, and provide an opportunity for better balancing the overall risk profile of the business.

At December 31, 2022, we were partnering with providers to care for 253,514 Lives under Clover Management, which included 88,627 Insurance members and 164,887 aligned Non-Insurance Beneficiaries.

Recent Developments

Geographic Expansion

On July 14, 2022, we announced plans to make our MA plans available in 13 new counties beginning in 2023.

This expansion makes our MA plans available in a total of 220 counties across eight states.

Impact of COVID-19

The Coronavirus Disease 2019 ("COVID-19") pandemic and its variants continues to evolve, and the impact on our business, results of operations, financial condition, and cash flows stabilized during the year ended December 31, 2022.

We are continuing to monitor the ongoing financial impact of COVID-19 on our business and operations and are making adjustments accordingly.

A large portion of our membership is elderly and generally in the high-risk category for COVID-19, and we have worked closely with our network of providers to ensure that members are receiving necessary care.

During the years ended December 31, 2022 and 2021, we incurred elevated costs as compared to prior to the outbreak of the pandemic in 2020 to diagnose and care for those members who had contracted the virus.

Indirect costs attributable to the COVID-19 pandemic were elevated as well, as deferral of services and increased costs related to conditions that were exacerbated by a lack of diagnosis and treatment in the earlier periods of the pandemic contributed to increased utilization.

At December 31, 2023, we operated our MA plans in eight states and 220 counties, with 81,205 members.

Our subsidiary, Clover Health Partners, LLC ("Health Partners"), participated as a Direct Contracting Entity ("DCE") in the Centers for Medicare and Medicaid Services ("CMS") Accountable Care Organization Realizing Equity, Access, and Community Health Model ("ACO REACH Model" or "ACO REACH").

On December 1, 2023, the Company notified CMS that it will no longer participate as a REACH ACO in connection with the 2024 performance year.

The Company’s exit from the ACO REACH Program was made after the Company determined that it is in its best interest to fully exit the ACO REACH Program, and follows the Company's November 2022 announcement of a strategic reduction in the number of ACO REACH participating physicians in 2023.

At December 31, 2023, we partnered with providers to care for 131,734 Lives under Clover Management, which included 81,205 Insurance members and 50,529 aligned Non-Insurance beneficiaries.

As a direct result of not participating in the ACO REACH Program in 2024, Lives under Clover Management will include only our Insurance members at the beginning of 2024.

2023 Highlights

Geographic Presence

Beginning in 2024, our MA plans will be available in a total of 200 counties and 5 states.

Certain Business Transformation Initiatives

On April 17, 2023, the Company announced it would implement certain business transformation initiatives, including an agreement to move its core plan operations to UST HealthProof’s integrated technology platform and additional corporate restructuring actions.

The agreement with UST HealthProof includes the transition of certain of the Company’s plan operation functions in support of its Medicare Advantage members pursuant to a master services agreement.

In addition to the arrangement with UST HealthProof, the Company conducted a reduction in force to better align its Selling, General, and Administrative cost structure with its revenue base.

For the twelve months ended December 31, 2023 the Company recorded $9.9 million of restructuring charges related to these business transformation initiatives, which consisted of employee termination benefits, vendor related costs, and other costs.

Refer to Note 23.

Restructuring Costs of the notes to audited consolidated financial statements included in Part II, Item 8 of this Form 10-K.

CMS Star Ratings

Pursuant to CMS’s Medicare Advantage Star ratings system, CMS annually awards between 1.0 and 5.0 Stars to Medicare Advantage plans based on performance in several categories.

CMS released the Company’s 2024 Star ratings in October 2023, related to the 2022 measurement year, which will impact the 2025 payment year.

For both of the Company's plans (PPO and HMO), CMS gave a rating of 3.0 Stars for measurement year 2022, which represents a 0.5 Star rating decrease for both plans from the 2021 measurement year.

The 3.0 Star rating will impact the 2025 payment year.

This represents a 0.5 Star rating decrease for both plans as compared to the 2024 payment year.

In the calendar year 2024, the Company will be paid on the basis of 3.5 Stars for both our PPO and HMO plans, which ratings were previously awarded.

On December 1, 2023, the Company notified CMS that it will no longer participate as a REACH ACO in connection with the 2024 performance year.

Key Performance Measures of Our Operating Segments

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Through our Insurance segment, we provide PPO and HMO plans to Medicare Advantage members in several states.

Our Non-Insurance segment consists of our operations in connection with our participation in the DC Model, which transitioned to the ACO REACH Model beginning in 2023.

Our Non-Insurance segment consists of our operations in connection with our participation in the ACO REACH Model.

All other clinical services and all corporate overhead not included in the reportable segments are included within Corporate/Other.

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(Premium and expense amounts in thousands, except PMPM amounts)

Insurance members as of period end (#) 88,627 N/A 68,120 N/A

Insurance members at period end (#) 81,205 N/A 88,627 N/A

Premiums earned, gross $ 1,236,213 $ 1,250 $ 1,085,339 $ 1,041

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Any member who joins a Clover plan after July 1 in a given year is considered a new member for the entirety of the following calendar year.

We view our number of members and associated PMPM premiums earned and medical claim expenses, in the aggregate and on a PMPM basis, as important metrics to assess our financial performance;

member growth aligns with our mission, drives our Total revenues, expands brand awareness, deepens our market penetration, creates additional opportunities to inform our data-driven insights to improve care and decrease medical claim expenses, and generates additional data to continue to improve the functioning of Clover Assistant.

We view our number of members and associated PMPM premiums earned and medical claim expenses, in the aggregate and on a PMPM basis, as useful metrics to assess our financial performance;

Member growth and retention aligns with our mission, drives our Total revenues, expands brand awareness, deepens our market penetration, creates additional opportunities to inform our data-driven insights to improve care and decrease medical claim expenses, and generates additional data to continue to improve the functioning of Clover Assistant.

Among other things, the longer a member is enrolled in one of our insurance plans, the more data we collect and synthesize and the more actionable insights we generate.

We believe these data-driven insights lead to better care delivery as well as improved identification and documentation of members' chronic conditions, helping to lower PMPM medical claim expenses.

We believe these data-driven insights lead to better care delivery as well as improved identification, documentation and management of members' chronic conditions, helping to lower PMPM medical claim expenses.

Premiums earned, gross.

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Premiums are earned in the period in which members are entitled to receive services, and are net of estimated uncollectible amounts, retroactive membership adjustments, and any adjustments to recognize rebates under the minimum benefit ratios required under the Patient Protection and Affordable Care Act.

Premiums earned, gross is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurance.

We earn premiums through our plans offered under contracts with CMS.

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We calculate our medical care ratio ("MCR") by dividing total Insurance medical claim expenses incurred by premiums earned, in each case on a gross or net basis, as the case may be, in a given period.

We believe our MCR is an indicator of our gross margin for

our Insurance plans and the ability of our Clover Assistant platform to capture and analyze data over time to generate actionable insights for returning members to improve care and reduce medical expenses.

We believe our MCR is an indicator of our gross margin for our Insurance plans and the ability of our Clover Assistant platform to capture and analyze data over time to generate actionable insights for returning members to improve care and reduce medical expenses.

Non-Insurance segment

Our Non-Insurance segment consists of operations in connection with our participation in the Direct Contracting program, which we began in April 2021 and which transitioned to the ACO REACH Model beginning in 2023.

Our Non-Insurance segment consists of operations in connection with our participation in the Direct Contracting program through the ACO REACH Model.

As part of our Non-Insurance operations, we empower providers with Clover Assistant and offer a variety of programs aimed at reducing expenditures and preserving or enhancing the quality of care for our Non-Insurance Beneficiaries.

On December 1, 2023, the Company notified CMS that it will no longer participate as a REACH ACO in connection with the 2024 performance year.

Year ended December 31,

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(Revenue and claims amounts in thousands, except PBPM amounts)

Non-Insurance Beneficiaries as of period end (#) 164,887 N/A 61,876 N/A

Non-Insurance Beneficiaries at period end 50,529 N/A 164,887 N/A

Non-Insurance revenue $ 773,177 $ 1,232 $ 2,380,135 $ 1,175

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99.8 % N/A 103.4 % N/A

(1) Calculated per beneficiary per month ("PBPM") figures are based on the applicable amount divided by beneficiary months in the given period.

Beneficiary months represents the number of months beneficiaries are aligned to our DCE in the period.

(1) Calculated ("PBPM") figures are based on the applicable amount divided by beneficiary months in the given period.

Beneficiary months represents the number of months beneficiaries are aligned to our ACO REACH Model in the period.

(2) Defined as Non-Insurance net medical claims incurred divided by Non-Insurance revenues.

Non-Insurance Beneficiaries.

A Non-Insurance Beneficiary is defined as an eligible Original Medicare covered life that has been aligned to our DCE, Health Partners, via attribution to a DCE-participant provider through alignment based on claims data or by beneficiary election through voluntary alignment.

A beneficiary alignment is effective as of the first of the month, for the full calendar month, regardless of whether eligibility is lost during the course of the month.

A Non-Insurance Beneficiary is defined as an eligible fee-for-service ("FFS") covered life that has been aligned to our ACO REACH, Clover Health Partners, via attribution to an ACO REACH-participant provider through alignment based on claims data or by beneficiary election through voluntary alignment.

A beneficiary alignment is effective at the first of the month, for the full calendar month, regardless of whether eligibility is lost during the course of the month.

Non-Insurance revenue.

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Non-Insurance revenue is the sum of the capitation payments made to us for services within the scope of our capitation arrangement and FFS payments made to providers directly from CMS.

Non-Insurance revenue is also known in the DC Model as performance year expenditures and is the primary component used to calculate shared savings or shared loss versus the performance year benchmark.

Non-Insurance revenue is also known in the ACO REACH Model as performance year expenditures and is the primary component used to calculate shared savings or shared loss versus the performance year benchmark.

Non-Insurance revenue includes a direct reduction or increase of shared savings or loss, as applicable.

Premiums and recoupments incurred in direct relation to the DC Model are recognized as a reduction or increase in Non-Insurance revenue, as applicable.

Premiums and recoupments incurred in direct relation to the ACO REACH Model are recognized as a reduction or increase in Non-Insurance revenue, as applicable.

We believe Non-Insurance revenue provides useful insight into the gross economic benefit generated by our business operations and allows us to evaluate our performance without regard to changes in our underlying reinsurance structure.

Non-Insurance net medical claims incurred.

Non-Insurance net medical claims incurred consist of the total incurred expense that CMS and we will remit for medical services provided on behalf of Non-Insurance Beneficiaries during the months in which they are alignment eligible and aligned to the DCE.

Additionally, Non-Insurance net medical claims incurred are inclusive of fees paid to providers for Clover Assistant usage, care coordination, and any shared savings or shared loss agreements with providers.

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General and administrative expenses 187,571 207,917 (20,346) (9.8)

Premium deficiency reserve (benefit) expense (94,240) 110,628 (204,868) *

Impairment of goodwill and other intangible assets

15,945 — 15,945 *

Premium deficiency reserve benefit (7,239) (93,517) 86,278 (92.3)

Depreciation and amortization 2,509 1,187 1,322 111.4

Restructuring costs 9,931 — 9,931 *

Other expense — 70 (70) *

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Gain on extinguishment of note payable — (23,326) 23,326 *

Gain on investment (9,217) — (9,217) *

Loss (gain) on investment

4,726 (9,217) 13,943 *

Net loss $ (213,361) $ (339,567) $ 126,206 (37.2) %

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Premiums earned, net increased $150.9 million, or 13.9%, to $1,235.8 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase was primarily due to membership growth of 30.1% from 68,120 Insurance members at December 31, 2021, to 88,627 Insurance members at December 31, 2022.

The remaining increase is primarily driven by an increase in accrued risk adjustment revenue recognized during the year ended December 31, 2022.

The increase was primarily due to the increase in CMS premiums received as a result of the 3.0 to 3.5 star rating effective January 1, 2023 and an increase in risk adjustment revenue driving favorability as a result of the Company focusing on member retention.

Non-Insurance revenue

Our Non-Insurance revenue increased $1,712.5 million, or 256.5%, to $2,380.1 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase was primarily driven by an increase in the number of our aligned Non-Insurance Beneficiaries from 61,876 at December 31, 2021, to 164,887 at December 31, 2022, due to the fact that our DCE did not begin participation in Direct Contracting until the second quarter of 2021.

Non-Insurance revenue decreased $1,607.0 million, or 67.5%, to $773.2 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The decrease was driven by a decrease in the number of our aligned Non-Insurance Beneficiaries from 164,887 at December 31, 2022, to 50,529 at December 31, 2023 as a result of our strategic reduction in Non-Insurance Beneficiaries.

Other income increased $13.1 million, or 112.1%, to $24.8 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase was largely due to a $7.1 million increase in net investment income, partially offset by a $1.2 million decrease in rental income.

The increase was primarily attributable to an increase in net investment income, partially due to a higher interest rate environment as compared to the prior period.

Net medical claims incurred

Net medical claims incurred increased $1,902.8 million, or 122.7%, to $3,454.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase was primarily driven by an increase in net medical claims attributable to our Non-Insurance Beneficiaries from $705.4 million for the year ended December 31, 2021, to $2,460.9 million for the year ended December 31, 2022, which was driven by an increase in the number of our aligned Non-Insurance Beneficiaries from 61,876 at December 31, 2021, to 164,887 at December 31, 2022.

This was partially due to the fact that our DCE did not begin participation in Direct Contracting until the second quarter of 2021.

We also experienced an increase of $149.1 million in net medical claims attributable to our Insurance members, which was primarily driven by an increase in Insurance members from 68,120 Insurance members at December 31, 2021, to 88,627 Insurance members at December 31, 2022.

Net medical claims incurred for both Insurance and Non-Insurance decreased $1,677.6 million, or 48.6%, to $1,776.4 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The decrease was primarily attributable to a decrease in net medical claims for Non-Insurance Beneficiaries from $2,460.9 million for the year ended December 31, 2022, to $771.8 million for the year ended December 31, 2023 as a result of our strategic reduction in Non-Insurance Beneficiaries from 164,887 at December 31, 2022, to 50,529 at December 31, 2023.

Salaries and benefits

Salaries and benefits increased $18.3 million, or 7.0%, to $278.7 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase was primarily driven by an increase in average headcount which is primarily attributable to the build out of DCE.

Salaries and benefits decreased $21.6 million, or 7.7%, to $257.2 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

This decrease was primarily driven by a decrease in share-based compensation related to performance-based vesting awards.

General and administrative expenses

General and administrative expenses increased $22.6 million, or 12.2%, to $207.9 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase was primarily driven by increases in professional fees related to supporting the administrative needs of a larger member and Non-Insurance beneficiary groups as compared to the prior period.

Professional fees increased $11.3 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

In addition, total commissions, which are attributable to acquiring new and retaining existing members to our plans, increased by $9.5 million.

Premium deficiency reserve (benefit) expense

A $94.2 million premium deficiency reserve benefit was recorded for the year ended December 31, 2022, which was primarily driven by amortization associated with the 2021 recorded reserve.

This was partially offset by the establishment of the new Premium deficiency reserve related to 2023.

A $110.6 million premium deficiency reserve expense was recorded for the year ended December 31, 2021, which included amortization associated with a previously recorded reserve and the reserve deemed necessary for the remainder of 2022.

The increase in the premium deficiency benefit for the year ended December 31, 2022 was primarily driven by an 11% decrease in the allocable administrative expenses and a 9% benefit in projected MCR as compared to the projected MCR for the year ended December 31, 2021.

The Company received a higher contracted rate with CMS under Clover's 3.5 quality star rating for its PPO plan as well as maturation of Clover's core clinical programs, which favorably impacted projected MCR.

Change in fair value of warrants

Change in fair value of warrants totaled $0.9 million for the year ended December 31, 2022.

The $65.2 million increase as compared to the year ended December 31, 2021 is primarily driven by the mark-to-market adjustments and subsequent redemption of all the Public Warrants and Private Warrants during the prior period.

Interest expense

Interest expense decreased $1.9 million, or 58.3%, to $1.3 million for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the voluntary prepayment and termination of the remaining principal and interest associated with our Term Loan Notes.

Amortization of notes and securities discounts

Amortization of notes and securities discounts decreased by $13.7 million, or 99.8%, in the year ended December 31, 2022, compared to the year ended December 31, 2021.

This was primarily due to the completion of the 2021 Business Combination on January 7, 2021, whereby the unamortized discount associated with the August 2019 tranche of the Convertible Securities was accelerated, as well as the termination of our Term Loan Notes during the year ended December 31, 2021.

Gain on extinguishment of note payable

Gain on extinguishment of note payable increased by $23.3 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase is a direct result of the Company's dissolution of Seek Insurance Services, Inc.

("Seek"), a field marketing organization and an indirect wholly-owned subsidiary of the Company.

In connection with the dissolution, all amounts

outstanding under a convertible note issued by Seek in 2020 were waived and all other rights, covenants, and obligations under the note were terminated.

As a result, the Company recognized a $23.3 million gain on extinguishment.

Gain on investment

General and administrative expenses decreased $20.3 million, or 9.8%, to $187.6 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The decrease was primarily driven by a decrease in deferred acquisition costs.

Impairment of goodwill and other intangible assets

Impairment of goodwill and other intangible assets increased $15.9 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The impairments are primarily related to goodwill and intangible assets acquired from Juxly in 2022.

Please refer to Note 8 "Goodwill and Other Intangibles" of the notes to audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.

Premium deficiency reserve benefit

A $7.2 million premium deficiency reserve benefit was recorded for the year ended December 31, 2023, which was primarily driven by the release of the reserve related to all of our Medicare Advantage plans at the end of the year.

Loss on investment

In February 2022, Character Biosciences completed a private capital transaction in which it raised $17.9 million from the issuance of 16,210,602 shares of its preferred stock.

After evaluating our ownership interest in Character Biosciences, we began applying the equity method of accounting during the year ended December 31, 2022, and recorded a gain on investment of $9.2 million, which is attributable to our proportionate share of the gain on equity of that entity during that period.

Prior to the first quarter of 2022, this entity was consolidated on our financial statements, and therefore we did not recognize a loss or gain on investment in this entity for the year ended December 31, 2021.

In accordance with ASC 323, for the year ended December 31, 2022, we recognized the proportionate share of Character Bioscience's net losses up to the investment carrying amount.

At December 31, 2022, we discontinued applying the equity method to account for our common stock interest in Character Biosciences as our net losses exceeded the investment carrying amount.

The equity method investment in Character Biosciences was reduced to zero and no further losses were recorded in our consolidated financial statements as we did not guarantee obligations of the investee company or commit additional funding.

After the Company evaluated its ownership interest in Character Biosciences, it began applying the equity method of accounting during the three months ended March 31, 2022, and for the year ended December 31, 2022 recorded a gain on investment of $9.2 million, which is attributable to its proportionate share of the gain on equity of that entity during that period.

Prior to the first quarter of 2022, this entity was consolidated on Clover's financial statements, and therefore the Company did not recognize a loss or gain on investment.

In accordance with ASC 323, for the year ended December 31, 2022, the Company recognized the proportionate share of Character Bioscience's net losses up to the investment carrying amount.

For the year ended December 31, 2023, the Company recognized $4.7 million in shared losses.

Restructuring costs

The agreement with UST HealthProof includes the transition of certain of the Company’s plan operation functions in support of its Medicare Advantage members pursuant to a master services agreement.

In addition to the arrangement with UST HealthProof, the Company conducted a reduction in force to better align its Selling, General, and Administrative cost structure with its revenue base.

Refer to Note 23 “Restructuring Costs” of the notes to audited consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Liquidity and Capital Resources

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We continually forecast and manage our cash, investments, working capital balances, and capital structure to meet the short-term and long-term obligations of our businesses while seeking to maintain liquidity and financial flexibility.

Historically, we have financed our operations primarily from the proceeds we received through public and private sales of equity securities, funds received in connection with the 2021 Business Combination, issuances of convertible notes, premiums earned under our MA plans, and with our Non-Insurance revenue.

Historically, we have financed our operations primarily from the proceeds we received through public and private sales of equity securities, funds received in connection with the business combination which occurred early in 2021, issuances of convertible notes, premiums earned under our MA plans, and with our Non-Insurance revenue.

We expect that our cash, cash equivalents, restricted cash, short-term investments, and our current projections of cash flows, taken together, will be sufficient to meet our projected operating and regulatory requirements for the next 12 months based on our current plans.

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If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

At December 31, 2022, total cash, cash equivalents, restricted cash, and investments were $555.3 million.

We had cash, cash equivalents, restricted cash, and short-term investments of $227.7 million.

Additionally, at December 31, 2022, we had $327.6 million of available-for-sale and held-to-maturity investment securities.

Consolidated Entities

Our cash equivalents and investment securities consist primarily of money market funds, U.S.

government debt securities, and corporate debt securities.

At December 31, 2023 and 2022, total restricted and unrestricted cash, cash equivalents, and investments were $417.3 million and $555.3 million, respectively.

These totals consist of $228.6 million and $327.6 million at December 31, 2023 and 2022, respectively, that specifically related to available-for-sale and held-to-maturity investment securities.

Unregulated Entities

At December 31, 2022, total cash, cash equivalents, restricted cash, and investments for the parent company, Clover Health Investments, Corp., and unregulated subsidiaries were $331.7 million.

At December 31, 2023 and December 31, 2022, total restricted and unrestricted cash, cash equivalents, and investments for the parent company, Clover Health Investments, Corp., and unregulated subsidiaries were $136.8 million and $331.7 million, respectively, with the decrease for December 31, 2023 primarily reflecting operating expenses.

We operate as a holding company in a highly regulated industry.

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We continue to maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated insurance subsidiaries.

Cash, cash equivalents, and short-term investments at the parent company, Clover Health Investments, Corp., were $101.4 million and $350.9 million at December 31, 2022 and 2021, respectively.

This decrease at the parent company primarily reflects operating expenses and capital contributions made to our regulated insurance subsidiaries.

Additionally, the parent company held $136.5 million and $79.3 million of available-for-sale and held-to-maturity investment securities at December 31, 2022 and 2021.

Our unregulated subsidiaries held $93.7 million and $52.2 million of cash, cash equivalents, restricted cash, and short-term investments at December 31, 2022 and 2021, respectively.

Our unregulated subsidiaries held no available-for-sale and held-to-maturity securities at either December 31, 2022 or 2021.

Cash, cash equivalents, and investments at the parent company were $74.0 million and $238.0 million at December 31, 2023 and December 31, 2022, respectively.

Our unregulated subsidiaries held $62.8 million and $93.7 million of cash, cash equivalents, restricted cash, and investments at December 31, 2023 and December 31, 2022, respectively.

Regulated Entities

Our regulated insurance subsidiaries held $32.5 million and $190.7 million of cash, cash equivalents, and short-term investments at December 31, 2022 and 2021, respectively.

Additionally, our regulated insurance subsidiaries held $191.1 million and $118.0 million

of available-for-sale and held-to-maturity investment securities at December 31, 2022 and 2021, respectively.

At December 31, 2023 and December 31, 2022 total cash, cash equivalents, restricted cash, and investments for our regulated subsidiaries were $280.5 million and $223.6 million, respectively.

Additionally, our regulated insurance subsidiaries held $203.4 million and $191.1 million of available-for-sale and held-to-maturity investment securities at December 31, 2023 and December 31, 2022, respectively.

Our use of operating cash derived from our unregulated subsidiaries is generally not restricted by departments of insurance (or comparable state regulatory agencies).

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State insurance regulatory authorities that have jurisdiction over the payment of dividends by our regulated insurance subsidiary may in the future adopt statutory provisions more restrictive than those currently in effect.

For a detailed discussion of our regulatory requirements, including aggregate statutory capital and surplus as well as dividends paid from the subsidiaries to the parent, please refer to Notes 24 (Dividend Restrictions), 25 (Statutory Equity), and 26 (Regulatory Matters) to the consolidated financial statements included in this Form 10-K, as well as Item 1 Business.

For a detailed discussion of our regulatory requirements, including aggregate statutory capital and surplus as well as dividends paid from the subsidiaries to the parent, please refer to Notes 22 (Dividend Restrictions), 24 (Statutory Equity), and 25 (Regulatory Matters) to the consolidated financial statements included in this Form 10-K, as well as in Part I.

The following table summarizes our consolidated cash flows for the years ended December 31, 2023 and 2022.

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Net cash used in operating activities

Net cash provided by (used in) investing activities 95,133 (435,447)

$ (115,871) $ (286,348)

Net cash provided by investing activities 140,013 95,133

Net cash (used in) provided by financing activities

(Decrease) increase in cash, cash equivalents, and restricted cash $ (113,755) $ 207,620

(33,861) 77,460

Decrease in cash, cash equivalents, and restricted cash

$ (9,719) $ (113,755)

Cash Requirements

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For the year ended December 31, 2023, Net cash used in operating activities was $115.9 million, which reflects a Net loss of $213.4 million.

Non-cash activities included a $164.3 million charge to Stock-based compensation expense, $94.2 million of amortization of the 2022 Premium deficiency reserve, and a $9.2 million Gain on investment related to the change in the equity structure of Character Biosciences.

Non-cash activities included a $140.9 million charge to Stock-based compensation expense, and $7.2 million of amortization of the 2023 Premium deficiency reserve.

Payments due to CMS related to our Non-Insurance operations decreased by $106.6 million.

For the year ended December 31, 2022, Net cash used in operating activities was $286.3 million, which reflects a Net loss of $339.6 million.

Non-cash activities included a $164.3 million charge to Stock-based compensation expense, $93.5 million amortization of the 2022 Premium deficiency reserve, and a $9.2 million Gain on investment related to the change in the equity structure of Clover Therapeutics.

Payments due to CMS related to our Non-Insurance operations increased by $110.4 million.

Change in our working capital included an increase within Surety bonds and deposits related to Non-Insurance.

For the year ended December 31, 2021, Net cash used in operating activities was $282.3 million, which reflects a Net loss of $587.8 million.

Non-cash activities included a $66.1 million gain as a result of the Change in fair value of warrants and a $163.7 million charge to Stock-based compensation expense.

Changes to our working capital included a $110.6 million charge to our Premium deficiency reserve and an increase of $10.7 million within Surety bonds and deposits related to Non-Insurance.

At the conclusion of the year ended December 31, 2022, we deposited $82.4 million into an escrow account to comply with the standard financial guarantee requirements for participants in the DC Model for performance year 2022.

We view this impact as short-term in nature as we expect to settle the performance year 2022 obligation during the third quarter of the year ending December 31, 2023, after which we expect the associated financial guarantee to be released by CMS.

Furthermore, we also paid the provisional settlement for the 2021 performance year of Direct Contracting of $60.3 million in 2022.

After the year ended December 31, 2022, but prior to the filing date of this Form 10-K, we received approximately $20.8 million related to our performance year 2021 collateral guarantee with CMS.

On January 5, 2024, CMS notified us that our performance year 2022 financial guarantees were officially released and cancelled.

As a result, $53.6 million that was previously recognized as restricted cash within Surety bonds and deposits was released as unrestricted cash.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 of $140.0 million was primarily due to $316.2 million provided from the sale and maturity of investment securities.

This was offset by $369.4 million used to purchase investments and

$16.2 million used in connection with the 2022 Business Combination.

See Note 3 (Business Combination) to the consolidated financial statements included in this Form 10-K..

Net cash used in investing activities for the year ended December 31, 2021, of $435.4 million was primarily due to $876.3 million used to purchase investment securities.

This was partially offset by $441.5 million provided from the sale and maturity of investment securities.

This was offset by $175.6 million used to purchase investments.

Net cash provided by investing activities for the year ended December 31, 2022, of $95.1 million was primarily due to $485.4 million provided from the sale and maturity of investment securities.

This was offset by $369.4 million used to purchase investments.

For additional information regarding our investing activities, please refer to Note 3 (Investment Securities) to our consolidated financial statements included in this Form 10-K.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2022 of $5.0 million was primarily the result of the acquisition of $6.4 million in Treasury stock.

Net cash provided by financing activities for the year ended December 31, 2021 of $925.4 million was primarily the result of $666.2 million in proceeds from the reverse capitalization in connection with the 2021 Business Combination, net of transaction costs, and $6.1 million in proceeds from the issuance of common stock.

These factors were partially offset by $30.9 million in principal payments on our outstanding Term Loan Notes.

Net cash used in financing activities for the year ended December 31, 2023 of $33.9 million was primarily the result of $28.8 million used in Change in restricted cash related to surety bonds, deposits, and escrow accounts and the acquisition of $6.2 million in Treasury stock.

Net cash provided by financing activities for the year ended December 31, 2022 of $77.5 million was primarily the result of $82.4 million provided by Change in restricted cash related to surety bonds, deposits, and escrow accounts, partially offset by the acquisition of $6.4 million in Treasury stock.

Financing Arrangements

Term Loan Notes

We entered into a loan and security agreement with a commercial lender in March 2017, which provided for term loans in an aggregate principal amount of up to $60.0 million.

At that time, we borrowed $40.0 million as a term loan under the agreement that was subject to an interest rate of 11.0%, payable monthly, and had a maturity date of March 1, 2022.

In October 2017, we borrowed the remaining $20.0 million as a term loan under the agreement that was subject to an interest rate of 11.25%, payable monthly, and had a maturity date of October 1, 2022.

Each loan was payable in monthly installments of interest only for the first 24 months, and thereafter interest and principal were payable in 36 equal monthly installments.

The loans were secured by substantially all of our assets, including our intellectual property, and equity interests in our unregulated subsidiaries.

On June 29, 2021, we voluntarily paid the remaining principal of $20.7 million and interest of $0.2 million, thereby terminating the loan.

Convertible Securities

In December 2018, we entered into a convertible securities purchase agreement with qualified institutional buyers, including entities affiliated with our then-Chief Executive Officer and other holders of more than 5.0% of our common stock, for an aggregate principal amount of up to $500.0 million.

In February, March, May, and August 2019, we issued an aggregate of $373.8 million initial principal amount of convertible securities (the "Convertible Securities") under the agreement.

In connection with and upon the closing of the 2021 Business Combination, the Convertible Securities mandatorily converted into 74,694,107 shares of the Corporation's Class B Common Stock.

For additional information about the Convertible Securities and the conversion of the Convertible Securities upon the closing of the 2021 Business Combination, see Note 12 (Notes and Securities Payable) to the consolidated financial statements included in this Form 10-K.

There have been no material changes to our financing arrangements at December 31, 2023.

Contractual Obligations and Commitments

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Material cash requirements from known contractual obligations and commitments at December 31, 2023 include:

(1) the recognition of a performance guarantee of $73.8 million in connection with the Company's participation in the DC Model and (2) operating lease obligations of $5.9 million.

(1) the recognition of a performance guarantee of $15.6 million in connection with the Company's participation in the ACO REACH Model and (2) operating lease obligations of $4.7 million.

These commitments are associated with contracts that were enforceable and legally binding at December 31, 2023, and that specified all significant terms, including fixed or minimum serves to be used, fixed, minimum, or variable price provisions, and the approximate timing of the actions under the contracts.

There were no other material cash requirements from known contractual obligations and commitments at December 31, 2023.

For additional information regarding our remaining estimated contractual obligations and commitments, see Note 12 (Notes and Securities Payable), Note 15 (Leases), Note 21 (Commitments and Contingencies), and Note 22 (Non-Insurance) to the consolidated financial statements included in this Form 10-K.

For additional information regarding our remaining estimated contractual obligations and commitments, see Note 13 (Leases), Note 19 (Commitments and Contingencies), and Note 20 (Non-Insurance) to the consolidated financial statements included in this Form 10-K.

Indemnification Agreements

In the ordinary course of business, we enter into agreements, with various parties (providers, vendors, consultants, etc.), with varying scope and terms, pursuant to which we may agree to defend, indemnify, and hold harmless the other parties from any claim, demand, loss, lawsuit, settlement, judgment, fine, or other liability, and all related expenses that may accrue therefrom (including reasonable attorney's fees), arising from or in connection with third party claims, including, but not limited to, negligence, recklessness, willful misconduct, fraud, or otherwise wrongful act or omission with respect to our obligations under the applicable agreements.

In the ordinary course of business, we enter into agreements, with various parties (providers, vendors, consultants, etc.), with varying scope and terms, pursuant to which we may agree to defend, indemnify, and hold harmless the other parties from any claim, demand, loss, lawsuit, settlement, judgment, fine, or other liability, and all related expenses that may accrue therefrom (including reasonable attorneys' fees), arising from or in connection with third party claims, including, but not limited to, negligence, recklessness, willful misconduct, fraud, or otherwise wrongful act or omission with respect to our obligations under the applicable agreements.

Off-balance Sheet Arrangements

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We estimate our unpaid claims by following a detailed actuarial process that uses both historical claim payment patterns as well as emerging medical expense trends to project the best estimate of claims liabilities.

These data and trends include historical data adjusted for claims receipt and payment patterns, cost trends, product mix, seasonality, utilization of healthcare services, changes in membership, provider billing practices, benefit changes, known outbreaks of disease, including COVID-19, or increased incidence of illness such as influenza, the incidence of high-dollar or catastrophic claims, and other relevant factors.

These data and trends include historical data adjusted for claims receipt and payment patterns, cost trends, product mix, seasonality, utilization of healthcare services, changes in membership, provider billing practices, benefit changes, known outbreaks of disease, or increased incidence of illness such as influenza, the incidence of high-dollar or catastrophic claims, and other relevant factors.

These factors are used to determine our lag-dependent completion factors, which represent the average percentage of total incurred claims that have been paid through a given date after being incurred.

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We continually adjust our completion factor with our knowledge of recent events that may impact current completion factors when establishing our reserves.

Because our reserving practice is to consistently recognize the actuarial best estimate using an assumption of moderately adverse conditions as required by

actuarial standards, there is a reasonable possibility that there could be variances between actual completion factors and those assumed in our December 31, 2022 and 2021, unpaid claim estimates.

Because our reserving practice is to consistently recognize the actuarial best estimate using an assumption of moderately adverse conditions as required by actuarial standards, there is a reasonable possibility that there could be variances between actual completion factors and those assumed in our December 31, 2023 and 2022 unpaid claim estimates.

Actuarial standards require the use of assumptions based on moderately adverse experience, and as such, a provision for adverse deviation ("PAD") is recognized on current reserves and released on prior reserves.

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We do not assess the impacts of the premium deficiency reserve for our Non-Insurance operations as that business segment is not an insurance plan and is not accounted for under ASC 944 - Financial Services—Insurance.

The reserve is derived from the assessments performed and provides the amount by which insurance-related expenses are expected to exceed insurance revenues.

The reserve is derived from the assessments performed and provides the amount by which insurance-related expenses are expected to exceed insurance revenues in addition to net investment income.

There are key financial statement line items and associated drivers considered in determining the reserve.

The most significant of financial statement line items considered when performing reserve assessments are premiums earned and Insurance net medical claims incurred.

The most significant of financial statement line items considered when performing reserve assessments are premiums earned, net investment income, and insurance net medical claims incurred.

Key inputs considered for premiums earned include expected enrollment changes, revenue rates, risk adjustment, and risk score forecasts.

Key metrics considered for insurance net medical claims incurred include claims experience, benefit changes, membership mix, membership changes, and medical management programs.

Administrative expenses are assessed for expenses directly and indirectly incurred in order to operate the insurance entities and cannot exceed a percentage of

regulatory entity premiums earned due to contractual agreements.

Administrative expenses are assessed for expenses directly and indirectly incurred in order to operate the insurance entities and cannot exceed a percentage of regulatory entity premiums earned due to contractual agreements.

There are other operating activities that are considered in accordance with regulatory guidelines.

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There are additional cost-sharing elements that are recorded within medical expenses and take into account factors such as member income levels, brand-name versus generic drug spend, and total spend by member within a plan year.

Management estimates and recognizes adjustments to medical expenses based upon inputs such as pharmacy claims experience, rebate activity, and input from third-party experts.

Management estimates and recognizes adjustments to medical expenses based upon inputs such as pharmacy claims experience, and rebate activity.

Management records a receivable or payable at the end of the year based on these items.

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Non-Insurance revenue is calculated as the sum of the capitation payments made to us for services within the scope of our capitation arrangement plus FFS payments made to providers directly from CMS.

Non-Insurance revenue includes a direct reduction or increase of shared savings or loss, which is calculated as the difference between the total benchmark and

the total cost of care.

Premiums and recoupments incurred in direct relation to the DC Model are recognized as a reduction or increase in Non-Insurance revenue.

Non-Insurance revenue includes a direct reduction or increase of shared savings or loss, which is calculated as the difference between the total benchmark and CMS' total expense.

Premiums and recoupments incurred in direct relation to the ACO REACH Model are recognized as a reduction or increase in Non-Insurance revenue.

Non-Insurance Receivable and Performance Year Obligation

Performance year receivable and obligation represents the average Medicare beneficiary's total cost of care for beneficiaries aligned to our DCE and refers to the target expenditure amount that will be compared to Medicare expenditures for items and services furnished to aligned beneficiaries during a performance year.

Performance year receivable and obligation represents the average Medicare beneficiary's total cost of care for beneficiaries aligned to our ACO and refers to the target expenditure amount that will be compared to Medicare expenditures for items and services furnished to aligned beneficiaries during a performance year.

This comparison will be used to calculate shared savings and shared losses.

The key inputs in determining the performance year receivable and obligation are both driven by the benchmark, which is impacted by the retrospective trend adjustments ("RTA"s), risk score, and the number of beneficiaries aligned to the DCE.

The key inputs in determining the performance year receivable and obligation are both driven by the benchmark, which is impacted by the retrospective trend adjustments ("RTA"s), risk score, quality performance, and the number of beneficiaries aligned to the ACO.

We begin our benchmark estimation process with reports from the Centers for Medicare & Medicaid Services Innovation Center ("CMMI") on a quarterly basis.

Prospective and retrospective trends are set at a national level.

We can make adjustments from the benchmark report due to new information received directly from CMMI, national studies we complete ourselves, or other anticipated policy updates that we believe are probable and estimable.

We make adjustments to the benchmark report based on new information received directly from CMMI, national studies we complete ourselves, or other anticipated policy updates that we believe are probable and estimable.

The preliminary benchmark is set based on risk scores with data captured as of a certain point in time.

Once new data is received, an updated analysis of claims provides an opportunity for the benchmark to be adjusted.

Lastly, Non-Insurance Beneficiary counts are updated through the year and represent a timing difference between CMMI reporting, for which we accrue.

The following table summarizes the impacts of the key inputs to the Non-Insurance receivable and Non-Insurance performance year obligation that contribute to the change in the benchmark from beginning of the 2022 performance year:

Lastly, Non-Insurance Beneficiary counts are updated throughout the year and represent a timing difference between CMMI reporting, for which we accrue.

Increase (Decrease) in the adjustment to Non-Insurance Receivable/Obligation

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We assumed, in connection with the 2021 Business Combination, public warrants and private placement warrants to purchase shares of our Class A Common Stock (the "Public Warrants" and the "Private Placement Warrants," respectively).

These warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrants payable on the Consolidated Balance Sheets.

The warrant liabilities are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented within Change in fair value of warrants within the Consolidated Statements of Operations and Comprehensive Loss.

These warrants were accounted for as liabilities in accordance with ASC 815-40 and were presented within warrants payable on the 2021 Consolidated Balance Sheets.

The warrant liabilities are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented within Change in fair value of warrants within the audited Consolidated Statements of Operations and Comprehensive Loss.

The Public Warrants were classified within Level 1 of the fair value hierarchy because the fair value was equal to the publicly traded price of the Public Warrants.

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On July 22, 2021, we issued a press release stating that we would redeem all unexercised Public Warrants and Private Placement Warrants.

In connection with the redemption, effective August 24, 2021, the Public Warrants were delisted and classified within Level 2 of the fair value hierarchy as the fair value of the Public

Warrants was based on proportional changes in the price of our common stock.

In connection with the redemption, effective August 24, 2021, the Public Warrants were delisted and classified within Level 2 of the fair value hierarchy as the fair value of the Public Warrants was based on proportional changes in the price of our common stock.

There were no Private Placement Warrants outstanding at August 24, 2021.

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These private warrants were accounted for as assets in accordance with ASC 815-40 and are presented within Other assets, non-current on the 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 within Change in fair value of warrants within the Consolidated Statements of Operations and Comprehensive Loss.

The warrant assets are measured at fair value at inception and on a recurring basis until redeemed, with changes in fair value presented within Change in fair value of warrants within the audited Consolidated Statements of Operations and Comprehensive Loss.

These private warrants were classified within Level 3 due to the subjectivity and use of estimates in the calculation of their fair value.

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An evaluation of multiple scenarios for future payoffs for the underlying Convertible Securities was performed using option pricing models, and probability-weighted average value indications were used to arrive at the estimated fair values.

No such derivative liabilities exist at December 31, 2023.

For information on fair values of the Public Warrants and Private Placement Warrants, please refer to the section entitled "Warrants" above.

Stock-based Compensation

We measure and recognize compensation expense for all stock-based awards, including stock options, restricted stock units granted to employees, directors, and non-employees, and stock purchase rights granted under the 2020 Employee Stock Purchase Plan ("ESPP") to employees, based on the estimated fair value of the awards on the date of grant.

The fair value of each stock option and ESPP opportunity granted is estimated using the Black-Scholes option-pricing model.

The fair value of each restricted stock unit ("RSU") is based on the estimated fair value of our common stock on the date of grant.

We measure and recognize compensation expense for all stock-based awards, including Options and RSUs granted to employees, directors, and non-employee consultant, and stock purchase rights granted under the 2020 Employee Stock Purchase Plan ("ESPP") to employees, based on the estimated fair value of the awards on the date of grant.

The fair value of each Option and stock purchase right is estimated using the Black-Scholes option-pricing model.

The fair value of each RSU is based on the estimated fair value of our common stock on the date of grant.

The measurement date for employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees' requisite service period, which is the vesting period, on a straight-line basis.

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Stock-based compensation costs for non-employees are recognized as expense over the vesting period on a straight-line basis.

Stock-based compensation expense is classified within the Consolidated Statements of Operations and Comprehensive Loss within Salaries and benefits.

Stock-based compensation expense is classified within the audited Consolidated Statements of Operations and Comprehensive Loss within Salaries and benefits.

We recognize stock-based compensation expense for the portion of awards that have vested.

Forfeitures are recorded as they occur.

We also grant certain awards that have performance-based vesting conditions, including performance restricted stock units that become eligible to vest if, prior to the vesting date, the average closing price of one share of our common stock for ninety consecutive days equals or exceeds a specified price ("Market PRSUs").

We also grant certain awards that have performance-based vesting conditions, including performance restricted stock units that become eligible to vest based on achievement of certain Company or individual performance milestones (“Non-Market PRSUs”) and other performance restricted stock units that become eligible to vest if, prior to the vesting date, the average closing price of one share of our common stock for ninety consecutive days equals or exceeds a specified price ("Market PRSUs").

Stock-based compensation expense for such awards is recognized using an accelerated attribution method from the time it is deemed probable that the vesting condition will be met through the time the service-based vesting condition has been achieved.

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The determination of the grant-date fair value using an option-pricing model is affected by the estimated fair value of our common stock as well as assumptions regarding a number of other complex and subjective variables.

These variables include expected stock price volatility over an expected term, actual and projected

employee stock option exercise behaviors, the risk-free interest rate for an expected term, and expected dividends.

These variables include expected stock price volatility over an expected term, actual and projected employee stock option exercise behaviors, the risk-free interest rate for an expected term, and expected dividends.

The assumptions used in our option-pricing model represent our best estimates.

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These assumptions are estimated as follows:

Expected term - For stock options considered to be "plain vanilla" options, we estimate the expected term based on the simplified method, which is essentially the weighted average of the vesting period and contractual term, as our historical option exercise experience does not provide a reasonable basis upon which to estimate the expected term.

Expected term - For Options considered to be "plain vanilla" options, we estimate the expected term based on the simplified method, which is essentially the weighted average of the vesting period and contractual term, as our historical option exercise experience does not provide a reasonable basis upon which to estimate the expected term.

Expected volatility - We perform an analysis of the average volatility of a peer group of representative public companies with sufficient trading history over the expected term to develop an expected volatility assumption.

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The grant date fair value of Market PRSUs is determined using a Monte Carlo simulation model that incorporates multiple valuation assumptions, including the probability of achieving the specified market condition, expected volatility and risk-free interest rate.

There have been no Market PRSU awards granted during the years ended December 31, 2023 and 2022.

The grant date fair value of Non-Market PRSUs is determined based on the closing price of the Company’s class A common stock.

See Note 16 (Employee Benefit Plans) to the consolidated financial statements included in this Form 10-K for a complete description of the accounting for stock-based compensation awards.

Recently Issued and Adopted Accounting Pronouncements

See Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements in this form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our consolidated financial statements.

See Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements included in this Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis