What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-03-14 compared with 2023-03-01 · 1765 added, 2 removed, 15 unchanged (99% of the section changed)

12 unchanged sentences

Inflation Risk

The United States economy continues to be impacted by rising inflation.

The United States economy continues to be impacted by inflation.

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of Operating expenses as a percentage of Total revenues, if the premiums earned or other payments we receive from CMS do not increase with these increased costs.

We continue to monitor the potential impacts from inflation and are prepared to respond to inflationary pressures as necessary.

For further information regarding risks we encounter in our business due to economic conditions including inflationary pressures, see "Risk Factors" contained in Item 1A of this Form 10-K.

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Clover Health Investments, Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Clover Health Investments, Corp.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss , changes in convertible preferred stock and stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ( 2013 framework), and our report dated March 14, 2024 expressed an unqualified opinion thereon .

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of incurred but not reported reserves

Description of the Matter As of December 31, 2023, the Company’s unpaid claims was $138.6 million, a significant portion is incurred but not reported reserves.

As discussed in Notes 2 and 9 to the consolidated financial statements, the Company’s incurred but not reported (IBNR) liability is determined by using actuarial methods that include a number of factors and assumptions, including completion factors, which seek to measure the cumulative percentage of claims expense that have been paid as of the reporting date based on historical claim payment patterns, and assumed medical cost trend factors, which represent an estimate of claims expense based on recent claims expense levels and medical cost levels.

There is significant uncertainty inherent in determining management’s best estimate of completion and trend factors, which are used to calculate actuarial estimates of IBNR.

Auditing management’s best estimate of the IBNR was complex and required the involvement of our actuarial specialists due to the highly judgmental nature of completion and trend factor assumptions used in the valuation process.

These assumptions have a significant effect on the valuation of the IBNR liability.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s actuarial process for estimating the liability for incurred but not paid claims.

These audit procedures included among others, testing management review controls over the application of the actuarial assumptions within the reserve models and the review and approval processes that management has in place for estimating the liability for incurred but not paid claims.

To test the Company’s liability for IBNR, our audit procedures included, among others, testing the completeness and accuracy of data used in the calculation by testing reconciliations of underlying claims and membership data recorded in source systems to the actuarial reserving calculations, and comparing a sample of claims to source documentation.

We involved actuarial specialists to assist with our audit procedures, which included, among others, evaluating the methodologies and assumptions applied by the Company in determining the IBNR and independently calculating a range of IBNR estimates for comparison to management’s actuarial best estimate of the IBNR.

Additionally, we performed a review of the prior period IBNR liabilities to subsequent claims development.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2018.

New York, New York

March 14, 2024

CLOVER HEALTH INVESTMENTS, CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

Current assets

Cash and cash equivalents $ 122,863 $ 103,791

Short-term investments 12,218 41,457

Investment securities, available-for-sale (Amortized cost:

100,702 189,498

Investment securities, held-to-maturity (Fair value:

Accrued retrospective premiums 22,076 20,387

Other receivables 16,666 23,596

Healthcare receivables 64,164 70,607

Non-Insurance receivable 10,926 52,955

Surety bonds and deposits 55,631 100,502

Prepaid expenses 14,418 18,146

Other assets, current 1,404 4,043

Total current assets 427,970 624,997

Investment securities, available-for-sale (Amortized cost:

120,208 137,368

Investment securities, held-to-maturity (Fair value:

Property and equipment, net 5,082 5,753

Operating lease right-of-use assets 3,382 4,025

Goodwill and other intangible assets 2,990 20,000

Other assets, non-current 10,246 15,735

Total assets $ 570,671 $ 808,620

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

CLOVER HEALTH INVESTMENTS, CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

Liabilities and Stockholders' Equity

Current liabilities

Unpaid claims $ 138,593 $ 141,947

Due to related parties, net 1,363 1,566

Non-Insurance performance year obligation, current 15,568 73,844

Non-Insurance payable 41,565 148,191

Accounts payable and accrued expenses 37,184 32,445

Accrued salaries and benefits 21,061 23,962

Deferred revenue 3,099 —

Operating lease liabilities 1,665 1,827

Premium deficiency reserve — 7,239

Other liabilities, current 1,017 486

Total current liabilities 261,115 431,507

Long-term operating lease liabilities 2,998 4,033

Other liabilities, non-current 20,164 16,193

Total liabilities 284,277 451,733

Commitments and Contingencies (Note 19)

Stockholders' equity

Class A Common Stock, $ 0.0001 par value;

2,500,000,000 shares authorized at December 31, 2023 and December 31, 2022;

401,183,882 and 383,998,718 issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Class B Common Stock, $ 0.0001 par value;

500,000,000 shares authorized at December 31, 2023 and December 31, 2022;

87,867,732 and 94,394,852 issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 2,461,238 2,319,157

Accumulated other comprehensive loss ( 2,370 ) ( 9,374 )

Accumulated deficit ( 2,159,794 ) ( 1,946,433 )

Treasury stock, at cost;

7,912,750 and 2,072,752 shares held at December 31, 2023 and December 31, 2022, respectively

( 12,729 ) ( 6,509 )

Total stockholders' equity 286,394 356,887

Total liabilities and stockholders' equity $ 570,671 $ 808,620

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

CLOVER HEALTH INVESTMENTS, CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

Years ended December 31,

2023 2022 2021

Premiums earned, net (Net of ceded premiums of $ 444 , $ 470 , and $ 489 for the years ended December 31, 2023 and 2022, and 2021 respectively)

$ 1,235,769 $ 1,084,869 $ 799,414

Non-Insurance revenue 773,177 2,380,135 667,639

Other income 24,774 11,683 4,943

Total revenues 2,033,720 3,476,687 1,471,996

Operating expenses:

Net medical claims incurred 1,776,388 3,453,952 1,551,178

Salaries and benefits 257,157 278,725 260,458

General and administrative expenses 187,571 207,917 185,287

Impairment of goodwill and other intangible assets

Premium deficiency reserve expense (benefit)

( 7,239 ) ( 93,517 ) 110,628

Depreciation and amortization 2,509 1,187 1,246

Restructuring costs 9,931 — —

Other expense — 70 191

Total operating expenses 2,242,262 3,848,334 2,108,988

Loss from operations ( 208,542 ) ( 371,647 ) ( 636,992 )

Change in fair value of warrants 86 ( 900 ) ( 66,146 )

Interest expense 7 1,333 3,193

Amortization of notes and securities discounts — 30 13,717

Loss (gain) on investment 4,726 ( 9,217 ) —

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

Net loss $ ( 213,361 ) $ ( 339,567 ) $ ( 587,756 )

Per share data:

Net loss per share attributable to Class A and Class B common stockholders – basic and diluted (1)

$ ( 0.44 ) $ ( 0.71 ) $ ( 1.42 )

Weighted average number of common shares outstanding

Basic and diluted weighted average number of Class A and Class B common shares and common share equivalents outstanding (1)

482,176,127 476,244,262 412,922,424

Net unrealized gain (loss) on available-for-sale investments $ 7,004 $ ( 7,440 ) $ ( 1,944 )

Comprehensive loss $ ( 206,357 ) $ ( 347,007 ) $ ( 589,700 )

(1) Because the Company had a Net loss during the years ended December 31, 2023, 2022, and 2021, the Company's potentially dilutive securities, which include stock options, restricted stock units, preferred stock, and warrants to purchase shares of common stock and preferred stock, have been excluded from the computation of diluted net loss per share, as the effect would be anti-dilutive.

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

CLOVER HEALTH INVESTMENTS, CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

(Dollars in thousands, except share amounts)

Convertible Preferred Stock

Class A Common Stock Class B Common Stock Treasury Stock Additional paid-in capital Accumulated

deficit Accumulated

comprehensive

income (loss) Noncontrolling

interest Total stockholders' equity (deficit)

Amount Shares Amount Shares

Amount Shares

Balance, December 31, 2020 139,444,346 $ 447,747 — $ — 89,206,266 $ 9 — $ — $ 411,867 $ ( 1,028,982 ) $ 10 $ 3,903 $ ( 613,193 )

Stock issuance for exercise of stock options, net of early exercise liability — — 4,303,062 — — — — — 6,144 — — — 6,144

Stock-based compensation — — — — — — — — 163,723 — — — 163,723

Vested restricted stock units — — 541,076 — — — — — — — — — —

Unrealized holdings gain on investment securities, available-for-sale — — — — — — — — — — ( 1,944 ) — ( 1,944 )

Preferred stock conversion ( 139,444,346 ) ( 447,747 ) — — 139,444,346 14 — — 447,733 — — — 447,747

Issuance of common stock related to exercises of legacy warrants — — — — 7,205,490 1 — — 97,781 — — — 97,782

Convertible debt conversion and other issuances — — — — 75,084,703 7 — — 16,052 — — — 16,059

Issuance of common stock in connection with 2021 Business Combination and PIPE offering — — 143,475,108 14 ( 49,975,104 ) ( 5 ) — — 666,232 — — — 666,241

Conversion from Class B Common Stock to Class A Common Stock — — 231,273,129 23 ( 231,273,129 ) ( 23 ) — — — — — — —

Conversion from Class A Common Stock to Class B Common Stock — — ( 88,514,196 ) ( 9 ) 88,514,196 9 — — — — — — —

Capital contribution for extinguishment of debt — — — — — — — — 126,795 — — — 126,795

Acquisition of Public and Private Placement Warrants — — — — — — — — ( 147,582 ) — — — ( 147,582 )

Issuance of common stock related to exercises of Public and Private Placement Warrants — — 9,408,264 1 — — — — 81,672 — — — 81,673

Issuance of common stock, net of stock issuance costs — — 52,173,913 5 — — — — 283,770 — — — 283,775

Treasury stock acquired — — ( 14,730 ) — — — 14,730 ( 147 ) — — — — ( 147 )

Net loss — — — — — — — — — ( 587,756 ) — — ( 587,756 )

Balance, December 31, 2021 — $ — 352,645,626 $ 34 118,206,768 $ 12 14,730 $ ( 147 ) $ 2,154,187 $ ( 1,616,738 ) $ ( 1,934 ) $ 3,903 $ 539,317

Convertible Preferred Stock

Class A Common Stock

Class B Common Stock Treasury Stock Additional paid-in capital Accumulated

deficit Accumulated

comprehensive

income (loss) Noncontrolling

interest Total stockholders' equity (deficit)

Amount Shares Amount Shares

Amount Shares

Change in accounting policy

— $ — — $ — — $ — — $ — $ — $ 723 $ — $ — $ 723

Adjusted balance, beginning of period

— $ — 352,645,626 $ 34 118,206,768 $ 12 $ 15 $ ( 147 ) $ 2,154,187 $ ( 1,616,015 ) $ ( 1,934 ) $ 3,903 $ 540,040

Stock issuance for exercise of stock options, net of early exercise liability — — 4,367,985 — — — — — 1,400 — — — 1,400

Stock-based compensation — — — — — — — — 164,305 — — — 164,305

Vested restricted stock units — — 2,974,581 — 1,677,873 — — — — — — — —

Vested performance stock units — — 8,951 — — — — — — — — — —

Unrealized holdings gain on investment securities, available for sale — — — — — — — — — — ( 7,440 ) — ( 7,440 )

Conversion from Class B Common Stock to Class A Common Stock — — 25,489,789 3 ( 25,489,789 ) ( 3 ) — — — — — — —

Treasury Stock — — ( 2,058,022 ) — — — 2,058,022 ( 6,362 ) — — — — ( 6,362 )

Issuance of Common Stock under Employee Stock Purchase Plan — — 569,808 — — — — — — — — — —

Activities from Seek Dissolution — — — — — — — — ( 735 ) — — — ( 735 )

Derecognition of Non-controlling interest — — — — — — — — — — — ( 3,903 ) ( 3,903 )

Net loss — — — — — — — — — ( 339,567 ) — — ( 339,567 )

Balance, December 31, 2022 — $ — 383,998,718 $ 37 94,394,852 $ 9 2,072,752 $ ( 6,509 ) $ 2,319,157 $ ( 1,955,582 ) $ ( 9,374 ) $ — $ 347,738

Change in accounting policy

— $ — — $ — — $ — — $ — $ — $ 9,149 $ — $ — $ 9,149

Adjusted balance, beginning of period

— $ — 383,998,718 $ 37 94,394,852 $ 9 2,073 $ ( 6,509 ) $ 2,319,157 $ ( 1,946,433 ) $ ( 9,374 ) $ — $ 356,887

Stock issuance for exercise of stock options, net of early exercise liability — — 79,189 — — — — — 1,150 — — — 1,150

Stock-based compensation — — — — — — — — 140,931 — — — 140,931

Vested restricted stock units — — 14,117,561 2 1,773,104 — — — — — — — 2

Unrealized holdings gain on investment securities, available for sale — — — — — — — — — — 7,004 — 7,004

Conversion from Class B Common Stock to Class A Common Stock — — 8,300,224 1 ( 8,300,224 ) — — — — — — — 1

Treasury Stock — — ( 5,839,998 ) — — — 5,839,998 ( 6,220 ) — — — — ( 6,220 )

Issuance of Common Stock under Employee Stock Purchase Plan — — 528,188 — — — — — — — — — —

Net loss — — — — — — — — — ( 213,361 ) — — ( 213,361 )

Balance, December 31, 2023

— $ — 401,183,882 $ 40 87,867,732 $ 9 7,912,750 $ ( 12,729 ) $ 2,461,238 $ ( 2,159,794 ) $ ( 2,370 ) $ — $ 286,394

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

CLOVER HEALTH INVESTMENTS, CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

2023 2022 2021

Cash flows from operating activities:

Net loss $ ( 213,361 ) $ ( 339,567 ) $ ( 587,756 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense 2,509 1,187 1,246

Amortization of notes and securities discounts and debt issuance costs — 30 13,717

Stock-based compensation expense 140,931 164,305 163,723

Change in fair value of warrants and amortization of warrants 86 ( 900 ) ( 66,146 )

Accretion, net of amortization ( 4,014 ) ( 1,503 ) 200

Net realized (gains) losses on investment securities

( 20 ) 267 53

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

Gain on investment 4,726 ( 9,217 ) —

Impairment of goodwill and other intangible assets

Premium deficiency reserve ( 7,239 ) ( 93,517 ) 110,628

Changes in operating assets and liabilities:

Accrued retrospective premiums ( 1,689 ) 14,536 ( 94 )

Other receivables 6,930 ( 8,988 ) ( 2,914 )

Reinsurance recoverable — — ( 96 )

Surety bonds and deposits 44,871 ( 89,846 ) ( 10,656 )

Prepaid expenses 3,728 ( 3,415 ) ( 6,863 )

Other assets 1,828 ( 1,204 ) ( 4,296 )

Healthcare receivables 6,443 ( 22,565 ) ( 9,297 )

Non-Insurance receivable 42,029 ( 40,785 ) ( 12,170 )

Operating lease right-of-use assets 643 1,984 3,591

Unpaid claims ( 3,557 ) 2,589 36,948

Accounts payable and accrued expenses 4,739 7,635 5,307

Accrued salaries and benefits ( 2,901 ) 8,784 11,169

Deferred revenue 3,099 — —

Deferred rent — — 68

Other liabilities 4,502 2,468 979

Non-Insurance performance year obligation

( 58,276 ) 36,953 36,891

Non-Insurance payable ( 106,626 ) 110,418 37,773

Operating lease liabilities ( 1,197 ) ( 2,671 ) ( 4,331 )

Net cash used in operating activities

( 115,871 ) ( 286,348 ) ( 282,326 )

Cash flows from investing activities:

Purchases of short-term investments, available-for-sale, and held-to-maturity securities ( 175,567 ) ( 369,396 ) ( 876,252 )

Proceeds from sales of short-term investments and available-for-sale securities 60,436 13,348 126,862

Proceeds from maturities of short-term investments, available-for-sale, and held-to-maturity securities 255,728 472,098 314,666

Acquisition of business, net of cash acquired — ( 16,200 ) —

Purchases of property and equipment ( 584 ) ( 4,467 ) ( 723 )

Acquisition of Character Biosciences, Inc.

Series A preferred shares — ( 250 ) —

Net cash provided by (used in) investing activities

140,013 95,133 ( 435,447 )

Cash flows from financing activities:

Payment of notes payable principal — — ( 30,925 )

Change in restricted cash related to surety bonds, deposits, and escrow accounts

( 28,791 ) 82,422 —

Issuance of common stock, net of early exercise liability 1,150 1,400 6,144

Proceeds from reverse recapitalization, net of transaction costs — — 666,241

Proceeds received for the exercise of public and private warrants — — 390

Issuance of common stock, net of stock issuance costs

Payment for the redemptions of public warrants — — ( 85 )

Treasury stock acquired ( 6,220 ) ( 6,362 ) ( 147 )

Net cash (used in) provided by financing activities

$ ( 33,861 ) $ 77,460 $ 925,393

2023 2022 2021

Net (decrease) increase in cash, cash equivalents, and restricted cash

$ ( 9,719 ) $ ( 113,755 ) $ 207,620

Cash, cash equivalents, and restricted cash, beginning of period 186,213 299,968 92,348

Cash, cash equivalents, and restricted cash, end of period $ 176,494 $ 186,213 $ 299,968

Reconciliation of cash and cash equivalents and restricted cash

Cash and cash equivalents $ 122,863 $ 103,791 $ 299,968

Restricted cash 53,631 82,422 —

Total cash, cash equivalents, and restricted cash $ 176,494 $ 186,213 $ 299,968

Supplemental cash flow disclosures

Cash paid during the period for interest $ — $ — $ 1,677

Supplemental disclosure of non-cash activities

Conversion of preferred stock to common stock — — 447,747

Issuance of common stock related to convertible debt — — 16,059

Capital contribution for extinguishment of debt — — 126,795

Activities from Seek Dissolution — 735 —

Issuance of common stock related to warrants exercised — — 97,782

Acquisition of public and private warrants — — 147,582

Issuance of common stock related to the exercise of public and private warrants — — 81,283

Right-of-use assets obtained in exchange for lease liabilities — 642 1,076

Recognition of equity method investments and preferred stock — 8,644 —

Derecognition of noncontrolling interest — 3,903 —

Conversion of Character Biosciences, Inc.

convertible note to preferred stock — 250 —

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

CLOVER HEALTH INVESTMENTS, CORP.

Notes to Audited Consolidated Financial Statements

Organization and Operations

Clover Health Investments, Corp.

(collectively with its affiliates and subsidiaries, "Clover" or the "Company") is focused on empowering physicians to identify and manage chronic diseases early.

Clover has centered its strategy on building and deploying technology through its flagship software platform, Clover Assistant, to help America's seniors receive better care at lower costs.

Clover aims to provide affordable, high-quality Medicare Advantage plans, including Preferred Provider Organization ("PPO") and Health Maintenance Organization ("HMO") plans, through its regulated insurance subsidiaries.

The Company's regulated insurance subsidiaries consist of Clover Insurance Company and Clover HMO of New Jersey Inc., which operate the Company's PPO and HMO health plans, respectively.

On April 1, 2021, the Company's subsidiary, Clover Health Partners, LLC ("Health Partners"), began participating as a Direct Contracting Entity ("DCE") in the Global and Professional Direct Contracting Model ("DC Model") of the Centers for Medicare and Medicaid Services ("CMS"), an agency of the United States Department of Health and Human Services, through which the Company provides care to aligned Medicare fee-for-service ("FFS") beneficiaries (the "Non-Insurance Beneficiaries").

CMS redesigned the DC Model and renamed it the Accountable Care Organization ("ACO") Realizing Equity, Access, and Community Health ("REACH") ("ACO REACH") Model effective January 1, 2023.

On December 1, 2023, the Company notified CMS that it will no longer participate as a REACH ACO in the CMS ACO Reach Program, effective as of the end of the 2023 performance year.

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

Medical Service Professionals of NJ, LLC, houses Clover's employed physicians and the related support staff for Clover's in-home care program.

Clover's administrative functions and insurance operations are primarily operated by its Clover Health, LLC and Clover Health Labs, LLC subsidiaries.

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

Clover's approach is to combine technology, data analytics, and preventive care to lower costs and increase the quality of health and life of Medicare beneficiaries.

Clover's technology platform is designed to use machine learning-powered systems to deliver data and insights to physicians in order to improve outcomes for beneficiaries through the early identification and management of chronic disease and drive down costs.

Clover's MA plans generally provide access to a wide network of primary care providers, specialists, and hospitals, enabling its members to see any doctor participating in Medicare willing to accept them.

Clover focuses on minimizing members' out-of-pocket costs and offers many plans that allow members to pay the same co-pays for primary care provider visits regardless of whether their physician is in- or out-of-network.

Through its Non-Insurance operations, the Company assumes full risk (i.e., 100.0 % shared savings and shared losses) for the total cost of care of aligned Non-Insurance Beneficiaries, empowers providers with Clover Assistant, and offers a variety of programs aimed at reducing expenditures and preserving or enhancing the quality of care for Non-Insurance Beneficiaries.

For additional information related to the Company's Non-Insurance operations, see Note 20 (Non-Insurance) in these financial statements.

The Company was originally incorporated as a Cayman Islands exempted company on October 18, 2019, as a special purpose acquisition company under the name Social Capital Hedosophia Holdings Corp.

On October 5, 2020, SCH entered into a Merger Agreement (the "Merger Agreement") with Clover Health Investments, Corp., a corporation originally incorporated on July 17, 2014, in the state of Delaware ("Legacy Clover").

Pursuant to the Merger Agreement, on January 7, 2021, Asclepius Merger Sub Inc., a Delaware corporation and a newly formed, wholly-owned subsidiary of SCH ("Merger Sub"), merged with and into Legacy Clover.

The separate corporate existence of Merger Sub ceased, Legacy Clover survived and merged with and into SCH, with SCH as the surviving corporation, and SCH was redomesticated as a Delaware corporation and renamed Clover Health Investments, Corp.

(the "2021 Business Combination").

The 2021 Business Combination was accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States ("GAAP").

Under the guidance in Accounting Standards Codification ("ASC") 805, Legacy Clover is treated as the "acquirer" for financial reporting purposes, Legacy Clover is deemed the accounting predecessor of the combined business, and Clover Health Investments, Corp., as the parent company of the combined business, is the successor Securities and Exchange Commission ("SEC") registrant, meaning that Legacy Clover's financial statements for previous periods are disclosed in periodic reports filed with the SEC.

As a result of the 2021 Business Combination, there were simultaneous changes to Legacy Clover's convertible securities, warrants, and convertible preferred stock.

The 2021 Business Combination has had a significant impact on the Company's reported financial condition and results of operations as a consequence of the reverse recapitalization.

The 2021 Business Combination closed on January 7, 2021, and on the following day the Company's Class A Common Stock and then outstanding public warrants were listed on the Nasdaq Global Select Market ("Nasdaq") for trading in the public market.

Summary of Significant Accounting Policies

Basis of presentation

The Company's consolidated financial statements have been prepared in conformity with GAAP and include the accounts of the Company and its wholly-owned subsidiaries.

In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, necessary for a fair presentation of its financial condition and its results of operations for the periods presented.

All material intercompany balances and transactions have been eliminated in consolidating these financial statements.

Investments over which we exercise significant influence, but do not control, are accounted for using the applicable accounting treatment based on the nature of the investment.

Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the amounts reported in the consolidated financial statements and the accompanying notes.

The areas involving the most significant use of estimates are the amounts of incurred but not reported claims.

Many factors can cause actual outcomes to deviate from these assumptions and estimates, such as changes in economic conditions, changes in government healthcare policy, advances in medical technology, changes in treatment patterns, and changes in average lifespan.

Accordingly, the Company cannot determine with precision the ultimate amounts that it will pay for, or the timing of payment of actual claims, or whether the assets supporting the liabilities will grow to the level the Company assumes prior to payment of claims.

If the Company's actual experience is different from its assumptions or estimates, the Company's reserves may prove inadequate.

As a result, the Company would incur a charge to operations in the period in which it determines such a shortfall exists, which could have a material adverse effect on the Company's business, results of operations, and financial condition.

Other areas involving significant estimates include risk adjustment provisions related to Medicare contracts and the valuation of the Company's investment securities, goodwill and other intangible assets, reinsurance, premium deficiency reserve, warrants, embedded derivative related to convertible securities, stock-based compensation, recoveries from third parties for coordination of benefits, Direct Contracting benchmark, specifically cost trend and risk score estimates that can develop over time, and final determination of medical cost adjustment pools.

Reclassifications

Certain amounts in the prior years' audited Consolidated Statements of Cash Flows have been reclassified to conform to the current year's presentation, primarily related to Surety bonds and deposits and Change in restricted cash related to Surety Bonds, Deposits, and Escrow accounts.

These reclassifications had no material effect on the previously reported Consolidated Financial Statements.

Change in Accounting Policy

In the first quarter of 2023, the Company changed the method for determining premium deficiency reserves, whereby the anticipated future investment income from funds made available by unearned premiums is now included in the determination of premium deficiency reserves.

The accounting policy election to include the anticipated future investment income is preferable because it provides a better representation of the Company’s business model reflecting the fact that all cash flows, including investment income, are used to meet the Company’s obligations.

The Company also believes that this change improves comparability with industry peers.

This change is considered a change in accounting principle that requires retrospective application to all financial statement periods presented.

This change decreased Accumulated deficit by $ 0.7 million to $ 1,616 million at January 1, 2022.

The cumulative effect of the changes made to the Company's Consolidated Balance Sheets was as follows:

December 31, 2022 As Reported Effect of Change As Adjusted

(in thousands)

Premium deficiency reserve $ 16,388 $ ( 9,149 ) $ 7,239

Total current liabilities 440,656 ( 9,149 ) 431,507

Total liabilities 460,882 ( 9,149 ) 451,733

Accumulated deficit ( 1,955,582 ) 9,149 ( 1,946,433 )

Total stockholders' equity 347,738 9,149 356,887

Total liabilities and stockholders' equity $ 808,620 $ — $ 808,620

December 31, 2021 As Reported Effect of Change As Adjusted

(in thousands)

Premium deficiency reserve $ 110,628 $ ( 723 ) $ 109,905

Total current liabilities 372,624 ( 723 ) 371,901

Total liabilities 411,487 ( 723 ) 410,764

Accumulated deficit ( 1,616,738 ) 723 ( 1,616,015 )

Total stockholders' equity 539,317 723 540,040

Total liabilities and stockholders' equity $ 950,804 $ — $ 950,804

The effect of the changes made to the Company's audited Consolidated Statements of Comprehensive Loss was as follows:

Twelve Months Ended December 31, 2023

As Reported As computed excluding anticipated net investment income Effect of Change

(in thousands)

Premium deficiency reserve expense (benefit)

$ ( 7,239 ) $ ( 16,388 ) $ 9,149

Total operating expenses 2,242,262 2,233,113 9,149

Loss from operations ( 208,542 ) ( 199,393 ) ( 9,149 )

Net loss $ ( 213,361 ) $ ( 204,212 ) $ ( 9,149 )

Per share data:

Net loss per share attributable to Class A and B common stockholders - basic and diluted $ ( 0.44 ) $ ( 0.42 ) $ ( 0.02 )

Twelve Months Ended December 31, 2022

As Reported Effect of Change As Adjusted

(in thousands)

Premium deficiency reserve expense (benefit)

$ ( 94,240 ) $ 723 $ ( 93,517 )

Total operating expenses 3,847,611 723 3,848,334

Loss from operations ( 370,924 ) ( 723 ) ( 371,647 )

Net loss $ ( 338,844 ) $ ( 723 ) $ ( 339,567 )

Per share data:

Net loss per share attributable to Class A and B common stockholders - basic and diluted $ ( 0.71 ) $ — $ ( 0.71 )

There was no impact on the audited Consolidated Statements of Cash Flows.

Deferred revenue

Premiums earned, net is recognized as income in the period members are entitled to receive services, risk adjustment revenue, and other ancillary income.

Premiums received in advance of the service period are reported as deferred revenue on the Consolidated Balance Sheets and recognized within Premiums earned, net once earned.

Premiums anticipated to be received within twelve months based on the documented diagnostic criteria of the Company's members are estimated and included in revenue for the period including the member months for which the payment is designated by CMS.

Equity method of accounting and variable interest entities

Investments in entities in which the Company does not have control but its ownership falls between 20.0% and 50.0%, or it has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method of accounting.

The Company continuously assesses its partially-owned entities to determine if these entities are variable interest entities ("VIEs") and, if so, whether the Company is the primary beneficiary and, therefore, required to consolidate the VIE.

To make this determination, the Company applies a qualitative approach to determine whether the Company has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE.

If the Company has an interest in a VIE but is determined to not be the primary beneficiary, the Company accounts for the interest under the equity method of accounting.

When the Company's carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company's consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding.

When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Business Combinations

The Company accounts for business acquisitions under ASC 805, Business Combinations.

The total purchase consideration for an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities assumed at the acquisition date.

Costs that are directly attributable to the acquisition are expensed as incurred.

Identifiable assets (including intangible assets) and liabilities assumed (including contingent liabilities) in an acquisition are measured initially at their fair values at the acquisition date.

The Company recognizes goodwill to the extent that the fair value of the total purchase consideration is in excess of the net fair value of the identifiable assets acquired and the liabilities assumed.

The Company includes the results of operations of the acquired business in the consolidated financial statements beginning on the acquisition date.

Segment information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker ("CODM") in deciding how to allocate resources to an individual segment and in assessing performance.

The Company's CODM is its Chief Executive Officer.

The Company has two reporting segments:

Insurance and Non-Insurance.

Performance guarantees

Certain of the Company's arrangements with third-party providers require it to guarantee the performance of its care network to CMS.

As a result of the Company's participation in the ACO REACH Model, the Company determined that it was making a performance guarantee with respect to providers under the Non-Insurance arrangement that should be recognized in the financial statements.

The performance guarantee identified relates to the Company guaranteeing the performance of the third-party medical providers.

Thus, the contract with CMS is accounted for as a performance guarantee under ASC 460-Guarantees.

At the inception of the performance year, the Company measures and recognizes the performance guarantee receivable and obligation, issued in this standalone arm's length transaction, using the practical expedient to fair value as set forth in ASC 460-10-30-2(a).

The Company estimates the annualized benchmark, which is the amount recognized in both the Non-Insurance performance year receivable and the Non-Insurance performance year obligation, current.

This is consistent with ASC 460-10-25-4, which provides that a guarantor shall recognize in its statement of financial position a liability for that guarantee.

In addition, when the guarantee is issued in a standalone transaction for a premium, the offsetting entry should be considered received (such as cash or a receivable) according to ASC 460-10-25-4.

Thus the Company recognizes the Non-Insurance performance year receivable on its Consolidated Balance Sheets.

To subsequently measure and recognize the performance guarantee, the Company follows ASC 460-10-35-2(b) and applies a systematic and rational approach to reflect its release from risk.

Under this approach, the Company amortizes on a straight-line basis over the performance year, the obligation.

The Company has determined this systematic and rational method is appropriate, as it matches the period in which the guarantee is fulfilled.

In addition, ASC 460-10-35-2 provides further guidance on the subsequent measurement related to the Company's performance guarantee.

Per ASC 460-10-35-2, depending on the nature of the guarantee, the guarantor's release from risk typically can be recognized over the term of the guarantee using one of three methods:

(1) upon expiration or settlement, (2) by systematic or rational amortization, or (3) as the fair value of the guarantee changes.

The Company has determined that method (2) is the appropriate method of recognition as discussed above.

With respect to each performance year in which the ACO is a participant, the final consideration due to the ACO from CMS ("shared savings") or the consideration due to CMS from the ACO ("shared loss") is reconciled in the subsequent years following the performance year.

The shared savings or loss is measured periodically and will be applied to the Non-Insurance performance obligation, current or Non-Insurance performance receivable if the Company is in a probable loss position or probable savings position, respectively.

The ACO has entered into an agreement with CMS and a third-party to cover the financial threshold determined by CMS.

Within Surety bonds and deposits on the Consolidated Balance Sheets, the Company includes amounts held in escrow- related to the financial guarantee as required with CMS, which is considered restricted cash in nature which is shown on the Company's audited Consolidated Statements of Cash Flow.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, money market instruments and other highly liquid investments with original maturities of 90 days or less.

The carrying values of these instruments approximate their respective fair value due to the short-term maturity of these investments.

At December 31, 2023 and 2022, the Company had Cash and cash equivalents at financial institutions, which are insured by the Federal Deposit Insurance Corporation (FDIC).

At times, balances may exceed the FDIC insured limits.

Management believes that credit risk related to those balances is minimal.

Investment securities

Short-term investments

Short-term investments consist of investments that the Company expects to convert into cash within one year of the balance sheet date, including time deposits and debt securities, which have original maturities greater than 90 days.

Short-term investments are measured at their amortized cost.

The carrying values of these instruments approximate their respective fair value due to the short-term maturity of these investments.

Investment securities, available-for-sale

Investment securities, which consist entirely of debt securities with fixed or determinable payments and fixed maturity dates, that the Company purchases that are not classified as held-to-maturity, are classified as available-for-sale financial assets.

The Company's available-for-sale investments are U.S.

Treasury fixed maturity securities, corporate debt, commercial paper, certificate of deposit, and agency bonds.

Available-for-sale investments are measured at fair value, and unrealized gains and losses, if any, are recorded in other comprehensive income, net of applicable income taxes, until realized from a sale or an expected credit loss is recognized.

Investment securities, held-to-maturity

Investment securities, which consist entirely of debt securities with fixed or determinable payments and fixed maturity dates, where the Company has a positive intent and ability to hold to maturity, are classified as held-to-maturity financial assets.

The Company's held-to-maturity investments are comprised of U.S.

Treasury fixed maturity securities.

The held-to-maturity investments are measured at amortized cost using the effective interest method less impairment.

Unrealized holding gains or losses are not recognized.

Impairment of investment securities

Effective January 1, 2021, the Company adopted the provisions of ASC 326 and modified its accounting policy for the assessment of available-for-sale and held-to-maturity securities for impairment, as further described below.

Prior to January 1, 2021, the Company applied the other-than-temporary impairment model for available-for-sale securities in an unrealized loss position which did not result in impairments for 2020 or 2019.

Beginning on January 1, 2021, the Company adopted ASC 326, which retained many similarities from the previous other-than-temporary impairment model but eliminated the consideration of the length of time over which the fair value had been less than cost.

Additionally, under ASC 326, the expected losses on securities are recognized through an allowance for credit losses rather than as a reduction in the amortized cost of the security.

The Company identifies securities that are in an unrealized loss position and could potentially have an impairment.

This process involves monitoring market events that could impact issuers' credit ratings, business climate, management changes, litigation and government actions, and other similar factors.

This process also involves monitoring late payments, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit risks.

The Company considers relevant facts and circumstances in evaluating the impairment of a security.

Relevant facts and circumstances considered include (1) the extent to which the fair value has been below cost or amortized cost, (2) adverse conditions specifically related to the financial condition of the issuer or to the industry, (3) geographic area of the issuer, or the underlying collateral of a security including the current and future impact of any specific events, (4) the payment structure of the security, (5) changes in credit rating of the security by the rating agencies, and (6) the volatility of the fair value changes.

There are a number of significant risks and uncertainties inherent in the process of monitoring impairments.

These risks and uncertainties include (1) the risk that management's assessment of an issuer's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer, (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated, (3) erroneous information or fraudulent financial statements could be provided to the Company's management to determine the fair value estimates and impairments, and (4) the risk that new information obtained by the Company, or changes in other facts and circumstances, could lead the Company to change its intent to hold the security to maturity or until it recovers in value.

Any of these situations could result in a charge to operations in a future period.

For available-for-sale securities whose fair value is less than their amortized cost that the Company does not intend to sell or is not required to sell, management evaluates the expected cash flows to be received as compared to amortized cost and determines if an expected credit loss has occurred.

If an expected credit loss occurs, only the amount of the impairment related to the expected credit loss is recognized in income with the remainder, if any, of the loss recognized in other comprehensive income.

To the extent the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis, management recognizes an impairment loss in income in an amount equal to the full difference between the amortized cost basis and the fair value.

Expected cash flows to be received are evaluated as compared to amortized cost to determine if a credit loss has occurred.

The amount of the credit loss component of the security is estimated as the difference between the amortized cost and the present value of the expected cash flows of the security.

In developing the expected recovery analysis for debt securities, the Company reviews business prospects, credit ratings and available information from asset managers and rating agencies for individual securities.

The present value is determined using the best estimate of future cash flows discounted at the implicit interest rate at the date of purchase.

For the years ended December 31, 2023, 2022, and 2021, there was no impairment loss reported.

Held-to-maturity securities are evaluated for potential credit loss on a collective basis.

The estimate of credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Allowance for expected credit losses

The Company assesses outstanding receivables at each period for credit risk.

The majority of receivables are from CMS, a United States government entity that presents very limited credit risk.

Other income consists of income from operating subleases, miscellaneous revenue, investment income, commissions, and realized gains and losses.

Investment income includes interest, dividends received or accrued on investments, and realized gains or losses.

Investment income is reported as earned and is presented net of related investment expenses and expected credit losses.

Realized gains or losses are recognized based on the specific identification method.

Purchases and sales are recorded on a trade-date basis.

Fair value measurements

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between willing, able and knowledgeable market participants at the measurement date.

Fair value measurements are not adjusted for transaction costs.

To determine the fair value of its investments, the Company utilizes third-party valuation service providers to gather, analyze and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments.

Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested under the terms of service agreements.

The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, currency rates and other market observable information, as applicable.

The valuation models consider, among other things, observable market information as of the measurement date as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector and, when applicable, collateral quality and other issue or issuer specific information.

When market transactions or other observable market data is limited, the extent to which judgment is applied in determining fair value is greatly increased.

Assets and liabilities measured at fair value are categorized into a fair value hierarchy based on whether the inputs to valuation techniques are observable or unobservable.

Observable inputs are those that market participants operating within the same marketplace as the Company would use in pricing the Company's assets or liabilities based on independently derived and observable market data.

Unobservable inputs are inputs that cannot be sourced from a broad active market in which assets or liabilities identical or similar to those of the Company are traded.

The fair value hierarchy includes three levels of inputs based on the degree to which the exit price is independently observable or determinable that may be used to measure fair value as described below:

Level 1 – Valuations are based on quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

An active market is defined as a market where transactions for the financial instrument occur with sufficient frequency and volume to provide pricing information on an ongoing basis;

Level 2 – Valuations are based on observable inputs other than Level 1 prices such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

Level 3 – Valuations are based on techniques that use significant inputs that are unobservable and reflect management's best estimate of what market participants would use when pricing the asset or liability, including assumptions about risk.

The valuation of Level 3 assets and liabilities requires the greatest degree of judgment.

These measurements may be made under circumstances in which there is little, if any, market activity for the asset or liability.

The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.

In making the assessment, the Company considers factors specific to the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, the level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair values of actively traded investments securities are based on quoted market prices.

Fair values of other investment securities are based on quoted market prices of identical or similar securities or based on observable inputs, like interest rates generally using a market valuation approach, or, less frequently, an income valuation approach, and are generally classified as Level 2.

The Company obtains at least one price for each security from a third-party pricing service.

These prices are generally derived from recently reported trades for identical or similar securities, including adjustments through the reporting date based upon observable market information.

When quoted prices are not available, the third-party pricing service may use quoted market prices of comparable securities or a discounted cash flow analysis, incorporating inputs that are currently observable in the markets for similar securities.

Inputs that are often used in the valuation methodologies include benchmark yields, reported trades, credit spreads, broker quotes, default rates, and prepayment speeds.

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of Cash and cash equivalents.

Cash and cash equivalents are held with financial institutions of high quality.

Balances may exceed the amount of insurance provided on such balances.

The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policy coverage, and therefore the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement.

To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk with its reinsurers.

Capitalized software development costs - cloud computing arrangements

The Company's cloud computing arrangements are mostly comprised of hosting arrangements that are mostly service contracts, whereby the Company gains remote access to use enterprise software hosted by the vendor or another third party on an as-needed basis for a period of time in exchange for a subscription fee.

Implementation costs for cloud computing arrangements are capitalized if certain criteria are met and consist of internal and external costs directly attributable to developing and configuring cloud computing software for its intended use.

These capitalized implementation costs are presented in the Consolidated Balance Sheets within Prepaid expenses, and are generally amortized over the fixed, non-cancelable term of the associated hosting arrangement on a straight-line basis.

Deferred acquisition costs

Acquisition costs directly related to the successful acquisition of new business, which are primarily made up of commissions costs, are deferred and subsequently amortized.

Deferred acquisition costs are recorded within Other assets, current on the Consolidated Balance Sheets and are amortized over the estimated life of the related contracts.

The amortization of deferred acquisition costs is recorded within General and administrative expenses within the audited Consolidated Statement of Operations and Comprehensive Loss.

For the year ended December 31, 2023 and 2022, there were no deferred acquisition costs as a result of the acceleration of amortization for deferred acquisition costs due to the recognition of a premium deficiency reserve.

For the years ended December 31, 2023, 2022, and 2021 charges related to deferred acquisition costs of $ 6.8 million, $ 16.3 million, and $ 10.7 million respectively, were recognized within General and administrative expenses.

Property and equipment, net

Property and equipment, net is reported at cost less accumulated depreciation.

Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, which are generally three to seven years .

Leasehold improvements are amortized over the shorter of the remaining lease term or estimated useful life of the leasehold improvement.

Repairs and maintenance costs are expensed as incurred.

Costs related to the development of internal-use software that do not meet capitalization criteria are expensed as incurred.

Gains and losses on sales or disposals of property and equipment are included within Other income (loss).

Property and equipment is reviewed for impairment periodically whenever adverse events or changes in circumstances indicate the carrying value of the asset may not be recoverable.

Losses are recognized in operations when the undiscounted future cash flows expected to result from the use of the asset are less than its carrying value.

An impairment loss is recognized based on the excess of the carrying value over the fair value of the asset.

Goodwill and other intangible assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations.

Goodwill is not amortized but is tested for impairment on an annual basis at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

A component is considered a reporting unit if the component constitutes a business for which discrete financial information is available that is regularly reviewed by management.

Management aggregates components into one reporting unit if they have similar economic characteristics.

Goodwill is assigned to the reporting units that are expected to benefit from the specific synergies of the business combination.

Management reviews goodwill for impairment to determine both the existence and amount of goodwill impairment, if any.

Impairment tests are performed, at a minimum, in the fourth quarter of each year.

Management first uses a qualitative assessment to determine if it is more likely than not that a reporting unit is impaired.

The qualitative test is used as a screening to help determine if it is necessary to perform the quantitative test.

If there are indicators that the fair value is less than the carrying amount of any reporting unit, management performs a quantitative assessment where management allocates the fair value of the reporting units to the assets and liabilities with the unallocated fair value representing an implied fair value of goodwill which is then compared to the carrying amount of goodwill.

The impairment review requires management to make judgments in determining various assumptions with respect to changes in economic conditions, revenues, operating margins, growth rates and discount rates.

There was $ 11.7 million impairment of goodwill during the year ended December 31, 2023 and no impairment of goodwill for the years ended December 31, 2022 and 2021.

Other intangible assets arising from business combinations are initially recognized at fair value at the date of acquisition.

Other intangible assets with indefinite useful lives are tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the assets may be impaired.

The annual impairment test for indefinite-lived intangible assets may be completed through a qualitative assessment to determine if the fair value of the indefinite-lived intangible assets is more likely than not greater than the carrying amount.

The Company may elect to bypass a qualitative assessment, or if a qualitative assessment indicates it is more likely than not that the estimated carrying value exceeds the fair value, the Company will test for impairment using a quantitative process.

If the Company determines that impairment of its intangible assets may exist, the amount of impairment loss is measured as the excess of carrying value over fair value.

The estimates in the determination of the fair value of indefinite-lived intangible assets include the anticipated future revenues of the Company and the resulting cash flows.

For the year ended December 31, 2023 the Company impaired $ 4.2 million related to intangible assets with indefinite useful lives.

For the years ended December 31, 2022 and 2021, there was no impairment.

In the normal course of business, the Company seeks to reduce losses by reinsuring certain levels of risk in areas of exposure with other insurance enterprises or reinsurers.

Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy.

To minimize exposure to losses related to a reinsurer's inability to pay, the financial condition of such reinsurer is evaluated initially upon placement of the reinsurance and periodically thereafter.

In addition to considering the financial condition of a reinsurer, the expected credit losses of Reinsurance recoverable is evaluated based upon a number of factors.

Such factors include the amounts outstanding, history of losses, ratings of reinsurers, disputes, any collateral or letters of credit held and other relevant factors.

The Company had no material credit allowances for Reinsurance recoverable at December 31, 2023 and 2022.

Amounts recoverable from reinsurers are estimated in a manner consistent with the liability associated with the reinsured business and consistent with the terms of the underlying contracts.

Although reinsurance agreements contractually obligate reinsurers to reimburse the Company for their share of losses, they do not discharge the primary liability of the Company.

The Company remains liable for unpaid claims and claims adjustment expenses associated with ceded insured risks if the assuming reinsurers fail to meet their contractual obligations.

The costs of the reinsurance are recognized over the life of the contract in a manner consistent with the earning of premiums on the underlying policies subject to the reinsurance contracts.

Unpaid claims

Unpaid claims and unpaid claims adjustment expenses include reported claims and incurred but not yet reported ("IBNR") claims, as well as the estimated expense of processing these claims.

Management develops an estimate for IBNR using actuarial methodologies and assumptions, primarily based upon historical claim experience.

Although there is considerable variability in such estimates, management believes that the unpaid claims and unpaid claims adjustment expense liability is adequate and represents management's best estimate of the ultimate cost of all reported and unreported claims incurred through the balance sheet date.

The estimates are continually reviewed and adjusted as experience develops or new information becomes known.

Changes in estimates are reflected in current consolidated operating results.

Liabilities for both reported claims and IBNR not yet processed through the Company's systems are determined in the aggregate, employing actuarial methods that are commonly used by health insurance actuaries and meet actuarial standards of practice.

Actuarial standards of practice require that the claim liabilities be appropriate under moderately adverse circumstances.

Clover determines the amount of the liability for incurred but not paid claims by following a detailed actuarial process that uses both historical claim payment patterns as well as emerging medical cost trends to project the best estimate of claim liabilities.

Under this process, historical paid claims data is formatted into "claim triangles," which compare claim incurred dates to the dates of claim payments.

This information is analyzed to create "completion factors" that represent the average percentage of total incurred claims that have been paid through a given date after being incurred.

Completion factors are applied to claims paid through the period-end date to estimate the ultimate claim expense incurred for the period.

Actuarial estimates of incurred but not paid claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims.

The Company's reserving practice is to consistently recognize an actuarial best estimate inclusive of a provision for moderately adverse conditions.

This provision is reported as part of incurred claims.

Medical claims incurred

The Company recognizes the cost of medical claims in the period in which services are provided, including an estimate of the cost of medical claims IBNR.

This methodology is applied for both the Company's Insurance and Non-Insurance operations.

Medical claim expense reported within the audited Consolidated Statements of Operations and Comprehensive Loss includes direct medical expenses.

Direct medical expenses include amounts paid or payable to hospitals, physicians, pharmacy benefit managers, providers of ancillary services, mandatory supplemental benefits, and is inclusive of the medical expense related to the Company's employed clinicians providing in-home care.

Recorded direct medical expenses are reduced by the amount of pharmacy rebates earned, which are estimated based on historical utilization of specific pharmaceuticals, current utilization and contract terms.

Pharmacy rebates earned but not yet received from pharmaceutical manufacturers are included within Healthcare receivables within the Consolidated Balance Sheets.

Overpayments to providers are recognized as a contra medical expense and reported within Other receivables within the Consolidated Balance Sheets.

Premium deficiency reserve

A liability for premium deficiency reserves is an actuarial estimate for anticipated losses on the Company's MA and MA Part D ("MAPD") business.

Management reassesses the profitability of contracts for providing insurance coverage to members when operating results or forecasts indicate probable future losses.

Management establishes a premium deficiency reserve in current operations to the extent that the sum of expected future costs, claim adjustment expenses, investment income, and maintenance costs exceeds related future premiums under contracts with consideration of investment income.

For purposes of calculating premium deficiency reserves, management groups contracts in a manner consistent with the method of acquiring, servicing, and measuring the profitability of such contracts.

Losses recognized as a premium deficiency are recorded in the period in which such losses were identified and reflected within the audited Consolidated Statements of Operations and Comprehensive Loss.

Losses recognized as a premium deficiency result in a beneficial effect in subsequent periods as operating losses under these contracts are charged to the liability previously established.

Notes and securities payable

Debt issuance costs

Costs incurred in connection with Company's debt financings are capitalized and amortized to Interest expense over the life of the related debt using the effective interest method.

Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts.

Revenue recognition

Premiums earned, net

Premiums revenue is recognized as income in the period members are entitled to receive services, and is net of estimated uncollectible amounts, retroactive membership adjustments, and any adjustments to recognize rebates under the minimum benefit ratios required under the Health Care Reform Law.

Premiums received in advance of the service period are reported within other liabilities on the Consolidated Balance Sheets and recognized as revenue when earned.

Premiums anticipated to be received within twelve months based on the documented diagnostic criteria of the Company's enrollees are estimated and included in revenue for the period including the member months for which the payment is designated by CMS.

CMS uses a risk-adjustment model which adjusts premiums paid to MA contracts, based on risk scores that are compared with the overall average risk scores for the relevant state and market pool.

Generally, if a risk score is below the average risk score the Company is required to make a risk adjustment payment into the risk pool, and if a risk score is above the average risk score the Company receives a risk adjustment payment from the risk pool.

Risk adjustments can have a positive or negative retroactive impact to rates.

Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby prospective payments are based on the Company's estimated cost of providing standard Medicare-covered benefits to a member with an average risk profile.

That baseline payment amount is adjusted to reflect the health status of enrolled membership.

Under the risk-adjustment methodology, all MA plans must collect and submit the necessary diagnosis code information to CMS within prescribed deadlines.

Estimated audit settlements are recorded as a reduction of premiums revenue within the Company's audited Consolidated Statements of Operations and Comprehensive Loss, based upon available information.

Retrospective premiums involve the evaluation of past claims experience for the purpose of determining the actual cost of providing insurance for the customer.

This evaluation is performed once every year and retrospective premiums are recognized in the year earned.

Payments received from CMS and members from Clover's participation in the MAPD program are determined from the Company's annual bid and represent amounts for providing prescription drug insurance coverage and are recognized as premium revenue ratably over the term of the annual contract.

Such CMS payments are subject to risk sharing through risk corridor provisions.

The risk corridor provisions compare costs targeted in bids to actual prescription drug costs, limited to actual costs that would have been incurred under the standard coverage as defined by CMS.

Variances exceeding certain thresholds may result in CMS making additional payments to the Company or require the Company to refund to CMS a portion of the premiums received.

As risk corridor provisions are considered in the overall annual bid process, management estimates and recognizes an adjustment to premiums revenue related to these provisions based upon pharmacy claims experience.

Management records a receivable or payable at the contract level on the Consolidated Balance Sheets.

Reinsurance and low-income cost subsidies represent funding from CMS in connection with the MAPD program for which Clover assumes no risk.

Reinsurance subsidies represent funding from CMS for its portion of prescription drug costs which exceed the member's out-of-pocket threshold, or the catastrophic coverage level.

Low-income cost subsidies represent funding from CMS for all or a portion of the deductible, the coinsurance and co-payment amounts above the out-of-pocket threshold for low-income beneficiaries.

Payments from CMS for reinsurance and low-income cost subsidies are based on assumptions submitted with the annual bid.

A reconciliation and related settlement of CMS' prospective subsidies against actual prescription drug costs paid is made after the end of the year.

Consumer discounts of 50.0% on brand name prescription drugs for participants in the coverage gap are funded by CMS and pharmaceutical manufacturers.

The Company accounts for these subsidies and discounts within other assets in the Consolidated Balance Sheets and as an operating activity in the audited Consolidated Statements of Cash Flows.

The Company does not recognize premiums revenue or claim expenses for these subsidies or discounts.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement including the use of an identified asset(s) and the Company's control over the use of that identified asset.

The Company does not recognize leases with a lease term of one year or less on its Consolidated Balance Sheets.

Leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets and lease liabilities.

The Company has sublease arrangements and recognizes sublease income from leasing excess space.

Sublease income is recognized on a straight-line basis over the sublease term.

At December 31, 2023 and 2022, the Company did not have any financing leases.

Lease liabilities and their corresponding ROU assets are initially recorded based on the present value of lease payments over the expected remaining lease term.

Certain adjustments to the ROU asset may be required for items such as incentives received or initial direct costs.

When an option to extend the lease exists, a determination is made whether that option is reasonably certain of exercise based on economic factors present at the measurement date and as circumstances may change.

At December 31, 2023 and 2022, the Company did not include optional extension periods in the measurement of its leases as they were not reasonably certain of exercise.

The Company monitors its plans to renew its material leases on a quarterly basis.

Where the rates implicit in the Company's leases are not readily determinable, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment over the lease term.

Historically, the rate implicit in the leases has not been readily determinable and the appropriate incremental borrowing rate has been utilized.

To estimate the appropriate incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating.

Components of a lease are split into three categories:

lease components, non-lease components, and non-components.

The fixed and in-substance fixed contract consideration (including any consideration related to non-components) are allocated, based on the respective relative fair values, to the lease components and non-lease components.

The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only.

In determining the classification of a lease as operating or finance, ASC 842, Leases , allows for the use of judgment in determining whether the assumed lease term is for a major part of the remaining economic life of the underlying asset and whether the present value of lease payments represents substantially all of the fair value of the underlying asset.

The Company applies the bright line thresholds referenced in the lease guidance of 75.0% to represent "a major part" and 90.0% to represent "substantially all" as allowed in ASC 842 in evaluating leases for appropriate classification.

These are applied consistently to the Company's entire portfolio of leases.

Stock-based compensation

The Company accounts for all stock-based payment awards granted to employees and non-employees as stock-based compensation expense at fair value.

The Company's stock-based payments include Options, RSUs, and grants of common stock, including common stock subject to vesting.

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

Nonemployee share-based payment equity awards are measured at the grant-date fair value of the equity instruments, similar to employee share-based payment equity awards.

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 accompanying audited Consolidated Statements of Operations and Comprehensive Loss within Salaries and benefits.

The Company recognizes stock-based compensation expense for the portion of awards that have vested.

Forfeitures are recorded as they occur.

The fair value of each Option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The expected term of each of the Company's Options has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

Comprehensive income

Comprehensive income is a measurement of certain changes within Stockholders' equity that results from transactions and other economic events other than transactions with the stockholders.

The cumulative amount of these changes is reported on the Consolidated Balance Sheets.

Contingent liabilities

The Company records a provision for a contingent liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.

Federal income taxes

The Company recognizes an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements.

These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.

The Company also recognizes the future tax benefits such as net operating and capital loss carryforwards as deferred tax assets.

A valuation allowance is provided against these deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Future years' tax expense may be increased or decreased by adjustments to the valuation allowance or to the estimated accrual for income taxes.

Deferred tax assets and deferred tax liabilities are further adjusted for changes in the enacted tax rates.

At December 31, 2023 and 2022, sufficient doubt existed over the Company's ability to generate sufficient taxable income to realize its deferred income tax assets, and accordingly, the Company provided a full valuation allowance against its deferred tax assets.

The Company records tax benefits when it is more likely than not that the tax return position taken with respect to a particular transaction will be sustained.

A liability for an uncertain tax position, if recorded, is not considered resolved until the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, or the tax position is ultimately settled through examination, negotiation, or litigation.

The Company did not have any material uncertain tax positions during the years ended December 31, 2023 and 2022.

The Company classifies interest and penalties associated with uncertain tax positions in its provision for income taxes.

The Company did not incur or record any interest and penalties related to uncertain tax positions at or during the years ended December 31, 2023 and 2022.

General and administrative expenses

General and administrative expenses include professional service fees, outside legal, tax and accounting service fees, insurance, software application and system expenses, advertising and marketing, lease and occupancy costs and other overhead costs.

General and administrative expenses also include claim adjudication and processing costs.

Net loss per share

The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities.

The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period.

Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potentially dilutive common shares.

For purposes of this calculation, outstanding Options, convertible preferred stock and warrants to purchase shares of convertible preferred stock are considered potential dilutive common shares.

The Company's convertible preferred stock contractually entitled the holders of such shares to participate in dividends but did not contractually require the holders of such shares to participate in losses of the Company.

Accordingly, in periods in which the Company reported a net loss attributable to common stockholders, such losses were not allocated to such participating securities.

In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The Company reported a net loss attributable to common stockholders for the years ended December 31, 2023, 2022, and 2021.

Recent accounting pronouncements

Recently adopted accounting pronouncements

There have been no new accounting pronouncements adopted during the year ended December 31, 2023 that are expected to materially impact the Company's consolidated financial statements.

Accounting pronouncements effective in future periods

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205) , Income Statement—Reporting Comprehensive Income (Topic 220) , Distinguishing Liabilities from Equity (Topic 480) , Equity (Topic 505) , and Compensation—Stock Compensation (Topic 718);

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock” (“ASU 2023-03”).

This ASU amends or supersedes various SEC paragraphs within the applicable codification to conform to past SEC staff announcements.

This ASU does not provide any new guidance.

ASU 2023-03 will become effective for the Company once the addition to the FASB Codification is made available.

The Company is currently evaluating the impact of the update on the Company’s consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The amendments in this update aim to improve reportable segment disclosures by requiring enhanced disclosures around significant segment expenses that are regularly provided to the chief operating decision maker.

Additionally, ASU 2023-07 requires that all existing annual disclosures about segment profit or loss must be provided on an interim basis and clarifies that single reportable segment entities are subject to the disclosure requirement under Topic 280 in its entirety.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years beginning after December 15, 2024.

A public entity should apply ASU 2023-07 retrospectively to all prior periods presented in the financial statements.

Early adoption is permitted.

The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The amendments in this update aim to provide more transparency regarding tax disclosures mainly related to the rate reconciliation and income taxes paid information.

The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures.

Investment Securities

The following tables present amortized cost and fair values of investments at December 31, 2023 and December 31, 2022, respectively:

December 31, 2023 Amortized cost Accumulated unrealized gains Accumulated unrealized losses Fair value

(in thousands)

Investment securities, held-to-maturity

government and government agencies and authorities

$ 7,695 $ — $ ( 225 ) $ 7,470

Investment securities, available-for-sale

government and government agencies and authorities

126,071 713 ( 3,070 ) 123,714

Corporate debt securities 95,354 165 ( 176 ) 95,343

Other 1,855 — ( 2 ) 1,853

Total held-to-maturity and available-for-sale investment securities

$ 230,975 $ 878 $ ( 3,473 ) $ 228,380

December 31, 2022 Amortized cost Accumulated unrealized gains Accumulated unrealized losses Fair value

(in thousands)

Investment securities, held-to-maturity

government and government agencies and authorities

$ 757 $ — $ ( 106 ) $ 651

Investment securities, available-for-sale

government and government agencies and authorities

237,457 10 ( 9,000 ) 228,467

Corporate debt 98,783 38 ( 422 ) 98,399

Total held-to-maturity and available-for-sale investment securities

$ 336,997 $ 48 $ ( 9,528 ) $ 327,517

The following table presents the amortized cost and fair value of debt securities at December 31, 2023, by contractual maturity:

December 31, 2023 Held-to-maturity Available-for-sale

Amortized cost Fair value Amortized cost Fair value

(in thousands)

Due within one year $ 6,902 $ 6,778 $ 101,412 $ 100,702

Due after one year through five years 682 599 121,868 120,208

Due after five years through ten years — — — —

Due after ten years 111 93 — —

Total $ 7,695 $ 7,470 $ 223,280 $ 220,910

For the years ended December 31, 2023 and 2022, respectively, net investment income, which is included within Other income within the audited Consolidated Statements of Operations and Comprehensive Loss, was derived from the following sources:

Years ended December 31,

2023 2022 2021

(in thousands)

Cash and cash equivalents $ 9,063 $ 3,619 $ 1

Short-term investments 1,812 1,797 195

Investment securities 7,499 2,127 348

Investment income, net $ 18,374 $ 7,543 $ 544

Gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at December 31, 2023, and December 31, 2022, respectively:

December 31, 2023 Less than 12 months Greater than 12 months Total

Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss

(in thousands, except number of positions)

government and government agencies and authorities $ 12,584 $ ( 32 ) $ 61,628 $ ( 3,259 ) $ 74,212 $ ( 3,291 )

Corporate debt securities 61,007 ( 175 ) 5,017 ( 7 ) 66,024 ( 182 )

Total $ 73,591 $ ( 207 ) $ 66,645 $ ( 3,266 ) $ 140,236 $ ( 3,473 )

Number of positions 69 27 96

December 31, 2022 Less than 12 months Greater than 12 months Total

Fair value Unrealized loss Fair value Unrealized loss Fair value Unrealized loss

(in thousands, except number of positions)

government and government agencies and authorities $ 64,261 $ ( 958 ) $ 147,757 $ ( 8,148 ) $ 212,018 $ ( 9,106 )

Corporate debt securities 78,292 ( 422 ) — — 78,292 ( 422 )

Total $ 142,553 $ ( 1,380 ) $ 147,757 $ ( 8,148 ) $ 290,310 $ ( 9,528 )

Number of positions 92 24 116

The Company did no t record any credit allowances for debt securities that were in an unrealized loss position at December 31, 2023 and December 31, 2022.

At December 31, 2023, all securities were investment grade, with credit ratings of BBB+ or higher by S&P Global or as determined by other credit rating agencies within the Company's investment policy.

Unrealized losses on investment grade securities are principally related to changes in interest rates or changes in issuer or sector related credit spreads since the securities were acquired.

The gross unrealized investment losses at December 31, 2023, were assessed, based on, among other things:

• The relative magnitude to which fair values of these securities have been below their amortized cost was not indicative of an impairment loss;

• The absence of compelling evidence that would cause the Company to call into question the financial condition or near-term prospects of the issuer of the applicable security;

• The Company's ability and intent to hold the applicable security for a period of time sufficient to allow for any anticipated recovery.

Proceeds from sales and maturities of investment securities, inclusive of Short-term investments, and related gross realized gains (losses) which are included within Other income within the audited Consolidated Statements of Operations and Comprehensive Loss, were as follows for the year ended December 31, 2023 and 2022, respectively:

Years ended December 31,

2023 2022 2021

(in thousands)

Proceeds from sales of investment securities $ 60,436 $ 13,348 $ 126,862

Proceeds from maturities of investment securities 255,728 472,098 314,666

Gross realized gains 39 7 24

Gross realized losses ( 19 ) ( 274 ) ( 77 )

Net realized gains (losses)

$ 20 $ ( 267 ) $ ( 53 )

At December 31, 2023 and December 31, 2022, the Company had $ 14.7 million and $ 14.3 million, respectively, in deposits with various states and regulatory bodies that are included as part of the Company's investment balances.

Fair Value Measurements

The following tables present a summary of fair value measurements for financial instruments at December 31, 2023 and 2022, respectively:

December 31, 2023 Level 1 Level 2 Level 3 Total fair

(in thousands)

government and government agencies $ — $ 123,714 $ — $ 123,714

Corporate debt securities — 95,343 — 95,343

1,853 — — 1,853

Warrants receivable — — 814 814

Total assets at fair value $ 1,853 $ 219,057 $ 814 $ 221,724

December 31, 2022 Level 1 Level 2 Level 3 Total fair

(in thousands)

government and government agencies $ — $ 228,467 $ — $ 228,467

Corporate debt securities — 98,399 — 98,399

Warrants receivable — — 900 900

Total assets at fair value $ — $ 326,866 $ 900 $ 327,766

The changes in balances of Clover's Level 3 financial assets and liabilities during the years ended December 31, 2023 and 2022, and 2021 were as follows:

Convertible securities Derivative liabilities Warrants payable Warrants receivable

(in thousands)

Balance, December 31, 2020

$ 949,553 $ 44,810 $ 97,782 $ — $ 1,092,145

Settlements ( 949,553 ) ( 44,810 ) ( 97,782 ) — ( 1,092,145 )

Balance, December 31, 2021

$ — $ — $ — $ — $ —

Receipts — — — 900 900

Balance, December 31, 2022

$ — $ — $ — $ 900 $ 900

Total unrealized losses (gains)

Balance, December 31, 2023

$ — $ — $ — $ 814 $ 814

On November 14, 2022, the Company recognized contingent consideration of $ 3.0 million, for which the carrying value is approximately the same as the fair value, and was included as part of the consideration transferred for the 2022 Business Combination.

There were no transfers in or out of Level 3 financial assets or liabilities for the years ended December 31, 2023 or December 31, 2022.

Legacy, Public, and Private Placement Warrants

On October 5, 2020, the Company entered into the Merger Agreement with SCH and simultaneously amended the warrants to be automatically exercisable for common stock in connection with the 2021 Business Combination.

Pursuant to the Merger Agreement, the Loan Facility warrants and the September 2015 warrants automatically converted into 3,484,154 shares of Legacy Clover common stock and, after giving effect to the Exchange Ratio, converted into 7,205,490 shares of Class B Common Stock upon the closing of the 2021 Business Combination.

As a result of the 2021 Business Combination, the Company assumed, at January 7, 2021, public warrants to purchase an aggregate of 27,599,938 shares of the Company's Class A Common Stock and private placement warrants to purchase an aggregate of 10,933,333 shares of the Company's Class A Common Stock.

Each whole warrant entitled the registered holder to purchase one whole share of Class A Common Stock at a price of $ 11.50 per share, at any time commencing on April 24, 2021.

Private Warrants

At December 31, 2022, the Company had exercisable private warrants which were embedded in several agreements as derivatives.

These private warrants were accounted for as assets in accordance with ASC 815-40 and are presented 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 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.

These warrants at initial measurement date, December 31, 2022, were assessed to have a fair value of $ 0.9 million, with no other activity for the year ended December 31, 2022.

The company reassesses the fair values of the warrants based on updated estimates and for the year ended December 31, 2023 we recognized $ 0.1 million of unrealized losses.

Liability Measurement

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

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

The Company determined that the public warrants assumed in connection with the 2021 Business Combination were classified within Level 1 of the fair value hierarchy as the fair value was equal to the publicly traded price of the public warrants, and the private placement warrants, also assumed in connection with the 2021 Business Combination, were classified within Level 2 of the fair value hierarchy as the fair value was estimated using the price of the public warrants.

On July 22, 2021, the Company issued a press release stating that it would redeem all of its public and private placement warrants.

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

The end of the redemption period was September 9, 2021, at which time the Company redeemed all unexercised public and private placement warrants at a price of $ 0.10 per warrant.

Following the redemption, no public or private placement warrants were outstanding.

The following table presents the changes in the fair value of warrants payable:

December 31, 2021 Public and Private Placement Warrants

(in thousands)

Initial measurement, January 7, 2021 $ 147,582

Mark-to-market adjustment ( 66,214 )

Warrants payable balance, Warrants exercised ( 81,283 )

Warrants payable balance, Warrant redemption ( 85 )

Warrants payable balance, December 31, 2021 $ —

Healthcare Receivables

Healthcare receivables include pharmaceutical rebates that are accrued as they are earned and estimated based on contracted rebate rates, eligible amounts submitted to the manufacturers by the Company's pharmacy manager, pharmacy utilization volume, and historical collection patterns.

Also included within Healthcare receivables are Medicare Part D settlement receivables, member premium receivables, and other CMS receivables.

The Company reported $ 64.2 million and $ 70.6 million within Healthcare receivables at December 31, 2023, and December 31, 2022, respectively.

Related Party Transactions

Related party agreements

The Company has various contracts with IJKG Opco LLC (d/b/a CarePoint Health - Bayonne Medical Center), Hudson Hospital Opco, LLC (d/b/a CarePoint Health - Christ Hospital) and Hoboken University Medical Center Opco LLC (d/b/a CarePoint Health - Hoboken University Medical Center), which collectively do business as the CarePoint Health System ("CarePoint Health"), for the provision of inpatient and hospital-based outpatient services.

CarePoint Health was ultimately held and controlled by Vivek Garipalli, the Company's Executive Chairman and a significant stockholder of the Company.

In May 2022, Mr.

Garipalli and his family completed a donation of their interest in CarePoint Health to a non-profit organization called CarePoint Health Systems, Inc.

Following the donation, Mr.

Garipalli has remained a Manager of Hudson Hospital Propco, LLC, an affiliate of Hudson Hospital Opco, LLC.

Additionally, certain affiliates of Mr.

Garipalli are owed certain money from CarePoint Health for prior obligations, and Mr.

Garipalli has an indirect interest in Sequoia Healthcare Services, LLC and Sequoia Healthcare Management, LLC, which both provide services to CarePoint Health.

Expenses and fees incurred related to Clover's contracts with CarePoint Health, recorded within Net medical claims incurred, were $ 13.0 million, $ 12.6 million, and $ 12.7 million for the years ended December 31, 2023, 2022, and 2021 respectively.

Additionally, $ 1.4 million and $ 1.6 million were payable to CarePoint Health at December 31, 2023, and December 31, 2022, respectively.

The Company has contracted with Rogue Trading, LLC ("Rogue"), a marketing services provider.

The Company's Chief Executive Officer and a Director, Andrew Toy, is related to the Chief Executive Officer of Rogue.

There were no expenses and fees related to these contracts for the years ended December 31, 2023 and 2022.

Expenses and fees incurred related to these contracts were $ 0.3 million for the year ended December 31, 2021.

The Company has a contract with Medical Records Exchange, LLC (formerly known as "ChartFast," now d/b/a Credo) pursuant to which the Company receives administrative services related to medical records retrieval via Credo's electronic applications and web portal platform.

Expenses and fees incurred related to this agreement were $ 0.8 million, $ 0.3 million, and $ 0.2 million for the years ended December 31, 2023, 2022, and 2021 respectively.

Vivek Garipalli, the Company's Executive Chairman and significant stockholder of the Company, is an indirect owner of Medical Records Exchange, LLC.

Since July 2, 2021, the Company has contracted with Thyme Care, Inc.

("Thyme Care"), an oncology care management company, through which Thyme Care was engaged to provide cancer care management services to the Company's Insurance members in New Jersey and develop a provider network to help ensure member access to high-value oncology care.

The Company and Thyme Care have amended the terms of the engagement, effective April 1, 2023, to include additional clinical services available to Clover members as well as the value based payment terms.

The Company entered into an agreement with Thyme Care effective September 23, 2020 where the Company purchased 1,773,049 shares (less than five percent ( 5 %) of its class A common stock).

The fair value of these shares is $ 0.5 million at December 31, 2023, and is recognized within Other assets, non-current, on the Consolidated Balance Sheet.

In accordance with ASC 321, any changes in fair value associated with these shares are recognized within the audited Consolidated Statements of Operations and Comprehensive Loss.

Garipalli is a member of the board of directors of Thyme Care and holds an equity interest of less than five percent ( 5 %) of that entity.

Expenses and fees incurred related to this agreement were $ 2.3 million and $ 1.6 million for the years ended December 31, 2023 and 2022, respectively.

Additionally, $ 0.2 million and $ 0.3 million were payable to Thyme Care at December 31, 2023, and December 31, 2022, respectively.

Property and Equipment, Net

Property and equipment, net consisted of the following:

(in thousands)

Capitalized software $ 6,482 $ 4,705

Leasehold improvements 3,035 3,035

Office furniture and fixtures 35 36

Equipment 113 288

Property and equipment, gross 9,665 8,064

accumulated depreciation and amortization ( 4,583 ) ( 2,311 )

Property and equipment, net $ 5,082 $ 5,753

Depreciation expense recorded by the Company was approximately $ 0.4 million, $ 0.4 million, and $ 0.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Amortization expense recorded by the Company was approximately $ 1.0 million, $ 0.8 million, and $ 0.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Goodwill and Other Intangibles

Changes in the carrying amount of goodwill for the Company's reportable segments for the years ended December 31, 2023 and 2022, respectively, were as follows:

Corporate/Other Total

(in thousands)

Balance at January 1, 2022

$ 1,243 $ 1,243

Acquisitions 10,506 10,506

Balance at December 31, 2022

11,749 11,749

Impairment ( 11,749 ) ( 11,749 )

Balance at December 31, 2023

The following table presents details of the Company's other intangible assets at December 31, 2023 and 2022, respectively:

Weighted Average life Cost Accumulated

Amortization Impairment

Net Carrying Amount Cost Accumulated Amortization Net Carrying Amount

(in thousands)

Other intangible assets:

Licenses Indefinite 2,990 — — 2,990 2,990 — 2,990

Developed Technology 5 5,400 1,219 4,181 — 5,400 139 5,261

Amortization expense for other intangible assets was approximately $ 1.2 million and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively.

In addition, the Company recognized impairment of $ 4.2 million which is described in further detail below.

The Company does not estimate any amortization expense in the five succeeding fiscal years.

Goodwill and Intangible Asset Impairment

During the three months ended December 31, 2023, there was a change in strategy identified in relation to the Company's goodwill and intangible assets within its Corporate/Other segment.

This change in strategy was determined to be a triggering event.

This triggering event indicated that it should test the related goodwill balance and long-lived assets for impairment in its Corporate/Other segment.

For goodwill, the Company updated its quantitative impairment assessment for its reporting units, Juxly and MSPNJ, within Corporate/Other segment goodwill based on the most recent data and Company strategy.

In performing its quantitative impairment assessment, the fair value of the Company's reporting units was estimated by using a discounted cash flow ("DCF") analysis.

The reporting unit goodwill was established in connection with the acquisition of Medical Services Professionals of New Jersey, LLC (“MSPNJ”) and Principium Health, LLC (“Principium”) on February 28, 2019 and Juxly, LLC on November 14, 2022.

Based on its quantitative impairment assessment, the Company determined that the fair value of its reporting units within Corporate/Other segment were less than their carrying value.

The analysis resulted in a goodwill impairment charge of $ 11.7 million in the fourth quarter ended December 31, 2023, representing all of the remaining goodwill within the Corporate/Other segment, which is recorded within the Goodwill and intangible assets impairment line item in the audited Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2023.

For indefinite lived intangible assets, the Company tested each asset group within its Corporate/Other segment by first performing a recoverability test, comparing projected discounted cash flows from the use and eventual disposition of each asset group to its carrying value.

This test indicated that the undiscounted cash flows were not sufficient to recover the carrying value of certain asset groups.

The Company then compared the carrying value of the individual long-lived assets within those asset groups against their fair value in order to determine if impairment existed.

Determining the fair value of those asset groups involves the use of significant estimates and assumptions, including projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends, and estimated discount rates based on the asset group's weighted average return on assets, as derived from various methods.

As a result, the Company recorded a total impairment charge for intangible assets acquired as part of the Juxly acquisition of approximately $ 4.2 million for the year ended December 31, 2023.

For the year ended December 31, 2022, there were no circumstances that indicate that the carrying amount within goodwill and intangible assets deemed to have an indefinite or definite useful life may not be recoverable.

No impairment was recorded during the years ended December 31, 2022 and 2021.

Unpaid Claims

Activity within the liability for Unpaid claims, including claims adjustment expenses, for the years ended December 31, 2023 and 2022, respectively, is summarized as follows:

Years ended December 31,

(in thousands)

Gross and net balance, beginning of period (1)

$ 137,395 $ 136,317

Incurred related to:

Current year 996,158 1,023,355

Prior years ( 9,000 ) ( 39,324 )

Total incurred 987,158 984,031

Paid related to:

Current year 865,930 892,495

Prior years 121,523 90,458

Total paid 987,453 982,953

Gross and net balance, end of period (1)(2)

$ 137,100 $ 137,395

(1) Includes amounts due to related parties.

(2) Differs from the total Unpaid claims amount reported on the Consolidated Balance Sheets due to the fact the figure here excludes unpaid claims for the Company's Non-Insurance operations of $ 2.9 million and $ 6.1 million at December 31, 2023 and 2022, respectively.

The Company uses a variety of standard actuarial techniques to establish unpaid claims reserves.

Management estimates are supported by the Company's actuarial analysis.

The Company utilizes an internal actuarial team to review the adequacy of unpaid claim and unpaid claim adjustment expense.

The estimation of claim costs is inherently difficult and requires significant judgment.

The estimation has considerable inherent variability and can fluctuate significantly depending upon several factors, including medical cost trends and claim payment patterns, general economic conditions, and regulatory changes.

The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims.

Management believes that the current reserves are adequate based on currently available information.

Unpaid Claims for Insurance Operations

Unpaid claims for Insurance operations were $ 137.1 million at December 31, 2023.

During the year ended December 31, 2023, $ 121.5 million was paid for incurred claims attributable to insured events of prior years.

A favorable development of $ 9.0 million was recognized during the year ended December 31, 2023, resulting from the Company's actual experience with claims developing differently as compared to the Company's estimates at December 31, 2022.

A favorable development of $ 39.3 million was recognized during the year ended December 31, 2022, resulting from the Company's actual experience with claims developing differently as compared to the Company's estimates at December 31, 2021.

Original estimates are increased or decreased, as additional information becomes known regarding individual claims.

The ratio of current year medical claims paid as a percentage of current year Net medical claims incurred was 86.9 % for the year ended December 31, 2023, and 87.2 % for the year ended December 31, 2022.

This ratio serves as an indicator of claims processing speed, indicating that claims were processed at a slower rate during the year ended December 31, 2023, than during the year ended December 31, 2022.

The following tables provide information regarding incurred and paid claims development for medical claims, as well as cumulative claim frequency and the total of incurred but not reported liabilities at December 31, 2023, respectively:

Cumulative incurred claims for the

years ended December 31,

Incurred year 2021*

2023 Total IBNR (1)

Number of reported claims

(in thousands) (in ones)

2021 and prior

$ 2,138,604 $ 2,099,334 $ 1,938,863 $ 1,902 7,491,528

2022 — 1,023,355 910,776 4,652 3,358,454

2023 — — 996,158 130,546 3,141,069

Total $ 2,138,604 $ 3,122,689 $ 3,845,797 $ 137,100 13,991,051

(1) Differs from the total unpaid claims amount reported on the Consolidated Balance Sheets due to the fact the figure here excludes unpaid claims for the Company's ACO of $ 2.9 million as of December 31, 2023.

Cumulative net paid claims through December 31,

Paid year 2021*

(in thousands)

Incurred year

2021 and prior

$ 2,002,287 $ 2,092,800 $ 1,936,643

2022 — 892,495 906,124

2023 — — 865,930

Total $ 2,002,287 $ 2,985,295 $ 3,708,697

* Unaudited supplemental information

The reconciliation of net incurred and paid claims development tables to unpaid claims and claims adjustment expenses for medical claims on the Consolidated Balance Sheets is as follows:

December 31, 2023

(in thousands)

Cumulative incurred claims, net $ 3,845,797

cumulative paid claims, net 3,708,697

Net unpaid claims, including claims adjustment expenses (1)

(1) The following balance reflects the unpaid claims for Medicare Advantage only.

The ACO and other medical unpaid claims should be included in order to reconcile to the total unpaid claims on the Consolidated Balance Sheets.

Medicare Advantage Reinsurance Agreement

On January 1, 2021, the Company renewed a specific excess loss reinsurance agreement to reinsure its MA plan liabilities in excess of approximately $ 0.4 million, $ 0.6 million, and $ 0.6 million per covered person per agreement terms for the years ended December 31, 2023, 2022, and 2021, respectively.

The effects of the reinsurance agreements on the accompanying consolidated financial statements for the years ended December 31, 2023, 2022, and 2021, respectively, are as follows:

Years ended December 31,

2023 2022 2021

(in thousands)

Premiums earned, gross

$ 1,236,213 $ 1,085,339 $ 799,903

Premiums earned, ceded

( 444 ) ( 470 ) ( 489 )

Net premiums earned

$ 1,235,769 $ 1,084,869 $ 799,414

Years ended December 31,

2023 2022 2021

(in thousands)

Claims incurred, gross $ 987,654 $ 985,197 $ 839,136

Claims incurred, ceded ( 496 ) ( 1,166 ) ( 1,002 )

Net claims incurred $ 987,158 $ 984,031 $ 838,134

Reinsurance recoverable for the MA plan at December 31, 2023 and 2022, respectively, were comprised of the following:

Years ended December 31,

(in thousands)

Reinsurance recoverable on paid claims, gross and net

Reinsurance recoverable on unpaid claims

Reinsurance premium payable

Reinsurance recoverable, net

Accountable Care Organization Reinsurance Arrangement

Within the ACO arrangement there is an option for each ACO participant to elect participation in a reinsurance arrangement, which is not a separate contract and is included in the current ACO arrangement.

The stop loss (charges) premiums and recoupments are incurred in accordance with the regulations set forth in the participation agreement in direct relation to the direct contracting program and will reduce the exposure of high dollar claims to the Company.

The premiums (recoupments) are recognized as revenue (contra-revenue), respectively, within Non-Insurance revenue on the Statement of Operations as there is a right to the recoupments as the point of attachment in the stop loss agreement.

The effects of the ACO reinsurance arrangements on the accompanying consolidated financial statements for the years ended December 31, 2023 and 2022, respectively, were as follows:

Years ended December 31,

(in thousands)

Non-Insurance revenue, gross and net

$ 773,177 $ 2,380,135

Claims incurred, gross and net 771,798 2,460,879

Reinsurance recoverable, gross and net 10,926 52,955

Reinsurance recoverable represents the portion of paid claims and unpaid claims that are covered by reinsurance.

Amounts recoverable from reinsurers are estimated in a manner consistent with the methods used to determine unpaid claims as detailed in Note 2 (Summary of Significant Accounting Policies).

Life Policies and Annuity Contracts

Clover acquired certain policies and related reinsurance agreements with the purchase of stock of Union Life Labor Insurance Company (Ullico) in April 2016.

Ullico originally underwrote those policies which are primarily life policies and annuity contracts, prior to entering "run-off." All of the underwriting risk related to those policies and contracts has been ceded to third party reinsurers.

A large portion of these cessions are in the form of 100 % coinsurance where, in addition to the underwriting risk, administrative responsibilities, including premium collections and claim payments, are ceded to third party reinsurers.

Approximately $ 5.1 million and $ 5.4 million of life insurance reserves at both December 31, 2023 and 2022, respectively, related to life insurance policies originally issued by Ullico are 100 % coinsured with Southern Financial Life Insurance Company (SFLIC), a Louisiana domestic company, in full transfer of risk related to these policies.

The life reserves are computed principally in accordance with Net Level Premium Method using mortality and persistency assumptions based upon the Company's experience and industry data.

Interest rate assumptions used in establishing such reserves range from less than 1.0 % to 4.5 %.

Under the arrangement, SFLIC is required to hold in trust an amount that covers all of the outstanding liabilities as of the reporting date.

Approximately $ 0.9 million and $ 0.9 million of annuity reserves at both December 31, 2023 and 2022, respectively, related to annuity contracts originally issued by Ullico, are 100 % ceded to Sagicor Life Insurance Company, a Texas domestic company, in full transfer of risk related to these contracts.

The annuity reserves are computed principally using assumptions based on the Company's experience and industry data.

Interest rate assumptions used in establishing such reserves range from less than 1.0 % to 5.8 %.

Ceded life insurance and annuity reserves are included within other assets and gross life insurance and annuity reserves are included within other liabilities on the Consolidated Balance Sheets, respectively.

A reinsurance agreement between two entities transfers the underwriting risk and liabilities to the reinsurer while the insurer retains the contractual relationship with the ultimate insured.

As such, these reinsurance agreements do not completely relieve the Company of its potential liability to the ultimate insured.

However, given the transfer of underwriting risk, such potential liability is limited to the credit exposure which exists should the reinsurer be unable to meet its obligations under these reinsurance agreements.

The Company evaluates its reinsurers on a regular basis including their ratings and financial conditions.

Derivative Liabilities

In connection with the $ 373.8 million of convertible securities issued in 2019, the Company determined that certain of the conversion and redemption features were embedded derivatives and were bifurcated from the host instrument and accounted for as embedded derivative instruments.

In connection with the convertible securities, the Company recognized a capital contribution of $ 44.8 million during the year ended December 31, 2021.

This capital contribution of $ 44.8 million was recorded as an increase in additional paid in capital as the notes were issued to affiliates of the Company.

Upon the completion of the 2021 Business Combination with SCH on January 7, 2021, the derivative balance was extinguished at January 7, 2021.

See Note 4 (Fair Value Measurements) for additional information.

Letter of Credit

On April 19, 2018, the Company entered into a secured letter of credit agreement (the "Letter") required for its subsidiary for an aggregate amount of up to $ 2.5 million.

The Letter is with a commercial lender and it renews on an annual basis.

The Letter bears interest at a rate of 0.75 %.

On April 19, 2023, the Letter expired, and at the time of expiration there was an unused balance of $ 2.5 million which was released to the Company.

There was an unused balance of $ 2.5 million at December 31, 2022.

Operating Leases

The Company leases office space in New Jersey, Tennessee, Georgia, and Hong Kong under non-cancelable operating leases.

At December 31, 2023, the remaining terms of the operating leases were between one month and 63 months, and certain lease agreements contain provisions for future rent increases.

For each lease the Company recorded a right-of-use (ROU) asset and lease liability at the earlier of the ASC 842 effective date or lease commencement date.

The Company utilizes the straight-line method of recognizing lease expense.

However, the Company is required to pay certain variable executory costs including common area maintenance, real estate taxes, and insurance that are expensed as incurred.

These variable costs are excluded from the measurement of leases.

Certain of the Company's leases include options to renew, with renewal terms that can extend the lease term.

The exercise of lease renewal options is at the Company's sole discretion.

The ability to terminate a lease is determined by the applicable lease terms and conditions.

The Company is not reasonably certain that it will exercise the renewal or termination options.

Therefore, these options are not recognized as part of the ROU asset and lease liability.

The Company subleases certain of its leases to third parties for which it receives rental income to manage occupancy costs.

These subleases are classified as operating leases.

Summary of Lease Costs Recognized Under ASC 842:

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company's operating leases for the years ended December 31, 2023, 2022, and 2021, respectively:

Years ended December 31,

2023 2022 2021

(in thousands)

Operating lease cost $ 1,346 $ 2,651 $ 4,515

Variable lease cost 51 56 515

Short-term lease cost — — 45

Sublease income ( 256 ) ( 1,124 ) ( 2,727 )

Total lease cost $ 1,141 $ 1,583 $ 2,348

Other information

Cash paid for amounts included in the measurement of lease liabilities $ 1,907 $ 3,340 $ 5,248

Weighted-average remaining lease term 4.5 years 5.2 years 5.0 years

Weighted-average discount rate 10.31 % 10.65 % 10.36 %

The following table summarizes the Company's future lease payments for non-cancelable Operating lease liabilities at December 31, 2023:

(in thousands)

Total lease payments 5,650

imputed interest ( 987 )

Total $ 4,663

Stockholders' Equity and Convertible Preferred Stock

Stockholders' Equity

The Company was authorized to issue up to 2,500,000,000 shares of Class A common stock at December 31, 2023 and 2022, and up to 500,000,000 shares of Class B common stock at December 31, 2023 and 2022.

At December 31, 2023 and 2022, there were 401,183,882 and 383,998,718 shares of Class A common stock issued and outstanding, respectively.

There were 87,867,732 and 94,394,852 shares of Class B common stock issued and outstanding at December 31, 2023 and 2022, respectively.

Class B common stock has 10 votes per share, and Class A common stock has one vote per share.

The Company had 7,912,750 and 2,072,752 shares held in treasury at December 31, 2023 and 2022, respectively.

These amounts represent shares withheld to cover taxes upon vesting of employee stock-based awards.

At December 31, 2023, the Company was authorized to issue 25,000,000 shares of preferred stock having a par value of $ 0.0001 per share, and the Company's Board has the authority to determine the rights, preferences, privileges, and restrictions, including voting rights, of those shares.

At December 31, 2023, there were no shares of preferred stock issued and outstanding.

Variable Interest Entity and Equity Method of Accounting

On February 4, 2022, Character Biosciences, Inc.

(f/k/a Clover Therapeutics Company) ("Character Biosciences"), an affiliate of the Company, completed a private capital transaction in which it raised $ 17.9 million from the issuance of 16,210,602 shares of its preferred stock.

Upon completion of the transaction, the Company owned approximately 25.46 % of Character Biosciences.

As a result, the Company reassessed its interest in Character Biosciences and determined that while Character Biosciences is a VIE, the Company is not considered the primary beneficiary of the VIE because it does not have the power, through voting or similar rights and the license agreements, to direct the activities of Character Biosciences that most significantly impact Character Biosciences' economic performance.

On January 23, 2023, Character Biosciences, completed a second private capital transaction in which it raised additional capital from the issuance of additional shares of its preferred stock.

Upon completion of this transaction, the Company's ownership percentage in Character Biosciences decreased to 23.92 %.

The Company determined that it does have a significant influence over Character Biosciences and, therefore, it began accounting for its common stock investment in Character Biosciences using the equity method on February 4, 2022.

The Company derecognized all of Character Biosciences' assets and liabilities from its balance sheet and its noncontrolling interest related to Character Biosciences, and recognized the retained common stock and preferred stock equity interests at fair values of $ 3.7 million and $ 4.9 million, respectively, which are included in Equity method investment and Other assets, non-current on the Consolidated Balance Sheets.

For the year ended December 31, 2022, the Company recognized a gain on investment of $ 9.2 million which is included within Loss (gain) on investment on the audited Consolidated Statements of Operations and Comprehensive Loss.

As the Company applies the equity method to account for its common stock interest in Character Biosciences, the initial value of the investment is adjusted periodically to recognize (i) the proportionate share of the investee's net income or losses after the date of investment, (ii) additional contributions made and dividends or distributions received, and (iii) impairment losses resulting from adjustments to net realizable value.

The Company eliminates all intercompany transactions in accounting for equity method investments and records the proportionate share of the investee's net income or loss in equity within gain on investment on the audited Consolidated Statements of Operations and Comprehensive Loss.

In accordance with ASC 323, the Company recognized the proportionate share of Character Bioscience's net loss up to the investment carrying amount.

As a result the Company recognized a shared loss of $ 4.7 million for the year ended December 31, 2023.

Employee Benefit Plans

Employee Retirement Savings Plan

The Company has a defined contribution retirement savings plan (the "401(k) Plan") covering eligible employees, which includes safe harbor matching contributions based on the amount of employees' contributions to the 401(k) Plan.

The Company contributes to the 401(k) Plan annually 100.0 % of the first 4.0 % compensation that is contributed by the employee up to 4.0 % of eligible annual compensation after one year of service.

The Company's service contributions to the 401(k) Plan amounted to approximately $ 1.8 million, $ 1.6 million, and $ 1.2 million for the years ended December 31, 2023, 2022, and 2021 respectively, and are included within Salaries and benefits on the audited Consolidated Statements of Operations and Comprehensive Loss.

The Company's cash match is invested pursuant to the participant's contribution direction.

Employer contributions are immediately 100.0 % vested.

Stock-based Compensation

The Company's 2020 Equity Incentive Plan (the "2020 Plan") provides for grants of restricted stocks units ("RSUs"), performance-based restricted stock units ("PRSUs") and stock options to acquire shares of the Company's common stock, to employees, directors, officers, and non-employee consultants of the Company and its affiliates, and the Company's 2020 Management Incentive Plan (the "2020 MIP") provides for grants of RSUs and PRSUs to the Company's Executive Chair and CEO.

During the year ended December 31, 2021, the Company approved the 2020 Plan and the 2020 MIP, and the Company's 2014 Equity Incentive Plan (the "2014 Plan") was terminated.

When the 2014 Plan was terminated, the outstanding awards previously granted thereunder were assumed by the Company, and no new awards are available for grant under the 2014 Plan.

Shares that are expired, terminated, surrendered, or canceled under the 2014 Plan without having been fully exercised are available for awards under the 2020 Plan.

On March 9, 2022, the Board adopted the Company's 2022 Inducement Award Plan (the "Inducement Plan" and, collectively with the 2020 Plan, the 2020 MIP, and the 2014 Plan, the "Plans") without stockholder approval in accordance with Nasdaq Listing Rules.

Under the Inducement Plan, the Company may grant non-qualified stock options, RSUs, stock appreciation rights, and other stock or cash-based awards to an employee in connection with his or her commencement of employment, or following a bona fide period of non-employment, with the Company or an affiliate.

The 2020 Plan has an evergreen provision that requires the number of shares available for issuance under the plan to be increased on the first day of each fiscal year beginning with the 2022 fiscal year and ending on (and including) the last day of the 2024 fiscal year, in each case, in an amount equal to the lesser of (i) seven percent ( 7 %) of the outstanding shares of Class A Common Stock on the last day of the immediately preceding fiscal year and (ii) such number of shares of Class A Common Stock determined by the Board;

provided that for each fiscal year beginning with the 2025 fiscal year through the fiscal year that includes the expiration date of the plan, each such increase shall be reduced to the lesser of five percent ( 5 %) of the outstanding shares of Class A Common Stock on the last day of the immediately preceding fiscal year or such number of shares as determined by the Board.

The maximum number of shares of the Company's common stock reserved for issuance over the term of the Plans, shares outstanding under the Plans, and shares remaining under the Plans at December 31, 2023 were as follows:

December 31, 2023 Shares Authorized Under Plans Shares Outstanding Under Plans Shares Remaining Under Plans

2014 Plan 54,402,264 24,041,781 N/A

2020 Plan 58,521,709 47,481,258 —

2020 MIP 33,426,983 26,741,587 —

Inducement Plan 11,000,000 5,043,120 2,131,783

The Plans are administered by the Talent and Compensation Committee of the Board (the "Compensation Committee").

Stock options granted under the Plans are subject to the terms and conditions described in the applicable Plan and the applicable stock option grant agreement.

The exercise prices, vesting, and other restrictions applicable to the stock options are determined at the discretion of the Compensation Committee, except that the exercise price per share of incentive stock options may not be less than 100.0 % of the fair market value of a share of common stock on the date of grant.

Stock options awarded under the Plans expire 10 years after the grant date and generally vest over four or five years .

The number of stock options granted is determined by dividing the approved grant date dollar value of an option by the Black Scholes option pricing value per share (as further discussed below).

RSU awards are subject to the terms and conditions set forth in the Plans and the applicable RSU grant agreement.

Vesting and other restrictions applicable to RSU awards are determined at the discretion of the Compensation Committee, but generally vest over one to four years from the date of grant.

The number of RSUs granted is determined by dividing the cash value of an RSU award by the average closing price of a share of the Company's Class A common stock over a specified period through the date of grant.

The total estimated grant date fair value is amortized over the requisite service period.

The Company recorded stock-based compensation expense for stock options, RSUs, and PRSUs granted under the Plans, and discounts offered in connection with the Company's 2020 Employee Stock Purchase Plan ("ESPP") of $ 140.9 million, $ 164.3 million, and $ 163.7 million during the years ended December 31, 2023, 2022, and 2021 respectively, and such expenses are presented within Salaries and benefits in the accompanying audited Consolidated Statements of Operations and Comprehensive Loss.

Compensation cost presented within Salaries and benefits within the accompanying audited Consolidated Statements of Operations and Comprehensive Loss were as follows:

Years ended December 31,

2023 2022 2021

(in thousands)

Stock options $ 3,335 $ 3,445 $ 7,998

RSUs 83,790 75,312 65,514

PRSUs 53,611 85,270 89,930

ESPP 195 278 281

Total compensation cost recognized for stock-based compensation plans $ 140,931 $ 164,305 $ 163,723

At December 31, 2023, there was approximately $ 436.7 million of unrecognized stock-based compensation expense related to unvested stock options, unvested RSUs, unvested PRSUs, and the ESPP, estimated to be recognized over a period of four years .

Stock Options

The Company did not grant stock options during fiscal years 2023 and 2022.

The weighted-average grant date fair value of stock options granted during the year ended December 31, 2021 was $ 3.36 per share.

The assumptions that the Company used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted for the year ended December 31, 2021 were as follows:

Year ended December 31,

Weighted-average risk-free interest rate 1.06 %

Expected term (in years) 6.06

Expected volatility 37.74 %

Expected dividend yield —

A summary of option activity under the 2020 Plan during the years ended December 31, 2023, was as follows:

Number of stock options Weighted-average exercise price

Outstanding, January 1, 2023

1,364,822 $ 8.88

Exercised — —

Forfeited ( 411,922 ) 8.88

Outstanding, December 31, 2023

952,900 $ 8.88

A summary of stock option activity under the 2014 Plan during the years ended December 31, 2023, was as follows:

Number of stock options Weighted-average exercise price

Outstanding, January 1, 2023

25,631,686 $ 2.35

Exercised ( 79,189 ) 0.95

Forfeited ( 1,510,744 ) 2.43

Outstanding, December 31, 2023

24,041,753 $ 1.45

The aggregate intrinsic value of stock options is calculated as the excess of the fair market value of the closing price of the Company’s Class A common stock at December 31, 2023 (or the last trading date of 2023) over-the exercise price of the stock options.

At December 31, 2023, outstanding stock options, substantially all of which are expected to vest, had an aggregate value of less than $ 0.1 million, and a weighted-average remaining contractual term of four years .

At December 31, 2023, there were 23,319,559 stock options exercisable under the Plans, with an aggregate intrinsic value of less than $ 0.1 million, a weighted-average exercise price of $ 2.86 per share, and a weighted-average remaining contractual term of 5.36 years.

The total value of stock options exercised during the years ended December 31, 2023, 2022, and 2021 was $ 0.1 million, $ 11.3 million, and $ 39.3 million respectively.

Cash received from stock option exercises during the years ended December 31, 2023, 2022, and 2021 was less than $ 0.1 million, $ 1.0 million, and $ 6.1 million respectively.

Restricted Stock Units

A summary of total RSU activity for the year ended December 31, 2023 is presented below:

Number of RSUs Weighted-average grant date fair value per share

Outstanding, January 1, 2023

49,617,199 $ 6.48

Granted during 2023

28,977,160 1.00

Released ( 15,054,999 ) 5.87

Forfeited ( 6,610,955 ) 2.76

Outstanding, December 31, 2023

56,928,405 $ 4.28

Performance Restricted Stock Units

The Company has granted PRSUs to certain executives and key employees, which become eligible to vest based on achievement of certain Company or individual performance milestones (“Non-Market PRSUs”) and certain Company stock price targets (“Market PRSUs”), each as determined by the Compensation Committee.

Market PRSUs will vest if prior to the vesting date the average closing price of one share of the Company's common stock for 90 consecutive days equals or exceeds a specified price.

The expense referenced above is mainly attributable to Market PRSUs that vest based on pre-established milestones that primarily consist of the volume-weighted average stock closing price ranging from $ 20 to $ 30 for 90 consecutive days.

The grant date fair value of the Non-Market PRSUs was based on the closing price of the Company’s Class A common stock and recognized as expense over the requisite performance period under the accelerated attribution method and is adjusted in future periods for the success or failure to achieve the specified performance condition.

The grant date fair value of the Market PRSUs was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the specified market condition.

Expense for Market PRSUs is recognized over the derived service period under the accelerated attribution method and is not adjusted in future periods for the success or failure to achieve the specified market condition.

The assumptions that the Company used in the Monte Carlo model to determine the grant date fair value of Market PRSUs granted for the year ended December 31, 2021, were as follows:

Year ended December 31, 2021

Expected volatility (1)

Risk-free interest rate (2)

Dividend yield (3)

(1) Expected volatility is based on a blend of peer group company historical data adjusted for the Company's leverage.

(2) Risk-free interest rate based on U.S.

Treasury yields with a term equal to the remaining Performance Period at the grant date.

(3) Dividend yield was assumed to be zero as the Company does not anticipate paying dividends.

At December 31, 2023, the market condition component of these PRSUs has not been met, so the awards have not been earned.

This expense represents most of the PRSU expense recognized for the year ended December 31, 2023 related to stock-based compensation plans which is presented within Salaries and benefits in the accompanying audited Consolidated Statements of Operations and Comprehensive Loss.

The Company has also determined the requisite service period for the PRSUs with multiple performance conditions to be the longest of the explicit, implicit, or derived service period for each tranche.

A summary of PRSU activity for the year ended December 31, 2023 is presented below:

Number of PRSUs Weighted-average grant date fair value per share

Non-vested, January 1, 2023

29,945,235 $ 8.92

Granted during 2023

3,200,913 0.95

Vested ( 958,951 ) 1.23

Forfeited ( 55,665 ) 5.48

Non-vested at December 31, 2023

32,131,532 $ 8.36

At December 31, 2023, there was $ 38.3 million of unrecognized share-based compensation expense related to PRSUs, which is expected to be recognized over a period of approximately four years .

2020 Employee Stock Purchase Plan

On January 6, 2021, the Board adopted and the Company's stockholders approved the ESPP, which permits eligible employees and service providers of either the Company or designated related companies and affiliates to contribute up to 15 % of their eligible compensation during defined offering periods to purchase shares of the Company’s Class A common stock at a 15 % discount from the fair market value of the common stock as determined on specific dates at specific intervals.

Subject to adjustments provided in the ESPP that are discussed below, the maximum number of shares of common stock that may be purchased under the ESPP is 10,152,025 shares, and the maximum number of shares that may be purchased on any single purchase date by any one participant is 5,000 shares.

At December 31, 2023, 9,066,694 shares of Class A common stock were available for issuance under the ESPP.

The ESPP includes an evergreen provision that sets the maximum number of shares of Class A common stock that may be issued under the plan, to 2,785,582 shares, plus the number of shares of Class A common stock that are automatically added on the first day of each fiscal year beginning with the 2022 fiscal year and ending on (and including) the first day of the 2030 fiscal year, in an amount equal to the lesser of (i) one percent ( 1 %) of the total number of shares of Class A common stock outstanding on the last day of the calendar month prior to the date of such automatic increase, and (ii) such number of shares of Class A common stock as determined by the Board;

provided that the maximum number of shares of Class A common stock reserved under the ESPP shall not exceed 10.0 % of the total outstanding capital stock of the Company (inclusive of the shares reserved under the ESPP) at January 7, 2021, on an as-converted basis.

The assumptions that the Company used in the Black-Scholes option-pricing model to determine the fair value of the purchase rights under the ESPP for the years ended December 31, 2023, 2022, and 2021 are as follows:

Weighted-average risk-free interest rate 5.4 % 467.0 % 0.1 %

Expected term (in years) 0.50 0.49 0.42

Expected volatility 82.3 % 78.4 % 147.4 %

The provision for income taxes consisted of the following for the years ended December 31, 2023, 2022, and 2021, respectively:

Years ended December 31,

2023 2022 2021

(in thousands)

Current provision $ — $ — $ —

Deferred expense — — —

Provision for income taxes $ — $ — $ —

The provision for income taxes was different from the amount computed using the federal statutory rate of 21% for the years ended December 31, 2023, 2022, and 2021, respectively, due to the following:

Years ended December 31,

2023 2022 2021

(in thousands)

Income tax provision at federal statutory rate (21%)

$ ( 44,806 ) $ ( 71,157 ) $ ( 123,429 )

Hong Kong Rate Differential ( 59 ) — —

Interest on convertible securities discount — — 2,867

162(m) Limitation 1,488 — —

Warrant expense 18 ( 189 ) 13,905

Meals and entertainment 27 21 26

Stock based compensation 16,408 7,989 ( 5,665 )

Prior year true-up ( 221 ) ( 30,646 ) —

Other, net ( 231 ) 317 ( 365 )

Valuation allowance 27,376 93,665 112,661

Provision for income taxes

Deferred income tax balances reflect the impact of temporary differences between the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements and are stated at enacted tax rates expected to be in effect when the reported amounts are actually recovered or settled.

Principal components of net deferred tax balances at December 31, 2023 and 2022, respectively, were as follows:

Years ended December 31,

(in thousands)

Deferred income tax assets:

Net operating loss carryforward (NOL) $ 320,416 $ 294,335

Stock based compensation 66,251 56,743

Premium deficiency reserve — 3,442

Unpaid claim reserve discounting 420 384

Operating lease liability 290 1,231

Fixed assets and intangible assets 1,590 1,589

Accruals 5,175 9,927

Goodwill & Intangible 3,601 —

Other 800 4,692

Total deferred income tax assets 398,543 372,343

valuation allowance ( 396,906 ) ( 369,530 )

Total deferred income tax assets, net of valuation allowance 1,637 2,813

Deferred income tax liabilities:

Operating lease right-of-use assets ( 672 ) ( 845 )

Nontaxable gain on deconsolidation of entity ( 943 ) ( 1,936 )

Other ( 22 ) ( 32 )

Total deferred income tax liabilities ( 1,637 ) ( 2,813 )

Net deferred income tax assets $ — $ —

Operating loss and tax credit carryforwards and protective tax deposits

At December 31, 2023 and 2022, the Company had a Federal net operating loss carryforward of $ 1,525.4 million and $ 1,401.6 million.

Of the $ 1,525.4 million, Federal net operating loss carryforwards, $ 295.1 million begin to expire in 2033, and $ 1,230.3 million may be carried forward indefinitely, with the exception of net operating losses for the insurance companies.

Under Internal Revenue Code Section 382, if a corporation undergoes and "ownership change", the corporation's ability to use its pre-change NOL.

carryforwards and other pre-change tax attributes to offset its post-change income may be limited.

The Company has completed a study through January 7, 2021 and concluded that ownership changes have occurred that may limit their utilization in future periods.

Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period.

At December 31, 2023 and 2022, the company performed an evaluation to determine whether a valuation allowance was needed.

The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years.

The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized.

Accordingly, the Company maintained a full valuation allowance as of December 31, 2023 and 2022.

The Company does not have deposits admitted under Section 6603 of the Internal Revenue Code.

Impact of tax planning strategies

The Company does not have any tax planning strategies that include the use of reinsurance and there are no deferred tax liabilities not recognized.

The Company files income tax returns in the United States.

Internal Revenue Service ("IRS") is not currently conducting any income tax audits of the Company's returns.

The Company's federal income tax returns filed related to tax years subsequent to 2020 remain subject to examination by the IRS.

The Company is not aware of any material adjustments that may be proposed as a result of any ongoing or future examinations and does not have material uncertain tax positions reflected in the Consolidated Balance Sheets.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022 (the “IRA”), which contains a number of tax-related provisions, including a 15% corporate alternative minimum tax imposed on certain corporations that meet an income-based test, as well as a 1% nondeductible excise tax on certain stock repurchases.

The Company is not subject to the alternative minimum tax in 2023 based on the income-based test and it will continue to evaluate the IRA’s impact as further information becomes available.

Net Loss per Share

Basic and diluted net loss per share attributable to Class A common stockholders and Class B common stockholders (collectively, "Common Stockholders") for the years indicated was calculated as follows:

Years ended December 31,

2023 2022 2021

(in thousands,

except per share and share amounts)

Net loss $ ( 213,361 ) $ ( 339,567 ) $ ( 587,756 )

Net loss attributable to Common Stockholders ( 213,361 ) ( 339,567 ) ( 587,756 )

Basic and diluted weighted average number of common shares and common share equivalents outstanding

482,176,127 476,244,262 412,922,424

Net loss per share attributable to Common Stockholders—basic and diluted $ ( 0.44 ) $ ( 0.71 ) $ ( 1.42 )

Because the Company had a Net loss during the years ended December 31, 2023, 2022, and 2021 the Company's potentially dilutive securities, which include Options, RSUs, PRSUs, preferred stock, and warrants to purchase shares of common stock and preferred stock, have been excluded from the computation of diluted net loss per share, as the effect would be anti-dilutive.

Therefore, during these periods, the diluted common shares outstanding equals the average common shares outstanding.

The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to Common Stockholders for the periods indicated because including them would have had an anti-dilutive effect:

Years ended December 31,

2023 2022 2021

Options to purchase common stock

24,994,653 26,996,507 32,879,626

RSUs 56,928,405 49,617,199 21,294,841

PRSUs 32,131,532 29,945,235 27,818,524

Total anti-dilutive shares excluded from computation of net loss per share 114,054,590 106,558,941 81,992,991

Commitments and Contingencies

Legal Actions

Various lawsuits against the Company may arise in the ordinary course of the Company's business.

Contingent liabilities arising from ordinary course litigation, income taxes and other matters are not expected to be material in relation to the financial position of the Company.

At December 31, 2023, and December 31, 2022, respectively, there were no material known contingent liabilities arising outside the normal course of business other than as set forth below.

In accordance with ASC No.

450-20, “Loss Contingencies”, we will record accruals for loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Securities Class Actions, Derivative Litigation and Investigations

Since February 2021, the Company has received subpoenas from the SEC related to certain disclosures and aspects of our business as well as certain matters described in an article issued on February 4, 2021, by Hindenburg Research LLC (the "Hindenburg Article").

The Company is cooperating with the SEC's investigation.

The Hindenburg Article, which discussed, among other things, an inquiry by the U.S.

Attorney's Office for the Eastern District of Pennsylvania relating to, among other things, certain of the Company’s arrangements with providers participating in its network and programs, and Clover Assistant, was the subject of the Company’s Current Report on Form 8-K dated February 5, 2021.

In February 2021, the Company and certain of its directors and officers were named as defendants in putative class actions filed in the United States District Court for the Middle District of Tennessee:

Clover Health Investments, Corp.

et al., Case No.

3:21-cv-00096 (M.D.

Clover Health Investments, Corp.

et al., Case No.

3:21-cv-00101 (M.D.

Clover Health Investments, Corp.

et al., Case No.

3:21-cv-00109 (M.D.

and Tremblay v.

Clover Health Investments, Corp.

et al., Case No.

3:21-cv-00138 (M.D.

The complaints assert violations of sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated under the Exchange Act.

The Kaul action asserts additional claims under sections 11 and 15 of the Securities Act.

The complaints generally relate to allegations published in the Hindenburg Article.

The complaints seek unspecified damages on behalf of all persons and entities who purchased or acquired Clover securities during the class period (which begins on October 6, 2020, and, depending on the complaint, ends on February 3, 2021, or February 4, 2021), as well as certain other costs.

In April 2021, the Middle District of Tennessee class actions were consolidated under Bond v.

Clover Health Investments, Corp.

et al., Case No.

3:21-cv-00096 (M.D.

Tenn.) as the lead case.

On June 28, 2021, the plaintiffs filed an amended complaint, which also generally relates to allegations published in the Hindenburg Article, but adds, among other things, allegations from confidential witnesses who purport to be former employees of the Company.

The Company moved to dismiss the amended complaint on August 28, 2021;

that motion was denied on February 28, 2022.

On February 14, 2023, the court granted the plaintiffs' motion for class certification.

On April 21, 2023, the parties to the securities class action entered into a memorandum of understanding providing for the settlement of the action.

The Court approved the settlement and dismissed the action with prejudice on October 3, 2023.

Under the settlement, the class will receive $ 22 million dollars (less an award of fees and expenses to the plaintiffs’ counsel), and the defendants (including the Company) received customary releases.

The Company used $ 19.5 million in insurance proceeds to fund the settlement.

On June 29, 2023, the Company deposited $ 7.7 million, in an escrow account for settlement purposes, and on July 3, 2023, it deposited the remaining $ 14.3 million.

The Company previously filed a lawsuit in Delaware state court against certain of its insurers for full payment of its liabilities related to this securities litigation.

The Company intends to oppose any efforts by the carrier defendants to recoup insurance proceeds that they have advanced to date.

Shareholder derivative actions parallel to the securities class action have also been filed, naming Clover as a nominal defendant.

The first action was filed in the United States District Court for the District of Delaware and is captioned Furman v.

Garipalli, et al., Case No.

1:21-cv-00191 (D.

The complaint asserts violations of sections 10(b) and 21D of the Exchange Act, breach of fiduciary duty, and waste of corporate assets against certain of the Company's directors.

It seeks unspecified damages and an order requiring Clover to take certain actions to enhance Clover's corporate governance policies, and procedures.

The second and third actions were filed in the United States District Court for the Middle District of Tennessee and are captioned Sun v.

Garipalli, et al., Case No.

3:21-cv-00311 (M.D.

Tenn.), and Luthra v.

Garipalli, et al., Case No.

3:21-cv-00320 (M.D.

The complaints assert violations of section 14(a) of the Exchange Act, breach of fiduciary duty, and aiding and abetting a breach of fiduciary duty.

The Sun action also asserts unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and contribution under section 11(f) of the Securities Act, and sections 10(b) and 21D of the Exchange Act.

The complaints name certain current and former officers and directors as defendants.

They seek unspecified damages and an order requiring Clover to take certain actions to enhance Clover's corporate governance policies and procedures.

The fourth action was filed in the United States District of Delaware and is captioned Wiegand v.

Garipalli, et al., Case No.

1:21-cv-01053 (D.

The initial complaint asserted violations of sections 14(a) and 20(a) of the Exchange Act, breach of fiduciary duty, unjust enrichment, and waste of corporate assets.

The complaint names certain current and former officers and directors as defendants.

It seeks, among other things, unspecified damages and an order requiring Clover to take certain actions to improve Clover's corporate governance and internal procedures.

The fifth action was filed in the Supreme Court of the State of New York and is captioned Sankaranarayanan v.

Palihapitiya, et al., Index No.

655420/2021 (N.Y.

The complaint asserts breach of fiduciary duty and unjust enrichment.

The complaint names certain former officers and directors as defendants.

It seeks, among other things, unspecified damages and an order directing Clover to take certain actions to reform and improve its corporate governance and internal procedures.

The sixth action was filed in the Delaware Court of Chancery and is captioned Davies v.

Garipalli, et al., No.

2021-1016-SG (Del.

The complaint asserts breach of fiduciary duty.

The complaint names certain current and former officers and directors as defendants.

It seeks, among other things, unspecified damages and an order directing Clover to take certain actions to reform and improve its corporate governance and internal procedures.

The seventh action was filed in the Supreme Court of the State of New York and is captioned Uvaydov v.

Palihapitiya, et al., Index No.

656978/2021 (N.Y Sup.

The complaint asserts breach of fiduciary duty, unjust enrichment, and aiding and abetting a breach of fiduciary duty.

The complaint names certain current and former officers and directors as defendants.

It seeks, among other things, unspecified damages, restitution, and disgorgement of profits obtained by defendants.

On May 10, 2021, the Middle District of Tennessee shareholder derivative actions described above were consolidated under Sun v.

Garipalli, et al., Case No.

3:21-cv-00311 (M.D.

Tenn.) as lead case.

On November 30, 2021, the Sun and Luthra plaintiffs filed an amended complaint, asserting violations of section 14(a) of the Exchange Act, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and contribution under sections 10(b) and 21D of the Exchange Act.

The amended complaint generally relates to the allegations published in the Hindenburg Article, and names certain current and former officers and directors as defendants.

It seeks, among other things, unspecified damages and an order requiring Clover to take certain actions to enhance Clover's corporate governance policies and procedures.

On September 16, 2021, the two District of Delaware derivative actions were consolidated under In re Clover Health Investments, Corp.

Derivative Litigation, Case No.

1:21-cv-00191-LPS (Consolidated).

The Furman complaint was deemed the operative complaint.

On April 19, 2022, the plaintiff in the Wiegand action filed an amended complaint, asserting violations of Sections 10(b), 20(a), and 21D of the Exchange Act, breach of fiduciary duty, waste of corporate assets, and unjust enrichment against certain current and former officers and directors.

The amended complaint seeks, among other things, unspecified damages and an order requiring Clover to take certain actions to improve Clover's corporate governance and internal procedures.

On August 19, 2022, the two derivative actions filed in New York state court were consolidated under In re Clover Health Investments, Corp.

Stockholder Derivative Litig., Index No.

On November 3, 2022, the plaintiffs in this action filed a consolidated complaint, asserting breach of fiduciary duty, and unjust enrichment, and naming certain former officers and directors as defendants.

The complaint seeks, among other things, unspecified damages, restitution, the disgorgement of profits obtained by defendants, and an order directing Clover to take certain actions to reform and improve its corporate governance and internal procedures.

On June 21, 2023, the plaintiffs in the derivative lawsuits, on the one hand, and the Company, on the other hand, entered into a binding memorandum of understanding providing for the settlement of the derivative actions.

On February 5, 2024, the parties executed a stipulation of settlement which, subject to final court approval, will provide the defendants in the derivative lawsuits with customary releases and will require the Company to implement a suite of corporate governance enhancements.

The settlement does not involve any monetary payment, other than payment of an award of fees and expenses to plaintiffs’ counsel in the amount of $ 2,500,000 , which amount is subject to court approval.

Non-Insurance

In April 2021, the Company began participating in the Global and Professional Direct Contracting of the Centers for Medicare & Medicaid Services ("CMS"), which utilizes a structured model intended to reduce expenditures and preserve or enhance quality of care for people with Medicare fee-for-service ("FFS").

CMS rebranded the DC Model and renamed the model the ACO Realizing Equity, Access, and Community Health (REACH) Model ("ACO REACH Model") effective January 1, 2023.

As a participating entity in the DC Model, referred to as the ACO REACH Model at January 1, 2023, with a global risk arrangement, the Company assumes the responsibility of guaranteeing the performance of its care network.

The ACO REACH Model is intended to reduce administrative burden and support a focus on complex, chronically ill patients.

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 the Company's best interest to fully exit the ACO REACH Program, and follows its November 2022 announcement of a strategic reduction in the number of ACO REACH participating physicians in 2023.

The Company's operations in connection with the ACO REACH Model is included in the Non-Insurance operating segment.

See Note 21 (Operating Segments) for additional information.

Key components of the financial agreement for Non-Insurance include:

• Performance Year Benchmark.

The target amount for Medicare expenditures on covered items and services (Medicare Part A and B) furnished to an Accountable Care Organization's ("ACO's") aligned beneficiaries during a performance year.

The Performance Year Benchmark will be compared to the ACO's performance year expenditures.

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

The Performance Year Benchmark is established at the beginning of the performance year utilizing prospective trend estimates and is subject to retrospective trend adjustments, if warranted, before the Financial Reconciliation.

• Performance Year.

A calendar year except for the commencement year, which began on April 1, 2021, and ended on December 31, 2021.

• Risk-Sharing Arrangements.

Used in determining the percent of savings and losses that ACOs are eligible to receive as shared savings or may be required to repay as shared losses.

• Financial Reconciliation.

The process by which CMS determines shared savings or shared losses by comparing the calculated total benchmark expenditure for a given ACO's aligned population to the actual expenditures of that ACO's aligned beneficiaries over the course of a performance year that includes various risk-mitigation options such as stop-loss reinsurance and risk corridors.

• Risk-Mitigation Options.

ACOs may elect a "stop-loss arrangement" each performance year, which is designed to reduce the financial uncertainty associated with high-cost expenditures of individual beneficiaries.

The Company has elected participation in the program for the current performance year.

Additionally, CMS has created a mandatory risk corridor program that allocates the ACO's shared savings and losses in bands of percentage thresholds, after a deviation of greater than 25 % of the Performance Year Benchmark.

Performance Guarantees

Certain of the Company's arrangements with third-party providers require it to guarantee the performance of its care network to CMS, which, if not obtained, could potentially result in payment to CMS.

The Non-Insurance performance year obligation and receivable are amortized on a straight-line basis for the amount that represents the completed performance.

The Company is unable to estimate the maximum potential amount of future payments under the guarantee.

This is attributable to the stop-loss arrangement and the corridors (tiered levels) in the arrangement.

A certain percentage of these arrangements will still be the responsibility of the Company, in addition to a number of variables that are not reasonable for the Company to estimate, such as, but not limited to, risk ratings and benchmark trends that have an inestimable impact on the estimate of future payments.

The tables below include the financial statement impacts of the performance guarantee:

(in thousands)

Non-Insurance performance year obligation (1)

15,568 73,844

(1) This obligation represents the consideration due to providers, net of the shared savings or loss for the period and amortization of the liability.

Years ended December 31,

(in thousands)

Amortization of the Non-Insurance performance year receivable $ ( 751,362 ) $ ( 2,385,116 )

Amortization of the Non-Insurance performance year obligation 751,362 2,385,116

Non-Insurance revenue 773,177 2,380,135

Operating Segments

The Company manages its operations based on two reportable operating segments:

Insurance and Non-Insurance.

Through the Insurance segment, the Company provides PPO and HMO plans to Medicare Advantage members in several states.

The Company's Non-Insurance segment consists of its operations in connection with its participation in CMS' Global and Professional Direct Contracting and ACO REACH programs.

All other clinical services and all corporate overhead not included in the Insurance or Non-Insurance segments are included within Corporate/Other.

These segment groupings are consistent with information used by the Chief Executive Officer, the Company's CODM, to assess performance and allocate resources.

The operations of the Company are organized into the following two segments:

• Insurance Segment includes operations related to the Company's MA plans, which generally provide access to a wide network of primary care providers, specialists, and hospitals.

• Non-Insurance Segment includes the Company's operations relating to CMS' ACO REACH Model, which provides options aimed at reducing expenditures and preserving or enhancing quality of care for 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.

Corporate/Other includes other clinical services not included in Medicare Advantage and Global and Professional Direct Contracting Model and all other corporate overhead.

Clinical services is comprised of Clover Home Care and other clinical services that are offered to eligible beneficiaries.

During the first quarter of 2022, the Company updated the names of its Medicare Advantage and Global and Professional Direct Contracting Model segments to the Insurance and Non-Insurance segments, respectively.

The Company believes that this approach better reflects each segment's current role and contribution to its business.

There has been no change to the existing composition of these segments, and previously reported consolidated and segment-level financial results of the Company were not impacted by these changes.

The table below summarizes the Company's results by operating segment:

Insurance Non-Insurance Corporate/Other Eliminations Consolidated Total

Year ended December 31, 2023 (in thousands)

Premiums earned, net (net of ceded premiums of $ 444 )

1,235,769 — — — 1,235,769

Non-Insurance revenue — 773,177 — — 773,177

Other income 10,336 5,267 59,569 ( 50,398 ) 24,774

Intersegment revenues — — 155,089 ( 155,089 ) —

Net medical claims incurred 1,003,683 771,798 17,432 ( 16,525 ) 1,776,388

Gross profit (loss) 242,422 6,646 197,226 ( 188,962 ) 257,332

Total assets 401,812 71,878 873,971 ( 776,990 ) 570,671

Insurance Non-Insurance Corporate/Other Eliminations Consolidated Total

Year ended December 31, 2022 (in thousands)

Premiums earned, net (net of ceded premiums of $ 470 )

1,084,869 — — — 1,084,869

Non-Insurance revenue — 2,380,135 — — 2,380,135

Other income 2,577 1,311 74,610 ( 66,815 ) 11,683

Intersegment revenues — — 108,249 ( 108,249 ) —

Net medical claims incurred 996,410 2,460,879 9,042 ( 12,379 ) 3,453,952

Gross profit (loss) 91,036 ( 79,433 ) 173,817 ( 162,685 ) 22,735

Total assets 354,748 156,754 957,483 ( 660,365 ) 808,620

A reconciliation of the reportable segments' gross profit to the Net loss included in the audited Consolidated Statements of Operations and Comprehensive Loss is as follows:

Year ended December 31,

(in thousands)

Gross profit $ 257,332 $ 22,735

Salaries and benefits 257,157 278,725

General and administrative expenses 187,571 207,917

Impairment of goodwill and other intangible assets

Premium deficiency reserve benefit ( 7,239 ) ( 93,517 )

Depreciation and amortization 2,509 1,187

Restructuring costs 9,931 —

Other expense

Change in fair value of warrants 86 ( 900 )

Interest expense 7 1,333

Amortization of notes and securities discounts — 30

Loss (gain) on investment

4,726 ( 9,217 )

Gain on debt extinguishment on note payable

Net loss $ ( 213,361 ) $ ( 339,567 )

Dividend Restrictions

The Company's regulated insurance subsidiaries are subject to regulations and standards in their respective jurisdictions.

These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital and limit the timing and amount of dividends and other distributions that may be paid to their parent companies.

Therefore, the Company's regulated insurance subsidiaries' ability to declare and pay dividends is limited by state regulations including obtaining prior approval by the New Jersey Department of Banking and Insurance.

At December 31, 2023 and December 31, 2022, neither of the regulated insurance subsidiaries had been authorized nor paid any dividends.

Restructuring Costs

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 (“UST HealthProof”) 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, in April 2023 the Company conducted a reduction in force to better align its Selling, General, and Administrative cost structure with its revenue base.

This restructuring resulted in the elimination of approximately 10 % of the Company's workforce.

The Company incurred costs related to these business transformation initiatives, which consisted of employee termination benefits, vendor related costs, and other costs, which are accounted for as exit and disposal costs and recorded pursuant to ASC 420, Exit or Disposal Cost Obligations.

For those costs determined to be one-time termination benefits the Company established a liability for the restructuring related expenses when the plan was established, the remaining costs will be expensed as incurred.

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.

The Company incurred costs related to not continuing with the program, which consisted of employee termination benefits and are accounted for as exit and disposal costs and recorded pursuant to ASC 420, Exit or Disposal Cost Obligations.

The Restructuring costs are presented in the Company's audited Consolidated Statements of Operations and Comprehensive Loss, which were as follows:

Year ended December 31,

(in thousands)

Employee termination benefits $ 4,905

Vendor related costs 4,939

Total Restructuring costs

UST HealthProof Transition

As of December 31, 2023, the liability for employee termination benefits was recorded in Accrued salaries and benefits and the liability for vendor related costs and other expenses were recorded in Accounts payable and accrued expenses in the Consolidated Balance Sheets.

The liability recorded reflects the Company's best estimate, which may be revised in subsequent periods as the restructuring progresses.

The restructuring costs are recorded within the Corporate/Other operating segment.

In addition, the Company incurred costs related to software impairment.

These costs are recognized within Depreciation and amortization in the audited Consolidated Statements of Operations and Comprehensive Loss, and total $ 0.1 million for the year ended December 31, 2023.

Employee Termination Benefits Vendor related costs Other Total

(in thousands)

Liability as of December 31, 2022

$ — $ — $ — $ —

Charges 4,795 4,939 87 9,821

Cash payments

( 3,014 ) ( 1,549 ) ( 87 ) ( 4,650 )

Liability as of December 31, 2023

$ 1,781 $ 3,390 $ — $ 5,171

Total cumulative costs incurred as of December 31, 2023

$ 4,795 $ 4,939 $ 87 $ 9,821

As of December 31, 2023, the liability for employee termination benefits was recorded in Accrued salaries and benefits in the Consolidated Balance Sheets.

The liability recorded reflects the Company's best estimate, which may be revised in subsequent periods as the restructuring progresses.

The restructuring costs are recorded within the Non-Insurance segment.

In addition, the Company incurred costs related to software impairment.

These costs are recognized within Depreciation and amortization in the audited Consolidated Statement of Operations and Comprehensive Loss, and total $ 0.1 million for the year ended December 31, 2023.

Employee Termination Benefits

(in thousands)

Liability as of December 31, 2022

Cash payments

Liability as of December 31, 2023

Total cumulative costs incurred as of December 31, 2023

Statutory Equity

Applicable insurance department regulations require that the Company's regulated insurance subsidiaries prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the department of insurance of the respective state of domicile.

These practices vary in some aspects from U.S.

GAAP, with significant differences including that (a) certain assets are not included in statutory surplus, (b) certain statutory reserves are established by a direct charge to surplus, and (c) certain charges are reported as charges to capital and surplus, rather than as a component of net income.

The regulated insurance subsidiaries are subject to certain Risk-Based Capital ("RBC") requirements specified by the National Association of Insurance Commissioners ("NAIC").

Under those requirements, the amount of capital and surplus maintained by the Company's regulated insurance subsidiaries is to be determined based on various risk factors, such as (a) asset quality, (b) asset and liability matching, (c) loss reserve adequacy, and other business factors.

Regulatory compliance is determined by a ratio of the Company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC.

Generally, a ratio in excess of the regulatory threshold requires no corrective actions by the Company or regulators.

At December 31, 2023 and 2022, the regulated insurance subsidiaries' capital and surplus of $ 187.4 million and $ 141.4 million, respectively, exceeded the minimum RBC requirements of approximately $ 113.7 million and $ 120.6 million, respectively.

Regulatory Matters

The Company operates in a highly regulated environment.

It is regulated by federal and state of New Jersey regulators.

The Company's regulated insurance subsidiaries must be licensed by and are subject to regulation by New Jersey Department of Banking and Insurance, which requires periodic financial reports and enforces minimum capital and/or reserve requirements.

The laws and regulations governing the Company's business and interpretations of those laws and regulations are subject to frequent change.

Legislative, administrative, and public policy changes to the Health Care Reform Law continue to be debated, and the Company cannot predict if the Health Care Reform Law will be further modified, repealed, or replaced.

The broad latitude given to the agencies administering, interpreting and enforcing current and future regulations governing the Company's business could require the Company to change how it conducts its business, restrict revenue and enrollment growth, increase health care and administrative costs and capital requirements, or expose the Company to increased liability in the courts for coverage determinations, contract interpretation and other actions.

The health care industry is also regularly subject to negative publicity, including as a result of governmental investigations, adverse media coverage and political debate surrounding industry regulation.

Negative publicity may adversely affect the Company's financial position, results of operations and cash flows and damage its reputation.

Subsequent Events

2022 Financial Guarantee

On January 5, 2024, CMS notified the Company that its performance year 2022 financial guarantees were officially released and canceled.

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

CLOVER HEALTH INVESTMENTS, CORP.

CONDENSED BALANCE SHEETS (PARENT COMPANY)

(Dollars in thousands, except share amounts)

Current assets

Cash and cash equivalents $ 48,312 $ 69,718

Short-term investments 454 31,725

Investment securities, available-for sale 23,564 117,834

Investment securities, held-to-maturity 146 —

Other assets, current 247 5,704

Total current assets 72,723 224,981

Intercompany interest receivable 4,958 4,958

Intercompany note receivable 40,000 40,000

Investment securities, available-for-sale 1,507 18,708

Investments in consolidated subsidiaries 197,012 115,571

Total assets $ 316,200 $ 404,218

Liabilities, Convertible Preferred Stock, and Stockholders' Equity

Current liabilities

Accounts payable and accrued expenses

Accrued salaries and benefits

Total current liabilities 7,281 7,441

Intercompany payable

22,165 39,530

Notes payable, net of discount and deferred issuance costs

Total liabilities

29,806 47,331

Stockholders' equity

Class A Common Stock, $ 0.0001 par value;

2,500,000,000 shares authorized at December 31, 2023 and 2022;

401,183,882 and 383,998,718 issued and outstanding at December 31, 2023 and 2022, respectively

Class B Common Stock, $ 0.0001 par value;

500,000,000 shares authorized at December 31, 2023 and 2022;

87,867,732 and 94,394,852 issued and outstanding at December 31, 2023 and 2022, respectively (1)

Additional paid-in capital

2,461,238 2,319,157

Accumulated other comprehensive loss ( 2,370 ) ( 9,374 )

Accumulated deficit

( 2,159,794 ) ( 1,946,433 )

Treasury stock, at cost;

7,912,750 and 2,072,752 shares held at December 31, 2023 and 2022, respectively

( 12,729 ) ( 6,509 )

Total stockholders' equity

286,394 356,887

Total liabilities, convertible preferred stock, and stockholders' equity

$ 316,200 $ 404,218

CLOVER HEALTH INVESTMENTS, CORP.

CONDENSED STATEMENTS OF OPERATIONS (PARENT COMPANY)

(Dollars in thousands, except share amounts)

Years ended December 31,

2023 2022 2021

Other income $ 8,413 $ 5,898 $ 3,938

Total revenues 8,413 5,898 3,938

Operating expenses:

General and administrative expenses

Total operating expenses

Income (loss) from operations

8,335 5,114 3,751

Change in fair value of warrants

— — ( 66,146 )

Interest (income) expense

Amortization of notes and securities discount

Loss (gain) on equity investment

4,726 ( 5,314 ) —

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

Equity in net losses of consolidated subsidiaries

216,970 373,321 648,580

$ ( 213,361 ) $ ( 339,567 ) $ ( 593,957 )

CLOVER HEALTH INVESTMENTS, CORP.

CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY)

(Dollars in thousands, except share amounts)

Years ended December 31,

2023 2022 2021

Cash flows from operating activities:

Net loss $ ( 213,361 ) $ ( 339,567 ) $ ( 593,957 )

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of notes and securities discount and debt issuance costs — — 13,681

Intercompany stock-based compensation expense 140,931 164,305 163,470

Change in fair value of warrants and amortization of warrants — — ( 66,146 )

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

Accretion, net of amortization ( 1,614 ) ( 1,648 ) ( 163 )

Net realized losses on investment securities 4,321 ( 6,613 ) ( 53 )

Changes in operating assets and liabilities:

Other assets 5,464 ( 6,339 ) 165

Accounts payable and accrued expenses ( 182 ) ( 334 ) ( 4,092 )

Intercompany accrued salaries and benefits 22 4,936 1,411

Intercompany payable ( 17,365 ) ( 36,681 ) 48,960

Net cash used in operating activities ( 81,784 ) ( 245,267 ) ( 436,724 )

Cash flows from investing activities:

Purchases of short-term investments and available-for-sale securities ( 57,294 ) ( 250,030 ) ( 689,582 )

Proceeds from sales of short-term investments and available-for-sale securities 30,563 3,829 89,997

Proceeds from maturities of short-term investments available-for-sale securities 173,620 391,643 285,000

Investments in consolidated subsidiaries ( 81,441 ) 58,611 ( 63,622 )

Net cash provided by (used in) investing activities 65,448 204,053 ( 378,207 )

Cash flows from financing activities:

Payment of notes payable principal — — ( 30,925 )

Issuance of common stock, net of early exercise liability 1,150 1,400 6,144

Proceeds from reverse recapitalization, net of transaction costs — — 666,241

Proceeds received for the exercise of Public and Private Warrants — — 390

Issuance of common stock, net of stock issuance costs — — 283,775

Payment for the redemptions of Public Warrants — — ( 85 )

Purchase of Treasury stock ( 6,220 ) ( 6,362 ) ( 147 )

Net cash (used in) provided by financing activities ( 5,070 ) ( 4,962 ) 925,393

Net (decrease) increase in Cash and cash equivalents ( 21,406 ) ( 46,176 ) 110,462

Cash and cash equivalents, beginning of year 69,718 115,894 5,432

Cash and cash equivalents, end of year $ 48,312 $ 69,718 $ 115,894

Supplemental cash flow disclosures

Cash paid during the period for interest — — 1,677

Supplemental disclosure of non-cash investing and financing activities

Conversion of preferred stock to common stock — — 447,747

Issuance of common stock related to convertible debt — — 16,059

Capital contribution for extinguishment of debt — — 126,795

Activities from Seek Dissolution — 735 —

Issuance of common stock related to warrants exercised — — 97,782

Acquisition of public and private warrants — — 147,582

Issuance of common stock related to the exercise of Public and Private Warrants — — 81,283

CLOVER HEALTH INVESTMENTS, CORP.

Notes to Condensed Financial Statements (Parent Company)

Organization and Operations

Clover Health Investments, Corp.

(the "Company") is a holding company incorporated on July 17, 2014, in the state of Delaware.

Summary of Significant Accounting Policies

The accompanying Financial Statements have been prepared using the equity method.

Under the equity method, the investment in consolidated subsidiaries is stated at cost plus equity in undistributed earnings of consolidated subsidiaries since the date of acquisition.

These Financial Statements should be read in conjunction with the Company's consolidated financial statements.

Use of estimates

The preparation of the financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.

Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates.

Insurance Subsidiaries

Investments in consolidated subsidiaries include regulated insurance subsidiaries and unregulated subsidiaries.

The Company holds $ 83.2 million and $ 249.7 million of cash, cash equivalents, and investment securities at the parent and unregulated subsidiaries at December 31, 2023 and 2022, respectively.

The Company holds $ 280.5 million and $ 224.8 million of cash, cash equivalents, and investment securities in regulated insurance subsidiaries at December 31, 2023 and 2022, respectively.

Effective December 22, 2016, the Company contributed $ 40.0 million to Clover Insurance Company, a wholly-owned subsidiary, in exchange for a surplus note.

The outstanding balance, including accrued interest, was due and payable on December 31, 2020, but remains unpaid with the payment terms under review for extension until December 31, 2024, by the Commissioner of Banking and Insurance of the State of New Jersey.

No payment of principal or interest on the surplus note shall be made without the prior written approval of the Commissioner of Banking and Insurance of the State of New Jersey.

CLOVER HEALTH INVESTMENTS, CORP.

VALUATION AND QUALIFYING ACCOUNTS

of period Charged to

expenses Charge to other

accounts (Deductions) Balance at

end of period

(in thousands)

Year ended December 31, 2022

Valuation allowance for deferred tax assets $ 275,865 $ 93,665 $ — $ — $ 369,530

Year ended December 31, 2023

Valuation allowance for deferred tax assets 369,530 27,376 — — 396,906

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 7A. Quantitative and Qualitative Disclosures About Market Risk