UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 19, 2020
Social Capital Hedosophia Holdings Corp. III
(Exact name of registrant as specified in its charter)
| Cayman Islands | 001-39252 | 98-1515192 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| 317 University Ave, Suite 200 Palo Alto, California |
94301 | |
| (Address of principal executive offices) | (Zip Code) |
(650) 521-9007
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Units, each consisting of one Class A ordinary share and one-third of one redeemable warrant | IPOC.U | New York Stock Exchange | ||
| Class A ordinary shares, par value $0.0001 per share | IPOC | New York Stock Exchange | ||
| Redeemable warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 | IPOC.WS | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 7.01 | Regulation FD Disclosure |
On November 19, 2020, Social Capital Hedosophia Holdings Corp. III (“SCH”) and Clover Health Investments, Corp. (“Clover”) released an analyst presentation (the “Analyst Presentation”) for use in connection with the proposed transaction pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 5, 2020, by and among SCH, Clover and Asclepius Merger Sub Inc., a Delaware corporation and a direct wholly owned subsidiary of SCH. A copy of the Analyst Presentation is attached hereto as Exhibit 99.1 and incorporated by reference herein.
The information in this Item 7.01, including Exhibit 99.1, is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liabilities under that section, and shall not be deemed to be incorporated by reference into the filings of SCH under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filings. This Current Report on Form 8-K will not be deemed an admission as to the materiality of any information contained in this Item 7.01, including Exhibit 99.1.
Additional Information and Where to Find It
This Current Report on Form 8-K relates to a proposed transaction between Clover and SCH. This Current Report on From 8-K does not constitute an offer to sell or exchange, or the solicitation of an offer to buy or exchange, any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, sale or exchange would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed transaction, SCH filed a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) on October 20, 2020. SCH also will file other documents regarding the proposed transaction with the SEC. Before making any voting decision, investors and security holders of SCH are urged to read the registration statement, the proxy statement/prospectus included therein and all other relevant documents filed or that will be filed with the SEC in connection with the proposed transaction as they become available because they will contain important information about the proposed transaction.
Investors and security holders may obtain free copies of the registration statement, the proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC by SCH through the website maintained by the SEC at www.sec.gov.
The documents filed by SCH with the SEC also may be obtained free of charge at SCH’s website at http://www.socialcapitalhedosophiaholdings.com/docsc.html or upon written request to 317 University Ave, Suite 200, Palo Alto, California 94301.
Participants in Solicitation
SCH and Clover and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from SCH’s shareholders in connection with the proposed transaction. Additional information regarding the interests of those persons and other persons who may be deemed participants in the proposed transaction may be obtained by reading the proxy statement/prospectus regarding the proposed transaction. You may obtain a free copy of these documents as described in the preceding paragraph.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K contains certain forward-looking statements within the meaning of the federal securities laws with respect to the proposed transaction between Clover and SCH. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this document, including but not limited to: (i) the risk that the transaction may not be completed in a timely manner or at all, which may adversely affect the price of SCH’s securities, (ii) the risk that the transaction may not be completed by SCH’s business combination deadline and the potential failure to obtain an extension of the business combination deadline if sought by SCH, (iii) the failure to satisfy the conditions to the consummation of the transaction, including the adoption of the Merger Agreement by the shareholders of SCH, the satisfaction of the minimum trust account amount following redemptions by SCH’s public shareholders and the receipt of certain governmental and regulatory approvals, (iv) the lack of a third party valuation in determining whether or not to pursue
1
the proposed transaction, (v) the inability to complete the PIPE investment in connection with the transaction, (vi) the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement, (vii) the effect of the announcement or pendency of the transaction on Clover’s business relationships, operating results and business generally, (viii) risks that the proposed transaction disrupts current plans and operations of Clover and potential difficulties in Clover employee retention as a result of the transaction, (ix) the outcome of any legal proceedings that may be instituted against Clover or against SCH related to the Merger Agreement or the transaction, (x) the ability to maintain the listing of SCH’s securities on a national securities exchange, (xi) the price of SCH’s securities may be volatile due to a variety of factors, including changes in the competitive and highly regulated industries in which SCH plans to operate or Clover operates, variations in operating performance across competitors, changes in laws and regulations affecting SCH’s or Clover’s business and changes in the combined capital structure, (xii) the ability to implement business plans, forecasts, and other expectations after the completion of the proposed transaction, and identify and realize additional opportunities, and (xiii) the risk of downturns and a changing regulatory landscape in the highly competitive healthcare industry. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties described in the “Risk Factors” section of SCH’s registration statement on Form S-1 (File No. 333-236776), the registration statement on Form S-4 relating to the business combination, filed by SCH with the SEC on October 20, 2020 (File No. 333-249558) and other documents filed by SCH from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and Clover and SCH assume no obligation and do not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise. Neither Clover nor SCH gives any assurance that either Clover or SCH, or the combined company, will achieve its expectations.
| Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit |
Description | |
| 99.1 | Analyst Presentation, dated as of November 19, 2020 | |
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Social Capital Hedosophia Holdings Corp. III | ||||||
| Date: November 19, 2020 | By: | /s/ Chamath Palihapitiya | ||||
| Name: | Chamath Palihapitiya | |||||
| Title: | Chief Executive Officer | |||||
Exhibit 99.1Exhibit 99.1
ff ff ff 2ff ff ff 2
ff ff 3ff ff 3
44
55
6 Source: CMS, Kaiser Family Foundation, L.E.K.6 Source: CMS, Kaiser Family Foundation, L.E.K.
77
• • Data • • Data Platform • • The Clover Assistant • 8 Closed loop system• • Data • • Data Platform • • The Clover Assistant • 8 Closed loop system
Combining Rich Data With Action Other Payors HCIT Big Tech Limited Data Actionability Engaging 9 Data Richness Shallow DeepCombining Rich Data With Action Other Payors HCIT Big Tech Limited Data Actionability Engaging 9 Data Richness Shallow Deep
1010
With the Clover Assistant, accurate risk adjustment comes as a by-product of improved decision- making and, most importantly, leads to earlier treatment of conditions. 11With the Clover Assistant, accurate risk adjustment comes as a by-product of improved decision- making and, most importantly, leads to earlier treatment of conditions. 11
✓ ✓ ✓ ✓ ✓ ✓ 12✓ ✓ ✓ ✓ ✓ ✓ 12
In just over 2 years since product launch, we have (2) over 2k highly engaged physicians contracted to use the CA across geographies and practice types. 13 (1) Based on estimated CMS 2021 base Medicare reimbursement fee rate for primary care visit. (2) Excludes physicians contracted for Direct Contracting program.In just over 2 years since product launch, we have (2) over 2k highly engaged physicians contracted to use the CA across geographies and practice types. 13 (1) Based on estimated CMS 2021 base Medicare reimbursement fee rate for primary care visit. (2) Excludes physicians contracted for Direct Contracting program.
3 weeks 92% +59 68% Physician feedback Onboarded PCPs used Trailing 6-month Net Of CA physicians work helps drive new product the CA for 92% of Promoter Score from in practices with 10 or releases on average eligible visits in 2019 physician survey less physicians every 3 weeks 22 4 days 11% 1 hour E&M codes no longer Of time between Clover Of surveyed Clover necessary given Clover Assistant visit Of onboarding training Assistant physicians do Assistant payment completion and needed not have an EHR structure payment on average 2k 0.81 1,100 11k+ Medication adjustment Net new diagnoses and bp differential in MCR Care plans managed by Clover Assistant care plans confirmed for Clover Assistant the Clover Assistant per prompts accepted per per member via Clover panels vs. non-Clover (1) month on average (2) (3) month on average Assistant suggestion Assistant PCP panels (1) In 2020 through October. Includes providing education about disease management, prescribing relevant prescriptions, and ensuring that labs are up to date. (2) In 2020 through October. Includes moving a member to longer prescription lengths (shown to increase adherence), adjusting medication intensity in concordance with clinical guidelines, or renewing a 14 prescription that has been lapsed. (3) In 2020 through October. Net new indicates diagnoses of which Clover did not have a record in the year prior. 3 weeks 92% +59 68% Physician feedback Onboarded PCPs used Trailing 6-month Net Of CA physicians work helps drive new product the CA for 92% of Promoter Score from in practices with 10 or releases on average eligible visits in 2019 physician survey less physicians every 3 weeks 22 4 days 11% 1 hour E&M codes no longer Of time between Clover Of surveyed Clover necessary given Clover Assistant visit Of onboarding training Assistant physicians do Assistant payment completion and needed not have an EHR structure payment on average 2k 0.81 1,100 11k+ Medication adjustment Net new diagnoses and bp differential in MCR Care plans managed by Clover Assistant care plans confirmed for Clover Assistant the Clover Assistant per prompts accepted per per member via Clover panels vs. non-Clover (1) month on average (2) (3) month on average Assistant suggestion Assistant PCP panels (1) In 2020 through October. Includes providing education about disease management, prescribing relevant prescriptions, and ensuring that labs are up to date. (2) In 2020 through October. Includes moving a member to longer prescription lengths (shown to increase adherence), adjusting medication intensity in concordance with clinical guidelines, or renewing a 14 prescription that has been lapsed. (3) In 2020 through October. Net new indicates diagnoses of which Clover did not have a record in the year prior.
• • • 15• • • 15
Clover generates program savings across a greater scale of the eligible population by having more accurate identification and higher engagement. 16Clover generates program savings across a greater scale of the eligible population by having more accurate identification and higher engagement. 16
• • • • 17• • • • 17
Note: MCR is not a direct equivalent of the federal MLR. CMS does not regulate MCR, but does put an 85% minimum threshold on MLR. Unlike MCR, MLR takes into account, in its numerator, quality improvement expenditures, which would include Clover’s investment in technology for clinical care capabilities. 18 (1) Theoretical minimum MCR for this Star rating. In practice, Clover will cede some margin back to members in the form of more obvious plan designs, consistent with our growth strategy. (2) Based on company analysis of plan design differential, including out-of-pocket cost differential and cost differential of offering an HMO vs. a PPO.Note: MCR is not a direct equivalent of the federal MLR. CMS does not regulate MCR, but does put an 85% minimum threshold on MLR. Unlike MCR, MLR takes into account, in its numerator, quality improvement expenditures, which would include Clover’s investment in technology for clinical care capabilities. 18 (1) Theoretical minimum MCR for this Star rating. In practice, Clover will cede some margin back to members in the form of more obvious plan designs, consistent with our growth strategy. (2) Based on company analysis of plan design differential, including out-of-pocket cost differential and cost differential of offering an HMO vs. a PPO.
(1) In 2020 through October. Represents net new diagnoses surfaced and confirmed via machine learning and clinical rules within our technology platform. (2) Compared to propensity-matched control group from May 2017 to Q1 2020. (3) Compared to members who see a non-CA PCP. Figures represent Q1 2020 results. 19 (4) Compared to members who see a non-CA PCP. Figures represent Q1 2020 results. MCR = Medical Expenses / Premium Revenue.(1) In 2020 through October. Represents net new diagnoses surfaced and confirmed via machine learning and clinical rules within our technology platform. (2) Compared to propensity-matched control group from May 2017 to Q1 2020. (3) Compared to members who see a non-CA PCP. Figures represent Q1 2020 results. 19 (4) Compared to members who see a non-CA PCP. Figures represent Q1 2020 results. MCR = Medical Expenses / Premium Revenue.
We estimate an improvement from 3.0 to 3.5 Stars and from 3.5 Stars to 4.0 Stars would each yield ~500 bps (total of ~1,000 bps) improvement in revenue to be reinvested into more benefits for our members, consistent with our growth strategies. 20 (1) Based on recommendations from the Medicare Payment Advisory Commission, an independent, non-partisan legislative branch agency. The agency released a report to Congress in June 2020 titled, “Medicare and the Health Care Delivery System,” in which the Stars program is discussed.We estimate an improvement from 3.0 to 3.5 Stars and from 3.5 Stars to 4.0 Stars would each yield ~500 bps (total of ~1,000 bps) improvement in revenue to be reinvested into more benefits for our members, consistent with our growth strategies. 20 (1) Based on recommendations from the Medicare Payment Advisory Commission, an independent, non-partisan legislative branch agency. The agency released a report to Congress in June 2020 titled, “Medicare and the Health Care Delivery System,” in which the Stars program is discussed.
Upending the Trade-off: Access vs Cost Is my PCP in the network? Is my hospital in the network? Typical PPOs Is my specialist in the network? Are drugs covered? Typical HMOs High Low Annual Cost What is the plan going to cost me? We offer plans with the access of a PPO at lower than HMO costs. 21 Access Narrow OpenUpending the Trade-off: Access vs Cost Is my PCP in the network? Is my hospital in the network? Typical PPOs Is my specialist in the network? Are drugs covered? Typical HMOs High Low Annual Cost What is the plan going to cost me? We offer plans with the access of a PPO at lower than HMO costs. 21 Access Narrow Open
Note: Assumes lifetime of 7 years (1) Company analysis. Competitor column represents MA plans offered by the competitor with largest market share in the five counties where Clover has the most members. (2) Kaiser Family Foundation. (3) Calculated assuming a 20% coinsurance rate applied to the estimated 2021 primary care visit cost of $103 and level 5 E/M visit cost of $148 respectively (from CMS). 22 (4) 2016 average out-of-pocket spending on medical and long-term care services (from Kaiser Family Foundation). (5) Members with the federal low-income subsidy (LIS) pay $0; $200 represents an average that is comparable to our competitors after considering the LIS.Note: Assumes lifetime of 7 years (1) Company analysis. Competitor column represents MA plans offered by the competitor with largest market share in the five counties where Clover has the most members. (2) Kaiser Family Foundation. (3) Calculated assuming a 20% coinsurance rate applied to the estimated 2021 primary care visit cost of $103 and level 5 E/M visit cost of $148 respectively (from CMS). 22 (4) 2016 average out-of-pocket spending on medical and long-term care services (from Kaiser Family Foundation). (5) Members with the federal low-income subsidy (LIS) pay $0; $200 represents an average that is comparable to our competitors after considering the LIS.
Clover today only offers plans in markets that service 3.1mm lives The Medicare Advantage market is expected to grow 14% annually from $270bn to $590bn Clover has over 50% take rate (1) across established markets Between market growth, take rate in existing markets, and new market expansion, we believe Clover has multiple levers to enable sustained above-average growth for many years to come. (1) Take rate defined as Clover’s net membership growth as a percentage of the market’s net membership growth from December to May in a given period (i.e., prior to and after the impact of the Annual Election and Open Enrollment periods). We define established markets to include markets in which we have over 500 members in December (i.e., prior to the reference period). Our established markets currently represent 13 of our 34 counties, as of 2020. Clover currently offers only individual, non-SNP MA plans and thus uses individual, non-SNP market sizes to calculate market share and 23 take rate. Source: CMS. (2) Assuming Individual, non-SNP MA market as a percentage of total MA holds from 2019 to 2025.Clover today only offers plans in markets that service 3.1mm lives The Medicare Advantage market is expected to grow 14% annually from $270bn to $590bn Clover has over 50% take rate (1) across established markets Between market growth, take rate in existing markets, and new market expansion, we believe Clover has multiple levers to enable sustained above-average growth for many years to come. (1) Take rate defined as Clover’s net membership growth as a percentage of the market’s net membership growth from December to May in a given period (i.e., prior to and after the impact of the Annual Election and Open Enrollment periods). We define established markets to include markets in which we have over 500 members in December (i.e., prior to the reference period). Our established markets currently represent 13 of our 34 counties, as of 2020. Clover currently offers only individual, non-SNP MA plans and thus uses individual, non-SNP market sizes to calculate market share and 23 take rate. Source: CMS. (2) Assuming Individual, non-SNP MA market as a percentage of total MA holds from 2019 to 2025.
Our attention has been focused on our initial, now established markets. With the capital from this transaction, we believe that we can scale our model more rapidly – accelerating our potential growth trajectory in 2023+ by adding millions of Medicare-eligibles to our addressable population. Source: CMS 24 (1) We define established markets to include markets in which we have over 500 members in December (i.e., prior to the reference period). Our established markets currently represent 13 of our 34 counties, as of 2020. Market share defined as plan members as a percentage of the individual, non-SNP market in defined counties. Our attention has been focused on our initial, now established markets. With the capital from this transaction, we believe that we can scale our model more rapidly – accelerating our potential growth trajectory in 2023+ by adding millions of Medicare-eligibles to our addressable population. Source: CMS 24 (1) We define established markets to include markets in which we have over 500 members in December (i.e., prior to the reference period). Our established markets currently represent 13 of our 34 counties, as of 2020. Market share defined as plan members as a percentage of the individual, non-SNP market in defined counties.
While we’ve begun our efforts in Medicare Advantage, we believe the Clover Assistant can scale in many ways. 25While we’ve begun our efforts in Medicare Advantage, we believe the Clover Assistant can scale in many ways. 25
Our play in DC is a natural extension of the Clover Assistant platform, adding significantly more lives under management from a physician panel. 26Our play in DC is a natural extension of the Clover Assistant platform, adding significantly more lives under management from a physician panel. 26
2727
200k 10 months >50% 8 Expected total lives in Of contracting in 2020 Acceptance rate with States with contracted 2021 with 100% CA ahead of launch independent practices physicians in 2021 coverage >1k >120k 500k+ >1,500 Unique beneficiaries Expected 2021 lives Projected total lives in Individual PCPs per signed contract on attributed via claims 2022 with 100% CA contracted average alignment coverage 28200k 10 months >50% 8 Expected total lives in Of contracting in 2020 Acceptance rate with States with contracted 2021 with 100% CA ahead of launch independent practices physicians in 2021 coverage >1k >120k 500k+ >1,500 Unique beneficiaries Expected 2021 lives Projected total lives in Individual PCPs per signed contract on attributed via claims 2022 with 100% CA contracted average alignment coverage 28
We believe our focus on open networks and software-driven care management makes this playbook among the most scalable in all of healthcare. 29We believe our focus on open networks and software-driven care management makes this playbook among the most scalable in all of healthcare. 29
• • • — • — — • — — • — • — • — • — 30 (1) Medicare Shared Savings Programs. Source: https://avalere.com/press-releases/physician-led-accountable-care-organizations-outperform-hospital-led-counterparts• • • — • — — • — — • — • — • — • — 30 (1) Medicare Shared Savings Programs. Source: https://avalere.com/press-releases/physician-led-accountable-care-organizations-outperform-hospital-led-counterparts
Note: This slide illustrates the functionality that Clover is currently in the process of developing for the Clover Assistant. It is intended as a design concept and does not represent a screenshot of the Clover 31 Assistant in active use today. The final product may evolve and appear significantly different than what appears on this slide.Note: This slide illustrates the functionality that Clover is currently in the process of developing for the Clover Assistant. It is intended as a design concept and does not represent a screenshot of the Clover 31 Assistant in active use today. The final product may evolve and appear significantly different than what appears on this slide.
Note: This slide illustrates the functionality that Clover is currently in the process of developing for the Clover Assistant. It is intended as a design concept and does not represent a screenshot of the Clover 32 Assistant in active use today. The final product may evolve and appear significantly different than what appears on this slide.Note: This slide illustrates the functionality that Clover is currently in the process of developing for the Clover Assistant. It is intended as a design concept and does not represent a screenshot of the Clover 32 Assistant in active use today. The final product may evolve and appear significantly different than what appears on this slide.
Note: This slide illustrates the functionality that Clover is currently in the process of developing for the Clover Assistant. It is intended as a design concept and does not represent a screenshot of the Clover 33 Assistant in active use today. The final product may evolve and appear significantly different than what appears on this slide.Note: This slide illustrates the functionality that Clover is currently in the process of developing for the Clover Assistant. It is intended as a design concept and does not represent a screenshot of the Clover 33 Assistant in active use today. The final product may evolve and appear significantly different than what appears on this slide.
3434
3636
37 (1) MCR is not a direct equivalent of the federal MLR. CMS does not regulate MCR, but does put an 85% minimum threshold on MLR. 37 (1) MCR is not a direct equivalent of the federal MLR. CMS does not regulate MCR, but does put an 85% minimum threshold on MLR.
(in millions) 2018A 2019A Counties 19 26 Average Membership 31,485 41,165 YoY Growth (%) 31% (1) Total Revenue $358 $462 YoY Growth (%) 29% (2) Total Medical Costs $343 $450 YoY Growth (%) 31% Gross Profit $15 $12 Gross Margin (%) 4.1% 2.5% MCR, Gross 97.1% 98.8% (3) Operating Expenses $188 $186 Other Income (Expenses) ($29) ($190) Net Loss ($202) ($364) (4) Adjusted EBITDA ($177) ($175) Adjusted EBITDA Margin (%) (50.1%) (38.3%) (1) Represents a non-GAAP financial measure. Non-GAAP Total Revenue differs from Total Revenue on a GAAP basis by adjusting for $67mm in ceded premiums. (2) Represents a non-GAAP financial measure. Non-GAAP Total Medical Costs differ from Total Medical Costs on a GAAP basis by adjusting for $64mm in ceded claims. (3) Operating Expense includes Salaries and Benefits and General and Administrative Expenses per GAAP presentation (4) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense and amortization of notes and securities discounts, provision for income taxes, depreciation and amortization expense, change in fair value of warrants expense, loss (gain) on derivative, restructuring cost, stock-based compensation expense and health insurance industry fee. Adjusted EBITD Margin is defined as Adjusted EBITDA divided by Gross Premium Revenue. See Reconciliation in Appendix for historical numbers. 38 (5) Reflect individual, non-SNP market of 19 markets Clover offered plans in 2018 (6) Calculated based on internal Clover data on Non-ESRD Members vs. PMPM’s as published in the CMS Final 2021 Rate Announcement, Dated April 6, 2020(in millions) 2018A 2019A Counties 19 26 Average Membership 31,485 41,165 YoY Growth (%) 31% (1) Total Revenue $358 $462 YoY Growth (%) 29% (2) Total Medical Costs $343 $450 YoY Growth (%) 31% Gross Profit $15 $12 Gross Margin (%) 4.1% 2.5% MCR, Gross 97.1% 98.8% (3) Operating Expenses $188 $186 Other Income (Expenses) ($29) ($190) Net Loss ($202) ($364) (4) Adjusted EBITDA ($177) ($175) Adjusted EBITDA Margin (%) (50.1%) (38.3%) (1) Represents a non-GAAP financial measure. Non-GAAP Total Revenue differs from Total Revenue on a GAAP basis by adjusting for $67mm in ceded premiums. (2) Represents a non-GAAP financial measure. Non-GAAP Total Medical Costs differ from Total Medical Costs on a GAAP basis by adjusting for $64mm in ceded claims. (3) Operating Expense includes Salaries and Benefits and General and Administrative Expenses per GAAP presentation (4) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense and amortization of notes and securities discounts, provision for income taxes, depreciation and amortization expense, change in fair value of warrants expense, loss (gain) on derivative, restructuring cost, stock-based compensation expense and health insurance industry fee. Adjusted EBITD Margin is defined as Adjusted EBITDA divided by Gross Premium Revenue. See Reconciliation in Appendix for historical numbers. 38 (5) Reflect individual, non-SNP market of 19 markets Clover offered plans in 2018 (6) Calculated based on internal Clover data on Non-ESRD Members vs. PMPM’s as published in the CMS Final 2021 Rate Announcement, Dated April 6, 2020
(in millions) Q120A Q220A Q320A YTD 20A Counties 34 Average Membership 55,444 56,782 57,315 56,519 Growth Q3 YTD 20 vs. Q3 YTD 19 (%) 39% (1) Total Revenue $166 $172 $169 $507 Growth Q3 YTD 20 vs. Q3 YTD 19 (%) 46% Medical Costs $146 $120 $145 $411 Growth Q3 YTD 20 vs. Q3 YTD 19 (%) 22% Gross Profit $20 $52 $24 $96 Gross Margin (%) 11.6% 30.5% 14.2% 18.9% MCR, Net 89.4% 70.1% 86.7% 81.9% (2) Operating Expenses $50 $41 $46 $137 Other Income (Expenses) $2 ($6) $35 $31 Net (Loss) Income ($28) $5 $13 ($10) (3) Adjusted EBITDA ($22) $29 ($18) ($11) Adjusted EBITDA Margin (%) (13.2%) 16.9% (10.9%) (2.2%) (1) Total Revenue includes Premium Revenue (Net) and Other/Investment Income. (2) Operating Expense includes Salaries and Benefits and General and Administrative Expenses per GAAP presentation (3) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense and amortization of notes and securities discounts, provision for income taxes, depreciation and amortization expense, change in fair value of warrants expense, loss (gain) on derivative, restructuring cost, stock-based compensation expense and health insurance industry fee. Adjusted EBITD Margin is defined as Adjusted EBITDA divided by Gross Premium Revenue. 39 (4) Reflect individual, non-SNP market of 19 markets Clover offered plans in 2018. (in millions) Q120A Q220A Q320A YTD 20A Counties 34 Average Membership 55,444 56,782 57,315 56,519 Growth Q3 YTD 20 vs. Q3 YTD 19 (%) 39% (1) Total Revenue $166 $172 $169 $507 Growth Q3 YTD 20 vs. Q3 YTD 19 (%) 46% Medical Costs $146 $120 $145 $411 Growth Q3 YTD 20 vs. Q3 YTD 19 (%) 22% Gross Profit $20 $52 $24 $96 Gross Margin (%) 11.6% 30.5% 14.2% 18.9% MCR, Net 89.4% 70.1% 86.7% 81.9% (2) Operating Expenses $50 $41 $46 $137 Other Income (Expenses) $2 ($6) $35 $31 Net (Loss) Income ($28) $5 $13 ($10) (3) Adjusted EBITDA ($22) $29 ($18) ($11) Adjusted EBITDA Margin (%) (13.2%) 16.9% (10.9%) (2.2%) (1) Total Revenue includes Premium Revenue (Net) and Other/Investment Income. (2) Operating Expense includes Salaries and Benefits and General and Administrative Expenses per GAAP presentation (3) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense and amortization of notes and securities discounts, provision for income taxes, depreciation and amortization expense, change in fair value of warrants expense, loss (gain) on derivative, restructuring cost, stock-based compensation expense and health insurance industry fee. Adjusted EBITD Margin is defined as Adjusted EBITDA divided by Gross Premium Revenue. 39 (4) Reflect individual, non-SNP market of 19 markets Clover offered plans in 2018.
40 (1) We saw earlier and more long-term script refills in anticipation of the pandemic. (2) As an illustrative example, Humana’s FY2019 Benefits / Premiums resulted in a loss ratio of 85.6%. Humana’s Q1 2019 Benefits / Premiums resulted in a loss ratio of 86.2%.40 (1) We saw earlier and more long-term script refills in anticipation of the pandemic. (2) As an illustrative example, Humana’s FY2019 Benefits / Premiums resulted in a loss ratio of 85.6%. Humana’s Q1 2019 Benefits / Premiums resulted in a loss ratio of 86.2%.
(1) Metric 2021E 2022E 2023E Long-Term Commentary (1) Clover’s formal 2021 outlook will be provided in early 2021, after the completion of AEP and following further CMS guidance on Direct Contracting (2) Excludes Direct Contracting and any other non-MA subsidiaries/entities. (3) Represents average number of members projected over the course of the year. Includes growth through AEP prior to the year and then OEP and SEP during the year. 41 (4) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense and amortization of notes and securities discounts, provision for income taxes, depreciation and amortization expense, change in fair value of warrants expense, loss (gain) on derivative, restructuring cost, stock-based compensation expense and health insurance industry fee. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Gross Premium Revenue. (1) Metric 2021E 2022E 2023E Long-Term Commentary (1) Clover’s formal 2021 outlook will be provided in early 2021, after the completion of AEP and following further CMS guidance on Direct Contracting (2) Excludes Direct Contracting and any other non-MA subsidiaries/entities. (3) Represents average number of members projected over the course of the year. Includes growth through AEP prior to the year and then OEP and SEP during the year. 41 (4) Adjusted EBITDA is a non-GAAP financial measure defined by us as net loss before interest expense and amortization of notes and securities discounts, provision for income taxes, depreciation and amortization expense, change in fair value of warrants expense, loss (gain) on derivative, restructuring cost, stock-based compensation expense and health insurance industry fee. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Gross Premium Revenue.
(1) (1) (1) Theoretical maximum MCR impact from incremental Star rating. In practice, Clover will cede some margin back to members in the form of more 42 obvious plan designs, consistent with our growth strategy.(1) (1) (1) Theoretical maximum MCR impact from incremental Star rating. In practice, Clover will cede some margin back to members in the form of more 42 obvious plan designs, consistent with our growth strategy.
5% 10% 21% 64% 43 Source: Latest Estimate, updated from S-4 filed with the SEC on 10/20/205% 10% 21% 64% 43 Source: Latest Estimate, updated from S-4 filed with the SEC on 10/20/20
• • • • • • • • • • • 45• • • • • • • • • • • 45
4646
47 (1) Based on estimated CMS 2021 base Medicare reimbursement fee rate for primary care visit.47 (1) Based on estimated CMS 2021 base Medicare reimbursement fee rate for primary care visit.
` 2018A 2019A Q120A Q220A Q320A YTD20A Net Loss ($201.9) ($363.7) ($28.2) $5.4 $12.8 ($10.0) Adjustments: Interest Expense 7.0 23.2 7.8 8.4 9.2 25.6 Amortization of Notes and Securities Discounts - 15.9 5.7 4.8 4.4 14.9 Income Taxes - - - - - - Depreciation and Amortization 0.5 0.6 0.1 0.2 0.1 0.4 Change in Fair Value of Warrant Expense 8.3 2.9 2.2 9.6 20.0 31.9 Loss (gain) on Derivative - 138.6 (14.2) (5.1) (68.0) (87.4) Restructuring Cost 0.9 3.9 0.6 1.8 0.3 2.7 Stock-based Compensation 3.6 3.3 2.0 1.5 1.5 4.9 Health Insurance Industry Fee 4.6 - 2.3 2.3 1.5 6.0 Adjusted EBITDA ($177.1) ($175.4) ($21.7) $28.9 $(18.2) $(11.0) Premiums Earned, Gross $353.9 $457.8 163.8 $170.4 $167.2 $501.5 Adjusted EBITDA Margin (50.1%) (38.3%) (13.2%) 16.9% (10.9%) (2.2%) A reconciliation of net loss/income to adjusted EBITDA as projected for 2020-2023 is not provided. Clover does not forecast net loss/income as it cannot, without unreasonable effort, estimate or predict with certainty various individual components of net income, including changes in the fair value of warrants or derivatives. Additionally, discrete tax items could drive variability in our projected effective tax rate. All of these components could significantly impact such financial measures. Further, in the future, other items with similar characteristics to those currently included in adjusted EBITDA, that have a similar impact on comparability of periods, and 48 which are not known at this time, may exist and impact adjusted EBITDA. Reflects an update to presentation materials dated 9/28.` 2018A 2019A Q120A Q220A Q320A YTD20A Net Loss ($201.9) ($363.7) ($28.2) $5.4 $12.8 ($10.0) Adjustments: Interest Expense 7.0 23.2 7.8 8.4 9.2 25.6 Amortization of Notes and Securities Discounts - 15.9 5.7 4.8 4.4 14.9 Income Taxes - - - - - - Depreciation and Amortization 0.5 0.6 0.1 0.2 0.1 0.4 Change in Fair Value of Warrant Expense 8.3 2.9 2.2 9.6 20.0 31.9 Loss (gain) on Derivative - 138.6 (14.2) (5.1) (68.0) (87.4) Restructuring Cost 0.9 3.9 0.6 1.8 0.3 2.7 Stock-based Compensation 3.6 3.3 2.0 1.5 1.5 4.9 Health Insurance Industry Fee 4.6 - 2.3 2.3 1.5 6.0 Adjusted EBITDA ($177.1) ($175.4) ($21.7) $28.9 $(18.2) $(11.0) Premiums Earned, Gross $353.9 $457.8 163.8 $170.4 $167.2 $501.5 Adjusted EBITDA Margin (50.1%) (38.3%) (13.2%) 16.9% (10.9%) (2.2%) A reconciliation of net loss/income to adjusted EBITDA as projected for 2020-2023 is not provided. Clover does not forecast net loss/income as it cannot, without unreasonable effort, estimate or predict with certainty various individual components of net income, including changes in the fair value of warrants or derivatives. Additionally, discrete tax items could drive variability in our projected effective tax rate. All of these components could significantly impact such financial measures. Further, in the future, other items with similar characteristics to those currently included in adjusted EBITDA, that have a similar impact on comparability of periods, and 48 which are not known at this time, may exist and impact adjusted EBITDA. Reflects an update to presentation materials dated 9/28.