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clover?fl2w
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 001-39252
________________________________________
Clover Health Investments, Corp.
(Exact Name of Registrant as Specified in its Charter)
________________________________________
Delaware98-1515192
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3401 Mallory Lane, Suite 210
Franklin, Tennessee
37067
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (201) 432-2133
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareCLOVThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  o    No  x
At November 1, 2023, the registrant had 399,776,205 shares of Class A Common Stock, $0.0001 par value per share, and 87,867,732 shares of Class B Common Stock, $0.0001 par value per share, issued and outstanding.


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As used in this report, "Company," "Clover," "Clover Health," "we," "us," "our," "our company," and similar terms refer to Clover Health Investments, Corp. and its consolidated subsidiaries, unless otherwise noted or the context otherwise requires.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements contained in this document other than statements of historical fact, including statements regarding our future results of operations, financial position, market size and opportunity, our business strategy and plans, the factors affecting our performance and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "should," "would," "can," "expect," "project," "outlook," "forecast," "objective," "plan," "potential," "seek," "grow," "target," "if," and the negative or plural of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including the risk factors described in our filings with the Securities and Exchange Commission (the "SEC"). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this document may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this document involve a number of judgments, risks and uncertainties, including, without limitation, risks related to:

our expectations regarding results of operations, financial condition, and cash flows;
our expectations regarding the development and management of our Insurance and Non-Insurance businesses;
our ability to successfully enter new service markets and manage our operations;
anticipated trends and challenges in our business and in the markets in which we operate;
our ability to effectively manage our beneficiary base and provider network;
our ability to maintain and increase adoption and use of Clover Assistant;
the anticipated benefits associated with the use of Clover Assistant, including our ability to utilize the platform to manage our medical care ratios;
our ability to maintain or improve our Star Ratings or otherwise continue to improve the financial performance of our business;
our ability to develop new features and functionality that meet market needs and achieve market acceptance;
our ability to retain and hire necessary employees and staff our operations appropriately;
the timing and amount of certain investments in growth;
the outcome of any known and unknown litigation and regulatory proceedings;
any current, pending, or future legislation, regulations or policies that could have a negative effect on our revenue and businesses, including rules, regulations, and policies relating to healthcare and Medicare;
fluctuations in the price of our Class A common stock and our continued compliance with Nasdaq's listing requirements;
our ability to maintain, protect, and enhance our intellectual property;
general economic conditions and uncertainty, including the societal and economic impact of the COVID-19 pandemic and its variants;
persistent high inflation and interest rates; and
geopolitical uncertainty and instability.

We caution you that the foregoing list of judgments, risks, and uncertainties that may cause actual results to differ materially from those in the forward-looking statements may not be complete. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur or may be materially different from what we expect. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update any of these forward-looking statements after the date of this document or to conform these statements to actual results or revised expectations.

This document contains estimates, projections, and other information concerning our industry, our business, and the markets for our products. We obtained the industry, market, and similar data set forth in this document from our own internal estimates and research and from industry research, publications, surveys, and studies conducted by third parties, including governmental agencies, and such information is inherently subject to uncertainties. Actual events or circumstances may differ materially from events and circumstances that are assumed in this information. You are cautioned not to give undue weight to any such information, projections, or estimates.



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As a result of a number of known and unknown risks and uncertainties, including without limitation, the important factors described in our reports filed with the SEC, including the discussion under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements.

Additional Information

Our website address is www.cloverhealth.com. Our filings with the SEC are posted on our website and available free of charge as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The content on our website or on any other website referred to in this document is not incorporated by reference in this document. Further, the Company's references to website URLs are intended to be inactive textual references only.

Channels for Disclosure of Information

Investors and others should note that we routinely announce material information to investors and the marketplace using filings with the SEC, press releases, public conference calls, presentations, webcasts, and the investor relations page of our website. We use the investor relations page of our website for purposes of compliance with Regulation FD and as a routine channel for distribution of important information, including news releases, analyst presentations, financial information, and corporate governance practices. We also use certain social media channels as a means of disclosing information about the Company and our products to our customers, investors, and the public, including @CloverHealth and #CloverHealth on X (formerly Twitter), and the LinkedIn account of our Chief Executive Officer, Andrew Toy. The information posted on social media channels is not incorporated by reference in this report or in any other report or document we file with the SEC. While not all of the information that we post to the investor relations page of our website or to social media accounts is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in the Company to review the information that we share at the "Investors" link located on our webpage at https://investors.cloverhealth.com/investor-relations and to sign up for and regularly follow our social media accounts. Users may automatically receive email alerts and other information about the Company when enrolling an email address by visiting "Email Alerts" in the "Investor Resources" section of our website at https://investors.cloverhealth.com/investor-relations.


4


Part I
Item 1. Financial Statements and Supplementary Data
CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)

September 30, 2023
(Unaudited)
December 31, 2022
Assets
Current assets
Cash and cash equivalents$299,014 $103,791 
Short-term investments14,830 41,457 
Investment securities, available-for-sale (Amortized cost: 2023: $197,766; 2022: $193,300)
196,381 189,498 
Investment securities, held-to-maturity (Fair value: 2023: $6,692; 2022: $15)
6,896 15 
Accrued retrospective premiums15,646 20,387 
Other receivables14,760 23,596 
Healthcare receivables52,073 70,607 
Non-Insurance performance year receivable185,404  
Non-Insurance receivable64,228 52,955 
Surety bonds and deposits50,209 100,502 
Prepaid expenses15,226 18,146 
Other assets, current1,033 4,043 
Total current assets915,700 624,997 
Investment securities, available-for-sale (Amortized cost: 2023: $105,087; 2022: $142,940)
101,400 137,368 
Investment securities, held-to-maturity (Fair value: 2023: $673; 2022: $636)
792 742 
Property and equipment, net4,572 5,753 
Operating lease right-of-use assets3,620 4,025 
Goodwill and other intangible assets19,190 20,000 
Other assets, non-current14,523 15,735 
Total assets$1,059,797 $808,620 

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



5


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

September 30, 2023
(Unaudited)
December 31, 2022
Liabilities and Stockholders' Equity
Current liabilities
Unpaid claims$114,415 $141,947 
Due to related parties, net1,251 1,566 
Non-Insurance performance year obligation, current254,419 73,844 
Non-Insurance payable182,435 148,191 
Accounts payable and accrued expenses35,296 32,445 
Accrued salaries and benefits24,333 23,962 
Deferred revenue103,295  
Operating lease liabilities1,668 1,827 
Premium deficiency reserve683 7,239 
Other liabilities, current901 486 
Total current liabilities718,696 431,507 
Long-term operating lease liabilities3,292 4,033 
Other liabilities, non-current15,957 16,193 
Total liabilities737,945 451,733 
Commitments and Contingencies (Note 14)
Stockholders' equity
Class A Common Stock, $0.0001 par value; 2,500,000,000 shares authorized at September 30, 2023 and December 31, 2022; 399,374,685 and 383,998,718 issued and outstanding at September 30, 2023 and December 31, 2022, respectively
38 37 
Class B Common Stock, $0.0001 par value; 500,000,000 shares authorized at September 30, 2023 and December 31, 2022; 87,867,732 and 94,394,852 issued and outstanding at September 30, 2023 and December 31, 2022, respectively
9 9 
Additional paid-in capital2,428,101 2,319,157 
Accumulated other comprehensive loss(5,072)(9,374)
Accumulated deficit(2,089,322)(1,946,433)
Less: Treasury stock, at cost; 7,096,160 and 2,072,752 shares held at September 30, 2023 and December 31, 2022, respectively
(11,902)(6,509)
Total stockholders' equity321,852 356,887 
Total liabilities and stockholders' equity$1,059,797 $808,620 


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




6


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(Dollars in thousands, except per share and share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenues:
Premiums earned, net (Net of ceded premiums of $106 and $116, for the three months ended September 30, 2023 and 2022, respectively; net of ceded premiums of $341 and $354 for the nine months ended September 30, 2023 and 2022, respectively)
$301,230 $267,892 $932,699 $814,566 
Non-Insurance revenue176,038 585,311 575,311 1,757,579 
Other income4,798 3,614 15,459 5,751 
Total revenues482,066 856,817 1,523,469 2,577,896 
Operating expenses:
Net medical claims incurred418,959 839,799 1,328,403 2,560,307 
Salaries and benefits60,567 70,142 193,211 209,724 
General and administrative expenses41,747 47,832 141,588 152,569 
Premium deficiency reserve expense (benefit)
392 (27,476)(6,556)(82,428)
Depreciation and amortization557 616 1,835 2,028 
Restructuring costs1,313  7,870  
Total operating expenses523,535 930,913 1,666,351 2,842,200 
Loss from operations(41,469)(74,096)(142,882)(264,304)
Interest expense 404 7 1,197 
Amortization of notes and securities discounts 9  27 
Loss (gain) on investment 980  (10,187)
Net loss$(41,469)$(75,489)$(142,889)$(255,341)
Per share data:
Net loss per share attributable to Class A and Class B common stockholders – basic and diluted (1)
$(0.09)$(0.16)$(0.30)$(0.54)
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)
480,770,283 477,690,204 480,921,520 475,609,571 
Net unrealized gain (loss) on available-for-sale investments1,643 (2,407)4,302 (8,826)
Comprehensive loss$(39,826)$(77,896)$(138,587)$(264,167)
(1) Because the Company had a net loss during the nine months ended September 30, 2023 and 2022, the Company's potentially dilutive securities, which include stock options, restricted stock, preferred stock, and warrants to purchase shares of common stock and preferred stock, have been excluded from the computation of diluted net loss per share, as the effect would be anti-dilutive.
The accompanying notes are an integral part of these condensed consolidated financial statements.


7


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except share amounts)
Convertible Preferred StockClass A Common StockClass B Common StockTreasury StockAdditional paid-in capitalAccumulated
deficit
Accumulated
other
comprehensive
income (loss)
Noncontrolling
interest
Total stockholders' equity (deficit)
Shares
AmountSharesAmount
Shares
Amount
Shares
Amount
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 
Change in accounting policy— — — — — — — — — 723 — — 723 
Adjusted balance, beginning of period $ 352,645,626 $34 118,206,768 $12 14,730 $(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— — 151,620 — — — — — 331 — — — 331 
Stock-based compensation— — — — — — — — 40,640 — — — 40,640 
Vested restricted stock units— — 396,883 — 1,677,873 — — — — — — — — 
Vested performance stock units— — 8,951 — — — — — — — — — — 
Unrealized holdings gain on investment securities, available for sale— — — — — — — — — — (5,324)— (5,324)
Conversion from Class B Common Stock to Class A Common Stock— — 25,436,433 3 (25,436,433)(3)— — — — — —  
Treasury stock acquired— — — — — — 1,879,063 (5,939)— — — — (5,939)
Issuance of common stock under Employee Stock Purchase Plan— — 214,797 — — — — — — — — — — 
Derecognition of noncontrolling interest— — — — — — — — — — — (3,903)(3,903)
Net loss— — — — — — — — — (75,490)— — (75,490)
Balance, March 31, 2022 $ 378,854,310 $37 94,448,208 $9 1,893,793 $(6,086)$2,195,158 $(1,691,505)$(7,258)$ $490,355 
Stock issuance for exercise of stock options, net of early exercise liability— — 4,016,336 — — — — — 563 — — — 563 
Stock-based compensation— — — — — — — — 41,927 — — — 41,927 
Vested restricted stock units— — 84,928 — — — — — — — — — — 
Unrealized holdings gain on investment securities, available for sale— — — — — — — — — — (1,095)— (1,095)
Treasury stock acquired— — — — — — 37,744 (105)— — — — (105)
Net loss— — — — — — — — — (104,362)— — (104,362)
Balance, June 30, 2022 $ 382,955,574 $37 94,448,208 $9 1,931,537 $(6,191)$2,237,648 $(1,795,867)$(8,353)$ $427,283 
Stock issuance for exercise of stock options, net of early exercise liability— — 190,052 — — — — — 408 — — — 408 
Stock-based compensation— — — — — — — — 42,641 — — — 42,641 
Vested RSUs and PSUs— — 438,063 — — — — — — — — — — 
Treasury Stock— — (110,411)— — — 110,411 (276)— — — — (276)
Unrealized holdings gain on investment securities, available-for-sale— — — — — — — — — — (2,407)— (2,407)
Conversion from Class A Common Stock to Class B Common Stock— — 316 — (316)— — — — — — — — 
Net loss— — — — — — — — — (75,489)— — (75,489)
Balance, September 30, 2022 $ 383,473,594 $37 94,447,892 $9 2,041,948 $(6,467)$2,280,697 $(1,871,356)$(10,760)$ $392,160 


8


Convertible Preferred StockClass A Common StockClass B Common StockTreasury StockAdditional paid-in capitalAccumulated
deficit
Accumulated
other
comprehensive
income (loss)
Noncontrolling
interest
Total stockholders' equity (deficit)
Shares
AmountSharesAmount
Shares
Amount
Shares
Amount
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 2,072,752 $(6,509)$2,319,157 $(1,946,433)$(9,374)$ $356,887 
Stock issuance for exercise of stock options, net of early exercise liability— — 1,240 — — — — — 848 — — — 848 
Stock-based compensation— — — — — — — — 38,617 — — — 38,617 
Vested restricted stock units— — 5,390,973 — 1,773,104 — — — — — — — — 
Unrealized holdings gain on investment securities, available for sale— — — — — — — — — — 2,343 — 2,343 
Conversion from Class B Common Stock to Class A Common Stock— — 7,672,463 — (7,672,463)— — — — — — — — 
Treasury stock acquired— — (2,933,721)— — — 2,933,721 (2,982)— — — — (2,982)
Net loss— — — — — — — — — (72,606)— — (72,606)
Balance, March 31, 2023 $ 394,129,673 $37 88,495,493 $9 5,006,473 $(9,491)$2,358,622 $(2,019,039)$(7,031)$ $323,107 
Stock issuance for exercise of stock options, net of early exercise liability— — 1,241 — — — — — 270 — — — 270 
Stock-based compensation— — — — — — — — 36,108 — — — 36,108 
Vested restricted stock units— — 1,180,084 — — — — — — — — — — 
Unrealized holdings gain on investment securities, available for sale— — — — — — — — — — 316 — 316 
Conversion from Class B Common Stock to Class A Common Stock— — 627,761 — (627,761)— — — — — — — — 
Treasury stock acquired— — (439,241)— — — 439,241 (417)— — — — (417)
Issuance of Common Stock under Employee Stock Purchase Plan— — 271,152 — — — — — — — — — — 
Net loss— — — — — — — — — (28,814)— — (28,814)
Balance, June 30, 2023 $ 395,770,670 $37 87,867,732 $9 5,445,714 $(9,908)$2,395,000 $(2,047,853)$(6,715)$ $330,570 
Stock issuance for exercise of stock options, net of early exercise liability— — 76,156 — — — — — 31 — — — 31 
Stock-based compensation— — — — — — — — 33,070 — — — 33,070 
Vested restricted stock units— — 5,178,305 1 — — — — — — — — 1 
Unrealized holdings gain on investment securities, available for sale— — — — — — — — — — 1,643 — 1,643 
Treasury Stock— — (1,650,446)— — — 1,650,446 (1,994)— — — — (1,994)
Net loss— — — — — — — — — (41,469)— — (41,469)
Balance, September 30, 2023 $ 399,374,685 $38 87,867,732 $9 7,096,160 $(11,902)$2,428,101 $(2,089,322)$(5,072)$ $321,852 

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


9


CLOVER HEALTH INVESTMENTS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
20232022
Cash flows from operating activities:
Net loss$(142,889)$(255,341)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense1,835 2,028 
Amortization of notes and securities discounts and debt issuance costs 27 
Stock-based compensation expense107,795 125,211 
Accretion, net of amortization(3,096)(730)
Net realized losses on investment securities(20)18 
Gain on investment (10,187)
Premium deficiency reserve(6,556)(82,428)
Changes in operating assets and liabilities:
Accrued retrospective premiums4,741 21,029 
Other receivables8,836 (8,803)
Surety bonds and deposits20,601 769 
Prepaid expenses2,920 (8,407)
Other assets4,227 (19,263)
Healthcare receivables18,534 (10,844)
Non-Insurance receivable(11,273) 
Operating lease right-of-use assets405 1,750 
Unpaid claims(27,847)1,013 
Accounts payable and accrued expenses2,851 9,606 
Accrued salaries and benefits371 4,489 
Deferred revenue103,295 96,358 
Other liabilities179 (1,005)
Performance year obligation(4,829)33,057 
Non-Insurance payable34,244 109,359 
Operating lease liabilities(900)(2,264)
Net cash provided by (used in) operating activities113,424 5,442 
Cash flows from investing activities:
Purchases of short-term investments, available-for-sale, and held-to-maturity securities(142,359)(276,848)
Proceeds from sales of short-term investments and available-for-sale securities60,436 9,710 
Proceeds from maturities of short-term investments, available-for-sale, and held-to-maturity securities139,122 350,455 
Purchases of property and equipment(848)(590)
Acquisition of Character Biosciences, Inc. Series A preferred shares (250)
Net cash provided by investing activities56,351 82,477 
Cash flows from financing activities:
Issuance of common stock, net of early exercise liability1,149 1,302 
Treasury stock acquired(5,393)(6,320)
Net cash used in financing activities(4,244)(5,018)
Net increase in cash, cash equivalents, and restricted cash165,531 82,901 
Cash, cash equivalents, and restricted cash, beginning of period186,213 299,968 
Cash, cash equivalents, and restricted cash, end of period$351,744 $382,869 
Reconciliation of cash and cash equivalents and restricted cash
Cash and cash equivalents$299,014 $382,869 
Restricted cash52,730  
Total cash, cash equivalents, and restricted cash$351,744 $382,869 
Supplemental disclosure of non-cash activities
Performance year receivable$(185,404)$(585,901)
Performance year obligation185,404 585,901 
Right-of-use assets obtained in exchange for lease liabilities 642 
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 condensed consolidated financial statements.


10


CLOVER HEALTH INVESTMENTS, CORP. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Operations
Clover Health Investments, Corp. (collectively with its affiliates and subsidiaries, "Clover" or the "Company") is 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. 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 15 (Non-Insurance) in these financial statements.
For additional information, see Note 1 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K").
2. Summary of Significant Accounting Policies
Basis of presentation
The Company's interim unaudited condensed consolidated financial statements have been prepared in conformity with Generally Accepted Accounting Principles ("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 position and its results of operations for the interim periods presented. All material intercompany balances and transactions have been eliminated in consolidating these financial statements. Investments over which the Company exercise significant influence, but do not control, are accounted for using the applicable accounting treatment based on the nature of the investment. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes to the financial statements included in the 2022 Form 10-K.


11


Use of estimates
The preparation of the interim unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the amounts reported in the interim unaudited condensed consolidated financial statements and the accompanying notes.
The area involving the most significant use of estimates is the amount 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, stock-based compensation, recoveries from third parties for coordination of benefits, ACO REACH 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' Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current year's presentation, primarily related to Non-Insurance receivable, Other assets, current, and Performance year obligation. In addition amounts in the prior years' Condensed Consolidated Statements of Cash Flows have been reclassified to conform with the current year's presentation associated with the Performance year obligation.
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 Condensed Consolidated Balance Sheets was as follows:

September 30, 2023As ReportedAs computed excluding anticipated
net
 investment income
Effect of Change
(in thousands)
Premium deficiency reserve$683 $1,154 $(471)
Total current liabilities718,696 719,167 $(471)
Total liabilities737,945 738,416 $(471)
Accumulated deficit(2,089,322)(2,089,793)$471 
Total stockholders' equity321,852 321,381 $471 
Total liabilities and stockholders' equity$1,059,797 $1,059,797 $ 



12


December 31, 2022As ReportedEffect of ChangeAs Adjusted
(in thousands)
Premium deficiency reserve$16,388 $(9,149)$7,239 
Total current liabilities440,656 (9,149)431,507 
Total liabilities460,882 (9,149)451,733 
Accumulated deficit(1,955,582)9,149 (1,946,433)
Total stockholders' equity347,738 9,149 356,887 
Total liabilities and stockholders' equity$808,620 $ $808,620 

December 31, 2021As ReportedEffect of ChangeAs Adjusted
(in thousands)
Premium deficiency reserve$110,628 $(723)$109,905 
Total current liabilities372,624 (723)371,901 
Total liabilities411,487 (723)410,764 
Accumulated deficit(1,616,738)723 (1,616,015)
Total stockholders' equity539,317 723 540,040 
Total liabilities and stockholders' equity$950,804 $ $950,804 
The effect of the changes made to the Company's Condensed Consolidated Statements of Comprehensive Loss was as follows:
Three Months Ended September 30, 2023As ReportedAs computed excluding anticipated
net investment income
Effect of Change
(in thousands)
Premium deficiency reserve expense (benefit)
$392 $(1,527)$1,919 
Total operating expenses523,535 $521,616 $1,919 
Loss from operations(41,469)$(39,550)$(1,919)
Net loss$(41,469)$(39,550)$(1,919)
Per share data:
Net loss per share attributable to Class A and B common stockholders - basic and diluted$(0.09)$(0.08)$(0.01)

Three Months Ended September 30, 2022As ReportedEffect of ChangeAs Adjusted
(in thousands)
Premium deficiency reserve expense (benefit)
$(27,657)$181 $(27,476)
Total operating expenses930,732 181 930,913 
Loss from operations(73,915)(181)(74,096)
Net loss$(75,308)$(181)$(75,489)
Per share data:
Net loss per share attributable to Class A and B common stockholders - basic and diluted$(0.16)$ $(0.16)





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