Clover Health Investments, Corp. (NASDAQ: CLOV) ("Clover," "Clover
Health" or the "Company"), a physician enablement company committed
to bringing access to great healthcare to everyone on Medicare,
today reported financial results for the fourth quarter and full
year 2022. Management will host a conference call today at 8:30
a.m. ET to discuss its operating results and other business
highlights.
"Our achievements in 2022, including a material
improvement in our full year Insurance MCR by over 1,400 basis
points, are reflective of the continued maturation of our business
and further demonstrate Clover Assistant's ability to enable and
manage a wide network of physicians to participate in value-based
Medicare," said Clover Health CEO Andrew Toy. "In 2023,
accelerating our path to profitability is our top priority, and I
am excited by Clover Assistant's role in helping physicians
identify and manage chronic diseases earlier, which improves care
for Medicare beneficiaries."
"Fourth quarter and full year 2022 financial
highlights include significantly improved Insurance MCR, strong
Insurance revenue growth, and continued moderation of growth in
SG&A," said Clover Health CFO Scott Leffler. "Full year
Insurance MCR significantly improved year-over-year to 91.8%, and
fourth quarter Insurance MCR improved to 92.4%. The improved MCR
compared to the prior year period was driven by continued
favorability in underlying operational trends. Non-Insurance MCR
for the full year and fourth quarter was 103.4% and 103.6%,
respectively. We also finished the year with restricted and
unrestricted cash, cash equivalents, and investments of
$555.3 million on a consolidated basis and $331.7 million at
the parent entity and unregulated subsidiary level, both of which
we expect to be sufficient for our 2023 operating needs."
Key Company highlights are as follows:
Dollars in Millions |
|
Q4'22 |
|
Q4'21 |
|
FY'22 |
|
FY'21 |
Total revenue |
|
$ |
898.8 |
|
|
$ |
432.0 |
|
|
$ |
3,476.7 |
|
|
$ |
1,472.0 |
|
Insurance MCR |
|
|
92.4 |
% |
|
|
102.8 |
% |
|
|
91.8 |
% |
|
|
106.0 |
% |
Non-Insurance MCR |
|
|
103.6 |
|
|
|
103.0 |
|
|
|
103.4 |
|
|
|
105.7 |
|
Salaries and benefits plus
General and administrative expenses ("SG&A")(1) |
|
$ |
124.3 |
|
|
$ |
114.1 |
|
|
$ |
486.6 |
|
|
$ |
445.7 |
|
Adjusted Salaries and benefits
plus General and administrative expenses ("Adjusted SG&A")
(non-GAAP)(1)(2)(3) |
|
|
85.6 |
|
|
|
77.5 |
|
|
|
320.7 |
|
|
|
264.4 |
|
Net loss |
|
|
(84.0 |
) |
|
|
(187.2 |
) |
|
|
(338.8 |
) |
|
|
(587.8 |
) |
Adjusted EBITDA
(non-GAAP)(3)(4) |
|
|
(81.1 |
) |
|
|
(87.4 |
) |
|
|
(298.7 |
) |
|
|
(343.7 |
) |
(1) |
Salaries and benefits plus General and administrative expenses
("SG&A") is the sum of Salaries and benefits plus General and
administrative expenses presented as the GAAP measure in the
consolidated financial statements. |
(2) |
Beginning with the third quarter of 2022, we updated the name
of our Adjusted Operating Expenses (non-GAAP) metric to Adjusted
SG&A (non-GAAP). There has been no change to the calculation of
this metric and previously reported results of the Company were not
impacted by this change. |
(3) |
Adjusted SG&A (non-GAAP) and Adjusted EBITDA (non-GAAP) are
non-GAAP financial measures. Reconciliations of Adjusted SG&A
(non-GAAP) to SG&A and Adjusted EBITDA (non-GAAP) to Net loss,
respectively, the most directly comparable GAAP measures, are
provided in the tables immediately following the consolidated
financial statements below. Additional information about the
Company's non-GAAP financial measures can be found under the
caption "About Non-GAAP Financial Measures" below and in Appendix
A. |
(4) |
Beginning in the fourth quarter 2022, we updated our definition
and presentation of Adjusted EBITDA (non-GAAP) to exclude Gain on
extinguishment of note payable. Gain on extinguishment of note
payable is now being excluded because management believes that Gain
on extinguishment of note payable does not reflect the Company's
underlying fundamentals because it is a non-cash item and
management believes it is not reflective of the Company's operating
expenses relating to its core businesses or its actual recurring
cash expense. The prior period figure has been revised to conform
to the updated definition and presentation. For additional
information, see the definition of "Adjusted EBITDA (non-GAAP)" in
Appendix A. |
Lives under Clover
Management
|
December 31, 2022 |
|
December 31, 2021 |
Insurance members |
88,627 |
|
68,120 |
Non-Insurance
beneficiaries |
164,887 |
|
61,876 |
Financial Outlook"I'm pleased
we are achieving real momentum towards profitability. We
intentionally priced our Insurance plans for 2023 with
profitability in mind while still expecting to grow our top-line
Insurance revenue. We believe this, coupled with a maturing
membership base and increased reimbursements based on our improved
star ratings, will enable us to achieve continued meaningful
improvement in our Insurance MCR in 2023. For our Non-Insurance
business we plan to execute our previously disclosed strategic
shift to focus on a targeted group of participant providers aligned
to our strategy and capabilities," said Clover Health CEO Andrew
Toy.
For full-year 2023, Clover Health is providing
its guidance as follows:
- Insurance revenue
is expected to be in the range of $1.15 billion to $1.20 billion in
2023, a growth rate of 6% - 11% as compared to full year 2022
Insurance revenue.
- Insurance MCR is
expected to be in the range of 89% - 91% in 2023.
- Non-Insurance
revenue is expected to be in the range of $0.75 billion to $0.80
billion in 2023.
- Non-Insurance MCR
is expected to be in the range of 98% - 100% in 2023.
- Adjusted SG&A
(non-GAAP)(1) is expected to be between $315 million and $325
million.
- Adjusted EBITDA
(non-GAAP)(1) is expected to be between ($155 million) and ($205
million).
(1) |
Reconciliations of projected Adjusted SG&A (non-GAAP) to
projected SG&A, and projected Adjusted EBITDA (non-GAAP) to Net
loss, the most directly comparable GAAP measures, are not provided
because Stock-based compensation expense, which is excluded from
Adjusted SG&A (non-GAAP) and Adjusted EBITDA (non-GAAP), cannot
be reasonably calculated or predicted at this time without
unreasonable efforts. Additional information about the Company's
non-GAAP financial measures can be found under the caption "About
Non-GAAP Financial Measures" below and in Appendix A. |
Earnings Conference Call Details
Clover Health's management will host a
conference call to discuss its financial results on Tuesday,
February 28, at 8:30 AM Eastern Time. A live webcast of the call,
together with the related materials, can be accessed from Clover
Health's Investor Relations website at investors.cloverhealth.com,
and an on-demand replay will be available on the same website
following the call.
Forward-Looking Statements
This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Forward-looking statements include statements
regarding future events and Clover Health's future results of
operations, financial condition, market size and opportunity,
business strategy and plans, and the factors affecting our
performance and our objectives for future operations.
Forward-looking statements are not guarantees of future performance
and you are cautioned not to place undue reliance on such
statements. In some cases, you can identify forward looking
statements because they contain words such as "may," "will,"
"should," "expects," "plans," "anticipates," "going to," "can,"
"could," "should," "would," "intends," "target," "projects,"
"contemplates," "believes," "estimates," "predicts," "potential,"
"outlook," "forecast," "guidance," "objective," "plan," "seek,"
"grow," "if," "continue" or the negative of these words or other
similar terms or expressions that concern Clover Health's
expectations, strategy, priorities, plans or intentions.
Forward-looking statements in this release include, but are not
limited to, statements under "Financial Outlook" and statements
regarding expectations relating to potential improvements in
Insurance MCR, Non-Insurance MCR, operating expenses, and the
number of Clover Health's Insurance members, as well as the
statements contained in the quotations of our executive officers,
including expectations related to Clover Health's "path to
profitability," future capital needs and other expectations as to
future performance, operations and results. These statements are
subject to known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance
or achievements to differ materially from results expressed or
implied in this press release. Such risk factors include, but are
not limited to, those related to: Clover Health's ability to
increase the lifetime value of enrollments and manage medical
expenses; changes in CMS' risk adjustment payment system;
challenges in expanding our member and beneficiary base or into new
markets; Clover Health's exposure to unfavorable changes in local
benefit costs, reimbursement rates, competition and economic
conditions; the impact of litigation or investigations; changes or
developments in Medicare or the health insurance system and laws
and regulations governing the health insurance markets; the current
and future impact of the COVID-19 pandemic and its variants on
Clover Health's business and industry; the adoption and usage of
Clover Assistant; the timing and market acceptance of new releases
and upgrades to Clover Assistant; and the successful development of
our Non-Insurance operations and the degree to which our offerings
gain market acceptance by physicians. Additional information
concerning these and other risk factors is contained in our most
recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission (the "SEC"), including the Risk Factors section
therein, and in our other filings with the SEC. The forward-looking
statements included in this release are made as of the date hereof.
Except as required by law, Clover Health undertakes no obligation
to update any of these forward-looking statements after the date of
this press release or to conform these statements to actual results
or revised expectations.
About Non-GAAP Financial Measures
We use non-GAAP measures including Adjusted
EBITDA, Adjusted SG&A, and Adjusted SG&A as a percentage of
revenue. These non-GAAP financial measures are provided to enhance
the reader's understanding of Clover Health's past financial
performance and our prospects for the future. Clover Health's
management team uses these non-GAAP financial measures in assessing
Clover Health's performance, as well as in planning and forecasting
future periods. These non-GAAP financial measures are not computed
according to GAAP, and the methods we use to compute them may
differ from the methods used by other companies. Non-GAAP financial
measures are supplemental to and should not be considered a
substitute for financial information presented in accordance with
GAAP and should be read only in conjunction with our consolidated
financial statements prepared in accordance with GAAP. Readers are
encouraged to review the reconciliations of these non-GAAP
financial measures to the comparable GAAP measures, which are
attached to this release, together with other important financial
information, including our filings with the SEC, on the Investor
Relations page of our website at investors.cloverhealth.com.
For a description of these non-GAAP financial
measures, including the reasons management uses each measure,
please see Appendix A: "Explanation of Non-GAAP Financial Measures
and Other Items."
The statements contained in this document are
solely those of the authors and do not necessarily reflect the
views or policies of CMS. The authors assume responsibility for the
accuracy and completeness of the information contained in this
document.
About Clover Health:
Clover Health (Nasdaq: CLOV) is a physician
enablement company committed to bringing access to great healthcare
to everyone on Medicare. This includes a health equity-based focus
on seniors who have historically lacked access to affordable,
high-quality healthcare. Our strategy is powered by our software
platform, Clover Assistant, which is designed to aggregate patient
data from across the healthcare ecosystem to support clinical
decision-making and improve health outcomes. We operate two
distinct lines of business: Insurance and Non-Insurance. Through
our Insurance line of business, we provide PPO and HMO Medicare
Advantage plans in several states, with a differentiated focus on
our flagship wide-network, high-choice PPO plans. Our Non-Insurance
line of business similarly aims to reduce cost-of-care while
enhancing the quality of care for patients enrolled in Original
Medicare.
Visit: www.cloverhealth.com
Investor Relations Contact:
Ryan Schmidtinvestors@cloverhealth.com
Press Contact:
Emma BaronAndrew
Still-Baxterpress@cloverhealth.com
CLOVER HEALTH INVESTMENTS, CORP. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS: SELECTED METRICS(in
thousands)
|
December 31, 2022 |
|
December 31, 2021 |
Selected Balance Sheet
Data: |
|
|
|
Cash, cash equivalents, restricted cash(1), and investments |
$ |
555,293 |
|
$ |
791,194 |
Total assets |
|
808,620 |
|
|
950,804 |
Unpaid claims |
|
141,947 |
|
|
138,604 |
Notes and securities payable, net of discount and deferred issuance
costs |
|
— |
|
|
19,938 |
Total liabilities |
|
460,882 |
|
|
411,487 |
Total stockholders' equity |
|
347,738 |
|
|
539,317 |
(1) Restricted cash relates to $82.4 million
held in escrow in compliance with a CMS guarantee arrangement in
our Non-Insurance business. We expect to settle the related
obligation during fiscal year 2023, after which we expect the
associated guarantee arrangement to be released by CMS.
CLOVER HEALTH INVESTMENTS, CORP. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Dollars in thousands, except share amounts) |
|
|
|
|
|
|
|
|
|
Three Months EndedDecember
31, |
|
Years endedDecember 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Revenues: |
|
|
|
|
|
|
|
Premiums earned, net (Net of ceded premiums of $116 and $119, for
the three months ended December 31, 2022 and 2021, respectively;
net of ceded premiums of $470 and $489 for the years ended December
31, 2022 and 2021, respectively) |
$ |
270,303 |
|
|
$ |
201,024 |
|
|
$ |
1,084,869 |
|
|
$ |
799,414 |
|
Non-Insurance revenue |
|
622,556 |
|
|
|
228,619 |
|
|
|
2,380,135 |
|
|
|
667,639 |
|
Other income |
|
5,932 |
|
|
|
2,393 |
|
|
|
11,683 |
|
|
|
4,943 |
|
Total revenues |
|
898,791 |
|
|
|
432,036 |
|
|
|
3,476,687 |
|
|
|
1,471,996 |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Net medical claims incurred |
|
893,645 |
|
|
|
441,931 |
|
|
|
3,453,952 |
|
|
|
1,551,178 |
|
Salaries and benefits |
|
69,001 |
|
|
|
58,903 |
|
|
|
278,725 |
|
|
|
260,458 |
|
General and administrative expenses(1) |
|
55,348 |
|
|
|
55,177 |
|
|
|
207,917 |
|
|
|
185,287 |
|
Premium deficiency reserve (benefit) expense |
|
(11,269 |
) |
|
|
61,967 |
|
|
|
(94,240 |
) |
|
|
110,628 |
|
Depreciation and amortization(1) |
|
(841 |
) |
|
|
848 |
|
|
|
1,187 |
|
|
|
1,246 |
|
Other expense |
|
70 |
|
|
|
— |
|
|
|
70 |
|
|
|
191 |
|
Total operating expenses |
|
1,005,954 |
|
|
|
618,826 |
|
|
|
3,847,611 |
|
|
|
2,108,988 |
|
Loss from operations |
|
(107,163 |
) |
|
|
(186,790 |
) |
|
|
(370,924 |
) |
|
|
(636,992 |
) |
|
|
|
|
|
|
|
|
Change in fair value of
warrants |
|
(900 |
) |
|
|
— |
|
|
|
(900 |
) |
|
|
(66,146 |
) |
Interest expense |
|
136 |
|
|
|
412 |
|
|
|
1,333 |
|
|
|
3,193 |
|
Amortization of notes and
securities discounts |
|
3 |
|
|
|
— |
|
|
|
30 |
|
|
|
13,717 |
|
Loss (gain) on investment |
|
970 |
|
|
|
— |
|
|
|
(9,217 |
) |
|
|
— |
|
Gain on extinguishment of note
payable |
|
(23,326 |
) |
|
|
— |
|
|
|
(23,326 |
) |
|
|
— |
|
Net loss |
$ |
(84,046 |
) |
|
$ |
(187,202 |
) |
|
$ |
(338,844 |
) |
|
$ |
(587,756 |
) |
Basic and diluted weighted
average number of Class A and Class B common shares and common
share equivalents outstanding |
|
477,898,621 |
|
|
|
422,247,186 |
|
|
|
476,244,262 |
|
|
|
412,922,424 |
|
(1) |
The three months ended December 31, 2022 includes amounts
related to reclassifications from Depreciation and amortization to
General and administrative expenses. |
Operating Segments
|
|
Insurance |
|
Non-Insurance |
|
Corporate/Other |
|
Eliminations |
|
Consolidated Total |
Three Months Ended
December 31, 2022 |
|
(in thousands) |
Premiums earned, net (Net of ceded premiums of $116) |
|
$ |
270,303 |
|
$ |
— |
|
|
$ |
— |
|
$ |
— |
|
|
$ |
270,303 |
Non-Insurance revenue |
|
|
— |
|
|
622,556 |
|
|
|
— |
|
|
— |
|
|
|
622,556 |
Other income |
|
|
1,129 |
|
|
834 |
|
|
|
16,276 |
|
|
(12,307 |
) |
|
|
5,932 |
Intersegment revenues |
|
|
— |
|
|
— |
|
|
|
32,130 |
|
|
(32,130 |
) |
|
|
— |
Net medical claims
incurred |
|
|
249,798 |
|
|
645,108 |
|
|
|
1,887 |
|
|
(3,148 |
) |
|
|
893,645 |
Gross profit (loss) |
|
$ |
21,634 |
|
$ |
(21,718 |
) |
|
$ |
46,519 |
|
$ |
(41,289 |
) |
|
$ |
5,146 |
CLOVER HEALTH INVESTMENTS, CORP. AND SUBSIDIARIES |
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
ADJUSTED EBITDA (NON-GAAP) RECONCILIATION |
(in thousands)(1) |
|
|
|
|
|
|
|
|
|
Three Months EndedDecember
31, |
|
Years ended December 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net loss: |
$ |
(84,046 |
) |
|
$ |
(187,202 |
) |
|
$ |
(338,844 |
) |
|
$ |
(587,756 |
) |
Adjustments |
|
|
|
|
|
|
|
Interest expense |
|
136 |
|
|
|
412 |
|
|
|
1,333 |
|
|
|
3,193 |
|
Amortization of notes and securities discount |
|
3 |
|
|
|
— |
|
|
|
30 |
|
|
|
13,717 |
|
Depreciation and amortization(2) |
|
(841 |
) |
|
|
848 |
|
|
|
1,187 |
|
|
|
1,246 |
|
Change in fair value of warrants |
|
(900 |
) |
|
|
— |
|
|
|
(900 |
) |
|
|
(66,146 |
) |
Loss (gain) on investment |
|
970 |
|
|
|
— |
|
|
|
(9,217 |
) |
|
|
— |
|
Stock-based compensation expense |
|
39,097 |
|
|
|
31,181 |
|
|
|
164,305 |
|
|
|
163,723 |
|
Premium deficiency reserve (benefit) expense |
|
(11,269 |
) |
|
|
61,967 |
|
|
|
(94,240 |
) |
|
|
110,628 |
|
(Benefits) expenses and other income attributable to Seek Insurance
Services, Inc. |
|
(949 |
) |
|
|
4,542 |
|
|
|
655 |
|
|
|
14,036 |
|
Expenses attributable to Character Biosciences, Inc. |
|
— |
|
|
|
826 |
|
|
|
357 |
|
|
|
3,622 |
|
Gain on extinguishment of note payable |
$ |
(23,326 |
) |
|
$ |
— |
|
|
$ |
(23,326 |
) |
|
$ |
— |
|
Adjusted EBITDA (non-GAAP) |
$ |
(81,125 |
) |
|
$ |
(87,426 |
) |
|
$ |
(298,660 |
) |
|
$ |
(343,737 |
) |
(1) |
The table above includes non-GAAP measures. Non-GAAP financial
measures are supplemental and should not be considered a substitute
for financial information presented in accordance with GAAP. For a
detailed explanation of these non-GAAP measures, see Appendix
A. |
(2) |
The three months ended December 31, 2022 include amounts
related to reclassifications from Depreciation and amortization to
General and administrative expenses. |
CLOVER HEALTH INVESTMENTS, CORP. AND
SUBSIDIARIESRECONCILIATION OF NON-GAAP FINANCIAL MEASURESADJUSTED
SG&A (NON-GAAP) RECONCILIATION(in thousands)(1)
|
Three Months Ended December 31, |
|
Years ended December 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Salaries and benefits |
$ |
69,001 |
|
|
$ |
58,903 |
|
|
$ |
278,725 |
|
|
$ |
260,458 |
|
General and administrative
expenses |
|
55,348 |
|
|
|
55,177 |
|
|
|
207,917 |
|
|
|
185,287 |
|
Total SG&A |
|
124,349 |
|
|
|
114,080 |
|
|
|
486,642 |
|
|
|
445,745 |
|
Adjustments |
|
|
|
|
|
|
|
Stock-based compensation expense |
|
(39,097 |
) |
|
|
(31,181 |
) |
|
|
(164,305 |
) |
|
|
(163,723 |
) |
Benefits (expenses) attributable to Seek Insurance Services,
Inc. |
|
364 |
|
|
|
(4,542 |
) |
|
|
(1,240 |
) |
|
|
(14,036 |
) |
Expenses attributable to Character Biosciences, Inc. |
|
— |
|
|
|
(826 |
) |
|
|
(357 |
) |
|
|
(3,622 |
) |
Adjusted SG&A (non-GAAP) |
$ |
85,616 |
|
|
$ |
77,531 |
|
|
$ |
320,740 |
|
|
$ |
264,364 |
|
|
|
|
|
|
|
|
|
Total revenues |
$ |
898,791 |
|
|
$ |
432,036 |
|
|
$ |
3,476,687 |
|
|
$ |
1,471,996 |
|
Adjusted SG&A (non-GAAP)
as a percentage of revenue |
|
10 |
% |
|
|
18 |
% |
|
|
9 |
% |
|
|
18 |
% |
(1) |
The table above includes non-GAAP measures. Non-GAAP financial
measures are supplemental and should not be considered a substitute
for financial information presented in accordance with GAAP. For a
detailed explanation of these non-GAAP measures, see Appendix
A. |
CLOVER HEALTH INVESTMENTS, CORP. AND
SUBSIDIARIESAppendix AExplanation of Non-GAAP Financial Measures
and Other Items
Non-GAAP Adjustments
We believe it is useful to investors for our
presentation within this document of financial measures on a
non-GAAP basis to exclude the below items. In particular, we
believe that the exclusion of these amounts provides useful
measures for period-to-period comparisons of our business. These
key measures are used by our management and the board of directors
to understand and evaluate our operating performance and trends, to
prepare and approve our annual budget and to develop short and
long-term operating plans. In addition, we believe that the
presentation of these non-GAAP measures enhances an investor's
understanding of the financial performance of our core
businesses.
Amortization of notes and securities discount -
We report non-convertible notes and convertible securities at
carrying value, net of discount. We account for convertible
securities in accordance with accounting guidance for debt with
conversion and other options, after determining whether embedded
conversion options should be bifurcated from their host
instruments.
Change in fair value of warrants - The fair
value of warrant liabilities is estimated using a valuation method
based on the level of instrument, where the values of various
instruments are estimated based on an analysis of future values,
assuming various future outcomes.
Depreciation and amortization - Depreciation and
amortization consists of all depreciation and amortization expenses
associated with our property and equipment. Depreciation includes
expenses associated with property and equipment. Amortization
includes expenses associated with leasehold improvements.
(Benefits) expenses attributable to Seek
Insurance Services Inc. and Character Biosciences, Inc. - This
consists of benefits and expenses incurred by the Company in the
applicable period attributable to Seek Insurance Services Inc.
("Seek") and Character Biosciences, Inc. (f/k/a Clover Therapeutics
Company) before the Company began accounting for its interest in
this entity using the equity method of accounting in the first
quarter of 2022. The benefits and expenses incurred by the Company
in the applicable period attributable to Seek, includes but is not
limited to, the dissolution of Seek. These expenses are excluded
from Adjusted SG&A (non-GAAP) and Adjusted EBITDA (non-GAAP)
because management believes they are not reflective of the
Company's core businesses or its actual recurring cash expense and
therefore do not appropriately reflect the Company's underlying
fundamentals.
Loss (gain) on investment - This consists of the
loss or gain recorded during the applicable period by the Company
on its minority equity interest in Character Biosciences, Inc.
after the Company began accounting for its interest in this entity
using the equity method of accounting in the first quarter of
2022.
Interest expense - Interest expense consists
mostly of interest expense associated with previously outstanding
non-convertible notes under our term loan facility that was
terminated in the second quarter of 2021.
Premium deficiency reserve (benefit) expense –
This consists of a reserve established to the extent that the sum
of expected future costs, claim adjustment expenses, and
maintenance costs exceeds related future premiums under contracts
without consideration of investment income. We assess the
profitability of our contracts with CMS to identify those contracts
where current operating results or forecasts indicate probable
future losses. Premium deficiency reserve (benefit) expense is
recognized in the period in which the losses are identified.
Stock-based compensation expense – This consists
of expenses for stock-based payment awards granted to employees and
non-employees.
Gain on extinguishment of note payable – This
consists of the gain recorded directly related to the dissolution
of Seek Insurance Services, Inc. which occurred during the quarter
ended December 31, 2022. All amounts outstanding under the note
payable were waived, canceled, and forgiven and all other rights,
covenants and obligations under the note were terminated.
Therefore, the forgiveness of the note was treated as an
extinguishment.
Non-GAAP Definitions
Adjusted EBITDA - A non-GAAP financial measure
defined by us as net loss before interest expense, amortization of
notes and securities discount, Depreciation and amortization,
change in fair value of warrants, (gain) loss on investment,
stock-based compensation expense, premium deficiency reserve
expense (benefit), gain on extinguishment of note payable, and
expenses attributable to Character Biosciences, Inc. before the
Company began accounting for its interest in this entity using the
equity method of accounting in the first quarter of 2022, and
activity attributable to Seek Insurance Services Inc. Adjusted
EBITDA is a key measure used by our management team and the board
of directors to understand and evaluate our operating performance
and trends, to prepare and approve our annual budget and to develop
short and long-term operating plans. In particular, we believe that
the exclusion of the amounts eliminated in calculating Adjusted
EBITDA provide useful measures for period-to-period comparisons of
our business. Accordingly, we believe that Adjusted EBITDA provides
investors and others useful information to understand and evaluate
our operating results in the same manner as our management and our
board of directors.
Adjusted SG&A - A non-GAAP financial measure
defined by us as total SG&A less Stock-based compensation
expense, less activity attributable to Seek Insurance Services,
Inc., less expenses attributable to Character Biosciences, Inc. We
believe that Adjusted SG&A provides management, investors, and
others a useful view of our operating spend as it excludes
non-cash, Stock-based compensation and expenses related to
investments that management believes do not reflect the Company's
core operating expenses. We believe that Adjusted SG&A as a
percentage of revenue is useful to management, investors, and
others because it allows us to measure our operational leverage as
revenue scales. Beginning with the third quarter of 2022, we
updated the name of our Adjusted operating expenses (non-GAAP)
metric to Adjusted SG&A (non-GAAP). There has been no change to
the calculation of this metric and previously reported results of
the Company were not impacted by this change.
Definitions of Other Items
Non-Insurance MCR - We calculate our
Non-Insurance MCR by dividing net medical claims incurred in
connection with our Non-Insurance operations by Non-Insurance
revenue in a given period. We believe our Non-Insurance MCR is an
indicator of our gross profitability and our ability to capture and
analyze data over time to generate actionable insights for
returning beneficiaries to improve care and reduce medical
expenses.
Lives under Clover Management - Consists of our
(i) Insurance members and (ii) Original Medicare beneficiaries
aligned to the Company's Direct Contracting Entity ("DCE") via
attribution to a DCE-participating provider through alignment based
on claims data or by beneficiary election through voluntarily
alignment, in connection with the Centers for Medicare &
Medicaid Services' Global and Professional Direct Contracting
Model, which will transition to the ACO Reach model in 2023. We
believe that Lives under Clover Management is a useful measure of
the size of the beneficiary population managed by the Company.
Insurance MCR, gross and net - We calculate our
Insurance MCR by dividing total net medical claims incurred by
premiums earned, in each case on a gross or net basis, as the case
may be, in a given period. We believe our MCR is an indicator of
our gross profit for our Medicare Advantage plans and the ability
of our Clover Assistant platform to capture and analyze data over
time to generate actionable insights for returning members to
improve care and reduce medical expenses.
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