Clover Health (Nasdaq: CLOV) (“Clover”), an innovative technology
company improving health outcomes for America's seniors, today
reported financial results for the fourth quarter and full year of
2020. Management will host a conference call today at 5:00 p.m. ET
to discuss its operating results and other business highlights.
Supplemental management commentary can be found by accessing the
Company’s shareholder letter posted on its investor relations
website at https://investors.cloverhealth.com/.
“2020 was a difficult year for healthcare as our industry rose
to the numerous challenges posed by the pandemic. Nevertheless, it
was also a transformative year for Clover. By year end we had more
than 58,000 members, reported over $670 million in total revenue
and created our Direct Contracting entity, Clover Health Partners.
We believe Clover is perfectly positioned to be the pioneer of the
new program,” said Clover Health CEO Vivek Garipalli. “We built the
Clover Assistant to reduce variability in physician decision making
and enhance our members’ lives. As of year end, approximately
32,400 members, or 56% of total membership, were managed by a PCP
that was live on the Clover Assistant. This represents a 43%
increase year-over-year, underpinned by our ability to expand
coverage. We believe the traction we have seen to date demonstrates
the value of the Clover Assistant, giving us conviction in our
ability to scale our platform through both Medicare Advantage and
Direct Contracting. Clover Health is well-positioned to leverage
technology to improve patient care and deliver value for all of our
stakeholders,” concluded Garipalli.
Andrew Toy, President and CTO of Clover Health added, “Clover is
bringing free enterprise-grade technology to patient care,
something that has never been done before. Our technology-first
business model is disrupting an industry that has been slow to
embrace technology advancements. The newest go-to-market strategy
for the Clover Assistant, Direct Contracting, should provide us
with a faster and simpler way to increase the number of lives on
our platform, and drive value for consumers and physicians. We look
forward to the official launch of Direct Contracting in April,
which we believe will drive further proliferation of the Clover
Assistant as we execute on our mission to improve every life.”
As previously announced, on January 7, 2021, Clover Health and
Social Capital Hedosophia III (“SCH”) completed their merger (the
“Merger”). Immediately following the Merger, SCH changed its name
to Clover Health and its Class A common stock and warrants to
purchase Class A common stock began trading on the Nasdaq Global
Select Market (“Nasdaq”) under the symbols CLOV and CLOVW,
respectively.
Management Commentary on Financial Highlights
Clover Health’s CFO, Joe Wagner, commented, “Our 2020 results
demonstrate our ability to deliver revenue and membership growth,
while improving management of the cost of care for our members and
driving further operating leverage. The global pandemic presented
us with unique challenges throughout 2020 as our primary focus was
on ensuring that our members had access to the testing and
resources that they needed in the midst of an unprecedented public
health crisis. We delivered this access while at the same time
building the necessary infrastructure and processes to become a
publicly-traded company, which became official in January of this
year.”
On a full year basis, the deferral or elimination of certain
healthcare services due to COVID-19 had a slight net benefit to the
Company’s medical care ratio (MCR), offsetting testing and other
treatment costs that were directly attributable to the pandemic.
That benefit was most pronounced during the second and third
quarters of the year. During the fourth quarter, that full year
benefit was somewhat diminished as a result of higher levels of
COVID-specific care and treatment for the Company’s members,
combined with the utilization of services that had been deferred in
previous quarters.
Key Company highlights are as follows:
Dollars in Millions |
Q4’20 |
Q4’19 |
Full Year 2020 |
Full Year 2019 |
Total Revenue |
$166.2 |
$115.3 |
$672.9 |
$462.3 |
Net Premium Revenue |
$164.6 |
$113.4 |
$665.7 |
$456.9 |
GAAP MCR |
109.3% |
99.8% |
88.7% |
98.6% |
Net Loss |
$(81.6) |
$(78.7) |
$(91.6) |
$(363.7) |
Adjusted EBITDA (Non-GAAP) |
$(63.4) |
$(59.1) |
$(74.4) |
$(175.5) |
|
|
|
|
|
Budgeted MCR(1) |
92.6% |
N/A |
92.7% |
N/A |
Normalized MCR (Non-GAAP) |
89.5% |
N/A |
90.5% |
N/A |
(1) For the associated definition of the applicable item, see
Appendix A.
Reconciliations of net income to adjusted EBITDA and GAAP MCR to
Normalized MCR (Non-GAAP), respectively, are provided in the tables
immediately following the consolidated financial statements.
Additional information about the Company's non-GAAP financial
measures can be found under the caption “About Non-GAAP Financial
Measures” below.
Full Year 2020 Financial Highlights
- Membership was 58,056 as of December
31, 2020, a 36.3% increase from December 31, 2019. After giving
effect to the results of the annual enrollment period in Q4 2020,
Clover began 2021 with over 66,000 Medicare Advantage members under
care as of February 2021.
- Lives under Clover Assistant
management surpassed 32,400 lives as of year end, a 43.2% increase
year-over-year.
- Total revenue was $672.9 million in
2020, a 45.6% increase compared to $462.3 million in 2019. Total
Medicare Advantage premium revenue was $665.7 million, up 45.7%
from $456.9 million in 2019. This growth was primary due to our
increase in membership and the relative acuity of our members as
reflected by their risk scores.
- The consolidated GAAP MCR for the year
ended December 31, 2020, was 88.7%, compared to 98.6% for 2019. The
full year 2020 Normalized MCR (Non-GAAP), which excludes the
estimated net effect of COVID-19 as described above, was 90.5%. The
year-over-year improvement was driven by operational efficiency and
the increase in the number of members managed by PCPs that use the
Clover Assistant.
- Gross profit was $82.4 million, or
12.2% of revenue in 2020, compared to gross profit of $11.6
million, or 2.5% of revenue in 2019, driven by improvements to our
MCR.
- Net loss was $(91.6) million in 2020,
compared to a net loss of $(363.7) million in 2019, an improvement
year-over-year of $(272.2) million. Net loss was significantly
impacted by year-over-year improvement of derivative valuation,
offset by an unfavorable change in the fair value of warrant
expenses. These specific factors will not impact our earnings in
2021 and forward.
- Adjusted EBITDA loss for the year
ended December 31, 2020, was $(74.4) million, compared to an
adjusted EBITDA loss of $(175.5) million in 2019. Adjusted EBITDA
as a percent of total Gross Premium was (11.2)% in 2020, as
compared to (38.3)% in 2019.
- Cash, cash equivalents and investments
totaled $151.1 million as of December 31, 2020, as compared to
$263.3 million as of December 31, 2019. The Merger, which closed
subsequent to December 31, 2020, delivered approximately $670
million to the Company, net of deal-related expenses, to support
growth and working capital.
As of January 7, 2021, immediately following completion of the
Merger, Clover had approximately 404.5 million shares outstanding.
We expect basic and diluted weighted average shares outstanding to
be approximately 405.1 million and 498.0 million, respectively for
the quarter ended March 31, 2021 and 406.0 million and 499.0
million, respectively for the full year 2021. We expect that our
earnings per share will align more closely with the Basic EPS share
count given that we expect a net loss in our financial statements
for 2021 as we continue to scale the business.
Financial Outlook“Looking ahead to 2021 and beyond, we are well
positioned to execute on our growth strategies as we enter new
Medicare Advantage markets and launch our Direct Contracting
Entity. Despite the ongoing uncertainty related to the COVID-19
pandemic, we expect to continue to deliver solid revenue growth and
continued improvement in the ability of Clover Assistant to reduce
the overall cost of care for our members,” Wagner concluded.
For full year 2021, Clover Health is providing the following
guidance and commentary:
- Medicare Advantage membership is
expected to be in the range of 68,000 - 70,000 by December 31,
2021, a growth rate of 17% - 21% as compared to year end 2020.
Historically, approximately 80% of Clover’s sales were from direct,
in-person sales. Despite the change in consumer behavior and
reduced foot traffic nationwide due to COVID-19, the Company had
strong Annual Enrollment Period results. Clover believes this is a
testament to the strength of its offering and its ability to drive
organic growth. The Company plans to further invest in near and
long-term initiatives that will lay the foundation for future rapid
growth, and, importantly, expand the sales funnel outside of the
‘ground game’. The Company believes in-person Medicare sales will
return to being a key differentiator in a post COVID-19 environment
and will continue its investments there, but will also be investing
in alternate channels such as online direct conversion and
telesales.
- For the Medicare Direct Contracting
program, the Company expects to have access to up to 200,000
Medicare beneficiaries through its contracts with Participating
Providers. Note that we anticipate these lives will be attributed
to our Direct Contracting entity on a quarterly basis throughout
2021.
- Total revenues are expected to be
in the range of $820 - $850 million, inclusive of a preliminary
estimate of approximately $30 to $50 million of revenue generated
from Direct Contracting. Note that GAAP revenue estimates for
Direct Contracting are dependent on the finalization of all
financial parameters of the program and the program going into
effect in April, as well as the associated accounting guidance
around those parameters. The Company believes, therefore, that the
estimated CMS benchmark expenditures are a more appropriate measure
of the size of the opportunity and its impact on the Company’s
operations.
- CMS benchmark expenditures(1) under
management for Direct Contracting are expected to be in the range
of $0.8 billion to $1.1 billion. This range is dependent on the
total lives that are ultimately attributed to our Direct
Contracting Entity through claims-based alignment and voluntary
alignment.
- Total Medicare spend under
management, which includes revenues from the Medicare Advantage
program plus the estimated CMS benchmark for Direct Contracting, is
expected to be in the range of $1.6 - $1.9 billion.
- Normalized MCR (Non-GAAP) for
Medicare Advantage is expected to be in the range of 89% -
91%.
- MCR for Direct Contracting is
expected to be approximately 100%, net of savings targets required
by CMS.
- Operating costs are expected to be
between $265 and $285 million and reflect the use of a portion of
the proceeds from the Merger to make investments in marketing,
network expansion and technology to support future growth. These
estimates also include extraordinary or nonrecurring costs of
approximately $25 million that relate to startup operations of
subsidiaries and other one-time legal costs
- Net loss is expected to be in the
range of $(210) - $(170) million.
- Adjusted EBITDA loss is expected to
be in the range of $(190) - $(150) million.
- Loss per share (basic) in the range
of $(0.52) - $(0.42).
(1) For the associated definition of the applicable item, see
Appendix A.
Reconciliations of projected Normalized MCR (Non-GAAP) and
Adjusted EBITDA to the corresponding GAAP amount is not provided as
the quantification of certain items that are excluded from non-GAAP
financial measures cannot be reasonably calculated or predicted at
this time without unreasonable efforts.
Earnings Conference Call DetailsClover Health’s management will
host a conference call to discuss its financial results on Monday,
March 1, at 5:00 PM Eastern Time. A live webcast of the call 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.
Clover Assistant Technology Showcase DetailsClover Heath’s
President & CTO, Andrew Toy will host a product and technology
showcase of our technology platform, the Clover Assistant, on
Tuesday, March 2 at 10:00 AM Pacific Time. Andrew will be joined by
the clinician team for an educational session offering a
deeper-dive into the Clover Assistant, highlighting key features,
feedback from physicians, and a peek into a few future features in
upcoming launches. The stream will be available from our investor
relations website at investors.cloverhealth.com, and a replay will
be available on-demand.
About Clover HealthClover Health (Nasdaq: CLOV) is a healthcare
technology company with a deeply rooted mission of improving every
life. Clover uses its proprietary technology platform to collect,
structure, and analyze health and behavioral data to improve
medical outcomes and lower costs for patients. As a company whose
business goals fully align with its members' health needs, Clover
works with members and their doctors to become a valued partner.
This trust is built by proactively identifying at-risk individuals
and teaming up with physicians to accelerate care coordination and
simultaneously improve health outcomes and reduce avoidable costs.
Clover has offices in San Francisco, Jersey City, Nashville and
Hong Kong.
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 generally relate to future
events or Clover Health’s future financial or operating
performance. In some cases, you can identify forward looking
statements because they contain words such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “going to,” “could,”
“intends,” “target,” “projects,” “contemplates,” “believes,”
“estimates,” “predicts,” “potential” or “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,” including
expectations relating to Medicare Advantage membership growth,
Direct Contracting beneficiaries growth, revenue growth, Normalized
MCR (Non-GAAP) improvements and loss per share; the statements
contained in the quotations, including expectations related to
Clover Health’s ability to scale its platform, growth strategies
and ability to reduce the cost of care. 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’s risk adjustment payment system;
challenges in expanding our member 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 on the Clover Health’s business and
industry; the timing and market acceptance of new releases and
upgrades to the Clover Assistant; and the successful development of
Direct Contracting and the degree to which our offerings gain
market acceptance by physicians. Additional information concerning
these and other risk factors is contained in the Risk Factors
section of Clover Health’s registration statement on Form S-1 or
Clover Health’s most recent reports on Form 10-K and Form 10-Q.
Clover Health assumes no obligation, and does not intend, to update
these forward-looking statements as a result of future events or
developments.
About of Non-GAAP Financial Measures
We use non-GAAP measures of Normalized MCR (Non-GAAP) and
Adjusted EBITDA. 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
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, 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 reconciliation of our non-GAAP financial measures to
the comparable GAAP results, which is attached to our quarterly and
annual earnings release and which can be found, along with other
financial information including filings with the Securities and
Exchange Commission, 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 the
section of the tables titled "About Non-GAAP Financial Measures and
Other Items."
Contacts:Investor Relations:investors@cloverhealth.com
Press Contact:Andrew
Still-Baxterpress@cloverhealth.com
CLOVER HEALTH INVESTMENTS, CORP. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS: SELECTED METRICS(in
thousands) (Unaudited)
|
As of December 31, |
|
|
2020 |
|
|
|
2019 |
|
Selected Balance Sheet
Data: |
|
|
Cash, cash equivalents and
investments |
$ |
151,103 |
|
|
$ |
263,327 |
|
Total assets |
|
267,252 |
|
|
|
337,021 |
|
Unpaid claims |
|
103,976 |
|
|
|
77,886 |
|
Notes and securities payable, net
of discount and deferred issuance costs |
|
106,413 |
|
|
|
57,917 |
|
Warrants payable |
|
97,782 |
|
|
|
17,672 |
|
Total liabilities |
|
387,888 |
|
|
|
377,811 |
|
Convertible Preferred stock |
|
447,747 |
|
|
|
447,747 |
|
Total stockholders’ deficit |
|
(568,383 |
) |
|
|
(488,537 |
) |
|
|
|
|
|
|
|
|
CLOVER HEALTH INVESTMENTS, CORP. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
(Unaudited)
|
For the Quarters Ended December 31, |
For the Years Ended December 31, |
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
Revenues: |
|
|
|
|
Premiums earned, net (Net of ceded premiums: fourth quarter ended
2020: $216; fourth quarter ended 2019: $132; 2020: $599; 2019:
$832) |
$ |
164,598 |
|
|
$ |
113,377 |
|
|
$ |
665,698 |
|
|
$ |
456,926 |
|
Other income |
|
885 |
|
|
|
506 |
|
|
|
4,214 |
|
|
|
801 |
|
Investment income, net |
|
750 |
|
|
|
1,392 |
|
|
|
2,976 |
|
|
|
4,539 |
|
Total revenues |
|
166,233 |
|
|
|
115,275 |
|
|
|
672,888 |
|
|
|
462,266 |
|
Expenses: |
|
|
|
|
Net medical claims incurred |
|
179,928 |
|
|
|
113,204 |
|
|
|
590,468 |
|
|
|
450,645 |
|
Salaries and benefits |
|
13,917 |
|
|
|
17,801 |
|
|
|
71,256 |
|
|
|
91,626 |
|
General and administrative expenses |
|
40,646 |
|
|
|
29,161 |
|
|
|
120,444 |
|
|
|
94,757 |
|
Premium deficiency reserve (benefit) expense |
|
(771 |
) |
|
|
14,726 |
|
|
|
(17,128 |
) |
|
|
7,523 |
|
Depreciation and amortization |
|
142 |
|
|
|
117 |
|
|
|
555 |
|
|
|
551 |
|
Other expense |
|
- |
|
|
|
84 |
|
|
|
- |
|
|
|
363 |
|
Total expenses |
|
233,862 |
|
|
|
175,093 |
|
|
|
765,595 |
|
|
|
645,465 |
|
Loss from operations |
|
(67,629 |
) |
|
|
(59,818 |
) |
|
|
(92,707 |
) |
|
|
(183,199 |
) |
|
|
|
|
|
Change in fair value of warrants
expense |
|
48,425 |
|
|
|
984 |
|
|
|
80,328 |
|
|
|
2,909 |
|
Interest expense |
|
10,430 |
|
|
|
7,518 |
|
|
|
35,990 |
|
|
|
23,155 |
|
Amortization of notes and
securities discount |
|
6,183 |
|
|
|
5,872 |
|
|
|
21,118 |
|
|
|
15,913 |
|
(Gain) loss on derivative |
|
(51,086 |
) |
|
|
4,479 |
|
|
|
(138,561 |
) |
|
|
138,561 |
|
Net loss |
$ |
(81,581 |
) |
|
$ |
(78,671 |
) |
|
$ |
(91,582 |
) |
|
$ |
(363,737 |
) |
|
|
|
|
|
CLOVER HEALTH INVESTMENTS, CORP. AND
SUBSIDIARIESRECONCILIATION OF NON-GAAP FINANCIAL MEASURESADJUSTED
EBITDA AND ADJUSTED EBITDA MARGIN RECONCILIATION(in thousands)
(Unaudited)(1)
|
For the Quarters Ended December 31, |
For the Years Ended December
31, |
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
Net Loss: |
$ |
(81,581 |
) |
|
$ |
(78,671 |
) |
|
$ |
(91,582 |
) |
|
$ |
(363,737 |
) |
Adjustments |
|
|
|
|
Interest expense |
|
10,430 |
|
|
|
7,518 |
|
|
|
35,990 |
|
|
|
23,155 |
|
Amortization of notes and securities discount |
|
6,183 |
|
|
|
5,872 |
|
|
|
21,118 |
|
|
|
15,913 |
|
Income taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation and amortization |
|
142 |
|
|
|
117 |
|
|
|
555 |
|
|
|
551 |
|
Change in fair value of warrant expense |
|
48,425 |
|
|
|
984 |
|
|
|
80,328 |
|
|
|
2,909 |
|
(Gain) loss on derivative |
|
(51,086 |
) |
|
|
4,479 |
|
|
|
(138,561 |
) |
|
|
138,561 |
|
Restructuring (income) cost |
|
(11 |
) |
|
|
(66 |
) |
|
|
2,658 |
|
|
|
3,890 |
|
Stock-based compensation expense |
|
2,129 |
|
|
|
655 |
|
|
|
7,078 |
|
|
|
3,301 |
|
Health insurance industry fee |
|
2,006 |
|
|
|
- |
|
|
|
8,022 |
|
|
|
- |
|
Adjusted EBITDA |
$ |
(63,363 |
) |
|
$ |
(59,112 |
) |
|
$ |
(74,394 |
) |
|
$ |
(175,457 |
) |
Premiums earned, gross |
$ |
164,814 |
|
|
$ |
113,509 |
|
|
$ |
666,297 |
|
|
$ |
457,758 |
|
Adjusted EBITDA Margin |
|
(38.4 |
)% |
|
|
(52.1 |
)% |
|
|
(11.2 |
)% |
|
|
(38.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) This section 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
SUBSIDIARIESRECONCILIATION OF NON-GAAP FINANCIAL MEASURESNORMALIZED
MCR (NON-GAAP) RECONCILIATION(Unaudited)(1)
|
For the Quarter Ended December 31, |
For the Year Ended December
31, |
|
2020 |
2020 |
|
|
|
GAAP MCR: |
109.3 |
% |
88.7 |
% |
Adjustments |
|
|
Direct COVID costs, including utilization deferred in prior
periods |
(16.7 |
)% |
(8.1 |
)% |
Estimate of care deferred/eliminated by COVID environment |
2.6 |
% |
8.6 |
% |
Prior period development and other |
(5.7 |
)% |
1.3 |
% |
Normalized MCR (Non-GAAP) |
89.5 |
% |
90.5 |
% |
(1) This section 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 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.
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 warrant expense - The fair value of
warrant liabilities is estimated using a probability-weighted
expected return method, where the values of various instruments are
estimated based on an analysis of future values, assuming various
future outcomes.
Direct COVID costs, including utilization deferred in prior
periods - Direct COVID Costs consist of our estimate of costs of
care associated with COVID-19 related diagnoses and testing.
Utilization deferred in prior periods consists of our estimate of
Non-COVID related medical costs which were deferred in prior
periods by members in observance of stay at home orders and other
social distancing safety concerns, which ultimately were incurred
in the current period through necessity or perceived improvement of
the general safety environment. See definition of Normalized MCR
(Non-GAAP).
Estimate of care deferred/eliminated by COVID environment - This
consists of our estimate of care that was deferred or eliminated
due to the COVID-19 pandemic, including the impact of reduced
demand for medical services. These medical costs have the potential
to be incurred in future periods. See definition of Normalized MCR
(Non-GAAP).
(Gain) loss on derivatives - This consists of values determined
after we have evaluated the embedded features of our convertible
securities by applying derivative accounting guidance. Derivatives
embedded within non-derivative instruments, such as convertible
securities, are bifurcated from the host instrument when the
embedded derivative is not clearly and closely related to the host
instrument.
Health insurance industry fee (“HIF”) - The Affordable Care Act
imposed an annual fee on covered entities engaged in the business
of providing health insurance. The HIF is a fixed amount allocated
among all covered entities in proportion to their relative market
share as determined by each entity’s net premiums written for the
data year. The data year is the year immediately preceding the year
in which the fee is paid.
Prior period development and other - This consists of our
estimate of MCR adjustments in the current period which relate to
prior period dates of service. We exclude these amounts to isolate
our best estimate of current period performance.
Restructuring (income) cost - Restructuring costs primarily
consist of employee severance and benefit arrangements and contract
termination costs.
Stock Based Compensation Expense - This
consists of expenses for stock-based payment awards granted to
employees and non-employees.
Non-GAAP Definitions
Adjusted EBITDA - A non-GAAP financial measure defined by us as
net loss before interest expense, amortization of notes and
securities discounts, provision for income taxes, depreciation and
amortization expense, change in fair value of warrants expense,
(gain) loss on derivative, restructuring (income) cost, stock-based
compensation expense and health insurance industry fee. Adjusted
EBITDA is a key measure 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 particular, we believe that
the exclusion of the amounts eliminated in calculating Adjusted
EBITDA can provide useful measures for period-to-period comparisons
of our business. Accordingly, we believe that Adjusted EBITDA
provides useful information in understanding and evaluating our
operating results in the same manner as our management and our
board of directors.
Adjusted EBITDA Margin - A non-GAAP financial measure defined by
us as Adjusted EBITDA divided by premiums earned, gross. We view
Adjusted EBITDA Margin as a key measure for the same reasons
Adjusted EBITDA is a key measure. See definition of Adjusted EBITDA
above.
Normalized MCR (Non-GAAP) - A non-GAAP financial measure that
excludes the impact of COVID-19-related medical costs and other
items on our MCR (as defined below) and adjusts for the estimate of
prior period divergence from estimates. The impact of such medical
costs and other items consists of estimates of eliminated or
deferred care, reduced demand for medical services, and the direct
cost of COVID-related care. Normalized MCR (Non-GAAP) should be
considered a supplement to, and not a substitute for, GAAP MCR. We
believe that this metric, which is used by our management in the
operation of the business, is helpful to investors in assessing the
Company’s 2020 financial performance and operations without the
temporary distortion caused by the COVID pandemic.
Definitions of Other Items
Lives Managed under Clover Assistant - Consists of lives managed
by providers who utilize the Clover Assistant. This measure is
useful because utilization of the Clover Assistant helps us manage
the effectiveness of our care.
Budgeted MCR - Represents MCR estimates contained our internal
plan, which was established in January 2020 (i.e., prior to
visibility into the COVID-19 pandemic or the impact that it might
have on our financial results).
CMS benchmark expenditures - A CMS calculation using
risk-adjusted average per capita expenditures for Medicare Parts A
and B services under the original Medicare FFS program. This
represents the level of estimated medical expenses for the
beneficiary population being managed by the Direct Contracting
Entity.
Estimated Direct Contracting - GAAP revenues are dependent on
finalization of all financial parameters in the Direct Contracting
program, which is scheduled to begin in April 2021. We believe that
the estimated CMS benchmark expenditures represent a measure of the
size of our opportunity under the program and its impact on our
operations.
Medical Care Ratio, Gross and Net - We calculate our medical
care ratio (MCR) by dividing total net medical claim expenses
incurred by premiums earned, in each case on a gross or net basis,
as the case may be, in a given period. We believe our MCR is an
indicator of our gross 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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