Clover Health Investments, Corp. — FY2023 Form 10-K Summary
Business context and reporting period
Clover Health operates Medicare Advantage PPO and HMO plans and uses its Clover Assistant software platform to support physician decision-making and chronic-care management. The Company also operated an ACO REACH Non-Insurance business during 2023 but notified CMS on December 1, 2023 that it would exit the program for the 2024 performance year.
The filing covers the fiscal year ended December 31, 2023, with comparisons primarily to fiscal 2022. At December 31, 2023, Clover had 81,205 Insurance members and 131,734 total Lives under Clover Management, including 50,529 Non-Insurance beneficiaries. Beginning in 2024, Lives under Clover Management consists only of Insurance members. The Company operated Medicare Advantage plans in eight states and 220 counties at year-end 2023; its 2024 footprint was reduced to five states and 200 counties.
Financial performance and key metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenues | $2.034 billion | $3.477 billion | Down 41.5% |
| Premiums earned, net | $1.236 billion | $1.085 billion | Up 13.9% |
| Non-Insurance revenue | $773.2 million | $2.380 billion | Down 67.5% |
| Net medical claims incurred | $1.776 billion | $3.454 billion | Down 48.6% |
| Loss from operations | $208.5 million | $371.6 million | Improved by $163.1 million |
| Net loss | $213.4 million | $339.6 million | Improved by $126.2 million |
| Basic and diluted loss per share | $0.44 loss | $0.71 loss | Improved |
| Net cash used in operating activities | $115.9 million | $286.3 million | Improved by $170.5 million |
The Company remained unprofitable, with an accumulated deficit of approximately $2.160 billion at December 31, 2023. Insurance premiums increased primarily because of improved risk-adjustment revenue and the effect of a higher Star Rating in 2023. Insurance net medical claims incurred were $1.004 billion, and the Insurance medical care ratio improved to 81.2% from 91.8% in 2022. Non-Insurance MCR improved to 99.8% from 103.4%, but the segment contracted substantially.
Other income increased to $24.8 million from $11.7 million, primarily because of higher investment income. Investment income was $18.4 million. Stock-based compensation remained significant at $140.9 million, representing approximately 55% of salaries and benefits.
Liquidity, capital and debt
- Total restricted and unrestricted cash, cash equivalents and investments were $417.3 million at December 31, 2023, compared with $555.3 million at December 31, 2022.
- Cash, cash equivalents and restricted cash totaled $176.5 million at year-end, including $53.6 million of restricted cash.
- Parent-company and unregulated-entity cash, cash equivalents and investments declined to $136.8 million from $331.7 million; parent-company cash declined to $74.0 million from $238.0 million.
- Regulated insurance subsidiaries held $280.5 million of cash, cash equivalents, restricted cash and investments and had statutory capital and surplus of $187.4 million, above approximately $113.7 million of minimum RBC requirements.
- The Company stated that available liquidity and projected cash flows are expected to meet projected operating and regulatory requirements for at least the next 12 months under current plans, but it may require additional debt or equity financing. The filing does not provide a clear consolidated debt balance; parent-company notes payable were $0.4 million, net of discount, at year-end, and a $40.0 million surplus note remained subject to regulatory approval for repayment.
- Operating lease obligations totaled approximately $4.7 million. The Company also reported a $15.6 million current Non-Insurance performance-year obligation.
Material changes versus the prior comparable period
- Non-Insurance revenue and beneficiaries declined sharply following the strategic reduction of ACO REACH participation. Non-Insurance beneficiaries fell to 50,529 from 164,887 at year-end 2022.
- Insurance premiums increased 13.9%, while Insurance MCR improved by approximately 10.6 percentage points.
- Operating and net losses narrowed, and operating cash burn improved, but cash and investment balances declined materially.
- The Company implemented a business transformation program, including transferring core plan operations to UST HealthProof and reducing its workforce by approximately 10%. It recorded $9.9 million of restructuring costs.
- The Company recorded $15.9 million of goodwill and intangible-asset impairment, including $11.7 million of goodwill and $4.2 million of intangible assets, primarily related to Juxly and other Corporate/Other assets.
- A $7.2 million premium deficiency reserve benefit was recorded in 2023, compared with a $93.5 million benefit in 2022. The Company retrospectively changed its reserve methodology to include anticipated investment income.
- CMS awarded both the PPO and HMO plans 3.0 Stars for the 2022 measurement year, down 0.5 Star for each plan. The 3.0-Star rating is expected to affect the 2025 payment year; 2024 payments are based on the prior 3.5-Star ratings.
Guidance, outlook, commentary, risks and unusual items
Management did not provide specific 2024 revenue or earnings guidance in the filing. Its liquidity assessment assumes that current cash, investments and projected operating cash flows will be sufficient for at least the next 12 months. Management also stated that additional financing may be needed to support growth or unforeseen circumstances, and such financing may be dilutive or unavailable on acceptable terms.
The ACO REACH exit is expected to reduce revenue and data scale but is intended to provide strategic and financial benefits. The Company expects total exit-related charges of approximately $8 million to $10 million; the filing reports that it had incurred certain related restructuring costs by year-end.
Important risks include continued losses and negative operating cash flow; dependence on Medicare Advantage premiums, CMS risk adjustment and Star Ratings; medical-cost and IBNR estimation risk; concentration of members in New Jersey; provider-network and Clover Assistant adoption risk; extensive healthcare, insurance, privacy and cybersecurity regulation; potential additional capital needs; litigation and government investigations; and possible Nasdaq delisting if the stock price fails to satisfy the $1.00 minimum bid-price requirement.
The Company disclosed ongoing SEC subpoenas and related historical investigations. A securities class action was settled in 2023 for $22 million, funded in part by $19.5 million of insurance proceeds. Related derivative litigation was subject to a proposed settlement requiring corporate-governance enhancements and a potential $2.5 million plaintiffs' counsel fee, subject to court approval. The filing states that no cybersecurity threat had materially affected, or was reasonably likely to materially affect, the Company during the reporting period.
Most important facts for investors to verify
- Whether Clover can sustain the improved 81.2% Insurance MCR and translate it into positive consolidated operating cash flow and profitability.
- The final financial reconciliation and any additional liabilities or charges associated with the ACO REACH exit.
- The adequacy and accessibility of parent-level liquidity after the substantial 2023 decline in cash and investments, including restrictions on transfers from regulated subsidiaries.
- The effect of the 3.0-Star ratings on 2025 CMS payments, benefits, enrollment and competitive position.
- The potential need, timing, terms and dilution of future debt or equity financing.
- The impact of CMS risk-adjustment audits, retroactive settlements, IBNR development and other actuarial estimates on future results.
- The status and final cost of derivative litigation and the ongoing SEC or other regulatory inquiries.
- Potential dilution from outstanding equity awards, including approximately 56.9 million RSUs, 32.1 million PRSUs and 25.0 million options or similar option awards at year-end.
- Nasdaq listing compliance and the effect of the dual-class structure, under which insiders and affiliates held approximately 70.7% of voting power at December 31, 2023.