CLOVER HEALTH INVESTMENTS, CORP. /DE – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of our consolidated
results of operations and financial condition. The discussion should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 2022, contained in this Annual Report on Form 10-K (the
"Form 10-K"). The following discussion and analysis does not include certain
items related to the year ended December 31, 2021, including year-to-year
comparisons between the year ended December 31, 2021 and the year ended December
31, 2020. For a discussion of these items and comparison of our results of
operations for the fiscal years ended December 31, 2021 and December 31, 2020,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on February 28, 2022. This discussion
contains forward-looking statements and involves numerous risks and
uncertainties, including, but not limited to, those described in the "Risk
Factors" section of this Form 10-K. Actual results may differ materially from
those contained in any forward-looking statements. See "Cautionary Note
Regarding Forward-Looking Statements" for additional information. Unless the
context otherwise requires, references in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" to "we," "us," "our,"
"Clover," "Clover Health," and the "Company" mean the business and operations of
Clover Health Investments, Corp. and its consolidated subsidiaries.

Overview

At Clover Health, our vision is to empower Medicare physicians to identify and
manage chronic diseases early. Our strategy is to improve the care of our
Medicare beneficiaries, develop wide physician networks, and provide technology
to help empower physicians. Our proprietary software platform, Clover Assistant,
helps us execute this strategy by enabling physicians to detect, identify, and
manage chronic diseases earlier than they otherwise could. This technology is a
cloud-based software platform that provides physicians with access to
data-driven and personalized insights for the patients they treat. This software
is used in both our Insurance segment and our Non-Insurance segment.

We operate Preferred Provider Organization ("PPO") and Health Maintenance
Organization ("HMO") Medicare Advantage ("MA") plans for Medicare-eligible
consumers. We aim to provide high-quality, affordable healthcare for all
Medicare beneficiaries. We offer most members in our MA plans (the "members")
among the lowest average out-of-pocket costs for primary care provider and
specialist co-pays, drug deductibles and drug costs in their markets. We
strongly believe in providing our members provider choice, and we consider our
PPO plan to be our flagship insurance product. An important feature of our MA
product is wide network access. We believe the use of Clover Assistant and
related data insights allows us to improve clinical decision-making through a
highly scalable platform. At January 1, 2023, we operated our MA plans in eight
states and 220 counties, with 84,138 members.

On April 1, 2021, our 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"), which transitioned to the Accountable
Care Organization Realizing Equity, Access, and Community Health Model ("ACO
REACH Model" or "ACO REACH") in January 2023. Our DCE assumes full risk (i.e.,
100.0% shared savings and shared losses) for the total cost of care of aligned
Original Medicare beneficiaries (the "Non-Insurance Beneficiaries" and,
collectively with the members, "Lives under Clover Management" or the
"beneficiaries"). Through our Direct Contracting operations, we focus on
leveraging Clover Assistant to enhance healthcare delivery, reduce expenditures,
and improve care for our Non-Insurance Beneficiaries. At December 31, 2022, we
had approximately 1,560 contracted participant providers who manage primary care
for our Non-Insurance Beneficiaries in 21 states. Additionally, at December 31,
2022, we had approximately 1,675 preferred providers and preferred facilities in
our DCE network. In connection with the 2023 performance year, we strategically
reduced the number of ACO REACH participating physicians, which resulted in a
shift in our beneficiary alignment. At the beginning of January 2023, we had
approximately 605 contracted participant providers who manage primary care for
our Non-Insurance Beneficiaries in 13 states. Additionally, at the beginning of
January 2023, we had approximately 1,540 preferred providers and preferred
facilities in our ACO REACH network. Our participation in the DC Model has
enabled us to move beyond the MA market and target the Medicare fee-for-service
("FFS") market, which is the largest segment of Medicare. We believe that
expanding into the FFS market is not only a strategic milestone for Clover but
also demonstrates the scalability of Clover Assistant. Furthermore, we believe
that offering providers multiple options within CMS' "Pathways to Success" will
enable us to be accessible to more practices. Beyond ACO REACH, exploring other
additional plans such as MSSP-A ("Medicare Shared Savings Program BASIC level
A") and Medicare Shared Savings Plan ENHANCED ("MSSP Enhanced"), would diversify
our portfolio, allow for potential growth in lives under management, and provide
an opportunity for better balancing the overall risk profile of the business.

At December 31, 2022, we were partnering with providers to care for 253,514
Lives under Clover Management, which included 88,627 Insurance members and
164,887 aligned Non-Insurance Beneficiaries.

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Recent Developments

Geographic Expansion

On July 14, 2022, we announced plans to make our MA plans available in 13 new
counties beginning in 2023. This expansion makes our MA plans available in a
total of 220 counties across eight states.

Impact of COVID-19

The Coronavirus Disease 2019 ("COVID-19") pandemic and its variants continues to
evolve, and the impact on our business, results of operations, financial
condition, and cash flows stabilized during the year ended December 31, 2022. We
are continuing to monitor the ongoing financial impact of COVID-19 on our
business and operations and are making adjustments accordingly. A large portion
of our membership is elderly and generally in the high-risk category for
COVID-19, and we have worked closely with our network of providers to ensure
that members are receiving necessary care. During the years ended December 31,
2022 and 2021, we incurred elevated costs as compared to prior to the outbreak
of the pandemic in 2020 to diagnose and care for those members who had
contracted the virus. Indirect costs attributable to the COVID-19 pandemic were
elevated as well, as deferral of services and increased costs related to
conditions that were exacerbated by a lack of diagnosis and treatment in the
earlier periods of the pandemic contributed to increased utilization.

Key Performance Measures of Our Operating Segments

Operating Segments

We manage our operations based on two reportable operating segments: Insurance
and Non-Insurance. Through our Insurance segment, we provide PPO and HMO plans
to Medicare Advantage members in several states. Our Non-Insurance segment
consists of our operations in connection with our participation in the DC Model,
which transitioned to the ACO REACH Model beginning in 2023. All other clinical
services and all corporate overhead not included in the reportable segments are
included within Corporate/Other.

These segment groupings are consistent with the information used by our Chief
Executive Officer (identified as our chief operating decision maker) to assess
performance and allocate the Company's resources.

We review several key performance measures, discussed below, to evaluate our
business and results, measure performance, identify trends, formulate plans, and
make strategic decisions. We believe that the presentation of such metrics is
useful to management and counterparties to model the performance of healthcare
companies such as Clover.

Insurance segment

Through our Insurance segment, we provide PPO and HMO plans to members in
several states. We seek to improve care and lower costs for our Insurance
members by empowering providers with data-driven, personalized insights to
support treatment of members through our software platform, Clover Assistant.

Years ended December 31,                                        2022                                    2021
                                                      Total               PMPM (1)            Total             PMPM (1)
                                                      (Premium and expense amounts in thousands, except PMPM amounts)
Insurance members as of period end (#)                 88,627                    N/A          68,120                   N/A
Premiums earned, gross                           $  1,085,339           $   1,041          $ 799,903          $     997
Premiums earned, net                                1,084,869               1,041            799,414                996
Insurance medical claim expense incurred,
gross                                                 997,576                 957            848,288              1,057
Insurance net medical claims incurred                 996,410                 956            847,286              1,056
Medical care ratio, gross (2)                            91.9   %                N/A           106.0  %                N/A
Medical care ratio, net                                  91.8                    N/A           106.0                   N/A


(1) Calculated per member per month ("PMPM") figures are based on the applicable
amount divided by member months in the given period. Member months represents
the number of months members are enrolled in a Clover Health plan in the period.

(2) Defined as Insurance gross medical claims incurred divided by premiums
earned, gross.

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Membership and associated premiums earned and medical claim expenses.

We define new and returning members on a calendar year basis. Any member who is
active on July 1 of a given year is considered a returning member in the
following year. Any member who joins a Clover plan after July 1 in a given year
is considered a new member for the entirety of the following calendar year. We
view our number of members and associated PMPM premiums earned and medical claim
expenses, in the aggregate and on a PMPM basis, as important metrics to assess
our financial performance; member growth aligns with our mission, drives our
Total revenues, expands brand awareness, deepens our market penetration, creates
additional opportunities to inform our data-driven insights to improve care and
decrease medical claim expenses, and generates additional data to continue to
improve the functioning of Clover Assistant. Among other things, the longer a
member is enrolled in one of our insurance plans, the more data we collect and
synthesize and the more actionable insights we generate. We believe these
data-driven insights lead to better care delivery as well as improved
identification and documentation of members' chronic conditions, helping to
lower PMPM medical claim expenses.

Premiums earned, gross.

Premiums earned, gross is the amount received, or to be received, for insurance
policies written by us during a specific period of time without reduction for
premiums ceded to reinsurance. We believe premiums earned, gross provides useful
insight into the gross economic benefit generated by our business operations and
allows us to evaluate our underwriting performance without regard to changes in
our underlying reinsurance structure. Premiums earned, gross excludes the
effects of premiums ceded to reinsurers, and therefore should not be used as a
substitute for Premiums earned, net, Total revenues, or any other measure
presented in accordance with generally accepted accounting principles in the
United States ("GAAP").

Premiums earned, net.

Premiums earned, net represents the earned portion of our premiums earned,
gross, less the earned portion that is ceded to third-party reinsurers under our
reinsurance agreements. Premiums are earned in the period in which members are
entitled to receive services, and are net of estimated uncollectible amounts,
retroactive membership adjustments, and any adjustments to recognize rebates
under the minimum benefit ratios required under the Patient Protection and
Affordable Care Act.

Premiums earned, gross is the amount received, or to be received, for insurance
policies written by us during a specific period of time without reduction for
premiums ceded to reinsurance. We earn premiums through our plans offered under
contracts with CMS. We receive premiums from CMS on a monthly basis based on our
actuarial bid and the risk-adjustment model used by CMS. Premiums anticipated to
be received within twelve months based on the documented diagnostic criteria of
our members are estimated and included in revenues for the period, including the
member months for which the payment is designated by CMS.

Premiums ceded is the amount of premiums earned, gross ceded to reinsurers. From
time to time, we enter into reinsurance contracts to limit our exposure to
potential losses as well as to provide additional capacity for growth. Under
these agreements, the "reinsurer," agrees to cover a portion of the claims of
another insurer, i.e., us, the "primary insurer," in return for a portion of
their premium. Ceded earned premiums are earned over the reinsurance contract
period in proportion to the period of risk covered. The volume of our ceded
earned premium is impacted by the level of our premiums earned, gross and any
decision we make to adjust our reinsurance agreements.

Insurance gross medical claims incurred.

Insurance gross medical claims incurred reflects claims incurred, excluding
amounts ceded to reinsurers, and the costs associated with processing those
claims. We believe gross medical claims incurred provides useful insight into
the gross medical expense incurred by members and allows us to evaluate our
underwriting performance without regard to changes in our underlying reinsurance
structure.

Insurance gross medical claims incurred excludes the effects of medical claims
and associated costs ceded to reinsurers, and therefore should not be used as a
substitute for Net claims incurred, Total operating expenses, or any other
measure presented in accordance with GAAP.

Insurance net medical claims incurred.

Insurance net medical claims incurred are our medical expenses and consist of
the costs of claims, including the costs incurred for claims net of amounts
ceded to reinsurers. We enter into reinsurance contracts to limit our exposure
to potential catastrophic losses. These expenses generally vary based on the
total number of members and their utilization rate of our services.

Medical care ratio, gross and net.

We calculate our medical care ratio ("MCR") by dividing total Insurance 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 margin for
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our Insurance 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.

Non-Insurance segment

Our Non-Insurance segment consists of operations in connection with our
participation in the Direct Contracting program, which we began in April 2021
and which transitioned to the ACO REACH Model beginning in 2023. As part of our
Non-Insurance operations, we empower providers with Clover Assistant and offer a
variety of programs aimed at reducing expenditures and preserving or enhancing
the quality of care for our Non-Insurance Beneficiaries.

Year ended December 31, 2022                                      2022                                    2021
                                                        Total               PBPM (1)            Total             PBPM (1)
                                                        (Revenue and claims amounts in thousands, except PBPM amounts)
Non-Insurance Beneficiaries as of period end
(#)                                                     164,887                    N/A          61,876                   N/A
Non-Insurance revenue                              $  2,380,135           $   1,175          $ 667,639          $   1,194
Non-Insurance net medical claims incurred             2,460,879               1,214            705,407              1,262
Non-Insurance MCR (2)                                     103.4   %                N/A           105.7  %                N/A


(1) Calculated per beneficiary per month ("PBPM") figures are based on the
applicable amount divided by beneficiary months in the given period. Beneficiary
months represents the number of months beneficiaries are aligned to our DCE in
the period.

(2) Defined as Non-Insurance net medical claims incurred divided by
Non-Insurance revenues.

Non-Insurance Beneficiaries.

A Non-Insurance Beneficiary is defined as an eligible Original Medicare covered
life that has been aligned to our DCE, Health Partners, via attribution to a
DCE-participant provider through alignment based on claims data or by
beneficiary election through voluntary alignment. A beneficiary alignment is
effective as of the first of the month, for the full calendar month, regardless
of whether eligibility is lost during the course of the month.

Non-Insurance revenue.

Non-Insurance revenue represents CMS' total expense incurred for medical
services provided on behalf of Non-Insurance Beneficiaries during months in
which they were alignment eligible during the performance year. Non-Insurance
revenue is the sum of the capitation payments made to us for services within the
scope of our capitation arrangement and FFS payments made to providers directly
from CMS. Non-Insurance revenue is also known in the DC Model as performance
year expenditures and is the primary component used to calculate shared savings
or shared loss versus the performance year benchmark. Non-Insurance revenue
includes a direct reduction or increase of shared savings or loss, as
applicable. Premiums and recoupments incurred in direct relation to the DC Model
are recognized as a reduction or increase in Non-Insurance revenue, as
applicable. We believe Non-Insurance revenue provides useful insight into the
gross economic benefit generated by our business operations and allows us to
evaluate our performance without regard to changes in our underlying reinsurance
structure.

Non-Insurance net medical claims incurred.

Non-Insurance net medical claims incurred consist of the total incurred expense
that CMS and we will remit for medical services provided on behalf of
Non-Insurance Beneficiaries during the months in which they are alignment
eligible and aligned to the DCE. Additionally, Non-Insurance net medical claims
incurred are inclusive of fees paid to providers for Clover Assistant usage,
care coordination, and any shared savings or shared loss agreements with
providers.

Non-Insurance MCR.

We calculate our MCR by dividing Non-Insurance net medical claims incurred by
Non-Insurance revenue in a given period. We believe our MCR is an indicator of
our gross profitability and the ability to capture and analyze data over time to
generate actionable insights for returning beneficiaries to improve care and
reduce medical expenses.
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Results of Operations

Comparison of the Years ended December 31, 2022 and 2021

The following table summarizes our consolidated results of operations for the
years ended December 31, 2022 and 2021. The period-to-period comparison of
results is not necessarily indicative of results for future periods.

                                                                 Years ended                      Change between
                                                                 December 31,                      2022 and 2021
                                                           2022                2021                            ($)                 (%)
                                                                     (in thousands)
Revenues
Premiums earned, net (Net of ceded premiums of $470
and $489 for the years ended December 31, 2022 and
2021, respectively)                                   $ 1,084,869          $  799,414                     $  285,455                 35.7  %
Non-Insurance revenue                                   2,380,135             667,639                      1,712,496                256.5
Other income                                               11,683               4,943                          6,740                136.4
Total revenues                                          3,476,687           1,471,996                      2,004,691                136.2
Operating expenses
Net medical claims incurred                             3,453,952           1,551,178                      1,902,774                122.7

Salaries and benefits                                     278,725             260,458                         18,267                  7.0
General and administrative expenses                       207,917             185,287                         22,630                 12.2
Premium deficiency reserve (benefit) expense              (94,240)            110,628                       (204,868)                      *
Depreciation and amortization                               1,187               1,246                            (59)                (4.7)
Other expense                                                  70                 191                           (121)               (63.4)
Total operating expenses                                3,847,611           2,108,988                      1,738,623                 82.4
Loss from operations                                     (370,924)           (636,992)                       266,068                (41.8)

Change in fair value of warrants                             (900)            (66,146)                        65,246                       *
Interest expense                                            1,333               3,193                         (1,860)               (58.3)
Amortization of notes and securities discount                  30              13,717                        (13,687)               (99.8)

Gain on extinguishment of note payable                    (23,326)                  -                        (23,326)                      *
Gain on investment                                         (9,217)                  -                         (9,217)                      *
Net loss                                              $  (338,844)         $ (587,756)                    $  248,912                (42.3) %

* Not presented because the current or prior period amount is zero or the
amount for the line item changed from a gain to a loss (or vice versa) and thus
yields a result that is not meaningful.

Premiums earned, net

Premiums earned, net increased $285.5 million, or 35.7%, to $1,084.9 million for
the year ended December 31, 2022, compared to the year ended December 31, 2021.
The increase was primarily due to membership growth of 30.1% from 68,120
Insurance members at December 31, 2021, to 88,627 Insurance members at
December 31, 2022. The remaining increase is primarily driven by an increase in
accrued risk adjustment revenue recognized during the year ended December 31,
2022.

Non-Insurance revenue

Our Non-Insurance revenue increased $1,712.5 million, or 256.5%, to $2,380.1
million for the year ended December 31, 2022, compared to the year ended
December 31, 2021. The increase was primarily driven by an increase in the
number of our aligned Non-Insurance Beneficiaries from 61,876 at December 31,
2021, to 164,887 at December 31, 2022, due to the fact that our DCE did not
begin participation in Direct Contracting until the second quarter of 2021.

Other income

Other income increased $6.7 million, or 136.4%, to $11.7 million for the year
ended December 31, 2022, compared to the year ended December 31, 2021. The
increase was largely due to a $7.1 million increase in net investment income,
partially offset by a $1.2 million decrease in rental income.
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Net medical claims incurred

Net medical claims incurred increased $1,902.8 million, or 122.7%, to $3,454.0
million for the year ended December 31, 2022, compared to the year ended
December 31, 2021. The increase was primarily driven by an increase in net
medical claims attributable to our Non-Insurance Beneficiaries from $705.4
million for the year ended December 31, 2021, to $2,460.9 million for the year
ended December 31, 2022, which was driven by an increase in the number of our
aligned Non-Insurance Beneficiaries from 61,876 at December 31, 2021, to 164,887
at December 31, 2022. This was partially due to the fact that our DCE did not
begin participation in Direct Contracting until the second quarter of 2021. We
also experienced an increase of $149.1 million in net medical claims
attributable to our Insurance members, which was primarily driven by an increase
in Insurance members from 68,120 Insurance members at December 31, 2021, to
88,627 Insurance members at December 31, 2022.

Salaries and benefits

Salaries and benefits increased $18.3 million, or 7.0%, to $278.7 million for
the year ended December 31, 2022, compared to the year ended December 31, 2021.
The increase was primarily driven by an increase in average headcount which is
primarily attributable to the build out of DCE.

General and administrative expenses

General and administrative expenses increased $22.6 million, or 12.2%, to $207.9
million for the year ended December 31, 2022, compared to the year ended
December 31, 2021. The increase was primarily driven by increases in
professional fees related to supporting the administrative needs of a larger
member and Non-Insurance beneficiary groups as compared to the prior period.
Professional fees increased $11.3 million for the year ended December 31, 2022,
compared to the year ended December 31, 2021. In addition, total commissions,
which are attributable to acquiring new and retaining existing members to our
plans, increased by $9.5 million.

Premium deficiency reserve (benefit) expense

A $94.2 million premium deficiency reserve benefit was recorded for the year
ended December 31, 2022, which was primarily driven by amortization associated
with the 2021 recorded reserve. This was partially offset by the establishment
of the new Premium deficiency reserve related to 2023. A $110.6 million premium
deficiency reserve expense was recorded for the year ended December 31, 2021,
which included amortization associated with a previously recorded reserve and
the reserve deemed necessary for the remainder of 2022. The increase in the
premium deficiency benefit for the year ended December 31, 2022 was primarily
driven by an 11% decrease in the allocable administrative expenses and a 9%
benefit in projected MCR as compared to the projected MCR for the year ended
December 31, 2021. The Company received a higher contracted rate with CMS under
Clover's 3.5 quality star rating for its PPO plan as well as maturation of
Clover's core clinical programs, which favorably impacted projected MCR.

Change in fair value of warrants

Change in fair value of warrants totaled $0.9 million for the year ended
December 31, 2022. The $65.2 million increase as compared to the year ended
December 31, 2021 is primarily driven by the mark-to-market adjustments and
subsequent redemption of all the Public Warrants and Private Warrants during the
prior period.

Interest expense

Interest expense decreased $1.9 million, or 58.3%, to $1.3 million for the year
ended December 31, 2022, compared to the year ended December 31, 2021, primarily
due to the voluntary prepayment and termination of the remaining principal and
interest associated with our Term Loan Notes.

Amortization of notes and securities discounts

Amortization of notes and securities discounts decreased by $13.7 million, or
99.8%, in the year ended December 31, 2022, compared to the year ended December
31, 2021. This was primarily due to the completion of the 2021 Business
Combination on January 7, 2021, whereby the unamortized discount associated with
the August 2019 tranche of the Convertible Securities was accelerated, as well
as the termination of our Term Loan Notes during the year ended December 31,
2021.

Gain on extinguishment of note payable

Gain on extinguishment of note payable increased by $23.3 million for the year
ended December 31, 2022 as compared to the year ended December 31, 2021. This
increase is a direct result of the Company's dissolution of Seek Insurance
Services, Inc. ("Seek"), a field marketing organization and an indirect
wholly-owned subsidiary of the Company. In connection with the dissolution, all
amounts
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outstanding under a convertible note issued by Seek in 2020 were waived and all
other rights, covenants, and obligations under the note were terminated. As a
result, the Company recognized a $23.3 million gain on extinguishment.

Gain on investment

In February 2022, Character Biosciences completed a private capital transaction
in which it raised $17.9 million from the issuance of 16,210,602 shares of its
preferred stock. After evaluating our ownership interest in Character
Biosciences, we began applying the equity method of accounting during the year
ended December 31, 2022, and recorded a gain on investment of $9.2 million,
which is attributable to our proportionate share of the gain on equity of that
entity during that period. Prior to the first quarter of 2022, this entity was
consolidated on our financial statements, and therefore we did not recognize a
loss or gain on investment in this entity for the year ended December 31, 2021.
In accordance with ASC 323, for the year ended December 31, 2022, we recognized
the proportionate share of Character Bioscience's net losses up to the
investment carrying amount. At December 31, 2022, we discontinued applying the
equity method to account for our common stock interest in Character Biosciences
as our net losses exceeded the investment carrying amount. The equity method
investment in Character Biosciences was reduced to zero and no further losses
were recorded in our consolidated financial statements as we did not guarantee
obligations of the investee company or commit additional funding.

Liquidity and Capital Resources

We manage our liquidity and financial position in the context of our overall
business strategy. We continually forecast and manage our cash, investments,
working capital balances, and capital structure to meet the short-term and
long-term obligations of our businesses while seeking to maintain liquidity and
financial flexibility.

Historically, we have financed our operations primarily from the proceeds we
received through public and private sales of equity securities, funds received
in connection with the 2021 Business Combination, issuances of convertible
notes, premiums earned under our MA plans, and with our Non-Insurance revenue.
We expect that our cash, cash equivalents, restricted cash, short-term
investments, and our current projections of cash flows, taken together, will be
sufficient to meet our projected operating and regulatory requirements for the
next 12 months based on our current plans. Our future capital requirements will
depend on many factors, including our needs to support our business growth, to
respond to business opportunities, challenges or unforeseen circumstances, or
for other reasons. We may be required to seek additional equity or debt
financing to provide the capital required to maintain or expand our operations.
Any future equity financing may be dilutive to our existing investors, and any
future debt financing may include debt service requirements and financial and
other restrictive covenants that may constrain our operations and growth
strategies. If additional financing is required from outside sources, we may not
be able to raise it on terms acceptable to us, or at all. If we are unable to
raise additional capital when desired, our business, results of operations, and
financial condition would be adversely affected.

Consolidated

At December 31, 2022, total cash, cash equivalents, restricted cash, and
investments were $555.3 million. We had cash, cash equivalents, restricted cash,
and short-term investments of $227.7 million. Additionally, at December 31,
2022, we had $327.6 million of available-for-sale and held-to-maturity
investment securities. Our cash equivalents and investment securities consist
primarily of money market funds, U.S. government debt securities, and corporate
debt securities.

Unregulated Entities

At December 31, 2022, total cash, cash equivalents, restricted cash, and
investments for the parent company, Clover Health Investments, Corp., and
unregulated subsidiaries were $331.7 million. We operate as a holding company in
a highly regulated industry. As such, we may receive dividends and
administrative expense reimbursements from our subsidiaries, two of which are
subject to regulatory restrictions. We continue to maintain significant levels
of aggregate excess statutory capital and surplus in our state-regulated
insurance subsidiaries. Cash, cash equivalents, and short-term investments at
the parent company, Clover Health Investments, Corp., were $101.4 million and
$350.9 million at December 31, 2022 and 2021, respectively. This decrease at the
parent company primarily reflects operating expenses and capital contributions
made to our regulated insurance subsidiaries. Additionally, the parent company
held $136.5 million and $79.3 million of available-for-sale and held-to-maturity
investment securities at December 31, 2022 and 2021. Our unregulated
subsidiaries held $93.7 million and $52.2 million of cash, cash equivalents,
restricted cash, and short-term investments at December 31, 2022 and 2021,
respectively. Our unregulated subsidiaries held no available-for-sale and
held-to-maturity securities at either December 31, 2022 or 2021.

Regulated Entities

Our regulated insurance subsidiaries held $32.5 million and $190.7 million of
cash, cash equivalents, and short-term investments at December 31, 2022 and
2021, respectively. Additionally, our regulated insurance subsidiaries held
$191.1 million and $118.0 million

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of available-for-sale and held-to-maturity investment securities at December 31,
2022 and 2021, respectively. Our use of operating cash derived from our
unregulated subsidiaries is generally not restricted by departments of insurance
(or comparable state regulatory agencies). Our regulated insurance subsidiaries
have not paid dividends to the parent, and applicable insurance laws restrict
the ability of our regulated insurance subsidiary to declare and pay dividends
to the parent. Insurance regulators have broad powers to prevent reduction of
statutory surplus to inadequate levels, and there is no assurance that dividends
of the maximum amounts calculated under any applicable formula would be
permitted. State insurance regulatory authorities that have jurisdiction over
the payment of dividends by our regulated insurance subsidiary may in the future
adopt statutory provisions more restrictive than those currently in effect.

For a detailed discussion of our regulatory requirements, including aggregate
statutory capital and surplus as well as dividends paid from the subsidiaries to
the parent, please refer to Notes 24 (Dividend Restrictions), 25 (Statutory
Equity), and 26 (Regulatory Matters) to the consolidated financial statements
included in this Form 10-K, as well as Item 1 Business.

Cash Flows

The following table summarizes our consolidated cash flows for the years ended
December 31, 2022 and 2021.

Years ended December 31,                                                 2022                2021
                                                                              (in thousands)
Cash Flows Data:
Net cash used in operating activities                                $ (203,926)         $ (282,326)
Net cash provided by (used in) investing activities                      95,133            (435,447)
Net cash (used in) provided by financing activities                      (4,962)            925,393
(Decrease) increase in cash, cash equivalents, and restricted
cash                                                                 $ (113,755)         $  207,620



Cash Requirements

Our cash requirements within the next twelve months include medical claims
payable, accounts payable and accrued liabilities, current liabilities, purchase
commitments, and other obligations. We expect the cash required to meet these
obligations to be primarily generated through cash, cash equivalents, restricted
cash, short-term investments, and our current projections of cash flows from
operations.

Operating Activities

Our largest source of operating cash flows is capitated payments from CMS. Our
primary uses of cash from operating activities are payments for medical benefits
and payments of Operating expenses.

For the year ended December 31, 2022, Net cash used in operating activities was
$203.9 million, which reflects a Net loss of $338.8 million. Non-cash activities
included a $164.3 million charge to Stock-based compensation expense, $94.2
million of amortization of the 2022 Premium deficiency reserve, and a $9.2
million Gain on investment related to the change in the equity structure of
Character Biosciences. Payments due to CMS related to our Non-Insurance
operations increased by $110.4 million. Change in our working capital included
an increase within Surety bonds and deposits related to Non-Insurance.

For the year ended December 31, 2021, Net cash used in operating activities was
$282.3 million, which reflects a Net loss of $587.8 million. Non-cash activities
included a $66.1 million gain as a result of the Change in fair value of
warrants and a $163.7 million charge to Stock-based compensation expense.
Changes to our working capital included a $110.6 million charge to our Premium
deficiency reserve and an increase of $10.7 million within Surety bonds and
deposits related to Non-Insurance.

At the conclusion of the year ended December 31, 2022, we deposited $82.4
million into an escrow account to comply with the standard financial guarantee
requirements for participants in the DC Model for performance year 2022. We view
this impact as short-term in nature as we expect to settle the performance year
2022 obligation during the third quarter of the year ending December 31, 2023,
after which we expect the associated financial guarantee to be released by CMS.
Furthermore, we also paid the provisional settlement for the 2021 performance
year of Direct Contracting of $60.3 million in 2022. After the year ended
December 31, 2022, but prior to the filing date of this Form 10-K, we received
approximately $20.8 million related to our performance year 2021 collateral
guarantee with CMS.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2022,
of $95.1 million was primarily due to $485.4 million provided from the sale and
maturity of investment securities. This was offset by $369.4 million used to
purchase investments and
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$16.2 million used in connection with the 2022 Business Combination. See Note 3
(Business Combination) to the consolidated financial statements included in this
Form 10-K..

Net cash used in investing activities for the year ended December 31, 2021, of
$435.4 million was primarily due to $876.3 million used to purchase investment
securities. This was partially offset by $441.5 million provided from the sale
and maturity of investment securities.

For additional information regarding our investing activities, please refer to
Note 4 (Investment Securities) to our consolidated financial statements included
in this Form 10-K.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2022 of
$5.0 million was primarily the result of the acquisition of $6.4 million in
Treasury stock.

Net cash provided by financing activities for the year ended December 31, 2021
of $925.4 million was primarily the result of $666.2 million in proceeds from
the reverse capitalization in connection with the 2021 Business Combination, net
of transaction costs, and $6.1 million in proceeds from the issuance of common
stock. These factors were partially offset by $30.9 million in principal
payments on our outstanding Term Loan Notes.

Financing Arrangements

Term Loan Notes

We entered into a loan and security agreement with a commercial lender in March
2017, which provided for term loans in an aggregate principal amount of up to
$60.0 million. At that time, we borrowed $40.0 million as a term loan under the
agreement that was subject to an interest rate of 11.0%, payable monthly, and
had a maturity date of March 1, 2022. In October 2017, we borrowed the remaining
$20.0 million as a term loan under the agreement that was subject to an interest
rate of 11.25%, payable monthly, and had a maturity date of October 1, 2022.
Each loan was payable in monthly installments of interest only for the first
24 months, and thereafter interest and principal were payable in 36 equal
monthly installments. The loans were secured by substantially all of our assets,
including our intellectual property, and equity interests in our unregulated
subsidiaries.

On June 29, 2021, we voluntarily paid the remaining principal of $20.7 million
and interest of $0.2 million, thereby terminating the loan.

Convertible Securities

In December 2018, we entered into a convertible securities purchase agreement
with qualified institutional buyers, including entities affiliated with our
then-Chief Executive Officer and other holders of more than 5.0% of our common
stock, for an aggregate principal amount of up to $500.0 million. In February,
March, May, and August 2019, we issued an aggregate of $373.8 million initial
principal amount of convertible securities (the "Convertible Securities") under
the agreement.

In connection with and upon the closing of the 2021 Business Combination, the
Convertible Securities mandatorily converted into 74,694,107 shares of the
Corporation's Class B Common Stock. For additional information about the
Convertible Securities and the conversion of the Convertible Securities upon the
closing of the 2021 Business Combination, see Note 12 (Notes and Securities
Payable) to the consolidated financial statements included in this Form 10-K.

Contractual Obligations and Commitments

We believe that funds from projected future operating cash flows, cash, cash
equivalents, and investments will be sufficient for future operations and
commitments, and for capital acquisitions and other strategic transactions, over
at least the next 12 months.

Material cash requirements from known contractual obligations and commitments at
December 31, 2022 include: (1) the recognition of a performance guarantee of
$73.8 million in connection with the Company's participation in the DC Model and
(2) operating lease obligations of $5.9 million. These commitments are
associated with contracts that were enforceable and legally binding at
December 31, 2022, and that specified all significant terms, including fixed or
minimum serves to be used, fixed, minimum, or variable price provisions, and the
approximate timing of the actions under the contracts. There were no other
material cash requirements from known contractual obligations and commitments at
December 31, 2022. For additional information regarding our remaining estimated
contractual obligations and commitments, see Note 12 (Notes and Securities
Payable), Note 15 (Leases), Note 21 (Commitments and Contingencies), and Note 22
(Non-Insurance) to the consolidated financial statements included in this Form
10-K.
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Indemnification Agreements

In the ordinary course of business, we enter into agreements, with various
parties (providers, vendors, consultants, etc.), with varying scope and terms,
pursuant to which we may agree to defend, indemnify, and hold harmless the other
parties from any claim, demand, loss, lawsuit, settlement, judgment, fine, or
other liability, and all related expenses that may accrue therefrom (including
reasonable attorney's fees), arising from or in connection with third party
claims, including, but not limited to, negligence, recklessness, willful
misconduct, fraud, or otherwise wrongful act or omission with respect to our
obligations under the applicable agreements.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable
regulations of the SEC, that are reasonably likely to have a current or future
material effect on our financial condition, results of operations, liquidity,
capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The
preparation of the consolidated financial statements in conformity with GAAP
requires our management to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period. We evaluate, on
an ongoing basis, our significant accounting estimates, which include, but are
not limited to, net claims and claims adjustment expense and revenue
recognition, including the risk adjustment provisions related to Medicare
contracts. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. The
results form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates under different assumptions or conditions,
which could impact our reported results of operations and financial condition.

We believe that the accounting policies and estimates described below involve a
significant degree of judgment and complexity. Accordingly, we believe these are
the most critical to aid in fully understanding and evaluating our consolidated
financial condition and results of operations. For further information, see Note
2 (Summary of Significant Accounting Policies) to the consolidated financial
statements included in this Form 10-K.

Insurance Net Medical Claims Incurred

Insurance net medical claims incurred is recognized in the period in which
services are provided and includes paid claims and an estimate of the cost of
services that have been incurred but not yet reported ("IBNR") and certain other
unpaid claims and adjustments. IBNR represents a substantial portion of our
unpaid claims, as reflected below:

                                                                   Years ended December 31,
                                                             2022                                2021
                                                     Total              %                Total           %
                                                                    (dollars in thousands)
IBNR                                           $    124,165             90.4  %       $ 125,436          92.0  %
Other unpaid claims                                   8,255              6.0              5,863           4.3
Claims adjustment expense                             4,974              3.6              5,018           3.7
Total unpaid claims and claims adjustment
expense                                        $    137,394            

100.0 % $ 136,317 100.0 %

Management determines the unpaid claims and claims adjustment expense with a
supplemental perspective provided by a third-party actuarial firm. We estimate
our unpaid claims by following a detailed actuarial process that uses both
historical claim payment patterns as well as emerging medical expense trends to
project the best estimate of claims liabilities. These data and trends include
historical data adjusted for claims receipt and payment patterns, cost trends,
product mix, seasonality, utilization of healthcare services, changes in
membership, provider billing practices, benefit changes, known outbreaks of
disease, including COVID-19, or increased incidence of illness such as
influenza, the incidence of high-dollar or catastrophic claims, and other
relevant factors. These factors are used to determine our lag-dependent
completion factors, which represent the average percentage of total incurred
claims that have been paid through a given date after being incurred. Completion
factors are applied to claims paid through the period-end date to estimate the
ultimate claim expense incurred for the period.

The completion factors are the most significant factor impacting the IBNR
estimate. We continually adjust our completion factor with our knowledge of
recent events that may impact current completion factors when establishing our
reserves. Because our reserving practice is to consistently recognize the
actuarial best estimate using an assumption of moderately adverse conditions as
required by
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actuarial standards, there is a reasonable possibility that there could be
variances between actual completion factors and those assumed in our
December 31, 2022 and 2021, unpaid claim estimates.

Actuarial standards require the use of assumptions based on moderately adverse
experience, and as such, a provision for adverse deviation ("PAD") is recognized
on current reserves and released on prior reserves. For further discussion of
our reserving methodology, including our use of completion factors to estimate
IBNR, refer to Note 2 (Summary of Significant Accounting Policies) in the
consolidated financial statements included in this Form 10-K.

Non-Insurance Net Medical Claims Incurred

Non-Insurance net medical claims incurred is recognized in the period in which
services are provided and includes paid claims and an estimate of the cost of
services that have been incurred but not yet reported and certain other unpaid
claims and adjustments. IBNR represented all of our unpaid claims, as reflected
below:

                                                                 Years ended December 31,
                                                           2022                             2021
                                                   Total            %                Total          %
                                                                  (dollars in thousands)
IBNR                                           $     6,119         100.0  %       $  4,607         100.0  %

Total unpaid claims and claims adjustment
expense                                        $     6,119         100.0  % 

$ 4,607 100.0 %

Our actuaries estimate the unpaid claims by following a detailed actuarial
process that uses historical claim payment patterns. We extrapolate in order to
form an opinion of ultimate incurred claims based on claims that have been paid
to date. This is generally most effective for mature coverage months under
stable periods of claims adjudication; therefore, for the estimates of Primary
Care Qualified Evaluation and Management expenses, we evaluate IBNR using the
historical rate of payment for services based on the lag between service date
and payment date. Under this approach, we include an average historical
"age-to-age" estimate, excluding the highest and lowest of the historical
factors. We also set a lower limit on the cumulative or "age-to-ultimate"
development factors at 1.0, to prevent negative amounts incurred but not paid as
a result of expected claim recoveries from being factored into our IBNR.

In addition, for more recent coverage periods we utilize historical estimates of
completed claims to estimate the cost of subsequent months based on either
expected or known changes in cost drivers. These cost drivers include weekday
seasonality, secular seasonality, direct COVID cases and other adjustments as
necessary, which enable our actuaries to estimate claims when the available
claims experience is either limited or ambiguous.

Our actuaries also consider this population's history of observed completion
percentages in estimating ultimate claims incurred, using completion percentages
that are consistent with historical ranges and informed by new information with
other functional departments.

Our reserving practice is to recognize the actuarial best estimate of our
ultimate liability for claims. Actuarial standards require the use of
assumptions based on moderately adverse experience, and as such, a provision for
adverse deviation is recognized on current reserves and released on prior
reserves. The PAD is lower for Non-Insurance than Insurance; for Non-Insurance,
claims submission and payment patterns support more precise estimates than are
observed in the Insurance business.

Premium Deficiency Reserve (Benefit) Expense

A premium deficiency reserve is established when future premiums and current
reserves are not sufficient to cover future claim payments and expenses for the
remainder of a contract period. These reserves are required to monitor solvency
and help ensure that a reporting entity's contractual obligations will be
adequately funded. We assess the profitability of our MA contracts to identify
where current operating results or forecasts indicate potential future losses.
We do not assess the impacts of the premium deficiency reserve for our
Non-Insurance operations as that business segment is not an insurance plan and
is not accounted for under ASC 944- Financial Services-Insurance.

The reserve is derived from the assessments performed and provides the amount by
which insurance-related expenses are expected to exceed insurance revenues.
There are key financial statement line items and associated drivers considered
in determining the reserve. The most significant of financial statement line
items considered when performing reserve assessments are premiums earned and
Insurance net medical claims incurred. Key inputs considered for premiums earned
include expected enrollment changes, revenue rates, risk adjustment, and risk
score forecasts. Key metrics considered for Insurance net medical claims
incurred include claims experience, benefit changes, membership mix, membership
changes, and medical management programs. Administrative expenses are assessed
for expenses directly and indirectly incurred in order to operate the insurance
entities and cannot exceed a percentage of
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regulatory entity premiums earned due to contractual agreements. There are other
operating activities that are considered in accordance with regulatory
guidelines.

The premium deficiency reserve assessment is performed on a quarterly basis.
Every quarter, reserve assessments are made for the period following the most
recently ended period through to the end of the current year. For the fourth
quarter, assessments are made related to the entire subsequent fiscal year's
projected net performance. If a reserve is deemed necessary, a liability and
expense will be recognized as of the end of the quarter directly preceding the
period for which the future loss is projected. That reserve will be amortized
over the course of the contract period assessed to have expected insurance
expenses that will exceed insurance revenues. The amortization of the reserve
occurs ratably over the assessed contract period and will offset expected future
losses.

Revenue Recognition - Insurance

We receive monthly premiums from the federal government according to
government-specified payment rates and various contractual terms. Revenue from
premiums earned is recognized as income in the period in which members are
entitled to receive services. Premiums received in advance of the service period
are reported within other liabilities and subsequently recognized as revenue in
the period earned.

CMS uses a risk-adjustment model that adjusts premiums paid to MA contracts,
based on member risk scores, which are meant to compensate plans that enroll
Medicare members with higher-than-average health risks and to reduce payments
for healthier Medicare beneficiaries who have lower health risks. Risk scores
are based on member diagnoses from the previous year and are periodically
adjusted retroactively based on additional plan data collection. Risk
adjustments can have a positive or negative retroactive impact to rates.
Prospective payments to MA plans are based on the estimated cost of providing
standard Medicare-covered benefits to a member with an average risk profile.
Under the risk-adjustment methodology, all MA plans must collect and submit the
necessary diagnosis code information to CMS within prescribed deadlines.
Estimated retroactive lump-sum settlement payments are accrued within revenue
for premiums earned to account for the difference between lag risk scores,
mid-year risk scores and final risk scores. Any known or expected unfavorable
risk score impacts related to quality assurance diagnosis deletions or risk
adjustment data validation audits are also considered within accruals and are
recorded as a reduction of revenue from premiums earned, based on available
information.

Medicare Advantage Part D

Payments received from CMS and members in connection with our participation in
the Medicare Advantage Part D program are determined from our annual bid and
represent amounts for providing prescription drug insurance coverage; these
amounts are recognized as premium revenue for providing this insurance coverage
ratably over the term of the annual contract.

Part D CMS payments are subject to risk sharing through risk corridor
provisions. The risk corridor provisions compare costs targeted in bids to
actual prescription drug costs, limited to actual costs that would have been
incurred under the standard coverage as defined by CMS. Variances exceeding
certain thresholds may result in CMS making additional payments to us or
requiring us to refund to CMS a portion of the premiums received. Management
estimates and recognizes an adjustment to premium revenue related to these
provisions based upon pharmacy claims experience and input from third-party
experts. Management records a receivable or payable at the contract level.

Rebates are paid by drug manufacturers to our pharmacy benefit manager ("PBM"),
which shares a portion of the rebates with us. Management estimates favorable
adjustments to medical expenses related to rebates negotiated by the PBM on our
behalf. Estimates are based on both actual and estimated pharmacy claims
experience throughout the year as well as input from third-party experts and the
PBM. Management records a receivable at the contract level.

There are additional cost-sharing elements that are recorded within medical
expenses and take into account factors such as member income levels, brand-name
versus generic drug spend, and total spend by member within a plan year.
Management estimates and recognizes adjustments to medical expenses based upon
inputs such as pharmacy claims experience, rebate activity, and input from
third-party experts. Management records a receivable or payable at the end of
the year based on these items.

Revenue Recognition - Non-Insurance

Non-Insurance revenue represents CMS' total expense incurred for medical
services provided on behalf of Non-Insurance Beneficiaries during months in
which they were alignment-eligible during the performance year. Non-Insurance
revenue is calculated as the sum of the capitation payments made to us for
services within the scope of our capitation arrangement plus FFS payments made
to providers directly from CMS. Non-Insurance revenue is also known in the DC
Model as performance year expenditures and is the primary component used to
calculate shared savings or shared loss versus the performance year benchmark.
Non-Insurance revenue includes a direct reduction or increase of shared savings
or loss, which is calculated as the difference between the total benchmark and
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the total cost of care. Premiums and recoupments incurred in direct relation to
the DC Model are recognized as a reduction or increase in Non-Insurance revenue.

Non-Insurance Receivable and Performance Year Obligation

Performance year receivable and obligation represents the average Medicare
beneficiary's total cost of care for beneficiaries aligned to our DCE and refers
to the target expenditure amount that will be compared to Medicare expenditures
for items and services furnished to aligned beneficiaries during a performance
year. This comparison will be used to calculate shared savings and shared
losses.

The key inputs in determining the performance year receivable and obligation are
both driven by the benchmark, which is impacted by the retrospective trend
adjustments ("RTA"s), risk score, and the number of beneficiaries aligned to the
DCE. We begin our benchmark estimation process with reports from the Centers for
Medicare & Medicaid Services Innovation Center ("CMMI") on a quarterly basis.
Prospective and retrospective trends are set at a national level. We can make
adjustments from the benchmark report due to new information received directly
from CMMI, national studies we complete ourselves, or other anticipated policy
updates that we believe are probable and estimable. The preliminary benchmark is
set based on risk scores with data captured as of a certain point in time. Once
new data is received, an updated analysis of claims provides an opportunity for
the benchmark to be adjusted. Lastly, Non-Insurance Beneficiary counts are
updated through the year and represent a timing difference between CMMI
reporting, for which we accrue.

The following table summarizes the impacts of the key inputs to the
Non-Insurance receivable and Non-Insurance performance year obligation that
contribute to the change in the benchmark from beginning of the 2022 performance
year:

                  Increase (Decrease) in the adjustment to Non-Insurance 

Receivable/Obligation

                                                                          % Change                  $ Change
                                                                                                 (in thousands)
Change in Beneficiary Alignment                                                  (0.7) %       $       (17,670)
Retrospective Trend Adjustment                                                    0.1                    3,308
Normalized Risk Score                                                            (0.1)                  (2,422)
All others (including change in total cost of care trend)                         0.1                    2,856
Total                                                                            (0.6) %       $       (13,928)


Warrants

Legacy Warrants

In September 2015, we issued warrants to purchase 2,100,000 shares of our common
stock. On March 21, 2017, we entered into a loan facility (the "Loan Facility")
for an aggregate principal amount of $60.0 million. In conjunction with the Loan
Facility, we issued 1,266,284 warrants to purchase shares of our Series D
preferred stock. The September 2015 warrants and the Loan Facility warrants were
determined to be freestanding instruments as they were detachable and separately
exercisable. On October 5, 2020, we entered into the Merger Agreement with SCH
and simultaneously amended the terms of the legacy warrants, and they were
automatically converted into common stock in connection with the 2021 Business
Combination. For additional information related to the Legacy Warrants, please
refer to Item 7. Management's Discussion and Analysis of Critical Accounting
Policies and Estimates of our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on February 28, 2022.

Public Warrants and Private Placement Warrants

We assumed, in connection with the 2021 Business Combination, public warrants
and private placement warrants to purchase shares of our Class A Common Stock
(the "Public Warrants" and the "Private Placement Warrants," respectively).
These warrants were accounted for as liabilities in accordance with ASC 815-40
and are presented within warrants payable on the Consolidated Balance Sheets.
The warrant liabilities are measured at fair value at inception and on a
recurring basis until redeemed, with changes in fair value presented within
Change in fair value of warrants within the Consolidated Statements of
Operations and Comprehensive Loss. The Public Warrants were classified within
Level 1 of the fair value hierarchy because the fair value was equal to the
publicly traded price of the Public Warrants. The Private Placement Warrants
were classified within Level 2 of the fair value hierarchy because the fair
value was estimated using the price of the Public Warrants. On July 22, 2021, we
issued a press release stating that we would redeem all unexercised Public
Warrants and Private Placement Warrants. In connection with the redemption,
effective August 24, 2021, the Public Warrants were delisted and classified
within Level 2 of the fair value hierarchy as the fair value of the Public
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Warrants was based on proportional changes in the price of our common stock.
There were no Private Placement Warrants outstanding at August 24, 2021.

Private Warrants

At December 31, 2022, the Company had exercisable private warrants which were
embedded in several agreements as derivatives. These private warrants were
accounted for as assets in accordance with ASC 815-40 and are presented within
Other assets, non-current on the Consolidated Balance Sheets. The warrant assets
are measured at fair value at inception and on a recurring basis until redeemed,
with changes in fair value presented within Change in fair value of warrants
within the Consolidated Statements of Operations and Comprehensive Loss. These
private warrants were classified within Level 3 due to the subjectivity and use
of estimates in the calculation of their fair value.

Derivative Liabilities

We evaluated the embedded features of the Convertible Securities by applying the
derivatives 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. The embedded derivatives associated with the Convertible
Securities were recognized as derivative liabilities and recorded at fair value.

Fair values of the Legacy warrants and derivative liabilities related to the
Convertible Securities were estimated using a probability-weighted expected
return method, where the values of various instruments were estimated based on
an analysis of future values of our business, assuming various future outcomes.
The resulting instruments' values were based upon the probability-weighted
present value of expected future investment returns, considering each of the
possible future outcomes available to us, as well as the economic benefits
attributable to each class of instruments. The expected future investment
returns were estimated using a variety of methodologies, including both the
market approach and the income approach, where an observable quoted market does
not exist, and were generally classified as Level 3. Such methodologies included
reviewing values ascribed to our most recent financing, comparing the subject
instrument with similar instruments of publicly traded companies in similar
lines of business, and reviewing our underlying financial performance and
subject instrument, including estimating discounted cash flows. To estimate the
fair value attributable to the derivative liabilities, the "with and without"
approach is used. An evaluation of multiple scenarios for future payoffs for the
underlying Convertible Securities was performed using option pricing models, and
probability-weighted average value indications were used to arrive at the
estimated fair values.

For information on fair values of the Public Warrants and Private Placement
Warrants, please refer to the section entitled "Warrants" above.

Stock-based Compensation

We measure and recognize compensation expense for all stock-based awards,
including stock options, restricted stock units granted to employees, directors,
and non-employees, and stock purchase rights granted under the 2020 Employee
Stock Purchase Plan ("ESPP") to employees, based on the estimated fair value of
the awards on the date of grant. The fair value of each stock option and ESPP
opportunity granted is estimated using the Black-Scholes option-pricing model.
The fair value of each restricted stock unit ("RSU") is based on the estimated
fair value of our common stock on the date of grant.

The measurement date for employee awards is the date of grant, and stock-based
compensation costs are recognized as expense over the employees' requisite
service period, which is the vesting period, on a straight-line basis. The
measurement date for non-employee awards is the date of grant without changes in
the fair value of the award. Stock-based compensation costs for non-employees
are recognized as expense over the vesting period on a straight-line basis.
Stock-based compensation expense is classified within the Consolidated
Statements of Operations and Comprehensive Loss within Salaries and benefits. We
recognize stock-based compensation expense for the portion of awards that have
vested. Forfeitures are recorded as they occur.

We also grant certain awards that have performance-based vesting conditions,
including performance restricted stock units that become eligible to vest if,
prior to the vesting date, the average closing price of one share of our common
stock for ninety consecutive days equals or exceeds a specified price ("Market
PRSUs"). Stock-based compensation expense for such awards is recognized using an
accelerated attribution method from the time it is deemed probable that the
vesting condition will be met through the time the service-based vesting
condition has been achieved. The grant date fair value of the Market PRSUs is
recognized as expense over the vesting period under the accelerated attribution
method and is not adjusted in future periods for the success or failure to
achieve the specified market condition. We have also determined the requisite
service period for the Market PRSUs with multiple performance conditions to be
the longest of the explicit, implicit, or derived service period. The
determination of the grant-date fair value using an option-pricing model is
affected by the estimated fair value of our common stock as well as assumptions
regarding a number of other complex and subjective variables. These variables
include expected stock price volatility over an expected term, actual and
projected
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employee stock option exercise behaviors, the risk-free interest rate for an
expected term, and expected dividends. The assumptions used in our
option-pricing model represent our best estimates. These estimates involve
inherent uncertainties and the application of judgment. If factors change and
different assumptions are used, our stock-based compensation expense could be
materially different in the future. These assumptions are estimated as follows:

Expected term - For stock options considered to be "plain vanilla" options, we
estimate the expected term based on the simplified method, which is essentially
the weighted average of the vesting period and contractual term, as our
historical option exercise experience does not provide a reasonable basis upon
which to estimate the expected term.

Expected volatility - We perform an analysis of the average volatility of a peer
group of representative public companies with sufficient trading history over
the expected term to develop an expected volatility assumption.

The grant date fair value of the Market PRSUs is recognized as expense over the
vesting period under the accelerated attribution method and is not adjusted in
future periods for the success or failure to achieve the specified market
condition. The grant date fair value of Market PRSUs is determined using a Monte
Carlo simulation model that incorporates multiple valuation assumptions,
including the probability of achieving the specified market condition, expected
volatility and risk-free interest rate.

See Note 18 (Employee Benefit Plans) to the Consolidated Financial Statements
included in this Form 10-K for a complete description of the accounting for
stock-based compensation awards.

Recently Issued and Adopted Accounting Pronouncements

See Note 2 (Summary of Significant Accounting Policies) to the consolidated
financial statements in this form 10-K for a discussion of accounting
pronouncements recently adopted and recently issued accounting pronouncements
not yet adopted and their potential impact to our consolidated financial
statements.