CLOVER HEALTH INVESTMENTS, CORP. /DE Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
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 unaudited condensed consolidated financial statements and notes thereto for the three months ended
March 31, 2022, contained in this Quarterly Report on Form 10-Q (the "Form 10-Q") and the consolidated financial statements and notes thereto for the year ended December 31, 2021, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission(the "SEC") on February 28, 2022(the "2021 Form 10-K"). 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 the 2021 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, we are singularly focused on creating great, sustainable healthcare to improve every life. We have centered our strategy on building and deploying technology that we believe will enable us to solve a significant data problem while avoiding the limitations of legacy approaches. By empowering physicians with access to data-driven, personalized insights at the point of care through our software platform, the Clover Assistant, we believe we can improve clinical decision making. We operate Preferred Provider Organization (PPO) and Health Maintenance Organization(HMO) Medicare Advantage (MA) plans for Medicare-eligible consumers. We aim to provide great, affordable healthcare for all. We offer most members in our MA plans (the "members") the lowest average out-of-pocket costs for primary care provider co-pays, specialist co-pays, drug deductibles and drug costs in their markets. We deeply believe in providing our members provider choice, and we consider our PPO plan to be our flagship insurance plan. An important feature of our MA product is wide network access. We believe the use of the Clover Assistant and related data insights allows us to improve clinical decision-making through a highly scalable asset-light approach. As of March 31, 2022, we operated our MA plans in nine states and 209 counties, with 85,026 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 will transition to the Accountable Care Organization Realizing Equity, Access, and Community Health Model (ACO Reach) in 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 Contractingoperations, we focus on leveraging our technology platform, the Clover Assistant, to enhance healthcare delivery, reduce expenditures, and improve care for our Non-Insurance Beneficiaries. As of March 31, 2022, we had approximately 1,880 contracted participating providers who manage primary care for our Non-Insurance Beneficiaries. Additionally, as of March 31, 2022, we had approximately 1,560 preferred providers and preferred facilities in our DCE 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 the Clover Assistant.
January 2022, we launched our MA plans in 101 new counties and an additional state, and we announced that membership in our MA plans had grown by over 25% versus the beginning of 2021. This expansion makes our MA plans available in a total of 209 counties across nine states. Additionally, after launching our DCE in eight states in April 2021, we have grown our Non-Insurancepresence to 22 states in 2022. Subsidiary Updates
(Clover TX), completed a private equity transaction in which it raised
29 -------------------------------------------------------------------------------- interest entity (VIE), we are not considered the primary beneficiary of the VIE because we do not have the power to direct the activities of Clover TX that most significantly impact Clover TX's economic performance. However, we determined that we do have significant influence over Clover TX and, therefore, began accounting for our common stock investment in Clover TX using the equity method. Accordingly, we derecognized all of Clover TX's assets and liabilities from our balance sheet and our noncontrolling interest related to Clover TX, and recognized the retained common stock and preferred stock equity interests at fair values of
$3.7 millionand $4.9 million, respectively, which are included in equity method investment and other assets on the Condensed Consolidated Balance Sheets, and recognized a gain of $12.4 million, which is included in gain on investment on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022.
In addition, the Company’s indirect wholly-owned subsidiary,
Impact of COVID-19
The societal and economic impact of the COVID-19 pandemic and its variants continues to evolve, and the ultimate impact on our business, results of operations, financial condition and cash flows is uncertain and difficult to provide. The global pandemic has severely impacted businesses around the world, including many in the health insurance industry.
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 first quarter of 2022 and all of 2021, we incurred elevated costs as compared to prior to the outbreak of the pandemic in 2020 to care for those members who have contracted the virus, and indirect costs attributable to the COVID-19 pandemic increased as well, as deferral of services and increased costs related to conditions that were exacerbated by a lack of diagnoses and treatment in the earlier periods of the pandemic contributed to increased utilization. Additionally, CMS increases inpatient hospital fees by 20.0% for any patient diagnosed with COVID-19 regardless of whether that patient was admitted directly for COVID-19 or for a different condition or procedure. This has impacted medical costs especially due to the widespread transmission of recent COVID-19 variants. We will continue to monitor the pandemic's emerging treatment-related trends as well as the impact on our beneficiaries. Additionally, CMS risk adjustment requires that a member's health issues be documented annually regardless of the permanence of the underlying causes. Historically, this documentation was required to be completed during an in-person visit with a patient. As part of relief measures adopted pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), CMS is allowing documentation prepared during video visits with patients to serve as support for CMS risk adjustments. Due to fewer visits in 2020, the providers' ability to document health conditions accurately and formulate treatment plans was adversely impacted due to COVID-19. However, we experienced improvements in documentation in 2021 with increased utilization of health services, impacting our 2022 risk score, as anticipated. We believe that this increase in documentation has supported our provider partners with better diagnosis accuracy and improved care planning and that this will result in increased revenue and reduced medical care ratio (MCR).
Main performance measures of our 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-Insurancesegment consists of our operations in connection with our participation in the Direct Contractingprogram, which will transition to the ACO Reach model 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, our chief operating decision maker, to assess performance and allocate resources. During the first quarter of 2022, we updated the names of our Medicare Advantage and Direct Contractingsegments to the Insurance and Non-Insurancesegments, respectively. We believe that this approach better reflects each segment's current role and contribution to its business. There has been no change to the existing composition of these segments, and previously reported consolidated and segment-level financial results of the Company were not impacted by these changes. 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. 30 --------------------------------------------------------------------------------
Through our Insurance segment, we offer PPO and HMO plans to members in multiple states. We seek to improve care and reduce costs for our insurance members by empowering providers with personalized, data-driven insights at the point of care through our software platform, the Clover Assistant.
Three Months Ended March 31, 2022 2021 Total PMPM Total PMPM (Premium and expense amounts in thousands, except PMPM amounts) Insurance members as of period end (#) 85,026 N/A 66,348 N/A Premiums earned, gross
$ 278,288 $ 1,094 $ 199,500 $ 1,006Premiums earned, net 278,169 1,094 199,376 1,005 Insurance medical claim expense incurred, gross 268,214 1,055 215,307 1,085 Insurance net medical claims incurred 268,126 1,054 215,177 1,085 Medical care ratio, gross (1) 96.4 % N/A 107.9 % N/A Medical care ratio, net 96.4 N/A 107.9 N/A
(1) Defined as gross medical insurance claims incurred divided by gross earned premiums.
Membership and associated premiums earned and medical expenses.
We define new and returning members on a calendar year basis. Any member who is active on
July 1of a given year is considered a returning member in the following year. Any member who joins a Clover plan after July 1in 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 because 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 the 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 revenue or any other measure presented in accordance with GAAP.
Earned premiums, 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 revenue 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. 31 --------------------------------------------------------------------------------
Gross medical insurance 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 expenses or any other measure presented in accordance with GAAP.
Medical claims net of insurance incurred.
Insurance net medical claims incurred are our medical expenses and consists 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.
Ratio of medical care, gross and net.
We calculate our medical care ratio 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 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-Insurancesegment consists of operations in connection with our participation in the Direct Contractingprogram, which we began in April 2021and which will transition to the ACO Reach model in 2023. As part of our Non-Insuranceoperations, we empower providers with the 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. Three
Total PBPM (Revenue and
amounts of claims in thousands, except
PBPM amounts) Non-Insurance Beneficiaries as of period end (#) 172,416 N/A Non-Insurance revenue $ 594,898 $ 1,140 Non-Insurance net medical claims incurred 593,999 1,138 Non-Insurance MCR(1) 99.8 % N/A
(1) Defined as
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-participating 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-Insurancerevenue 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-Insurancerevenue is calculated by taking 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-Insurancerevenue 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-Insurancerevenue 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-Insurancerevenue, as applicable. We believe Non-Insurancerevenue 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. 32 --------------------------------------------------------------------------------
Non-Insurancenet medical claims incurred consists 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-Insurancenet medical claims incurred is inclusive of fees paid to providers for Clover Assistant usage, care coordination, and any shared savings or shared loss agreements with providers.
MCR excluding insurance.
We calculate our MCR by dividing
Non-Insurancenet medical claims incurred by Non-Insurancerevenue 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. Results of Operations
Comparison of the three months ended
The following table summarizes our consolidated results of operations for the three months ended
March 31, 2022and 2021. The period-to-period comparison of results is not necessarily indicative of results for future periods. Change between Three Months Ended March 31, 2022 and 2021 2022 2021 ($) (%) ($ in thousands) Revenues Premiums earned, net (Net of ceded premiums of $119and $124for the three months ended March 31, 2022and 2021, respectively) $ 278,169 $ 199,376 $ 78,79339.5 % Non-Insurance revenue 594,898 - 594,898 * Other income 1,312 949 363 38.3 Total revenues 874,379 200,325 674,054 336.5 Operating expenses Net medical claims incurred 861,722 214,420 647,302 301.9 Salaries and benefits 69,091 66,024 3,067 4.6 General and administrative expenses 57,697 38,618 19,079 49.4 Premium deficiency reserve benefit (27,657) - (27,657) * Depreciation and amortization 826 160 666 416.3 Other expense - 191 (191) * Total operating expenses 961,679 319,413 642,266 201.1 Loss from operations (87,300) (119,088) 31,788 (26.7) Change in fair value of warrants payable - (85,506) 85,506 * Interest expense 403 1,175 (772) (65.7) Amortization of notes and securities discount - 13,660 (13,660) * Gain on investment (12,394) - (12,394) * Net loss $ (75,309) $ (48,417) $ (26,892)55.5 % * Not presented because the 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 $78.8 million, or 39.5%, to $278.2 millionfor the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to membership growth of 28.2% from 66,348 Insurance members at March 31, 2021, to 85,026 Insurance members at March 31, 2022. Additional risk adjustment revenue of $22.6 millionwas recognized during the three months ended March 31, 2022. 33 --------------------------------------------------------------------------------
Our participation in
Other income increased
$0.4 million, or 38.3%, to $1.3 millionfor the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was due to higher net investment income and higher commission income.
Net medical claims incurred
Net medical claims incurred increased
$647.3 million, or 301.9%, to $861.7 millionfor the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily associated with net medical claims attributable to our Non-Insurance Beneficiaries of $594.0 millionfor the three months ended March 31, 2022, as compared to $0for the three months ended March 31, 2021, prior to the launch of the Direct Contractingprogram, and an increase of $52.9 millionin net medical claims attributable to our Insurance members, which was primarily driven by an increase in Insurance Members.
Salaries and benefits
Salaries and benefits increased
$3.1 million, or 4.6%, to $69.1 millionfor the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily driven by increased headcount, partially offset by a $2.1 milliondecrease in stock-based compensation expense.
General and administrative expenses
General and administrative expenses increased
$19.1 million, or 49.4%, to $57.7 millionfor the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was driven in part by increases in legal and other professional fees to support our growth and public company costs, including costs associated with obtaining and maintaining directors' and officers' liability insurance. Legal and professional fees increased $6.1 millionfor the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Residual commissions, which are attributable to members retained by the Company from the previous plan year, increased by $4.1 million. For the three months ended March 31, 2022, we recognized $11.8 millionof deferred acquisition costs related to the acquisition of new members, compared to $1.8 millionfor the three months ended March 31, 2021. These increases were offset by decreases in marketing material expenses of $1.1 million, broker events expenses of $0.2 million, and research and development costs of $0.1 million.
Reserve benefit for insufficient premiums
$27.7 millionpremium deficiency reserve benefit was recorded for the three months ended March 31, 2022, associated with amortization of the reserve that was deemed necessary as of the end of fiscal year 2021 for fiscal year 2022. There was no premium deficiency reserve amortization for the three months ended March 31, 2021, as there was no reserve recorded as of the end of fiscal year 2020 for fiscal year 2021.
Change in fair value of warrants payable
There was no change in fair value of warrants payable to report for the three months ended
March 31, 2022, as there were no warrants outstanding. There was a decrease of $85.5 millionfor the three months ended March 31, 2021, due to the mark-to-market adjustment of the Public Warrants and Private Placement Warrants recognized for the three months ended March 31, 2021. For additional information, see Note 5 (Fair Value Measurements) and Note 13 (Warrants Payable) in our 2021 Form 10-K. Interest Expense Interest expense decreased $0.8 million, or 65.7%, to $0.4 millionfor the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily related to the voluntary prepayment and termination of the remaining principal and interest associated with our Term Loan Notes.
Amortization of tickets and discounts on titles
In 2021, all of our outstanding warrants were exercised or redeemed by us, and we voluntarily prepaid and terminated the remaining principal and interest on our Term Loans, thereby reducing the amortization of notes and securities discounts to none for the three months ended
March 31, 2022, as compared to $13.7 millionfor the three months ended March 31, 2021. 34 --------------------------------------------------------------------------------
Gain on investment
February 2022, one of our subsidiaries, Clover Therapeutics (Clover TX) completed a private capital transaction in which it raised $17.9 millionfrom the issuance of 16,210,602 shares of its preferred stock. After evaluating our ownership interest in Clover TX, we began applying the equity method of accounting during the three months ended March 31, 2022, and recorded a gain on investment of $12.4 million, which is attributable to our proportionate share of the gain on equity of that entity.
Cash 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. As of
March 31, 2022, we had cash, cash equivalents, and short-term investments of $486.1 million. Additionally, as of March 31, 2022, we had $236.8 millionof available-for-sale and held-to-maturity investment securities, and an outstanding balance of $22.4 millionon convertible notes issued by Seek. Our cash equivalents, short-term investments, and investment securities consist primarily of money market funds and U.S.government debt securities. Since inception, 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 Business Combination, issuances of convertible notes, premiums earned under our MA plans, borrowings under our term loan facility and, most recently, with our Non-Insurancerevenues. We expect that our cash, cash equivalents, 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. In the event that 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. 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 $241.9 millionand $350.9 millionas of March 31, 2022, and December 31, 2021, respectively. This decrease at the parent company primarily reflects operating expenses and capital contributions made to our regulated insurance subsidiaries. Our unregulated subsidiaries held $97.2 millionand $52.2 millionof cash, cash equivalents, and short-term investments as of March 31, 2022, and December 31, 2021, respectively. Our regulated insurance subsidiaries held $147.0 millionand $190.7 millionof cash, cash equivalents, and short-term investments as of March 31, 2022, and December 31, 2021, respectively. Additionally, our regulated insurance subsidiaries held $134.2 millionand $118.0 millionof available-for-sale and held-to-maturity investment securities as of March 31, 2022, and December 31, 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, 25, and 26 in our 2021 Form 10-K. 35 --------------------------------------------------------------------------------
The following table summarizes our condensed consolidated cash flows for the three months ended
Three Months Ended
March 31, 2022
(in thousands) Cash Flows Data: Net cash used in operating activities
Net cash provided by (used in) investing activities 36,513 (257,476) Net cash (used in) provided by financing activities (5,608) 662,504 (Decrease) increase in cash and cash equivalents (26,137) 312,159 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 flows from current operations and cash available for general corporate use.
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 three months ended
March 31, 2022, net cash used in operating activities was $57.0 million, which reflects net loss of $75.3 million. Non-cash activities included a $40.6 millioncharge to stock-based compensation expense, $27.7 millionamortization of the 2022 premium deficiency reserve, and a $12.4 milliongain on investment related to the change in the equity structure of Clover TX. Payments due to CMS related to our Non-Insuranceoperations increased by $43.2 million. Change in our working capital included an increase in unpaid claims of $25.3 million. For the three months ended March 31, 2021, net cash used in operating activities was $92.9 million, which reflects a net loss of $48.4 million. Non-cash activities primarily consisted of a $85.5 milliongain as a result of the change in fair value of warrants payable and $42.7 millionof stock-based compensation expense. Investing Activities Net cash used in investing activities for the three months ended March 31, 2022, of $36.5 millionwas primarily due to $113.1 millionused to purchase investment securities, offset by $150.0 millionprovided from the sale and maturity of investment securities. Net cash provided by investing activities for the three months ended March 31, 2021, of $257.5 millionwas primarily due to $274.9 millionused to purchase investment securities, partially offset by $17.5 millionprovided from the sale and maturity of investment securities.
For more information on our investing activities, please refer to Note 3 (
Net cash used in financing activities for the three months ended
March 31, 2022, of $5.6 millionwas primarily the result of the acquisition of $5.9 millionin treasury stock. Net cash provided by financing activities for the three months ended March 31, 2021, of $662.5 millionwas the result of $666.2 millionin proceeds from the reverse capitalization in connection with the Business Combination, net of transaction costs, and $1.3 millionin proceeds from the issuance of common stock, offset by $5.0 millionin principal payments on our outstanding Term Loan Notes. Financing Arrangements
No material changes have been made to our funding arrangements
Contractual obligations and commitments
We believe that funds from future operating cash flows, treasury and investments will be sufficient for future operations and commitments, as well as capital acquisitions and other strategic transactions, for at least the next 12 month.
Material cash requirements from known contractual obligations and commitments as of
March 31, 2022include: (1) the recognition of a performance guarantee of $1,780.3 millionin connection with the Company's participation in the DC Model, (2) operating lease obligations of $7.4 million, and (3) the outstanding principal balance related to the convertible note entered into by Seek, our indirect wholly-owned subsidiary, on September 25, 2020, for an aggregate principal amount of $20.0 million. These commitments are associated with contracts that were enforceable and legally binding as of March 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. For additional information regarding our remaining estimated contractual obligations and commitments, see Note 8 (Notes and Securities Payable), Note 15 (Commitments and Contingencies), and Note 16 ( Non-Insurance) to Financial Statements in this report, and Note 16 (Leases) in the 2021 Form 10-K.
In the ordinary course of business, we enter into agreements, with various parties (providers, vendors, consultants, etc.), of 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 which may accrue there from (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 Agreement.
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 Estimation
We believe that the accounting policies and estimates involve a significant degree of judgment and complexity. There have been no significant changes in our critical accounting policies and estimates during the three months ended
March 31, 2022, as compared to the critical accounting policies and estimates disclosed in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2021 Form 10-K.
For recently adopted accounting pronouncements, see Note 2 (Summary of Significant Accounting Policies) to the financial statements of this Form 10-Q.
Recently issued and adopted accounting pronouncements
See Note 2 (Summary of Significant Accounting Policies) to the Financial Statements in this report for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
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