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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma condensed combined financial information is derived from the unaudited pro forma condensed combined
balance sheet and statements of operations and comprehensive loss.
The unaudited pro forma condensed combined financial statements are
based on SCH s historical financial statements and Clover s historical consolidated financial statements as adjusted to give effect to the Business Combination, defined in the unaudited pro forma condensed combined financial information
found elsewhere in the proxy statement/consent solicitation statement/prospectus filed in relation to the Business Combination (the Proxy Statement ) and the PIPE Investment for an aggregate commitment amount of $400.0 million . The
unaudited pro forma condensed combined balance sheet gives pro forma effect to the Business Combination, treated as a reverse recapitalization for accounting purposes, and the PIPE Investment as if they had been consummated on September 30,
2020. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2020 and for the year ended December 31, 2019, give effect to the Business Combination and the PIPE Investment as if they had
occurred on January 1, 2019, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial
statements are prepared in accordance with Article 11 of SEC Regulation S-X. Accordingly, the historical financial information has been adjusted to give pro forma effect to events that are: (i) directly
attributable to the Business Combination and the PIPE Investment, (ii) are factually supportable and, (iii) with respect to the unaudited pro forma condensed combined statement of operations, are expected to have a continuing impact on the
results of operations of the combined company. The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the
combined company upon consummation of the Business Combination and the PIPE Investment.
The unaudited pro forma condensed combined
financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being
indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience. SCH and Clover have not had any historical relationship prior to the business
combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The unaudited pro forma
condensed combined financial information has been prepared assuming actual redemptions of 24,892 SCH outstanding ordinary shares for an aggregate redemption payment of $0.2 million out of the trust account on the closing date of the Business
Combination. No other SCH ordinary shares are subject to redemption.
This information should be read together with SCH s and
Clover s historical financial statements and related notes, Unaudited Pro Forma Condensed Combined Financial Information, Clover s Management s Discussion and Analysis of Financial Condition and Results of
Operations, SCH s Management s Discussion and Analysis of Financial Condition and Results of Operations, and other financial information included elsewhere in the Proxy Statement.
| Pro Forma | ||||||||
| Nine Months Ended September 30, 2020 | Year Ended December 31, 2019 | |||||||
| (in thousands) | ||||||||
| Combined Statement of Operations data: | ||||||||
| Total revenue | $ | 506,655 | $ | 462,266 | ||||
| Total operating expenses | 531,899 | 645,483 | ||||||
| Interest expense | 3,541 | 6,465 | ||||||
| Amortization of notes and securities discounts | 74 | 401 | ||||||
| Net loss | (28,859 | ) | (190,083 | ) |
| Pro Forma | ||||
| As of September 30, 2020 | ||||
| (in thousands) | ||||
| Combined Balance sheet data: | ||||
| Total assets | $ | 988,796 | ||
| Total notes and securities payable, net of discounts and deferred issuance costs | $ | 35,339 | ||
| Total liabilities | $ | 194,886 | ||
| Total shareholders equity | $ | 793,910 |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of September 30, 2020 combines the unaudited historical condensed
consolidated balance sheet of SCH as of September 30, 2020 with the unaudited historical consolidated balance sheet of Clover as of September 30, 2020, giving effect to the Business Combination and a PIPE Investment with net proceeds of
$400.0 million, as if they had been consummated as of that date.
The following unaudited pro forma condensed combined statements of
operations for the nine months ended September 30, 2020 and for the year ended December 31, 2019 combines the unaudited historical condensed consolidated statements of operations of SCH for the nine months ended September 30, 2020 and
for the year ended December 31, 2019, respectively, with the unaudited historical consolidated statement of operations of Clover for the nine months ended September 30, 2020 and for the year ended December 31, 2019, respectively,
giving effect to the Business Combination and the PIPE Investment as if they had occurred as of January 1, 2019.
financial information of SCH was derived from the unaudited condensed consolidated financial statements of SCH for the nine months ended September 30, 2020 and the audited financial statements of SCH for the year ended December 31, 2019
included elsewhere in the Proxy Statement. The historical financial information of Clover was derived from the unaudited consolidated financial statements of Clover for the nine months ended September 30, 2020 and the audited consolidated
financial statements of Clover for the year ended December 31, 2019 included elsewhere in the Proxy Statement. This information should be read together with SCH s and Clover s audited and unaudited financial statements and related
notes, the sections titled Management s Discussion and Analysis of Financial Condition and Results of Operations of Clover, Management s Discussion and Analysis of Financial Condition and Results of Operations
of SCH and other financial information included elsewhere in the Proxy Statement.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2020
(in thousands, except share and per share data)
| Historical | Actual Redemptions into Cash | |||||||||||||||||||
| (A) SCH | (B) Clover | Pro Forma Adjustments | Pro Forma Balance Sheet | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash | $ | 127 | $ | 89,732 | 789,934 | (6a) | $ | 754,947 | ||||||||||||
| (25,095 | ) | (6b) | ||||||||||||||||||
| 400,000 | (6c) | |||||||||||||||||||
| (499,751 | ) | (6n) | ||||||||||||||||||
| Short-term investments | 15,495 | 15,495 | ||||||||||||||||||
| Investment securities, available-for sale | 12,179 | 12,179 | ||||||||||||||||||
| Investment securities, held-to-maturity | 265 | 265 | ||||||||||||||||||
| Accrued retrospective premiums | 27,878 | 27,878 | ||||||||||||||||||
| Other receivables | 15,341 | 15,341 | ||||||||||||||||||
| Reinsurance recoverable | 105 | 105 | ||||||||||||||||||
| Healthcare receivables | 34,325 | 34,325 | ||||||||||||||||||
| Prepaid expenses | 465 | 465 | ||||||||||||||||||
| Other assets, current | 8,135 | (3,222 | ) | (6b) | 4,913 | |||||||||||||||
| Total current assets | 592 | 203,455 | 661,866 | 865,913 | ||||||||||||||||
| Investment securities, available-for-sale, at fair value | 98,298 | 98,298 | ||||||||||||||||||
| Investment securities, held-to-maturity | 429 | 429 | ||||||||||||||||||
| Other assets | 9,106 | 9,106 | ||||||||||||||||||
| Property and equipment, net | 2,157 | 2,157 | ||||||||||||||||||
| Operating lease right-of-use assets | 8,660 | 8,660 | ||||||||||||||||||
| Goodwill | 1,243 | 1,243 | ||||||||||||||||||
| Cash and cash equivalents held in trust account | 828,097 | (28,980 | ) | (6d) | ||||||||||||||||
| (6,036 | ) | (6e) | ||||||||||||||||||
| (2,898 | ) | (6f) | ||||||||||||||||||
| (249 | ) | (6l) | ||||||||||||||||||
| (789,934 | ) | (6a) | ||||||||||||||||||
| Other intangible assets | 2,990 | 2,990 | ||||||||||||||||||
| Total assets | $ | 828,689 | $ | 326,338 | $ | (166,231 | ) | $ | 988,796 |
| Historical | Actual Redemptions into Cash | |||||||||||||||||
| (A) SCH | (B) Clover | Pro Forma Adjustments | Pro Forma Balance Sheet | |||||||||||||||
| Liabilities, Convertible Preferred Stock, and Stockholders Deficit | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Unpaid claims | $ | $ | 93,615 | $ | $ | 93,615 | ||||||||||||
| Accounts payable and accrued expenses | 1,808 | 25,763 | (8,307 | ) | (6h) | 15,307 | ||||||||||||
| (1,808 | ) | (6e) | ||||||||||||||||
| (2,149 | ) | (6b) | ||||||||||||||||
| Accrued salaries and benefits | 4,454 | 4,454 | ||||||||||||||||
| Operating lease liabilities | 4,750 | 4,750 | ||||||||||||||||
| Current portion of notes and securities payable | 20,198 | 20,198 | ||||||||||||||||
| Premium deficiency reserve | 772 | 772 | ||||||||||||||||
| Reinsurance premium payable | ||||||||||||||||||
| Other liabilities, current | 5 | 5 | ||||||||||||||||
| Total current liabilities | 1,808 | 149,557 | (12,264 | ) | 139,101 | |||||||||||||
| Deferred rent | ||||||||||||||||||
| Other liabilities | 13,152 | 13,152 | ||||||||||||||||
| Notes and securities payable, net of discounts and deferred issuance costs | 96,114 | 343,454 | (6g) | 35,339 | ||||||||||||||
| (404,229 | ) | (6h) | ||||||||||||||||
| Derivative liabilities | 51,086 | (51,086 | ) | (6h) | ||||||||||||||
| Warrants payable | 49,402 | (49,402 | ) | (6j) | ||||||||||||||
| Long-term operating lease liabilities | 7,294 | 7,294 | ||||||||||||||||
| Deferred underwriting commission | 28,980 | (28,980 | ) | (6d) | ||||||||||||||
| Total liabilities | 30,788 | 366,605 | (202,507 | ) | 194,886 | |||||||||||||
| Convertible preferred stock | 447,747 | (447,747 | ) | (6i) | ||||||||||||||
| Social Capital Hedosophia Class A ordinary shares subject to possible redemption | 792,901 | (792,901 | ) | (6l) | ||||||||||||||
| Stockholders equity (deficit): | ||||||||||||||||||
| SCH preferred shares | ||||||||||||||||||
| SCH Class A ordinary shares | ||||||||||||||||||
| SCH Class B ordinary shares | 2 | (2 | ) | (6k) | ||||||||||||||
| Clover Common stock, $0.0001 par value | 4 | 4 | (6h) | |||||||||||||||
| 7 | (6i) | |||||||||||||||||
| (13 | ) | (6m) | ||||||||||||||||
| (2 | ) | (6n) | ||||||||||||||||
| Clover Health Common shares, $0.0001 par value | 2 | (6k) | 40 | |||||||||||||||
| 8 | (6l) | |||||||||||||||||
| 26 | (6m) | |||||||||||||||||
| 4 | (6c) | |||||||||||||||||
| Additional paid-in capital | 7,365 | 408,949 | 412,532 | (6h) | 1,983,205 | |||||||||||||
| 447,740 | (6i) | |||||||||||||||||
| 49,402 | (6j) | |||||||||||||||||
| (6,459 | ) | (6e) | ||||||||||||||||
| 792,644 | (6l) | |||||||||||||||||
| (26,168 | ) | (6b) | ||||||||||||||||
| (3,047 | ) | (6m) | ||||||||||||||||
| 399,996 | (6c) | |||||||||||||||||
| (499,749 | ) | (6n) | ||||||||||||||||
| Accumulated deficit | (2,367 | ) | (901,634 | ) | 2,231 | (6e) | (1,194,002 | ) | ||||||||||
| (2,898 | ) | (6f) | ||||||||||||||||
| (343,454 | ) | (6g) | ||||||||||||||||
| 51,086 | (6h) | |||||||||||||||||
| 3,034 | (6m) | |||||||||||||||||
| Accumulated other comprehensive gain | 764 | 764 | ||||||||||||||||
| Non-controlling interest | 3,903 | 3,903 | ||||||||||||||||
| Total stockholders equity (deficit) | 5,000 | (488,014 | ) | 1,276,924 | 793,910 | |||||||||||||
| Total liabilities, redeemable common stock and stockholders equity (deficit) | $ | 828,689 | $ | 326,338 | $ | (166,231 | ) | $ | 988,796 |
See accompanying notes to the unaudited pro forma condensed combined financial information.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Nine Months Ended September 30, 2020
(in thousands, except share and per share amounts)
| Historical | Actual Redemptions into Cash | |||||||||||||||||||
| (A) SCH | (B) Clover | Pro Forma Adjustments | Pro Forma Statement of Operations | |||||||||||||||||
| Revenues | ||||||||||||||||||||
| Premiums earned, net | $ | $ | 501,100 | $ | $ | 501,100 | ||||||||||||||
| Other income | 3,329 | 3,329 | ||||||||||||||||||
| Investment income, net | 2,226 | 2,226 | ||||||||||||||||||
| Total revenue | 506,655 | 506,655 | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Net medical claims incurred | 410,540 | 410,540 | ||||||||||||||||||
| Salaries and benefits | 57,339 | 57,339 | ||||||||||||||||||
| General and administrative expenses | 79,798 | 79,798 | ||||||||||||||||||
| Premium deficiency reserve expense (benefit) | (16,357 | ) | (16,357 | ) | ||||||||||||||||
| Depreciation and amortization | 413 | 413 | ||||||||||||||||||
| Formation and operating costs | 2,447 | (50 | ) | (7a) | 166 | |||||||||||||||
| (2,231 | ) | (7b) | ||||||||||||||||||
| Other expense | ||||||||||||||||||||
| Total operating expenses | 2,447 | 531,733 | (2,281 | ) | 531,899 | |||||||||||||||
| Income (loss) from operations | (2,447 | ) | (25,078 | ) | 2,281 | (25,244 | ) | |||||||||||||
| Other expense (income): | ||||||||||||||||||||
| Change in fair value of warrants | 31,903 | (31,903 | ) | (7d) | ||||||||||||||||
| Interest expense | 25,560 | (22,019 | ) | (7e) | 3,541 | |||||||||||||||
| Amortization of notes and securities discounts | 14,935 | (14,861 | ) | (7e) | 74 | |||||||||||||||
| Loss (gain) on derivative | (87,475 | ) | 87,475 | (7f) | ||||||||||||||||
| Interest income | (97 | ) | 97 | (7c) | ||||||||||||||||
| Total other expense (income) | (97 | ) | (15,077 | ) | 18,789 | 3,615 | ||||||||||||||
| Net income (loss) | (2,350 | ) | (10,001 | ) | (16,508 | ) | (28,859 | ) | ||||||||||||
| Less: income (loss) attributable to ordinary shares subject to conversion | (93 | ) | 93 | (7g) | ||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | (2,443 | ) | $ | (10,001) | $ | (16,415 | ) | $ | (28,859) | ||||||||||
| Net loss per share basic and diluted | $ | (0.12 | ) | $ | (0.23) | $ | (0.07) | |||||||||||||
| Weighted average common shares outstanding basic and diluted | 20,157,288 | 42,849,576 | 384,283,521 | (7h) | 404,440,809 |
See accompanying notes to the unaudited pro forma condensed combined financial information.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2019
(in thousands, except share and per share amounts)
| Historical | Actual Redemptions into Cash | |||||||||||||||||||
| (C) SCH | (D) Clover | Pro Forma Adjustments | Pro Forma Statement of Operations | |||||||||||||||||
| Revenues | ||||||||||||||||||||
| Premiums earned, net | $ | $ | 456,926 | $ | $ | 456,926 | ||||||||||||||
| Other income | 801 | 801 | ||||||||||||||||||
| Investment income, net | 4,539 | 4,539 | ||||||||||||||||||
| Total revenue | 462,266 | 462,266 | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Net medical claims incurred | 450,645 | 450,645 | ||||||||||||||||||
| Salaries and benefits | 91,626 | 91,626 | ||||||||||||||||||
| General and administrative expenses | 94,757 | 94,757 | ||||||||||||||||||
| Premium deficiency reserve expense (benefit) | 7,523 | 7,523 | ||||||||||||||||||
| Depreciation and amortization | 551 | 551 | ||||||||||||||||||
| Formation and operating costs | 18 | 18 | ||||||||||||||||||
| Other expense | 363 | 363 | ||||||||||||||||||
| Total operating expenses | 18 | 645,465 | 645,483 | |||||||||||||||||
| Income (loss) from operations | (18 | ) | (183,199 | ) | (183,217 | ) | ||||||||||||||
| Other expense (income): Other expense (income): | ||||||||||||||||||||
| Change in fair value of warrants | 2,909 | (2,909 | ) | (7d) | ||||||||||||||||
| Interest expense | 23,155 | (16,690 | ) | (7e) | 6,465 | |||||||||||||||
| Amortization of notes and securities discounts | 15,913 | (15,512 | ) | (7e) | 401 | |||||||||||||||
| Loss (gain) on derivative | 138,561 | (138,561 | ) | (7f) | ||||||||||||||||
| Interest income | ||||||||||||||||||||
| Total other expense (income) | 180,538 | (173,672 | ) | 6,866 | ||||||||||||||||
| Net income (loss) | (18 | ) | (363,737 | ) | 173,672 | (190,083 | ) | |||||||||||||
| Less: income (loss) attributable to ordinary shares subject to conversion | ||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | (18 | ) | $ | (363,737 | ) | $ | 173,672 | $ | (190,083 | ) | |||||||||
| Net loss per share basic and diluted | $ | (17,631 | ) | $ | (8.56 | ) | $ | (0.47 | ) | |||||||||||
| Weighted average common shares outstanding basic and diluted | 1 | 42,469,175 | 404,440,808 | (7h) | 404,440,809 |
See accompanying notes to the unaudited pro forma condensed combined financial information.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. Description of the Merger
October 5, 2020, SCH entered into the Merger Agreement with Merger Sub, and Clover. At closing and pursuant to the Merger Agreement (i) Merger Sub merged with and into Clover, with the Clover surviving the merger as a wholly owned
subsidiary of SCH, (ii) Clover merged with and into SCH, with SCH surviving the merger and (iii) SCH changed its name to Clover Health Investments, Corp. At the effective time of the First Merger, Clover amended its governing documents to
authorize the Clover Class Z Common Stock at par value $0.0001 per share, which was issued to the excluded holders in connection with the Pre-Closing Restructuring Plan (as defined below).
Clover affected the below steps set forth in the Merger Agreement (referring as Pre-Closing
Restructuring Plan ):
Business Combination, among other things, (i) all outstanding shares of Clover common stock (after giving effect to the Pre-Closing Restructuring) as of immediately prior to the effective time of the
First Merger, were cancelled in exchange for the right to receive, or the reservation of, at the election of the holders thereof (except with respect to the shares held by entities affiliated with Vivek Garipalli and certain other holders who
received only shares of Clover Health B common stock), an amount in cash, shares of Clover Health Class B common stock, or a combination thereof, as adjusted in accordance with the Merger Agreement, which in the aggregate will equal an amount
in cash of up to $500.0 million (less any redemptions from SCH s public shareholders) (the Cash Consideration ) and a number of shares of Clover Health Class B common stock equal to (A) 350,000,000, minus (B) the
aggregate amount of Clover Health Class B common stock paid in respect of the shares held by entities controlled by Vivek Garipalli and certain other holders, minus (C) the aggregate amount of Clover Health Class B common stock that
were issued upon the net exercise or conversion, as applicable, of the Clover Awards, minus (D) the quotient obtained by dividing (x) the Cash Consideration by (y) $10.00; (ii) shares of Clover held by entities controlled by Vivek
Garipalli and certain other holders immediately prior to the effective time of the First Merger were cancelled in exchange for the right to receive shares of Clover Health Class B common stock based on the Exchange Ratio (as defined in the
Merger Agreement); and (iii) all shares of Clover common stock reserved in respect of the Clover Awards outstanding as of immediately prior to the effective time of the First Merger, were converted, based on the Exchange Ratio, into awards
based on shares of Class B common stock, which, in the case of all shares described in clauses (i), (ii) and (iii) hereof, in the aggregate equal an aggregate merger consideration of $3,500,000,000 (the Aggregate Merger
Consideration ). Each share of the Company Class Z Common Stock, in each case, that is issued and outstanding immediately prior to the First Effective Time was cancelled and converted into the right to an aggregate number of shares of
Clover Health Class B Common Stock equal to the Exchange Ratio as defined below. An aggregate of $499.8 million of cash was paid to those of the Clover Stockholders who are eligible to make a cash election on a pro rata basis and
$0.2 million of redemptions were elected by SCH s public shareholders.
Concurrently with the execution of the Merger Agreement, SCH entered into Subscription
Agreements with the PIPE Investors. At closing, the PIPE Investors have collectively subscribed for 40,000,000 shares of the SCH Class A Common Stock for an aggregate purchase price equal to $400.0 million, a portion of which was funded by
affiliates of Sponsor Related PIPE Investors.
2. Basis of Presentation
The accompanying unaudited pro forma condensed combined financial information is prepared in accordance with Article 11 of SEC Regulation S-X. The unaudited pro forma condensed combined balance sheet as of September 30, 2020 is prepared using the historical unaudited condensed balance sheets of SCH and Clover as of
September 30, 2020 and gives effect to the Business Combination and the PIPE Investment as if they occurred on September 30, 2020. The unaudited pro forma condensed combined statements of operations for the year ended December 31,
2019 and the nine months ended September 30, 2020 give effect to the Business Combination and the PIPE Investment as if they occurred on January 1, 2019 and were prepared using:
The unaudited pro forma condensed combined financial information is for illustrative
purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would
have been achieved had the companies always been combined or the future results that the combined company will experience. SCH and Clover have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma
adjustments were required to eliminate activities between the companies.
The unaudited pro forma condensed combined financial information
has been prepared assuming actual redemptions of 24,892 SCH outstanding ordinary shares for an aggregate redemption payment of $0.2 million out of the trust account on the closing date of the Business Combination. No other SCH ordinary shares
are subject to redemption.
3. Items Not Included in the Unaudited Pro Forma Condensed Combined Financial Statements
The unaudited pro forma condensed combined statements of operations do not include the impacts of any cost or other operating synergies that
may result from the Business Combination or any related restructuring costs that may be contemplated.
The unaudited pro forma condensed
combined statements of operations do not include adjustments of $343.5 million of accretion of the unamortized discount and $51.1 million of elimination of the derivative liability associated with the conversion of Clover s
convertible securities, and $2.9 million to be paid to Connaught (UK) Limited as compensation for financial advisory services as these transactions are not expected to have a continuing impact on the operations of the combined companies.
4. Accounting for the Merger
Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, SCH will be treated as the acquired company for financial reporting purposes. Accordingly, the Business
Combination will be treated as the equivalent of Clover issuing stock for the net assets of SCH, accompanied by a recapitalization. The net assets of SCH will be stated at historical cost, with no goodwill or other intangible assets recorded.
Operations prior to the Business Combination will be those of Clover. See the accounting treatment discussed elsewhere in the Proxy Statement.
Shares of Clover Common Stock
Clover Health issued approximately 260,965,701 shares of Clover Health Class B Common Stock in the