Good morning. My name is Bhavesh, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations.

Good evening, everyone. Thank you for joining us for our fourth quarter and full year 2023 earnings call. Mark Bertolini, Oscar's Chief Executive Officer; and Scott Blackley, Oscar's Chief Financial Officer, will host this evening’s call. This call can also be accessed through our Investor Relations website. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our quarterly report. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the fourth quarter and full year 2023 earnings press release. With that, I would like to turn the call over to our CEO, Mark Bertolini.

Thank you, Chris. Good morning, everyone. When I joined Oscar, I highlighted three priorities for the business: One, achieve insurance company-adjusted EBITDA profitability in 2023. Two, achieve total company adjusted EBITDA profitability for 2024. Three, continue to enhance the value of our technology to the +Oscar business and bring more of our capabilities to market. We have made major progress toward achieving these priorities. We closed out 2023 with another strong quarter, driving financial performance for the full year and achieving the first of our priorities. The insurance company generated $169 million of adjusted EBITDA profitability in 2023, a milestone Oscar committed to in early 2022. Our medical loss ratio improved 370 basis points year-over-year to 81.6%, below the low end of our guidance range. For the full year, overall claims trends were favorable relative to our expectations. Utilization trends by category remained consistent throughout the year with inpatient performance in line, outpatient and pharmacy slightly above, and professional well below. Total company adjusted EBITDA improved by $417 million versus the prior year to a loss of $45 million. Our strong momentum positions us well to achieve our second priority, total company adjusted EBITDA profitability in 2024. Our business is well positioned for sustainable long-term growth and margin expansion. We exceeded our 2024 open enrollment expectations and expect to serve over 1.3 million members. We continue to see strong retention, which we believe is driven by our superior member experience. Our disciplined pricing in 2024 is allowing us to grow our membership well above the market while driving margin expansion. We expect another year of MLR improvement, given our pricing strategy and total cost of care initiatives, including significant PBM savings and enhanced payment integrity efforts. We also anticipate continued operational cost improvement, including vendor savings from our enhanced scale and the benefit of operating leverage as we return to growth. Finally, our technology is making the healthcare experience more seamless for over one million OSCQR members, the 500,000 client lives we now serve through +Oscar, and the providers who care for them. Overall, 2023 was an exceptional year for Oscar. We are delivering on our commitments and are on a solid path to deliver sustained growth with improved margins. Now I will turn to our business highlights. This past open enrollment marked Oscar's 11th year as a prominent player in the ACA market. We expanded into 165 new counties and are now privileged to serve over 1.3 million members across 20 states. Our above-market growth was driven by strong retention and new members in both existing and expansion markets. Consumers choose us for our affordable and innovative plan designs, and they stay with us for our superior member experience. Our NPS continues to be an industry-leading 60. We continue to grow in key states for Oscar, including Florida, Georgia, and Ohio. We also outperformed our expectations in new service areas, including Cincinnati, West Central Tennessee, Topeka, and Iowa. We believe our superior member experience is meeting members' needs and continue to demonstrate we can launch and succeed in new markets outside of major metropolitan areas. We introduced new products to meet the needs of our fast-growing and diverse member population, including expanding our chronic illness plans, diabetes care, and Breathe Easy to new markets. We also launched an enhanced Spanish-first experience to deliver a culturally authentic experience to our growing Spanish-speaking member base. Consumers expect a level of convenience and accessibility in healthcare, comparable to the best consumer companies in the U.S. Oscar makes this experience possible through our full-stack technology. Since inception, Oscar has been focused on building our technological infrastructure and end-to-end experience. We believe this stack offers greater control over the member experience, engagement, and affordability. Our platform has fueled major strides in operational efficiency. We launched powerful capabilities to digitalize more interactions with providers and members and automate a growing number of clinical and administrative workflows via AI-powered features. As an example, we leveraged automation to support members more effectively and efficiently during open enrollment. We enhanced our member services IVR and launched an AI-powered secure messaging feature. Self-service features like these make it faster and easier for members to get the answers they need and allow our care team to support more complex member needs. While membership increased this open enrollment, call volume remained steady, call abandonment rates decreased, and member satisfaction increased. We are making our superior member experience and innovative technology available to others in the healthcare system, enabling a higher quality experience for consumers and driving better engagement outcomes and business performance for clients. We are pleased with the traction of Campaign Builder plus Oscar's engagement and automation platform. Campaign Builder now serves approximately 500,000 client lives, in addition to the 1.3 million members enrolled in Oscar health insurance. Campaign Builder clients saw impressive results in the second half of 2023. One payer client saw a retention rate of over 96% for Medicare Advantage members engaged with a retention program. A diabetes care GAAP program for another client resulted in over 40% of the eligible population completing a preventative diabetes screening within 90 days of engaging with the campaign. We are encouraged by these proof points and committed to bringing more capabilities to market to power more of the healthcare system. As we have shared on prior calls, AI continues to be a part of our overall strategy to ensure technology can deliver a superior member experience, improved health outcomes, meet provider needs, and lower costs. We continue to build AI use cases, including integrating OpenAI's GPT technology into Campaign Builder. We believe our AI-powered tools can be easily incorporated into client workflows to support their strategic business objectives and patient needs. Our outperformance in 2023 sets a solid foundation for us to deliver on our target for total company-adjusted EBITDA profitability in 2024. Our strategic priorities include running a great company with market-leading, sustainable, scalable operations; continually investing in our superior member experience; harnessing our technology to power others; and continuing to innovate market offerings to extend beyond the ACA. Our strategic priorities also include the long-term growth opportunity we see in the individual market and the potential we see to serve a broader set of customers, including employers and employees. The ACA is the fastest-growing segment of health insurance, with over 21 million people enrolled in individual insurance plans on exchanges for 2024. Oscar is well-positioned to capitalize and innovate on this strong market growth, as well as lead the industry in trends driving the future of healthcare. Oscar was purpose-built with a focus on accessibility, affordability, and a superior member experience. Member experience is in our DNA. We believe we are best positioned to win in an increasingly digital and consumer-centric marketplace. We look forward to sharing more on our long-term strategic plan at our next Investor Day in June in New York. With that, I will turn the call over to Scott.

Thank you, Mark, and good evening, everyone. We delivered strong financial results in each quarter of 2023, with most core metrics exceeding our expectations for the full year. We delivered on our commitment for insurance company adjusted EBITDA profitability in 2023 and have a clear line of sight into achieving total company adjusted EBITDA profitability this year. I will touch on a few fourth-quarter highlights before shifting to our full-year performance. We had a strong close to 2023. Our fourth-quarter medical loss ratio significantly improved by 520 basis points to 86.4%, and our fourth-quarter total company adjusted EBITDA loss was $112 million, a $78 million year-over-year improvement. We ended the year with approximately one million members. Membership increased 5% quarter-over-quarter, driven by higher retention due to lower lapse rates and increased special enrollment additions. Turning to the full year; direct and assumed policy premiums were approximately $6.6 billion, a 3% decrease year-over-year, and modestly above the high end of our guidance range. This was driven by lower membership, partially offset by rate increases. The full-year medical loss ratio was 81.6%, a 370 basis point year-over-year improvement and below the low end of our guidance range. Overall utilization trends were modestly favorable relative to our expectations for the full year, and we delivered medical cost savings through our total cost-of-care initiatives. As Mark mentioned, utilization trends within specific service categories remained consistent throughout the year. On risk adjustment, our risk transfer as a percentage of direct and assumed policy premiums for 2023 was lower year-over-year at approximately 14% due to our member profiles having shifted closer to the overall ACA population. The December weekly report resulted in only modest updates to our risk transfer estimates. Switching to administrative costs; the 2023 insurance company administrative expense ratio improved 270 basis points year-over-year to 17.9%, driven by distribution optimization and lower risk transfer per member as a percent of premiums compared to the prior year. Partially offsetting these positive developments was a $29 million provision for credit losses on risk-sharing receivables, which mainly impacted the fourth quarter. This relates to a small number of provider risk deals, which have since been terminated. The 2023 insurance company combined ratio significantly improved by approximately 640 basis points year-over-year to 99.5%, driven by both an improved MLR and administrative cost efficiencies. In 2023, we achieved insurance company adjusted EBITDA of $169 million, representing a $450 million year-over-year improvement, and that was above the high end of our guidance range. Our adjusted administrative expense ratio improved 350 basis points year-over-year to 21% for the full year, in line with our expectations. The lower adjusted administrative expense ratio was driven by the same factors that impacted the insurance company administrative ratio, as well as higher net investment income. We have made significant progress on improving our profitability. Our full-year total company adjusted EBITDA was a loss of $45 million, a substantial $417 million year-over-year improvement, and better than the high end of our guidance range. Over the past two years, adjusted EBITDA as a percentage of premiums before seeded reinsurance has improved by approximately 15 points. Shifting to the balance sheet, our capital position remains very strong. We ended the year with $2.9 billion of cash investments, including $234 million of cash and investments at the parent. As of December 31, 2023, our insurance subsidiaries had approximately $800 million of capital and surplus, including $248 million of excess capital driven by our strong operating performance. As a reminder, the higher capital requirements for new carriers in Florida, our largest state, expired for us at the start of this year. As of January 01, 2024, we expect a lower capital ratio requirement to generate an additional $140 million of excess capital in our insurance subsidiaries. Given the excess capital in our insurance subsidiaries, funding of our 2024 growth capital requirements will have minimal impact on parent cash. With respect to quota share reinsurance, in 2024, we expect to increase our seeding percentage from around 45% of premiums before seeded reinsurance to the low 50% range. Before I turn to the 2024 outlook, I want to discuss a new financial reporting structure that we will roll out beginning with our first quarter 2024 results. In order to increase transparency and improve comparability, we will be revising our presentation of the income statement to more closely align with our peers and our discussion of financial results and guidance will focus on the performance of the total company. For 2024, we will provide guidance for total revenue, medical loss ratio, SG&A expense ratio and total company adjusted EBITDA. In today's earnings release, we included supplemental information on the 2024 financial outlook, including full year 2023 results for these measures, as well as details on the components of the metrics and calculations. Turning now to the 2024 full year guidance, we expect to build on the strong momentum in 2023 and achieve total company adjusted EBITDA profitability in 2024. We expect total revenues in the range of $8.3 billion to $8.4 billion based on strong retention, above-market growth during the 2024 open enrollment period, and SEP member additions throughout the year as Medicaid redeterminations continue. On Medicaid redeterminations, our 2024 guidance contemplates strong SEP additions and assumes higher acuity and partial-year risk adjustment dynamics for these members. We are pleased with our strong open enrollment growth and expect it to result in overall a healthier membership profile. We expect our medical loss ratio to be in the range of 80.2% to 81.2%, representing a 90 basis point improvement year-over-year at the midpoint. For 2024, we price for medical cost trends and expect MLR improvements to be driven by our total cost of care initiatives, including PBM savings. We expect our quarterly MLR seasonality to be similar to 2023, although with a steeper slope. For 2024, we expect a higher risk transfer as a percentage of premiums compared to 2023, based on our updated membership mix. As the new policy year business matures, our overall per-member claims levels may change with corresponding impacts on our estimate for risk transfer. Such changes impact the numerator and denominator of our MLR, but we would not expect them to have an impact on our per-member underwriting economics. We expect our SG&A expense ratio to be in the range of 20.5% to 21%, representing a 350 basis point year-over-year improvement at the midpoint. This ratio includes stock-based compensation expense, which in 2023 was approximately $160 million and included a one-time charge of $46 million related to accelerated stock-based compensation expense recognized as a result of the cancellation of the Founders' Awards. We expect our SG&A expense ratio to be fairly consistent in the first three quarters, with a modest uptick in the fourth quarter. We expect total company adjusted EBITDA to be in the range of $125 million to $175 million, representing an almost $200 million year-over-year improvement at the midpoint. In closing, 2023 was a pivotal year for Oscar. We delivered on our commitments for insurance company adjusted EBITDA profitability, and we are well-positioned to return to growth and achieve total company adjusted EBITDA profitability this year. And with that, let me turn the call back over to Mark for closing remarks.

Thank you, Scott. I would like to close by looking back at the financial metrics we shared with analysts in connection with Oscar's initial public offering in 2021. We said we expected to achieve the following in 2023: nearly one million members, $5.7 billion in direct and assumed policy premiums, an 83% MLR, and a total company adjusted EBITDA loss of $222 million. Today, Oscar has far exceeded these metrics. We are a prominent player in the fastest growing segment of health insurance. We demonstrated the power of our superior member experience and technology by exceeding our projections for open enrollment. We achieved insurance company profitability and outperformed our expectation for total company adjusted EBITDA in 2023. We are returning to growth and have a clear line of sight into delivering on our target for total company adjusted EBITDA profitability in 2024. We have done what we said we would do. Oscar is delivering on its commitments. I would like to thank the Oscar team. We are powered by our people; their hard work and dedication make all of this possible. With that, I would like to turn the call over to the operator for the Q&A portion of our call.

Our first question comes from Adam Ron of Bank of America. Please go ahead.

Hey, guys. Congrats on the strong results. In thinking about the adjusted EBITDA trajectory from here, you're on track to do something like 2% from a margin perspective in 2024. I think in the past, you've talked about total company, maybe on a pre-tax basis, being closer to 5%. The difference between those two things is still roughly 300 basis points to 500 basis points of margin improvement, and this year was sort of outsized from a revenue growth perspective. What do you see as the major levers in terms of being able to close that gap between the 2% adjusted EBITDA and 5% pre-tax margin, given you probably shouldn't expect to see like 40% revenue growth from here and maybe some of the lower hanging fruit around PBM contract renegotiation isn't as readily available? Just thinking about what the major levers are from here would be helpful.

Thanks, Adam. Mark Bertolini here. We'll start with big categories. First, we have enough fixed costs to grow to a much larger size, so fixed cost leverage will be pretty robust. No matter how much we grow, although we anticipate and continue to expect that 20% growth year-over-year is achievable. Secondly, we have been able to leverage large language models on the back end of the system in our variable operating expenses, and just for an extra data point on our call volumes, we actually handled the call volumes we had this year with 200 fewer people answering the phone. So we continue to see big operating opportunities on the variable cost side. We are in the midst of looking at provider contracts, particularly hospital contracts, and we have now a matrix of contracts that we need to get to the optimal level from the standpoint of both terms and rates. We've begun those conversations with our provider partners, not just because we have more market share, but because we have better relationships with them in the way we deal with them day in and day out on utilization management and on reimbursement and paying claims. Scott, anything to add?

Yeah, Adam, I think that we certainly think there is room to run in terms of continuing to drive MLR performance through disciplined pricing, and we see continued opportunity to drive total cost of care down, allowing us to both grow and to take margin. Mark talked about admin efficiency, and I think there's also plenty of room for us to continue to drive favorable performance there. Broadly speaking, we believe that this market is going to continue to attract individualized consumers, and that's where we really shine in building innovative plans. If we can continue to see that development in the market, we think we have a terrific opportunity to continue to grow the company. Obviously, fixed cost leverage is going to be our friend, so we think we've got all the bones in place to get to that over time.

Awesome. If I could just sneak one more in, maybe more shorter term; both CVS and Cigna have been seeing somewhat varied performance compared to you, Centi, and Molina. I think CVS, in particular, has been complaining about the special enrollment charges or, having less opportunity to risk code members who join in the middle of the year. That's something that Oscar has struggled with in the past, but it doesn't appear to be impacting results this year. Can you square that commentary of, like, are you seeing outsized pressure from the mid-year enrollment dynamic and does that argue that core MLR results are higher than what's been reported? Is that how we should contemplate 2025 MLR improvement from here? Just wanted to understand the varied performance versus some of your competitors. Thanks.

Look, I think that we've been experienced SEP for years. We certainly understand the dynamics of how duration factors impact those members. We build that into our price assumptions. This year, we've seen SEP members that have performed more or less consistent with our historical experience with them. So, nothing for us has caused any challenges in terms of onboarding those members. Regarding 2024, we assumed that we would be growing the SEP membership coming in the second half of the year and we built that into our guidance for MLR. It's an area that's challenging, certainly, but we've got experience there. We have a reasonable expectation of how those members are going to perform based on what we've seen through the end of the year and into this year, and they have a morbidity profile that is what we're expecting. So, there's always some risk with growth and with new members, but we believe we've built those risks into the guidance that we provided you today.

Our next question comes from the line of Josh Raskin from Nephron Research. Please go ahead with your question.

Hi, thanks. Good evening. Do you think the stability of the exchanges and certainly the growth that we're seeing in the market is attracting new larger competitors? Are you seeing overall rational behavior from them and how lasting do you think the competition is?

I would say that rational behavior was not necessarily in place last year, particularly during the 2023 open enrollment, in large part because people have not priced accordingly to how the market works. As you know, part of what we found, even when I was with Aetna in the markets, is that the minimum loss ratios put in place for pricing don't allow you to underprice and then price up business after you gain market share because you have to give back rebates. Entering with the mindset that we will grow with disciplined pricing is vital, and we saw some of that this year for the 2024 open enrollment where competitors took their prices up, lost business, and Georgia is one of those markets. When we look at our rates in those markets, we are where everybody else is now, pretty much with increases that are in the 8% to 9% range. We felt that we approached this with open eyes and a deep understanding of this market over time, and we believe that we have priced accordingly and been disciplined about it; stable and rational pricing.

Got you. And then just secondly, midpoint of EBITDA guidance of $150 million at the whole company level; what does that mean for cash flow from operations? Can you help us with the moving parts on the parent cash balance for 2024 and sort of thinking about the Florida capital that's not needed versus the growth? I'm just trying to figure out, what we should be thinking about cash from operations and what that means for parent cash?

Yeah. So, Josh, the importance of the adjusted EBITDA metric for the total company is that, with the growth, we will be getting additional cash before paying the risk transfer estimate. We would anticipate that the total company will be cash flow positive and will be building capital in our insurance subsidiaries. In terms of those subsidiaries, we will prioritize: one, funding to growth that we hope to continue; two, distributing capital to the parent to offset parent expenses; and three, absorbing more of the holding company costs over time. We feel like we've got a good situation with capital and cash and would expect to be cash flow positive in 2024.

Our next question comes from Nathan Rich from Goldman Sachs. Please go ahead.

Great. Good afternoon and congrats on the strong quarter. I wanted to start by asking if you can break down the composition of membership growth a little bit more between markets that you entered in 2024 versus growth within existing markets? You also talked about a healthier membership base. Could you expand on what you're seeing there?

Yeah. I will start and then, Mark, maybe talk about some of the membership growth. Overall, when we look at the demographics and the morbidity of the group that we're seeing, I would characterize it as, number one, it's younger. We are seeing younger members coming in, more than a little over a year younger in terms of the total population. Number two, I would characterize it as we've seen a shift of more of our membership in 2024 towards silver plans from bronze. Overall, I would say that our membership being healthier is representative of the fact that we think we're going to have a higher risk transfer this year. The dynamics of that membership, younger, healthier, and in silver plans are probably the key points to highlight. Mark, do you want to cover state by state?

Sure. Strong retention was the biggest part of our growth, I would say, and also provided stabilization and risk adjustment as we go forward into this year. It was obviously helpful for us last year. We did grow new members in existing markets: Georgia, Florida, Ohio, Tennessee, Iowa, and Missouri, but we also outperformed expectations in new markets with service area expansion in Cincinnati, Tennessee, and some of the rural markets in Iowa and Georgia.

Great. And maybe just a quick follow-up. I think the company has previously discussed a target MLR in the low 80% range. You've reached that level for 2024. As you think beyond this year, do you think there's still potential for further MLR improvement, or will more of the margin expansion come from leveraging growth?

We definitely have room for improvement in the MLR.

Just to clarify, our PBM contract has year-over-year step improvements built into that contract. So without doing anything, our pharmacy costs would be lower in 2025. Many of the things you’re seeing in the run rate benefiting '24 should lead to incremental improvements in '25, and we expect to continue to drive down the costs of healthcare.

Our next question comes from Stephen Baxter from Wells Fargo. Please go ahead.

Hi, thanks. I want to follow up on the PBM discussion. I know in the past you mentioned saving spread out over 2024 and 2025. Can you give us a sense of what that means for PBM savings exiting 2024? And can you discuss the profile of membership you're looking for in 2024? Now that you've achieved insurance company profitability, I would think growth from inside the open enrollment period would come at incremental profitable margins, but perhaps you're taking a more conservative stance to start out. I'd love insights into how you're thinking about the profitability of the growth and last one, exiting this year, where do you think you'll be on some of the payment integrity efforts you've mentioned in the past?

I'm going to try to remember all of those questions. So if we miss one, please come back. When I think about where we might be going from an overall perspective, starting with the MLR, I think there are opportunities with the PBM, where the PBM actually extends until 2026, and we have a contract where each year we will see benefits, with the first year being the largest step change. There will be continued meaningful improvements in that contract over the remaining term. We're pleased with our partnership there with our provider. On the payment integrity issues, we will see full-year effects of last year’s efforts this year, but we have more to accomplish. We'll continue to improve upon those, particularly as we apply AI models to the back of the business and address payments we now pay vendors for. We also have provider relationships we can affect in vintage markets where we initially had no volume and are now able to reduce medical costs significantly.

Lastly, regarding member economics, we anticipate that all of the growth we're seeing in open enrollment is contributing positively to margins. We also expect continued enrollment through the special enrollment period. While those members typically come with about a 10% higher MLR, the economics can be challenging in the first year. However, we've built those risks into our plans. We're excited to add more members through the special enrollment period, in addition to the successes we've already had during open enrollment.

Hey, thanks for squeezing me back in. I have one more question. I get many inquiries about the Affordable Care Act subsidies, and there are estimates out there on what the market size would be if those subsidies were to disappear. Could you provide your insights on what you expect it to do to the market, relative to your member mix using APTCs? Lastly, when you mention G&A as fixed and variable, could you offer some clarity on how much of the G&A is fixed versus variable and how that affects earnings? Lastly, if the subsidies were to vanish, although nobody can predict it, could you offer your thoughts on whether margin would decline, or is there a reason to believe there are levers you could pull to offset that?

Regarding the last part of your question, we believe that we have an opportunity to provide services at different price points that could help individuals when and if the enhanced subsidies go away. On a more general level, we had interesting insights from our data this open enrollment; 63% of new ACA consumers are from red states and 76% during the open enrollment period. Year-over-year, our market growth is in red states. Thus, I find it hard to believe that the political dynamic from six to eight years ago will remain, especially for Republican constituents. We have a planning version of our strategic plan that anticipates the subsidies will end, and we are preparing products to maintain affordability. The group we are most concerned about is individuals at 100% to 200% of the federal poverty level, who have zero premium plans and could face new costs of around $60 or $70 a month. We plan to find solutions for that population. Regarding fixed versus variable costs, Scott, I'll let you elaborate.

Certainly, I think sharing the breakdown of fixed and variable G&A is something we look forward to addressing in our Investor Day in June.

Thank you, ladies and gentlemen. As we have no further questions at this time, we will conclude today's conference call. We thank you for participating, and you may now disconnect.