Good morning. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's First Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. Thank you. I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us for our first quarter 2024 earnings call. Mark Bertolini, Oscar's Chief Executive Officer; and Scott Blackley, Oscar's Chief Financial Officer, will host this morning'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. Actual results may differ materially from those indicated by those forward-looking statements due to various important factors, including those discussed in our annual report on Form 10-K for the period ended December 31, 2023. 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 first quarter earnings press release available on the company's Investor Relations website. With that, I would like to turn the call over to our CEO, Mark Bertolini.

Good morning. Thank you, Chris, and thank you all for joining us. This morning, Oscar reported strong first quarter results with solid year-over-year improvement across all core metrics. Underlying our first quarter performance, we reported total revenue of $2.1 billion. Our revenue increased 46% year-over-year, led by strong retention, above-market membership growth during open enrollment, and SEP member additions. Oscar achieved an important milestone in the quarter. We reported positive net income for the first time in our history. We generated $178 million of net income, a significant $217 million improvement year-over-year. Medical loss ratio improved 210 basis points year-over-year to 74.2%. Overall utilization was in line with our expectations. In addition, we achieved total company adjusted EBITDA of $219 million, a $168 million improvement versus the prior year. Our strong momentum positions us to deliver on our total company adjusted EBITDA profitability target this year. We're seeing real earnings power in our insurance business. The business has scaled to a point where we are driving strong membership growth and improved profitability. We are delivering on our commitments, and we remain on a solid path to grow sustainably over the long term. In a few moments, Scott will provide a more detailed review of our first quarter results. First, I will cover key business highlights. Oscar closed the quarter with a strong 2024 open enrollment period, alongside record enrollment in the ACA marketplace. Total membership increased 42% year-over-year, exceeding our expectations. We captured share in existing and expansion markets and drove superior customer satisfaction and record high retention. Our growth demonstrates that our value proposition continues to resonate with consumers. Oscar's affordable and personalized plans attract consumers. Our superior member experience driven by our technology retains them. We ended the quarter with another record high NPS of 66. During the quarter, we continued to meet consumer needs through our technology. We drove more members to affordable, benefit-rich plans in key states where other carriers retreated, including Georgia and Kansas. We also launched new products for our fast-growing and diverse member population, which attracted differentiated member profiles in several new geographies. As an example, we launched our Spanish-first program, Hola Oscar, to better support our Hispanic and Latino member base in Georgia. The program drives personalized care interventions through our engagement capabilities in their native language. Early results show 247% growth and 93% retention in our Spanish-speaking membership in Georgia in just one year. Our teams also successfully launched diabetes-focused campaigns through Hola Oscar. Hispanic adults are 70% more likely than non-Hispanic adults to be diagnosed with diabetes. Our campaigns introduced culturally relevant messaging to increase diabetes screening rates, including eye exams and kidney screenings, which closed gaps in care. Tailored health engagement programs like these help drive our strong NPS of 87 among Spanish speakers. Finally, we continue to externalize key aspects of our member engagement and experience capabilities to power the healthcare system through +Oscar. Our efforts are gaining traction. In the quarter, all of our clients added more lives to our campaign builder platform, including a key provider group that expanded the relationship by 35,000 lives. We are pleased with +Oscar's momentum. We continue to mature the product set and have an active RFP pipeline. Our strong performance in the quarter sets a solid foundation for 2024 and positions us to achieve our total company-adjusted EBITDA profitability goal. Looking ahead, we remain focused on long-term strategic priorities that enable Oscar to play a leading role in expanding the individual market. The ACA now has more than 21 million people enrolled and is the fastest-growing health insurance segment driven by the gig economy, consumerization, and government policies. The market has reached a size that makes it a permanent, attractive option, supporting our country's most diverse and vulnerable populations, filling a critical gap in the insurance market. The ACA's continued growth affirms that individual plans meet consumer needs of affordability, access, and quality, and are a viable alternative to conventional employer-based models. We see a long-term opportunity to grow the individual market by serving a broader set of consumers and markets. With this in mind, we are not renewing the Cigna +Oscar small group offering in 2025, but are aligned with our strategic direction. We continue to believe in the value of small businesses and look forward to serving this market in new ways in the future. In summary, we are off to a good start in 2024. Oscar is building a highly competitive franchise in the ACA market, and the business has a sizable runway ahead to further scale and grow. We continue to execute the excellence required to run a mature company and generate solid business returns. I am confident in Oscar's long-term growth prospects. We look forward to sharing more details on our long-term strategic plan at Oscar's upcoming Investor Day on June 7 in New York. With that, I will turn the call over to Scott.

Thank you, Mark, and good morning, everyone. Our first quarter financial results demonstrate a solid start to the year. We continue to deliver on our commitments and reported approximately $178 million of net income in the first quarter or $0.62 per diluted share, an important milestone for Oscar. We're well-positioned to achieve our target for total company adjusted EBITDA profitability this year. Before I get into the details of our financial performance this quarter, as a reminder, we implemented a new financial reporting structure beginning with the first quarter to increase transparency and improve comparability. Our discussion of financial results and guidance is focused on the performance of the total company. In conjunction with today's earnings release, we filed an 8-K, which includes supplemental information on 2023 quarterly results under our new financial reporting framework. Turning to our financial performance. Total revenue increased 46% year-over-year to $2.1 billion in the first quarter, driven by higher membership, rate increases, and lower risk adjustment as a percentage of premiums. We ended the quarter with more than 1.4 million members, an increase of 42% year-over-year. Membership growth was driven by strong retention, growth in existing markets and new service areas, as well as robust SEP member additions. On medical costs, the first quarter medical loss ratio improved by 210 basis points year-over-year to 74.2%, driven by our disciplined pricing strategy and total cost of care initiatives. Overall, utilization trends were in line with our expectations at this point in the year. Switching to administrative costs. The first quarter SG&A expense ratio significantly improved by approximately 870 basis points year-over-year to 18.4%. This significant year-over-year improvement was driven by variable cost efficiencies and improved fixed cost leverage, as well as lower risk adjustment as a percentage of premiums, which collectively resulted in 505 basis points year-over-year improvement in the ratio. The remaining 365 basis points of improvement were due to accelerated stock-based compensation expense recognized as a result of the cancellation of the Founders' Awards. We continue to make significant progress on improving profitability. Net income of approximately $178 million improved by $217 million year-over-year in the first quarter. Total company adjusted EBITDA of $219 million also significantly improved by $168 million year-over-year in the first quarter. Shifting to the balance sheet. Our capital position remains very strong. We ended the first quarter with approximately $3.7 billion of cash and investments, including $159 million of cash and investments at the parent. As of March 31, 2024, our insurance subsidiaries had approximately $990 million of capital in surplus, including $540 million of excess capital, which was driven by our strong operating performance. Turning now to our 2024 full-year guidance. Based on the first quarter results, we are reaffirming all of our full-year guidance metrics. We expect total revenues in the range of $8.3 billion to $8.4 billion, medical loss ratio in the range of 80.2% to 81.2%, and SG&A expense ratio in the range of 20.5% to 21%. We continue to expect to achieve total company adjusted EBITDA profitability in the range of $125 million to $175 million. As a reminder, as the new policy year matures, our overall per member claims levels may change with corresponding impacts to our estimate for risk transfer. Such changes would impact the numerator and the denominator of the MLR, but we would not expect them to have an impact on our per member underwriting economics. In addition, we continue to expect our quarterly MLR seasonality to be similar to 2023, although with a steeper slope. In closing, we've had a solid start to the year. We delivered net income profitability for the first time in Oscar's history, and we are well-positioned to achieve total company adjusted EBITDA profitability this year.

Thank you, Scott. In closing, our first quarter performance lays a strong foundation for 2024. Oscar continues to deliver on our commitments, and I can see the momentum in our business. We are confident we will achieve our total company adjusted EBITDA goal this year. Our team remains focused on our long-term growth objectives, which position us to capture emerging innovation opportunities in healthcare. Oscar is purpose-built to meet the rising expectations of consumers and bring the market more tech-first solutions. I want to thank all of our employees for their efforts in delivering another strong order. As I walk the halls, I feel our team's dedication and passion. Their commitment to serving our members and partners drives our continued results, which we laid out in our impact report last month. We continue to build a more sustainable and equitable future, both at Oscar and in the communities we serve. I look forward to speaking with many of you at our Investor Day next month. With that, I will turn the call over to the operator for the Q&A portion of our call.

Our first question comes from Stephen Baxter of Wells Fargo.

So, I wanted to get an update on the expectations around the performance of your membership growth in 2024. I guess, how is the mix of those numbers compared to your expectations? And can you update us on where you sit in terms of metal mix and how that's changed year-over-year? And then I guess the last question would just be, it sounds like you're not necessarily expecting risk adjustment to be a big swing factor in terms of the guidance and where you sit for the full year. Obviously, the first quarter, I think, looks like a pretty solid starting point to kind of use your phrasing. What would you need to see in order to let the upside that it feels like you saw in the first quarter flow through the guidance?

Thanks, Steve. We reported 1.4 million members, and that's been stronger SEP growth than we expected this early in the year. We're not sure if that's a pull forward of what’s going to happen later in the year or if it will continue to grow over time. And as we look at that growth rate, if it continues over time, Medicaid redetermination is through November, we would expect that we're going to have less and less insight on risk adjusters later in the year, which will work against us in the quarters, but we'll recover in the first quarter of next year when we get that data all submitted through CMS.

Yes. So, Steve, number one, I think that we're super excited about a strong first quarter, strong membership growth, medical expenses on plan. SG&A, that was slightly favorable to what we were expecting. So a good start to the year. With respect to the SEP membership growth, as we told you in our call, at the end of the year for Q4, we did anticipate in our plan that we would see strong SEP growth. And that growth typically has an MLR that's about 10% higher than what we would see in OE. We have a history of retaining a high portion of those members. So in the next year, they tend to have MLRs that look just like other OE members. So grabbing that SEP this year is a good thing for 2025. In the current year, as Mark talked about, the big question for us at the moment is if we saw really robust SEP membership growth in Q1. And is that a trend that's going to persist or is that a pull forward of membership? At this point in time, we just don't have enough visibility to know for certain. And so that's impacting a little bit of our full year guidance and thinking about if we do see more SEP growth in the back half, that will come with some MLR impacts, and we just think we've got a great position to start the year with a strong first quarter.

Our next question comes from Adrian Wong from Bank of America.

I think in the past you've mentioned that you don't want Oscar to be a single product line company, but this quarter you're exiting Medicare Advantage, and it sounds like exiting the Cigna and Oscar small group relationship. So we'd love to hear a little bit more color on what exactly is the rationale behind the exit for first Cigna + Oscar, and then to the extent you still believe that the company won't be a single product line business? Like what are the major opportunities? Is it health IT, and do you see ICHRA as a separate line? So more color on what you expect from those two businesses, just because it seems like the services revenue only grew like 12% in the quarter. So would just love to hear longer term what the expectations around that are, or if there are things beyond ICHRA and health IT that you see opportunity in?

Thank you, Adrian. We exited Medicare primarily due to unsustainable provider relationships, which we could not fix to achieve a profitable product. We plan to enter the market in a different manner, which we will discuss in June during our Investor Day. In the near term, our opportunity lies with ICHRA, where we believe we can reach over 70 million individuals in the under 50 and middle market sectors. We will highlight the substantial progress we have made on these products and the pilots planned for this year, launching in 2025. Regarding C + O, both companies worked hard over the past five years to make it profitable from an underwriting perspective. However, conflicting owner economics, with various parts of the revenue stream going to different organizations, made it difficult to rationalize for long-term viability. More importantly, we see ICHRA as the solution for small groups and the middle market, which presents a significant opportunity that we want to focus on getting right. With respect to +Oscar, we are currently working on how we utilize that platform—an externalized platform—requiring further work and investment to make it ready for the market so clients can effectively use it as a comprehensive platform. For now, we are rolling out components and will provide more updates about +Oscar during the Investor Day on June 7.

The next question comes from John Ransom from Raymond James.

Just looking at your SG&A line, as you look out a few years, what do you think is the sustainable level of SG&A to revenue to kind of get you to your ultimate targeted margin?

Yes, John, thank you for your question. We are indeed pleased with the performance of SG&A, which has shown a significant improvement compared to the previous year. While we did mention a one-time expense related to the Founders Award, the remainder of the enhancement is sustainable, and we expect to keep seeing positive impacts from our technology that enhance operational efficiency. We are experiencing fixed cost leverage, and I believe these factors will continue to benefit us. We will provide more clarity on our target economics for the business during the Investor Day, but I can say that we expect further improvements in SG&A in the future, and the trends we've observed so far give us confidence in our ability to achieve even better results.

The next question comes from Josh Raskin from Nephron.

Just first clarification on Cigna + Oscar. What's the revenue expectation this year embedded in the $8.3 billion to $8.4 billion? And then my real question is just on the risk adjuster payable down meaningfully year-over-year despite the increase in premiums. I know that was all expected, but I'm curious if you've got any external data at this point that's sort of a first look, or anything preliminary from Blackley or anyone else? And then how much of that improvement do you think is just better execution and coding? And how much of that is your membership sort of a more normal risk pool?

I'm sure I'll miss one of those questions, Josh, but I'll comment on the risk transfer. At this stage of the year, risk transfer is primarily an internal estimate since we lack extensive external data. We anticipate that the percentage of risk transfer will increase throughout the year, driven in part by the seasonality of our book. Additionally, when SEP members join, they tend to be younger, which leads to a higher risk transfer for that group. As we expect growth in the SEP sector during the second half of the year, this will contribute to a rise in risk transfer. Currently, we have an effective process for collecting the necessary codes to support risk transfer. Our historical coding experience enables us to implement strong processes, including the use of AI and other techniques for efficient data collection. We believe this process adds significant value, allowing us to ensure we receive full credit for the medical care that our members are receiving.

And then just a C + O revenues?

Sorry, that was the one I forgot. For 2024, I think the revenue will probably be in the range of $250 million to $260 million, with minimal impact on the bottom line. Going forward, when that book enters runoff in 2025, the revenue impact will be much smaller. However, in both years, we expect the bottom line to remain insignificant.

Next question comes from Nathan Rich from Goldman Sachs.

I would like to follow up on the Medical Loss Ratio. Scott, it appears that the underlying cost trend performance aligns with what you expected. You mentioned a steeper slope, and I'm curious about how this Medical Loss Ratio compares to your plan for the first quarter and if there has been any change in your outlook for the remainder of the year. Also, looking ahead, how do you view the long-term potential for the Medical Loss Ratio? I understand that some of your peers operate in the high 70% range. Do you believe you can achieve a level that is more consistent with those peer levels over time, given your member mix and geographic exposure?

Nathan, on MLR, I think that the MLR we saw in the first quarter was more or less consistent with our expectations where we saw utilization that was on plan. There are always puts and takes in utilization, but in summary, pretty much what we were anticipating. At this point in the year, you don't have that huge amount of visibility into the full year performance of your book. And so it's still early days in terms of what we would take away from the performance thus far in the year. But I would say that it's comforting that we're seeing what we expected. So we do think that first quarter MLR is a good starting point. For the rest of the year, there is MLR seasonality. We've seen this historically in our business, and we would expect it to be there again this year. The addition of SEP members throughout the year, we've talked about the risk adjustment dynamics of those members that do have some adverse effects. So that's another component of seasonality, and I think that we'll see that this year. With respect to MLR in the future, I would say that there are two components of that. One is your pricing, and we are always committed to disciplined pricing. I think we've got opportunities in total cost of care for us to continue to improve medical expenses in a way that we always wanted to support our members. And so we see opportunities to continue to drive that down. But ultimately, we will balance the objectives of having pricing in the market that allows us to grow and driving total cost of care that can lead into a trend of expenses over time. But really there's no reason that our business can't perform at MLR levels that are competitive with the rest of our industry peers.

Our next question comes from John Ransom from Raymond James.

I want you to know I follow the rules and just ask one question. So yes, give me a gold star. Regarding the MLR question, if we look at the year-over-year improvement, what would you say are the key attributes in order of significance? I know you have a new PBM contract and you've adjusted your pricing, and your mix has changed. But considering all those factors, what would you identify as the top one, two, or three drivers of your MLR improvement year-over-year?

Yes, I think that the first thing I would just call out is pricing and margin expansion and being thoughtful about pricing for the risk that we were going to take, really seeing that be a significant driver and it's the most important driver in the year-over-year performance. We had a small amount of prior period development this year. In the first quarter, it was about $17 million favorable, which was really runout on 2023 claims. So that was good. And the thing I would just say with MLR, the fact that what we're seeing in MLR are trends that I'm confident are going to persist, and is probably the most important takeaway we'd have from the first quarter MLR performance.

And then the PBM, how much did that help?

Yes, in the PBM, we're not going to call out specifically the impact of that. It is embedded in the performance. Obviously, it ultimately gets into what did you price for. We built that PBM into the pricing and we are seeing margin. And so, clearly PBM is a significant driver of our ability to price at a level and that was competitive and continued to drive market improvement.

We have reached the end of the question-and-answer session. Thank you for attending today's conference call. Have a wonderful day and you may now disconnect. Thank you.