Good afternoon. My name is Josh and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health’s 2022 Third Quarter Conference Call. [Operator Instructions] Thank you. I would now like to turn it over to Cornelia Miller, Vice President of Corporate Development and Investor Relations, to begin the conference.

Thank you, Josh and good afternoon everyone. Thank you for joining us for our third quarter 2022 earnings call, where we will discuss our performance to-date, our path to profitability and the recently announced management transition. Mario Schlosser, Oscar’s Co-Founder and Chief Executive Officer; and Scott Blackley, Oscar’s Chief Financial Officer and soon-to-be Chief Transformation Officer, will host this afternoon’s call, which can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of the 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 on Form 10-Q for the quarterly period ended June 30, 2022 filed with the SEC and our other filings with the SEC, including our quarterly report on Form 10-Q for the quarter period ended September 30, 2022 to be filed with the SEC. 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 third quarter 2022 press release, which is available on the company’s Investor Relations website. With that, I would like to turn the call over to our CEO and Co-Founder, Mario Schlosser.

Thank you, Cornelia and good evening everyone. Thanks again for joining us today. I will provide updates on several topics, including our financial results for the quarter, our outlook on open enrollments and recent market dynamics, our strategy for a profitable insurance business in 2023 and more detail on the news updates that we shared earlier today. We will start with a look at the quarter. We see strong evidence of the continuing progress in our business. We increased membership and direct policy premiums dramatically year-over-year. At the same time, we have seen meaningful improvements in our medical loss ratio and administrative expense ratios year-to-date. Those improvements are particularly noteworthy against the backdrop of a strong membership growth. So overall, we’re executing our plan. We are seeing the benefits of scale and of our infrastructure, and we have confidence about the future. We will discuss our full year 2022 outlook later in the call. As we look into open enrollments and as we think about our perspective on a positioning for 2023, we are, first of all, excited about the ACA markets. The long-term sustainability of the marketplace is, to us, evidenced by what looks to be record-high membership and the return of many traditional players for this open enrollment. We at Oscar have lived 2 years where the markets were stable. And even against the complex backdrops, we’ve been grinding out improved performance. Hence, we don’t grow tired of saying this, but the individualized ACA market looks to us much more like the future of a competitive U.S. health care system than any other health insurance markets. So it is smart to be really good at it. We see the recent competitive developments, is in a positive as there are more opportunities for the players that remain. And that…

Thank you, Mario, and good afternoon, everyone. Our third quarter results show the benefits of our increasing scale. As Mario noted, we have roughly doubled our membership year-over-year and expect meaningful margin improvement. We continue to deliver against our ‘22 plan throughout the first 9 months of the year. I will discuss the puts and takes of our guidance updates in more detail in a few minutes. We ended the third quarter with over 1 million members, an increase of 81% year-over-year, driven primarily by growth in our individual business and our small group offering, C+O. We are pleased with the strong traction of C+O. We ended the quarter with 53,000 members, and we believe we’ve demonstrated that our innovative products are resonating and meeting the small employer market where the demand is. Our net churn continued to trend positively in the quarter, driven by higher retention and lower lapse rates as well as increased special enrollment additions as compared to last quarter. Third quarter direct and assumed policy premiums increased 87% year-over-year to approximately $1.7 billion driven by higher membership, rate increases and business mix shifts towards higher premium silver plans. Turning to medical costs. Our medical loss ratio was 89.9% in the quarter, an improvement of roughly 10 points year-over-year. The improvement was largely driven by lower year-over-year COVID costs versus the Delta wave last year as well as by pricing actions and targeted cost of care initiatives. In the quarter, we had $3.5 million of net unfavorable development versus approximately $20 million in the same period last year. On a year-to-date basis, we had approximately $50 million of unfavorable prior year development. Switching to utilization. We saw direct COVID costs decline meaningful year-over-year while remaining fairly consistent quarter-over-quarter. Specifically, COVID costs in the quarter were both lower…

Thank you, Scott. Before we close, I’d like to talk about how we will be organizing as a leadership team to further strengthen our focus on our near-term priorities and ensure we are building a future beyond them. Effective December 1, Scott will take on a new role as Chief Transformation Officer. In this role, Scott will focus on how we align our overall revenues with our costs for both insurance company and total company profitability. Scott will be working across the organization to ensure that we are executing our business plan and aligning our operational strategy with our tech expenditure. He will also be partnering with me on the approach for how we leverage our technology stack and the larger strategic considerations for these parts of the company, including our go-to-market strategy for +Oscar. This move is about maximizing the capacity of a leadership team that is already aligned and executing. The team has demonstrated focus and discipline this year, laying the tracks for the critical milestones of insurance company profitability in 2023 and total company profitability in 2024. And given the importance of these goals, we wanted a member of the senior team to focus exclusively on these goals. I want to thank Scott for the excellent work he has done in the CFO role, and I’m excited to have him provide his experienced leadership in this critical neural. High five, Scott. With Scott transitioning, we asked our former CFO, Sid Sankaran, to rejoin Oscar as Interim CFO. Sid has stayed very closely with the business and our finances as a member of our Board and the Chair of our Finance Risk and Investment Committee. Given his familiarity with our finances and our strategy, we felt that Sid was a natural choice to step in. And Sid will join us Oscar immediately and will transition into the CFO role effective December 1. We will be starting a search we pen CFO. Sid, would you like to say a few words?

Thanks, Mario. The Oscar team has a great plan in place, and I’m excited to step in as the Interim CFO and help us execute on our goals. As a member of the Board, I’ve remained highly engaged and closely aligned with Mario, Scott and the rest of the executive team. I’m thrilled to step back in to help and look forward to reconnecting with our investors and the analyst’s community.

Thanks, Sid. And just in closing, we at Oscar have navigated a lot of complexity of our 10-year history, but what has remained the same is a fundamental belief what changes are needed in the healthcare system and the role we can play in bringing those about. The U.S. healthcare system is moving towards a more consumer-driven, more digital and virtual and more value-based system. This kind of future market is going to be defined by those who best engage members, help members save money and have the technology to incentivize better outcomes and earn the resulting risk premium. And that’s exactly the kind of system for which we have built our infrastructure. And while we’ve been doing that, we have navigated an entirely new insurance market as a start-up. We have absorbed numerous regulatory changes, and we’ve seen almost unpresentable growth, all while solidifying our costs in our care models. That depth of experience sets us up very well for achieving our financial goals and for fulfilling our mission to make a healthier life accessible and affordable for all. We remain steadfast in this approach, and we remain humble state members continue to choose and stay with Oscar. We are also fully committed to and excited about the close partnerships we have built with the providers who serve Oscar members and the brokers who sell Oscar products, and we deeply value their support. For the plan we’re executing against, and this management team structured to focus on it, we are confident that we can live up to our promise as a company refactoring healthcare for many decades to come. And finally, before we go to the Q&A, I want to thank the Oscar employees who have been powering Oscar with a genius, grit and member focus for the last decades. I’m proud of all that we’ve achieved. I’m looking forward to the next chapter of peeling Oscar together. And with that, we will turn it over to the operator for the Q&A portion of the call.

[Operator Instructions] Your first question comes from the line of Michael Ha with Morgan Stanley. Your line is open.

Hi, this is Connor Massari on for Michael. Just looking at growth here. You have family glitch fix, Medicaid redeterminations and subsidies extended, peers exiting market, obviously, a seemingly large number of growth tailwinds in 2023. And I believe the last we spoke here, internal estimates for exchange industry growth was 10% to 15%. But given all these tailwinds, how are you looking at that now? Has that changed at all? And are there any headwinds that we should consider?

Yes. Connor, let me start with that. Maybe, Scott, you can add a bit more perspective to it. So Connor, we’ve been making decisions very clearly all year long. We want membership that fits in our capital operational plan. And we are, therefore, managing the outcome of enrollments into the cone we talked about, 1 million members, plus/minus 10%. And that considers all those growth factors that you just mentioned and all those various factors. I’d say in the medium to long-term, we’re very excited, as we said, about our position in the market. We’ve got great brands, great distribution relationships, members really like being with Oscar as aided by the IMPS. And so therefore, we can always go back to higher growth in years to come. That’s certainly the plan. But for this year, with a focus on profitability for next year in the insurance business, we want to be in that cone managing towards that.

Connor, I would just add maybe a couple of other points. First of all, going back to our pricing, we have – we built in pricing to improve margin this year. And so while we have a competitive position, we’re certainly across a variety of markets. We are slightly less competitive than we’ve been in the past, which I’d anticipate is one of the factors that will drive our membership. And then secondly, we’ve also adjusted our distribution strategy. We’ve already put that into the market. That’s part of our expectations for an improved 2023 performance. And while we are still competitive with the market there, we’ve really reverted to distribution spending that looks a lot more like pre-COVID levels versus what we experienced last year.

Thank you.

Your next question comes from the line of Stephen Baxter with Wells Fargo. Your line is open.

Hi, thanks for the question. Just, I guess, two. First, on the health plan profitability in 2023. I just want to make sure, when we’re thinking about the improvement in the combined ratio that you need to drive, just roughly, what are you thinking will be the bigger driver? Are you expecting to be MLR or SG&A? And the $120 million of identified costs that you cited at the end of your prepared remarks, is that for the overall business or just for the health plan component of it? And I guess the last piece is just what it really make sure I understand why the EBITDA loss guidance is increasing. It doesn’t necessarily seem like you missed your internal MLR expectations. And then I hear you on distribution expenses coming in higher. It feels like that’s something that you would have been aware of for most of the year at this point. Just help us understand the moving parts there and anything I might be missing in that analysis. Thank you.

Sure. We will try to make sure I hit most of those a couple of big topics there. So starting with 2023 improvement, I would expect to see significant improvements in both MLR and on admin. On the MLR side, I would point to pricing that we put into the market for next year, which was designed to cover trends, was designed to cover redetermination as well as create margin expansion. And then as I mentioned in my talking points, we do have a number of total cost of care initiatives that we are executing right now. On the admin side, we are expecting significant improvements in admin and would expect to see that both in the insurance company as well as our total company adjusted administrative expense ratio. The $120 million that I spoke to is total spend for the company. And I would just point to a few things that will drive the admin. The first is distribution, which will be a significant driver of the improvement in the insurance company. The second is vendor. We do use a number of vendors as part of our business, and we have already negotiated many of those arrangements based on our larger scale. We expect that we will be able to continue to do that. And then third, we anticipate additional fixed cost leverage as we move into 2023. To go to your question on adjusted EBITDA in terms of where we are coming in at above the high end of our range, and we expect it to be modestly over the $480 million top end of the range that we previously disclosed. So, I would point to a few things. The first is that the higher than expected distribution cost that we saw was really associated with additional new…

Thank you very much.

Your next question comes from the line of Nathan Rich with Goldman Sachs. Your line is open.

Hi. Good afternoon. Thanks for taking the questions. Maybe just following up on that last one as it relates to ‘23. I think you had talked about taking high-single digit type price increases for next year. Now, that you kind of have a better view of the competitive landscape, how do you feel about your positioning and the ability to hit the membership target that you gave? And do you think that membership outside of the range that you gave would have an impact on – a negative impact on your profitability, or do you see flexibility within the organization to hit your profitability goals even if – given the challenge of forecasting membership next year if that does fall outside of that 1 million plus or minus 10% range? Thank you.

Yes. Nathan, let me hit the first part of this, and then Scott, you can talk a bit about the range and what happens to be follow side of it. So, let me put on the long-term hat there first, which is just to reaffirm, we think we have got an attractive product. It’s innovative, great distribution partners, very committed. We spend a lot of time with them and a good brand in the market. We keep putting new products in the market, including expanded virtual primary care offerings into tumor space in ‘23 and things like that. But this entire year, really, we have been managing, as I said before, for this confirmation of outcomes, so a slight shrinkage to maybe moderate growth at 1 million plus or minus 10%. And to give you a bit of an example there, we are in high-single digits this year. As we said, the market is probably coming in around 6% or so on average across the country. So, we did go above the market, which speaks to the fact that, again, we are going after the profitability and the margin there as compared to the growth. Last year, by comparison, our increase probably was more in the 2% range and the market was probably around 1% to 3% range thereabout. So, you see that flipping a little bit there. And all-in-all, pricing is always a very nuanced and local decision making. And because we are deeply tied into the local communities there, I think we generally feel good about where we are priced, to be right in the middle of that cone in all the states and all the geographies where we want to be competitive and where we want to be getting the right memberships, we are in a good place and then other ones we have just taken rates. And so Scott, you can talk about…

Sure. Hi Nathan. Just in terms of membership, I would just kind of point out two things. Obviously, bigger membership, we think would be positive for earnings. And on that side, that’s clearly a positive. We think we would get more fixed cost leverage and have the potential for generating even greater earnings in our insurance business. On the flip side of that, that requires growth capital. And as we have been talking about, we are very focused on making sure that we really don’t create additional demands on parent cash and that we leverage the capital that we have already got in our subsidiaries. And that is an important part of our strategy for trying to land in that 1 million member range that we discussed.

Yes. And if we fall outside that range, we would have levers supposed to the upside and the downside to make sure we mitigate the impact on the financial outcomes.

That’s helpful. Thank you.

Your last question comes from the line of Josh Raskin with Nephron Research. Your line is open.

Hi. Thanks. Good afternoon or evening. I guess first just from a strategic standpoint, I didn’t hear about +Oscar this quarter. And so I am curious, have you guys thought about sort of putting +Oscar on hold or even longer and maybe even divesting Medicare Advantage at this point and just really focusing on the individual and family plans and small group. And are there strategic or regulatory reasons that make sense for you to even stay in MA at this point? And then my second question would be – and I should preface – sorry, with a welcome back, Sid, good to hear your voice. I did notice the interim title. So, maybe you could talk a little bit about the plans for the permanent CFO role. And I would be curious to know who is sort of working on forecasting and financial planning specifically. Thanks.

Yes. Josh, so let me hit the +Oscar question first. So, the biggest thing that we think we can do right now to make +Oscar an attractive product is to just use it in the absolute best personal way for ourselves. And that’s I think what we have been doing this year. I mean if you recall, coming into this year, yes, we were somewhat surprised by the large growth we had and had to do a lot of work to make sure we pick up the phone and we get on time and things like that and have dealt with the consequences of that work really for the past first six months, seven months of the year. And I think have been able to manage that well because as you can see, our metrics are landing, whether you to be landing midpoint of the range for the M&R and for the combined ratio. So, that to us, is the best marketing argument really for +Oscar. And we think that’s just going to continue the same way in the next year. It’s also how we think about growth, right, more important for us to show that we have that membership and co-manage profitability than really anything else related to that can always go back to growth in the insurance business later on. So, that’s how we think about the priority for +Oscar right now. That still means that the plan is what we have been saying at various conferences, which is focus until 2024 when it comes to bigger +Oscar deals just on really not rolling out any more there. We got to solve the question of, how do we sell +Oscar in a more effective and efficient way. And how do we implement +Oscar in a more effective and…

And Josh, on ‘23 planning and outlook, I have been leading that process and building our internal budgets and outlook for 2023. I will be working with Sid closely over the rest of this year to transition that over to him where he will take that on. And as we talked about, we will formally be transitioning CFO role on December 1st, but I expect to arrive promptly at 8 a.m. in my office tomorrow, and we will start working on that transition. But the one thing I would just say is having someone who is deeply familiar with the company makes that process and transition a much easier thing and it gives me the liberty to move over to help drive the execution of some of the key plans that we have got in place for 2023.

And Josh you asked the last question you asked about permanent CFO. As I have said, this is really for us about focusing on these big goals we have ‘23 profitability, total cohort ‘24 profitability by this call next year, I think we have good visibility into ‘23 in total profitability. And that is how long we think will all work together with this, and it gives us plenty of time to then figure out what the next steps are beyond that. But we are fired up to work together. I see all of us here, Alexa there as well, Ramli [ph] as well and in good shape there for the adventures to come.

Makes sense. Thank you.

[Operator Instructions] There are no further questions at this time. This does conclude today’s conference call. Thank you for joining. You may now disconnect.