Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health 2023 First Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ms. Cornelia Miller, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you, and good evening, everyone. Thank you for joining us for our first quarter 2023 earnings call where we'll discuss our momentum early in the year, and execution around our path to profitability. Mark Bertolini, Oscar's Chief Executive Officer, and Sid Sankaran, Oscar's Chief Financial Officer will host this evening's call, and they're joined by Mario Schlosser, Oscar's Chief President of Technology. This call 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. 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 annual report on Form 10-K for the annual or period ended December 31, 2022 filed with the SEC. And our other filings with the SEC, including our quarterly report on Form 10 Q for the quarterly period ended March 31, 2023 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 first quarter 2023 press release, which is available on the company's IR website. With that, I would like to turn the call over to our CEO, Mark Bertolini.

Thank you, Cornelia. Good evening, everyone. I would like to start by restating our company's mission and why I joined Oscar. I have spent my career advocating for increased consumerism, more digitization and virtualization and higher levels of value based care within the healthcare industry. I believe that Oscar is not only uniquely positioned to leverage these industry trends, but is the single platform that can drive this change. Between our innovative technology stack and our high MPS, the company has the right collection of assets to be a disruptor for years to come. We have the ability to move faster than our competitors given our size, culture and modern infrastructure. I see a clear right to win for our company. I have spent my first five weeks at Oscar doing deep dives across the business and getting to know the people and to understand the culture. The energy and morale of the company is very high and the team is excited to deliver. My high level priorities for the business remain one, achieve insurance company profitability in 2023. It is still early in the year, but I believe we are executing well against that goal as you will hear today. Two, target total company adjusted EBITDA profitability for 2024. To achieve total company profitability, we will need to continue to improve the performance and profitability in our insurance business and manage the whole co spend in line with our profitability targets. Three, continue to enhance the value of our technology through the +Oscar business and bring more of our capabilities to market. Based on my current view, all three of the priorities I just shared are not only within reach, but we are well on our way to achieving them. As it relates to profitability, we have a lot…

Thanks, Mark, and good evening, everyone. Our first quarter results show solid fundamentals across the business and that we're executing well against our plan. We ended the quarter with approximately one million members, which was consistent with our pricing strategy for a large lease stable book. As we previously mentioned, our pricing and portfolio strategy is focused on shifting our membership mix towards the average ACA population. This year, we have a higher proportion of renewing members than we've ever seen historically. We also have a more subsidized membership with a very modest shift from silver to bronze. Similar to trends we saw last year, we expect this updated mix will result in a higher morbidity population and therefore a lower risk transfer as a% of premiums. We are pleased with this progress, and I'll discuss the impact from this mix shift in greater detail in a few moments. As expected, our direct and assumed premiums grew modestly to $1.7 billion driven by our high single digit rate increase on average across the book. Our premiums before ceded reinsurance grew 8% year-over-year to $1.4 billion driven by the same factor as well as a lower projected risk transfer. Turning to medical costs, our medical loss ratio improved more than 100 basis points year-over-year to 76.3% driven by our disciplined pricing actions and total cost of care initiatives. Overall claims trends have been in line to slightly favorable with our expectations at this point of the year, accounting for the mix of our 2023 population. Within specific categories, we're seeing year-on-year decreases in inpatient and professional utilization while outpatient is trending very modestly above last year. Partially offsetting this is a spike in pharmacy claims but note it's early in the year. Given the morbidity of the population and our expected…

Thank you, Sid. I want to thank the Oscar employees for welcoming me and for the important work they do in serving our members. A mission like ours requires a special group of people motivated by driving real world impact. Last month, we published our inaugural ESG report where we shared the progress we've been making towards advancing health equity. We're proud of the strategies and initiatives we've developed and continue to iterate to build a more sustainable and equitable future within our organization and our communities. In summary, we believe that we are off to a good start in 2023. The company is operating from a position of strength with profitability on the horizon and confident that we have the right road map in place to execute against our goals and the right mix of tools and experience to win in the market. I'm excited for the journey ahead and optimistic about our future. With that, let's turn it over to the operator for Q&A.

Thank you, sir. [Operator Instructions]. Stephen Baxter, Wells Fargo.

Yeah. Hi. Thanks. Appreciate the commentary on portfolio sculpting and the actions you're taking in California. Mark, I was hoping you could talk a little bit about the importance of further membership growth and achieving the company's financial targets, including the admin efficiency you're targeting. I guess beyond California, at this stage, would you be expecting to grow membership in 2024, 2025? Any comments you have there would be great. Thanks. Did you hear that okay? Or you need me to repeat that?

Yes, please. Could you restate the question for us, please, sorry it was a little cut off there?

Yeah. Sorry about that. I think my connection's okay at the moment. So, yeah, I appreciate commentary on the portfolio scoped in and the actions you're taking in California. So I guess, Mark, could you talk a little bit about the importance of further membership growth in achieving the company's financial targets, including the admin efficiency that you highlighted. I guess beyond California, would you be expecting to return to membership growth in 2024 and 2025. Thanks.

Yes, we expect to see our growth mirror that of the market or a little higher. And that's our goal with pricing discipline. So I'll make sure I'll say that over and over and over again. But we believe that we can grow better than the market. The market is predicted to grow in the 20s or high low 20s, high 10s – high teens and so we expect that we'll be able to put that growth into the marketplace for next year 2024. And growth is important, but with disciplined pricing.

We will go next to Josh Raskin, Nephron.

Hi. Thanks. Good evening, guys. Could you just give us a rough size of the California book either membership or revenues and if MLR was expected to be at or above 100% this year. And then just related to the MLR, down a little over a 100 basis points in the first quarter guidance sort of implies down a little more than 250 basis points for the rest of the year. So just help me understand, was there some one timers in 1Q or -- I'm sorry, in the rest of the year, last year that would create that. And then just the last question, just what percentage of your revenues this year are with capitated providers or even in value based care arrangements. Maybe where was that in 2022? And how was that playing into the strategy? Thanks.

Hey, Josh. It's Sid. Thanks for the questions. I think you've got three there. So I'll try and tackle sequentially. First of all, just context on California, I think you referenced some of the history, but just important notes. The early days of Oscar was probably about 25% of the portfolio. Today, it represents less than 5% of the portfolio. And certainly in the past couple of years, while we've been managing that portfolio and sculpting it, it's still underperformed our expectations somewhat with an MLR over a 100% as you've commented. So, as we look at it, while California is an important state, the ACA will take a pause while we review the work required to reenter it in a more sustainable way. With respect to your models, we expect to end 2023 with roughly 35,000 members in California and approximately $200 million in gross premium. So net-net, we'd expect the exit from California would have a very modest impact on the top line and would have modest accretion to adjusted EBITDA given its historical MLR performance. Moving to the second one, I think your second question, I think your second question was really around year-on-year comparisons for the MLR. You know, really, I think what you're seeing if you reflect on some of my comments is the membership mix that we have. And in particular, the shift towards more renewing members which as we alluded to will change both the numerator denominator of the MLR calculation. And importantly, it will also flap and the kind of seasonality effect that you've seen historically. So, of course, more detailed questions on that, we're happy to have the team deal with you offline on that. I think your third question was just on capitation. We don't specifically disclose that. I think we've told you before that they've been roughly, 40%-ish of our provider contract are on value based care type arrangements. And I think we'd leave it at that other than to say we continue to believe value based care is a real opportunity as Mark commented in his remarks.

Thank you.

We'll take the next question from Michael Ha, Morgan Stanley.

Hi. Thank you. Just wanted to quickly confirm, are you expecting to grow at least high teens or low 20 membership growth next year, and that includes the Florida market exit. And then my second question is, this one's for Mark, as we look at +Oscar, and I understand in the past when you're acting as an advisor, part of your efforts where focused on +Oscar. But looking ahead, now the CEO with the wealth of contact in your Rolodex and Mario laser focused on +Oscar. Curious how you envision the future pipeline developing near term. And I think you mentioned in your prepared remarks, bringing more capability to market does that mean you're decelerating, modularizing more applications beyond campaign builder? And also sorry. I know five part question, but did you announce the new campaign builder contract today? I wasn't sure if I heard that correctly. Thank you.

Yeah. So I think -- Michael its Sid here, I'll take the first one then I'll hand it over to Mark to talk about +Oscar. First off, just restating that was a California market exit that you referenced there. So California, which was, as I said, less than 5% of the overall book. As we execute against the growth objectives that Mark highlighted there, we've proven that we can grow in these markets and we continue to target that growth and it's very realistic for 2024 inclusive of the California decision. But you should expect we’re going to continue to show discipline in the 2024 pricing process around balance and growth and profitability. Because I think as you see in the results this quarter, we feel very positive that the decisions that we've been making, to drive the portfolio are really bearing fruit here and showing up in the financials. So we are pleased about that. Maybe with that, I'll turn it over to Mark to cover the +Oscar thesis and how he sees that.

Sure, and to segue off of Sid's comments, it's important that we continue to generate internal generation of capital to support our investments in the business and so we want to exercise pricing discipline. We do want to meet the market or exceed the marketing growth. We believe because of the +Oscar platform that we have a competitive advantage now with an NPS score of 50 when the rest of the industry is averaging around 0. And so we actually, in our distribution model this last year, put that to test in a few markets to see whether or not we could maintain membership with such a high MPS score against the commission race in signing up ACA members. The platform is strong on the front end, very strong on the front end. And so that's why the campaign builder is taking off. And we did announce another client today. It's a large multi-specialty group practice that has Medicare Medicaid, Medicare Advantage, Medicaid, NACA in it. And so we will put that to the test as we implement that product. As far as the full platform being available, that is the work that Mario and I are now starting to work on in evaluating what we need to do to harden the platform. We have some new technology coming out on the back end that we are very confident in. But until we know that it works front to back, the whole platform won't be available, but we'll roll it out in pieces where we find it valuable for our clients.

Our next question is Kevin Fischbeck, Bank of America.

Hey. This is [John Joe] (ph) on for Kevin Fischbeck. So maybe sort of shifting topics a bit. How are you guys thinking about MLR, sorry, not MLR, Medicaid redeterminations? I mean, of what impact that could have to your membership. What's that risk pool look like? But the new people getting on the exchanges, do you think they'll have a higher, like, a lower MLR in the quarter? And kind of along the lines of smaller groups, how is your CI +Oscar going? Sort of what traction are you seeing in small group market?

Great. Thanks, John. It's Sid. I'll take that. You know, I think as a reminder, we've mentioned before, we expect relatively deminimus impact from Medicaid redetermination in our 2023 estimates. And we have said we do think these members will be higher acuity than our current population. As of today, the majority of our states are now live, but still early in the Medicaid redetermination process. And we've been monitoring our book and haven't seen anything meaningful in the trends yet. But pulling up, I mean, we believe the ACA has many tailwinds to long term growth, including Medicaid redetermination over the next few years. And we have a larger market with an appropriate risk pool and Oscar will be very differentiated in delivering service to its members. So in the long run, we think that'll be a good fit. With respect to your second question, I think [C+I and C+O] (ph), with respect to our small group joint venture. I think similar to the theme you heard from us before, we approached 2023 pricing with the balance of growth and profitability. We continue to see balanced growth across our markets, Georgia, Arizona, in particular. But of course, we're targeting profitable growth here and we're going to continue to target good retention and have real investments in our member and broker experience.

One of the opportunities, Kevin, we're investigating is [ACRA] (ph) and the potential to grow the individual market through moving small group and middle market off of employer sponsored into [ACRA] (ph) coverage. And we're the beginnings of that analysis. We see a lot of promise. When you look at the insured premium in the marketplace, insured premium is almost 70% individual when you look at Medicare Medicaid and ACA, and there's more opportunity for us to grow that market over time. And so we will be taking a hard look at that this year and looking at a potential launch next year.

Alright. Great. Thanks. See you guys tomorrow.

Yep. See you tomorrow.

And we'll now hear from Nathan Rich, Goldman Sachs.

Hi, good afternoon. Thanks for the questions. I guess when we think about getting to profitability for the total business by 2024. I guess how are you thinking at a high level about the algorithm to do that between growth of the market and kind of leverage on that growth as you grow in line or above the market versus taking additional actions like exiting California. And are you considering any other re-evaluations of the footprint as you think about the markets that you want to be in going forward? Thank you.

We will be growing the footprint beyond where it is today. So we're looking at new market entry opportunities. And that's what we talk about when we talk about sculpting the portfolio. Where should we be, where we shouldn't be any longer, how do we change the portfolio to get the best return as possible? But I think underlying all of that is the scale that we now have should be brought to bear on the operating platform and our contracts with providers. We recently, as I mentioned, renegotiated our contract with our PBM partner with really good effect. That'll be something that we continue to do over time as we look for opportunities on the contracting side, look for opportunities on the operating side because a lot of the operating opportunities at scale should be generating more internally generated capital for us. And that's what we are going to grow the bottom line for next year. And at the whole co level, we'll be paying attention to our spending. We'll try and keep it in line with growth unless we find real big opportunities in the +Oscar platform that we can use to gear up growth for the future.

The only thing I'd add to Mark's comments, its Sid here, is really we've given you guys some guidance in terms of what we think a target MLR for the year is 82% to 84%. An important metric we look at is roughly 80% of the book for policy year 2023, we expect to see within that range. And one of the largest markets that's outside that is California. And so, from that vantage point, I think, we are very far along in terms of what we've done on portfolio sculpting, because and I gave you that same number for last year. It's probably more like 60% to 65% in the book would have been in that target MLR range. So we feel very good about the progress and we feel good about the strategy and execution as Mark highlighted.

That's helpful. Thank you.

[Operator Instructions]. There appear to be no further questions. That does conclude our question-and-answer session. It also does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.