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spk09: the star and the number one on your telephone keypad. If you'd like to resolve your question, you can press on the pound key. Thank you. I will now turn the conference over to Chris Potachar, Vice President of Treasury and Investor Relations. Please go ahead.
spk01: Good morning, everyone. Thank you for joining us for our first quarter 2024 earnings call. Mark Berlini, 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 at ir.highoscar.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.highoscar.com. 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 period ended December 31, 2023, filed with the SEC, and other filings with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended March 31, 2024, 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 earnings press release available on the company's investor relations website at ir.highoscar.com. With that, I would like to turn the call over to our CEO, Mark Bertolini.
spk03: 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. Our medical loss ratio improved 210 basis points year over year to 74.2%, and 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 are 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 driven by our disciplined pricing and total cost of care initiatives, 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 Ola 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. and close gaps in care. Tailored health engagement programs like these help drive our strong MPS 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 Plus 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 PlusOscar'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 goals. 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 the 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 plus Oscar small group offering in 2025 to better align 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, drive 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, including our acre strategy, at Oscar's upcoming Investor Day on June 7 in New York. With that, I will turn the call over to Scott. Scott?
spk07: 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 62 cents per diluted share, an important milestone for Oscar. We are 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 in order to increase transparency and improve comparability. Our discussion of financial results and guidance is focused on performance of the total company. In conjunction with today's earnings release, we filed an 8K, 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 discipline 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%. The significant year-over-year improvement was driven by variable cost efficiencies and improved flex cost leverage, as well as lower risk adjustment as a percentage of premiums, which collectively resulted in 505 basis points over year-over-year improvement in the ratio. The remaining 365 basis points of improvement was due to accelerated stock-based compensation expense recognized as a result of the cancellation of the founders' awards, which we recognized in the prior year period. We continue to make significant progress on improving profitability. Net income of approximately $178 million was significantly 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 31st, 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, a medical loss ratio in the range of 80.2% to 81.2%, an 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. With that, let me turn the call back over to Mark for closing remarks.
spk03: 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 quarter. 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.
spk09: Hello, we are now opening the floor for question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Please note that each analyst is allowed to ask one question each. If you'd like to ask a follow-up question, kindly go back to the queue. Having said that, our first question comes from Stephen Baxter of Wells Fargo. Your line is now open.
spk06: Hi, thanks for the questions. So, wanted to get an update on the expectations around the performance of your membership growth in 2024. I guess, how's 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 your year? And then I guess the last question would just be, you know, it sounds like you're not necessarily expecting risk adjustment to be a big swing factor in terms of, you know, 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, you know, the upside that it feels like you saw in the first quarter flow through the guidance? Thank you.
spk03: Thanks, Steve. We, you know, 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 or what's going to happen later in the year. or it will continue to grow over time. And as we look at that growth rate, if it is longer 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 will recover in the first quarter of next year when we get that data all submitted through CMS. Scott?
spk07: Yeah, 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, you know, that growth typically has an MLR that's about 10% higher than what we would see in OE. You know, we have a history of retaining a high portion of those members. So in the next year, you know, they tend to have MLRs that look just like other OE members. So, you know, grabbing that SEP this year is a good thing for 2025. In the current year, as Mark talked about, you know, the big question for us at the moment is we saw, you know, really robust SEP membership growth in Q1. And is that, you know, 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, you know, for certain. And so that's impacting a little bit of, you know, 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.
spk11: Our next question comes from Adam Wong from Bank of America.
spk09: Your line is now open.
spk04: Hey, thanks for the question. 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 I would love to hear a little bit more color on what exactly is the rationale behind the exit for Cigna plus 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, you know, health IT? And do you see ICHRA as a separate line? So just more color on, you know, what you expect from those two businesses, just because it seems like the services revenue only grew like 12% in the quarter. So we'd just love to hear longer term what, you know, the expectations around that are, or if, you know, there are things beyond ICHRA and health IT that you see opportunity in. Thanks.
spk03: Thanks, Adam. We did pull out of Medicare in large part because the provider relationships we had in place were unsustainable and there wasn't anything we could do to fix them from the standpoint of getting to a profitable product. We do anticipate entering the market a different way, which we'll talk about in June when we have our investor day. But the near-term opportunity for us is ICHRA. And with ICHRA, we believe we have access to over 70 million lives in the under 50 and middle market segments and we'll talk a lot about the significant progress we've made on that set of products and the pilots we'll be doing this year and launching into 25. I think on C plus O, we tried, both companies tried very hard over the last five years to get the thing to a place where from an underwriting standpoint, it was profitable. I think owner economics get in the way when you have different pieces of the revenue stream going to different organizations. And we just couldn't rationalize that in a way that would make the product work longer term. But more importantly, we believe ICRA is the solution for small group and middle market. And we believe that that will be a much bigger opportunity. We want to focus on getting that right. Plus Oscar, we have work going on now about how we use that platform, externalized platform. We need work and investment on it. in order to make sure it's ready for the market in a way that clients can use it appropriately as a full platform. So today we're rolling out components. We'll have more to say about PlusOscar when we get to the investor to answer and so forth.
spk02: Thanks.
spk11: Next question comes from John Ransom from Raymond James.
spk09: Your line is now open.
spk05: Hey, good morning. Just looking at your SG&A line and 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?
spk07: Yeah, John, thanks for the question. Look, we certainly were excited about the performance of SG&A year over year, you know, significant improvement in that line item. And the improvement there, you know, obviously we called out the one-timer related to the Founders Award, but the rest of the improvement is, you know, is sticky and will continue going forward. Seeing a lot of impacts of our technology making our operations more efficient. We're seeing fixed cost leverage. And those are two things that I think will continue for us. And so, you know, We'll get into more of where we think our destination economics are for the business at the investor day, but I would say that we anticipate that there's still, you know, more improvement that we will expect in SG&A over the future. And, you know, the trends that we've seen thus far give us confidence that we'll be able to continue to drive it to even better levels in the future.
spk02: Thank you.
spk11: The next question comes from Josh Raskin from Nefron.
spk09: Your line is now open.
spk08: Thanks. Good morning. Just first clarification on Cigna plus Oscar. What's the revenue expectation this year embedded in the $8.3 to $8.4 billion? And then my real question is on the risk adjuster payable, you know, 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 Wakely 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 more, you know, sort of a more normal risk pool?
spk07: Okay. I'm sure I'm going to miss one of those questions, Josh. But I'll comment on the risk transfer. So, you know, risk transfer at this point in the year is mainly an internal estimate. We don't have, you know, a lot of external data. The risk transfer will, you know, we're expecting that the percentage of risk transfer is going to increase throughout the year. Part of that's just driven by seasonality of the book, but there's also, as SEP members come in, you know, they have typically they're younger and we end up having a higher risk transfer with that group. And so as we are expecting SEP growth throughout the year into the second half, you know, that will drive risk transfer going up. So at this point, I would say that we have, you know, a very good process for collecting the codes that we need to support risk transfer. I think that that's an area that, you know, having a lot of history in ACA, we've got some very strong processes including you know, deployment of AI and other techniques that allow us to get things in a very efficient way. And we delivered a lot of value in that process. So, you know, feel good about the opportunity for us to convert, making certain that we get full credit for the medical care that our members are receiving.
spk08: And then just the C plus O revenues.
spk07: Oh, sorry. That was the one I forgot. On plus O, on C plus O, You know, I think that for 2024, that's probably in the range of 250 to 260 million of revenue. Bottom line, you know, has minimal impact to the bottom line. And going forward, you know, when that book goes into runoff in 2025, it'll be a much smaller revenue impact. But in both years, we would expect the bottom line to be insignificant.
spk02: Perfect. Thanks.
spk11: Next question comes from Nathan Rich from Goldman Sachs.
spk09: Your line is now open.
spk00: Great. Good morning, and thanks for the questions. Maybe just following up on the MLR, Scott, it seemed like the underlying cost-run performance was in line with your expectations. And you kind of mentioned the steeper sloping. I'd just be curious kind of how that MLR compared to your plan in the first quarter and any change in how you're thinking about cadence over the balance of the year? And then, you know, longer term, you know, maybe how you're seeing the long-term opportunity for MLR. I know some of your peers kind of operate in the high 70% range. Is that, do you feel like you can get to a level, you know, with your member mix and geographic exposure that would be more consistent with kind of those peer levels over time?
spk07: Sure. Nathan, on MLR, you know, 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. You know, there's always puts and takes in utilization, but in summary, you know, pretty much what we were anticipating. You know, at this point in the year, you don't have a huge amount of visibility into the full year performance of your book. And so, it's still early days in terms of, you know, what we would take away from the performance thus far in the year. But I would say that, you know, it's comforting that we're seeing what we expected. And so, you know, we do think that that first quarter MLR is, you know, is a good starting point. For the rest of the year, there is MLR seasonality. We've seen this, you know, historically in our business, and we would expect it to be there again this year. You know, the addition of SEP members throughout the year, we've talked about the risk adjustment dynamics of those members that do have, you know, some adverse effects, and 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's two components of that. One is your pricing. And we are always committed to making sure that we maintain disciplined pricing and that we have a price point that allows us to achieve the growth objectives that we want. So we balance those things out. I think we've got opportunities in total cost of care for us to continue to improve medical expenses. in a way that, you know, we always want to support our members. And so, you know, we think we see opportunities to continue to drive that down. But ultimately, you know, we will balance out the objectives of having, you know, a pricing in the market that allows to grow and driving, you know, total cost of care that can eat into 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.
spk02: Thank you.
spk11: Our next question comes from John Manson, from Amy James.
spk09: Your line is now open.
spk05: Hey, good morning. I want you to know I follow the rules and just ask one question, so you guys give me a gold star. On the MLR question, if we look at the year-over-year improvement, What would you say are the key, kind of in order of magnitude, what were the key attributes there? I know you have a new PBM contract. You've adjusted your pricing. Your mix has changed. But if you looked at the kind of menu of all those things, what were the kind of top one, two, or three drivers of your MLR improvement year over year? Thanks.
spk07: Yeah, I think that the first thing I would just call out is, you know, pricing and margin expansion and being thoughtful about, pricing for the risk that we were going to take, you know, really seeing that be a significant driver, and it's the most important, you know, driver in the year-over-year performance. We had, you know, a small amount of prior period development this year. It was, or in the first quarter, it was about $17 million favorable, which was really run out on 2023 claims, so that was good. And You know, the thing I would just say with MLR, the fact that what we're seeing in MLR are trends that, you know, I'm confident are going to persist is, you know, is probably the most important takeaway I'd have from the first quarter MLR performance.
spk02: And then the PBM, how much should that help?
spk10: I'm sorry, say again?
spk05: The PBM reconstructing, how much of that? I'll be over here.
spk07: Yeah, and the PBM, like, we're not going to call out specifically the impact of that. It is embedded in the performance. Obviously, it really ultimately gets into what did you price for? We built that PBM into the pricing, and we are seeing margin. And so, you know, clearly, PBM is a significant driver of, you know, our ability to price at a level and can, you know, that was, competitive and continue to drive market improvement.
spk11: Thank you. We have reached the end of the question and answer session.
spk09: Thank you for attending today's conference call. Have a wonderful day and you may now disconnect.
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