Oscar Health, Inc. (NYSE:OSCR) Q1 2024 Earnings Call Transcript May 7, 2024

Oscar Health, Inc. beats earnings expectations. Reported EPS is $0.604, expectations were $0.28. Oscar Health, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: 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. [Operator Instructions] Thank you. I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations. Please go ahead.

Chris Potochar: Good evening, 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 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 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.hioscar.com. With that, I would like to turn the call over to our CEO, Mark Bertolini.

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 SCP 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 improve 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 HolaOscar 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 showed 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 HolaOscar. 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 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 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+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 [indiscernible] strategy at Oscar's upcoming Investor Day on June 7 in New York. With that, I will turn the call over to Scott. Scott?

Scott Blackley: 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 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 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%. The 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 was due to accelerated stock-based compensation expense recognized the results 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 in investments, including $159 million of cash in investments at the parent. As of March 31, 2024, our insurance subsidiaries had approximately $990 million of capital and 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%, 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. With that, let me turn the call back over to Mark for closing remarks.

Mark Bertolini: 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.

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