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Oscar(OSCR) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Oscar Health, Inc.'s unaudited Q3 2021 consolidated financial statements show total assets of $3.17 billion, positive equity of $1.55 billion, and a $212.7 million net loss driven by increased claims and operating expenses Consolidated Balance Sheet As of September 30, 2021, total assets increased to $3.17 billion, liabilities decreased to $1.62 billion, and stockholders' equity turned positive to $1.55 billion due to the IPO and preferred stock conversion Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $3,169,880 | $2,272,106 | | Cash and cash equivalents | $1,076,699 | $826,326 | | Total investments | $1,425,227 | $692,127 | | Total Liabilities | $1,616,668 | $1,823,088 | | Benefits payable | $497,324 | $311,914 | | Risk adjustment transfer payable | $613,230 | $716,370 | | Total Stockholders' Equity (Deficit) | $1,553,212 | $(1,295,893) | Consolidated Statement of Operations Q3 2021 premiums earned surged to $441.7 million, but net loss widened to $212.7 million due to increased net claims incurred and higher other insurance costs Statement of Operations Summary (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Premiums earned | $441,743 | $99,145 | $1,338,439 | $298,120 | | Total revenue | $443,979 | $101,700 | $1,342,648 | $305,128 | | Claims incurred, net | $453,576 | $85,392 | $1,141,503 | $225,120 | | Total operating expenses | $656,923 | $181,830 | $1,690,374 | $520,557 | | Net loss | $(212,745) | $(79,132) | $(373,184) | $(216,955) | | Net loss per share | $(1.02) | $(2.72) | $(2.21) | $(7.50) | Consolidated Statement of Cash Flows For the nine months ended September 30, 2021, operating activities used $216.2 million cash, investing activities used $754.7 million, and financing activities provided $1.23 billion, primarily from the IPO Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(216,224) | $133,749 | | Net cash used in investing activities | $(754,678) | $(359,353) | | Net cash provided by financing activities | $1,225,739 | $226,434 | | Increase in cash, cash equivalents and restricted cash | $254,837 | $830 | Notes to Consolidated Financial Statements The notes detail accounting policies and key events, including the March 2021 IPO raising $1.3 billion, debt repayment, increased stock-based compensation, and the use of reinsurance - The company completed its IPO on March 5, 2021, selling 36,391,946 shares of Class A common stock and receiving net proceeds of $1.3 billion40 - On March 5, 2021, the company used IPO proceeds to repay its $153.2 million Term Loan, recognizing a $20.2 million loss on debt extinguishment76 - In connection with the IPO, all outstanding convertible preferred stock was converted into common stock85 - Stock-based compensation expense for the nine months ended September 30, 2021, was $58.0 million, a significant increase from $22.0 million in the prior-year period98 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 41% membership increase to 594,284, attributing the wider net loss to higher medical costs, a lower reinsurance cession rate, and growth investments, while maintaining strong liquidity Results of Operations Q3 2021 premiums grew 62% to $673.5 million, but net claims incurred surged 431% to $453.6 million, widening the loss from operations to $212.9 million Q3 2021 vs Q3 2020 Results of Operations (in thousands) | Account | Q3 2021 | Q3 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Premiums earned | $441,743 | $99,145 | $342,598 | 346% | | Claims incurred, net | $453,576 | $85,392 | $368,184 | 431% | | Other insurance costs | $111,302 | $38,674 | $72,628 | 188% | | Loss from operations | $(212,944) | $(80,130) | $(132,814) | 166% | | Net loss | $(212,745) | $(79,132) | $(133,613) | 169% | Key Operating and Non-GAAP Financial Metrics Membership grew 41% to 594,284, while the Medical Loss Ratio increased to 99.7% and Adjusted EBITDA showed a loss of $188.7 million for Q3 2021 Key Metrics Comparison | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Members (as of period end) | 594,284 | 420,118 | 594,284 | 420,118 | | Medical Loss Ratio | 99.7% | 90.5% | 85.8% | 77.7% | | InsuranceCo Admin. Expense Ratio | 23.1% | 22.4% | 20.9% | 23.0% | | InsuranceCo Combined Ratio | 122.8% | 112.9% | 106.7% | 100.7% | | Adjusted EBITDA (in thousands) | $(188,659) | $(70,975) | $(265,309) | $(185,964) | Liquidity and Capital Resources The company maintains strong liquidity with $1.0 billion in Holdco cash and investments, and health insurance subsidiaries exceeding capital requirements, supported by a new $200 million credit facility - As of September 30, 2021, the holding company (Holdco) had $1.0 billion in cash and investments, which management believes is sufficient to fund operating requirements for at least the next twelve months224 - During Q3 2021, the company made a risk adjustment program payment of $461.8 million for the 2020 policy year, which negatively impacted operating cash flows225 - The company entered into a new $200 million senior secured revolving credit facility in February 2021, which was undrawn as of September 30, 2021227229 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, where a 1% rate increase would decrease investment fair value by $13.0 million, with inflation risk deemed immaterial - The company is subject to interest rate risk; a hypothetical 1% increase in interest rates would decrease the fair value of its investment portfolio by approximately $13.0 million as of September 30, 2021251 Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective254 - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls255 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company faces various legal and regulatory proceedings in the ordinary course of business, but management believes none will materially affect its financial condition - The company is involved in legal proceedings and regulatory reviews in the ordinary course of business but believes that none, individually or in the aggregate, would have a material effect on its business, financial condition, or operating results261 Item 1A. Risk Factors This section outlines significant business risks, including member retention, profitability challenges, ACA changes, medical expense estimation, regulatory compliance, cybersecurity, third-party reliance, and concentrated voting control - The company has a history of losses, with an accumulated deficit of $1.8 billion as of September 30, 2021, and may not achieve or maintain profitability in the future278 - Potential repeal of or changes to the ACA could materially harm the business, as approximately 97% of revenue for the first nine months of 2021 was derived from ACA-regulated plans280 - The dual-class stock structure concentrates 82.8% of voting power with Thrive Capital and the Co-Founders as of September 30, 2021, limiting other stockholders' ability to influence corporate matters404 - The ongoing COVID-19 pandemic could significantly increase costs due to changes in morbidity or utilization, and the long-term health impacts of the virus remain uncertain340343 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section discloses affiliated purchases of 4,755,222 Class A common shares and confirms IPO proceeds were used for debt repayment, with the remainder held in cash and investments Purchases of Equity Securities by an Affiliated Purchaser (Q3 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | August 2021 | 2,358,403 | $13.5752 | | September 2021 | 2,396,819 | $17.7751 | | Total | 4,755,222 | $15.6922 | - There has been no material change in the expected use of net proceeds from the IPO as described in the company's Prospectus451 Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - None452 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable453 Item 5. Other Information The company reports no information for this item - None454 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes certifications from the Chief Executive Officer and Chief Financial Officer as exhibits455