Benzinga | Jan 27, 2022 05:00PM EST

Oscar Health Sees FY22 Premiums $6.1B-$6.4B; Announces $305M Capital Raise Led By Dragoneer Investment Group

* Total enrollment for 2022 tops one million members across the Oscar platform

* Provides 2022 guidance, which includes premiums of $6.1 to $6.4 billion, representing more than 80% year-over-year ("YoY") growth at the midpoint

* Announces $305M capital raise, led by Dragoneer Investment Group, to strengthen the balance sheet and fund growth

* Reports preliminary FY21 results, with all key metrics meeting or beating expectations

Oscar Health, Inc. ("Oscar" or the "Company") (NYSE:OSCR), the first health insurance company built on a full stack technology platform, today issued 2022 guidance reflecting significant growth for its business with premiums expected to increase more than 80% YoY at the midpoint. In conjunction with guidance, the Company also announced a $305 million convertible notes transaction to strengthen the balance sheet and provide strong liquidity to support the growth of the organization.

Oscar saw historic membership growth at the beginning of 2022, with more than one million members now being served on the Oscar technology platform. The increased membership is driven largely by growth in the Individual and Small Group lines of business. Additionally, the platform is serving new membership from +Oscar clients. Oscar's growth also reflects strong retention and growth in core markets during open enrollment, including in Florida, Texas and Georgia, despite having the lowest cost plan in only 5% of its markets.

"Oscar has seen more than 70% annual premium growth, on average, over the past 5 years, demonstrating that our exceptional member experience is resonating with new and existing members alike," said Mario Schlosser, CEO and co-founder at Oscar. "We are honored to welcome our new members and serve the more than one million individuals across the country who are trusting us with their healthcare."

The additional capital supports Oscar's record-high growth and long-term strategy of making a healthier life more accessible and affordable. Specifically, the Company has agreed to issue and sell, via a private placement, $305 million of 7.25% convertible senior notes due 2031 (the "Notes"). The Notes may be converted, subject to certain conditions, at an initial conversion price of $8.32, which reflects a 38% premium to the price of the Company's Class A common stock (the "Class A Common Stock") as of the close of business on January 26, 2022. Upon conversion, the Notes will be settled, at the Company's election, in shares of Class A Common Stock, cash, or a combination of cash and shares of Class A Common Stock (subject to certain

exceptions). Dragoneer Investment Group has committed to a strategic investment by agreeing to purchase $250 million of the Notes, in addition to Thrive Capital purchasing $35 million and LionTree and Tenere Capital collectively purchasing $20 million of the Notes (collectively, the "Purchasers"). The Notes have an initial term of ten years, and have a stated maturity of December 31, 2031, subject to earlier conversion, redemption or repurchase in accordance with their terms. Additionally, after the fifth anniversary of the closing date of the Notes, the initial Purchasers of the Notes will have the right to require the Company to repurchase all of their Notes for cash, subject to certain conditions. The Company may not redeem the Notes prior to December 31, 2026. The Company may redeem all, but not less than all, of the Notes, at its option, on or after December 31, 2026 and on or before the 35th scheduled trading day immediately preceding the maturity date, for a cash purchase price equal to the redemption price (as defined in the Indenture), but only if the last reported sale price (as defined in the Indenture) per share of Class A Common Stock exceeds 200% of the conversion price on each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date on which the Company sends the redemption notice for such redemption. The Notes transaction is expected to close on or around February 3, 2022, subject to customary closing conditions. For more information about the terms of the Notes, please refer to our Current Report on Form 8-K filed today.

Centerview Partners LLC is serving as a financial advisor and placement agent to Oscar in connection with the convertible notes transaction and related matters. In addition, LionTree is serving as a financial advisor to Oscar and is an investor in the convertible notes transaction

Dragoneer's investment in Oscar further strengthens the relationship between the two companies. "We are thrilled to have the opportunity to invest in Oscar at this stage of their growth journey," said Eric Jones, Partner at Dragoneer. "We have immense conviction in this team's ability to manage risk while rapidly growing their member base -- all of which was developed through months of diligence with the company. Oscar's consistent share gains in the individual market, across a variety of states and metros, speak to the company's exceptional customer experience, technology, and benefit design. We look forward to seeing the Oscar team continue to execute against its long-term strategy, further leveraging its technology and driving better outcomes in managed care."

For full year 2022, Oscar projects premiums will increase to $6.1 billion - $6.4 billion, a YoY increase of roughly 80% at the midpoint. The Company is also projecting an Adjusted EBITDA loss of ($380) million to ($480) million, which reflects both improving MLR and administrative expense ratios YoY. Finally, the Company is introducing a new key performance indicator, the Adjusted Administrative Expense Ratio, which includes insurance and technology related expenses, as well as other corporate expenses. The Company believes this additional metric provides greater visibility into its overall path to profitability.

Full Year 2022 Outlook

Low High

Direct and Assumed Policy Premiums (in $ 6,100,000 $ 6,400,00 thousands)

Medical Loss Ratio 84 % 86%

InsuranceCo Administrative Expense Ratio 19.5 % 20.5%

InsuranceCo Combined Ratio 104 % 106%

Adjusted Administrative Expense Ratio 24 % 26%

Adjusted EBITDA(1) (in thousands) ($480,000) ($380,000)

Oscar has not provided a quantitative reconciliation of forecasted Adjusted EBITDA to forecasted GAAP net loss within this press release because Oscar is unable, without making unreasonable efforts, to calculate certain reconciling items with confidence. These items include, but are not limited(1) to, stock-based compensation expense. These items, which could materially affect the computation of forecasted GAAP net loss, are inherently uncertain and depend on various factors, some of which are outside of Oscar's control. As such, any associated estimate and its impact on GAAP net loss could vary materially. For more information regarding Adjusted EBITDA, please see "Key Operating and Non-GAAP Metrics" below.

The foregoing statements represent management's current projections as of the date of this release. Actual results may differ materially depending on a number of factors. Investors are urged to read the "Financial Disclosure Advisory" and "Cautionary Note Regarding Forward-Looking Statements" included in this release. Management does not assume any obligation to update these projections.

Oscar is also providing a preliminary view of its full year 2021 results below. Specifically, direct and assumed policy premiums of $3.44 billion are projected to be at the high end of the guidance range of $3.35 - $3.45 billion. The Medical Loss Ratio is projected to be approximately 89%, at the low end of the range. Net loss is projected to be approximately $(570) million. The projected 2021 Adjusted EBITDA loss of approximately ($430) million is projected to be better than the Company's ($480) million to ($450) million guidance range. Oscar will report its results for the fourth quarter and year ended December 31, 2021 after market close on February 10, 2022.

Year Ended

Preliminary Full Year 2021 Results December 31, 2021

(unaudited)

Premiums before ceded reinsurance (in thousands) $ 2,712,988

Reinsurance premiums ceded (881,968)

Premiums earned $ 1,831,020

Net loss $ 571,426

Total Administrative Expense Ratio 33.2%

Preliminary Full Year 2021 Key Operating and Non-GAAP Financial Metrics

Year Ended

December 31, 2021

(unaudited)

Direct and Assumed Policy Premiums (in thousands) $ 3,437,000

Medical Loss Ratio 88.9%

InsuranceCo Administrative Expense Ratio 21.8%

InsuranceCo Combined Ratio 110.7%

Adjusted Administrative Expense Ratio 28.9%

Adjusted EBITDA (in thousands)(1) ($430,000)

Adjusted EBITDA is a non-GAAP measure. See "Key Operating and Non-GAAP(1) Metrics - Adjusted EBITDA" in this release for a reconciliation to preliminary net loss, the most directly comparable GAAP measure, and for information regarding Oscar's use of Adjusted EBITDA.