P3 Health Partners Inc. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Membership Growth: The annual enrollment period was successful, with January membership up approximately 11% from December to ~121,000 Medicare Advantage and Medicare ACO Reach lives.
• Service Area Expansion: Broadened service area by expanding into 2 adjacent counties in Arizona and 6 contiguous counties in Oregon, totaling 23 counties at the start of 2024.
• Revenue Growth: 2023 revenue grew ~21% year-over-year, and PMPM funding was up approximately 16% year-over-year.
• Medical Margin Improvement: Medical margin improved 118% from 2022 to 2023, and January medical claim expense decreased 26% from December.
• Operational Efficiency: Platform expense decreased 32% year-over-year, reaching a high single-digit percentage of revenue.
• 2024 Outlook: Reaffirming 2024 guidance based on early 2024 data, with strong start to the year, membership approaching lower end of full year guidance, funding improving, and medical expense returning to normalized metrics.
• Partnerships: Advancing a robust pipeline of growth opportunities, with ongoing payer, provider, and health system discussions including potential joint ventures and strategic partnerships.

Segment Performance

• Membership: January membership increased by approximately 11% from December to account for approximately 121,000 Medicare Advantage and Medicare ACO Reach lives.
• Revenue: 2023 revenue grew approximately 21% year-over-year to $1.266 billion. Q4 2023 revenue was $347 million, a 34% increase from Q4 2022. On a PMPM basis, revenues grew by approximately 15% over 2022.
• Medical Margin: Medical margin improved by 118% from 2022 to 2023 to $135 million. January medical claim expense decreased by 26% from December.
• Platform Expense: Platform expense came down by 32% year-over-year to be a high single digit percentage of revenue for the year.
• California Market: 2023 medical expense improved 8.1% year-over-year. Medical margin improved from a $57 PMPM loss in 2022 to positive $215 PMPM in 2023, with EBITDA improving from negative $13 million in 2022 to $9.2 million in 2023.
• Oregon Market: 2023 capitated revenue increased $67 million year-over-year to $171 PMPM, medical margin improved $108 PMPM year-over-year. Membership grew 52% from 2023 to early 2024, expanding from 5 to 11 counties.

Guidance

• Reaffirming 2024 guidance based on early 2024 data.
• Full year 2024 guidance: Medicare Advantage members 125,000-135,000, total revenues $1.45 billion to $1.55 billion, medical margin $230 million to $250 million, medical margin PMPM $165 to $175, and adjusted EBITDA $20 million to $40 million.
• Early 2024 indicators: Strong start to the year, membership approaching lower end of guidance, funding improving, and medical expense returning to normalized metrics.

Risks

• Claims Reserve Adjustments: Increased utilization in December 2023 and claims reserve adjustments led to Q4 2023 EBITDA miss; need to reevaluate reserve estimates over the next several quarters.
• Settlement Receivables Write-Down: ~$10 million write-down of settlement receivables, with resolution subject to ongoing review and deferred recognition of revenue until final disposition.
• Seasonality: Seasonal factors like COVID and flu exacerbations in December can impact medical expenses, but efforts are being made to manage access and control costs.
• Going Concern Language: Required by auditors due to prior losses, with expectation to remove it depending on a period of profitability.

Question and Answer

Q: Discussion about going concern language in the 10-K?

A: Atul Kavthekar stated that going concern language was in prior filings, and auditors will decide when to remove it based on profitability.

Q: Medical expense seasonality and P3 model protection?

A: Amir Bacchus said seasonality is common, and P3 works with plans and providers to improve access and control costs, focusing on delegation for more control.

Q: Medical trend and claims nature?

A: Amir Bacchus mentioned COVID, flu, and Part B costs contributed to elevated December costs, with efforts to manage through delegation and programs.

Q: Revenue in 2024 and claims data?

A: Atul Kavthekar discussed revenue recognition in Q4 and ongoing evaluation of claims data.

Q: Medical margin drivers and health system demand?

A: Amir Bacchus talked about persistent lives and ACO REACH contributing to medical margin, and Sherif Abdou mentioned ongoing demand from health systems for partnerships.