P3 Health Partners Inc. Q2 FY2024 earnings call

• P3 is a scaled capital-light platform with 2,900 PCPs across 5 states, serving 128,100 lives. The total addressable market for Medicare is approaching $1 trillion, with less than 15% of Medicare contracts being full risk, presenting significant growth opportunities. • The unique business model features a fully delegated risk strategy, enabling collaboration with health plans, meaningful clinician interactions, and upstream insights for superior patient experiences. • The payer mix is diversified, with no single payer accounting for more than 20% of revenue. • Key initiatives include focusing on improving star ratings performance by addressing care quality gaps, aligning risk contracts with enhanced value propositions, managing provider network performance (adjusting relationships with underperforming groups), and pursuing smart growth through initiatives like ACO Reach, which added 1,700 new ACO lives in Q2. • Clinical operations have shown improvements in metrics such as admits per 1,000, emergency room visits per 1,000, observation rates, and readmission rates. • Operating expenses decreased 14% year-over-year to 6% of revenue, demonstrating focus on expense management.

In the second quarter of 2024, P3 Health Partners reported a 15% year-over-year revenue growth, with capitated revenue at $374 million and total revenue at $379 million. Medical cost per member per month was $869, a 6% sequential decrease. Adjusted EBITDA loss was $9 million, showing a 50% quarter-over-quarter improvement. Revenue was supported by a 23% year-over-year member growth to over 12,000 members and a 96% retention rate of primary care physicians (PCPs). The medical margin was $41 million or $107 on a per member per month (PMPM) basis, reflecting a 6% sequential improvement in the medical cost ratio.

• Reiterated full-year 2024 guidance: membership is expected to range between 125,000 and 135,000 members, revenue between $1.45 billion and $1.55 billion, medical margin between $230 million and $250 million (or $165 to $175 PMPM), and adjusted EBITDA between $20 million and $40 million. • Anticipates recognizing sweep revenue in the second half of the year as health plans finalize documentation. • Noted a nearly 6% sequential reduction in medical claims expense PMPM from Q1 to Q2, with continued traction in medical cost management. • Committed to capturing additional cost efficiencies in the second half without adverse impact to members, with several initiatives already underway.

• Uncertainties in reserve calculations with actuaries reviewing claims triangles and risk levels, as well as ongoing discussions to align reserves with actual claims paid. • Potential impact of payer contract negotiations and benefit design changes on member growth and product performance. • Risks associated with varying non-GAAP financial measure calculations by other companies, which could affect comparability of financial results.

Q: How have affiliated providers responded to the change at the CEO level?

A: Aric Coffman responded that generally, the response has been very positive with no significant disruptions, and Sherif, the prior successor, has continued to be a strong partner during the transition.

Q: Could you refresh on the opportunity to get access to more Medicare Advantage members per doctor and its significance?

A: Aric Coffman explained that more repetition for clinicians enhances their practice, and there are ongoing efforts to add additional density within providers through smart growth, which is crucial for value-based care transformation.

Q: What is the trend in observation stays and how is P3 managing it?

A: Amir Bacchus stated that observation stays decreased 22% sequentially, and P3 actively works with hospitals to monitor and ensure compliance with the two-midnight rule, reducing observation stays.

Q: How are conversations with auditors progressing regarding reserves?

A: Aric Coffman mentioned that conversations with actuaries are progressing well, with some plans seeing reductions in pad factors as operational characteristics and key performance indicators are factored into reserve calculations.

Q: What about the impact of Version 28 on P3?

A: Amir Bacchus noted that P3 has been able to improve risk adjustment factor (RAF) despite Version 28, with an actual overall revenue lift, and confidence in continuing to improve moving forward.

Q: How is free cash flow expected for the rest of the year?

A: Atul Kavthekar indicated the second half is expected to mirror the first half in terms of cash burn, with potential uptick from cost reductions in the third and fourth quarters showing up through claims lag.

Q: How does P3 elevate underperforming provider groups?

A: Amir Bacchus and Aric Coffman discussed having conversations with providers to increase density and mind share, aligning incentives and using care management programs to improve performance, with potential adjustments to relationships if efforts don't lead to improvement.