P3 Health Partners Inc. Q4 FY2024 earnings call

Key Headlines

• Entered 2024 focused on strengthening business for near-term profitability, with programmatic initiatives representing over $130 million of adjusted EBITDA opportunity on schedule.
• Reaffirming 2025 guidance except for slightly raising total members. Macro environment in Medicare sector improving, with early indicators for 2025 showing positive trends and improved payer bids in CMS's 2026 advance notice.
• Significantly enhanced senior leadership team with new hires.

Fourth Quarter Results

• Membership grew 13% from 4Q’23 to 4Q’24, revenue grew 7% to $371 million. Annually, revenues ended 2024 at $1.5 billion, 18% year-over-year growth.

2025 Guidance

• Slightly increasing total membership expectation to 109,000 to 119,000 in 2025. Reaffirming revenue range of $1.35 billion to $1.5 billion. Medical margin range of $174 million to $210 million, medical margin PMPM in range of $133 to $147. Reaffirming adjusted EBITDA guidance range of negative $35 million to $5 million positive, incorporating $8 million contribution from ACO operations and nearly $20 million in operating cost efficiencies.

Operational Highlights

• Executed on $20 million operating expense reduction. Completed $35 million contract rationalization with provider network and payers, including elimination of roughly 60 TINs in provider network and handful of payer contracts. On track for $25 million to $30 million additional EBITDA improvement in remaining contracts through renegotiation and network hygiene.
• Made progress on burden of illness program, with P3's Medical Group and affiliates achieving 20% year-over-year improvement in assessing burden of illness. Introduced P3 Restore program to reduce physician burnout. Attracted world-class talent to senior leadership team.

In the fourth quarter, membership grew 13% from 4Q’23 to 4Q’24, and revenue increased 7% to $371 million. Annually, revenues ended 2024 at $1.5 billion, a 18% year-over-year growth. The fourth quarter medical margin was $7 million, which decreased year over year due to elevated utilization trends. The full-year medical margin was $85.5 million, a decrease of approximately 37% year-over-year or $70 on a PMPM basis. The adjusted EBITDA loss for the full year 2024 was $167.2 million, and for the fourth quarter of 2024, it was $67.6 million or approximately $175 on a PMPM basis.

• Total membership in 2025 is slightly raised to 109,000 to 119,000.
• Reaffirmed revenue range of $1.35 billion to $1.5 billion for 2025.
• Medical margin guidance is $174 million to $210 million in 2025, with medical margin PMPM in range of $133 to $147.
• Adjusted EBITDA guidance range is negative $35 million to $5 million positive for 2025, incorporating $8 million contribution from ACO operations and nearly $20 million in operating cost efficiencies.
• Due to seasonal utilization patterns, typically lower EBITDA as proportion of full-year guidance in first and fourth quarters compared to second and third quarters.

• Macro environment in Medicare sector still has uncertainties from factors like cost trends, benefit designs, and quality bonus thresholds.
• Limitations related to use of non-GAAP financial measures.
• Potential resistance in contract renegotiations.
• Regional medical cost inflation in 2025.

Q: Are you able to elaborate on the timing around reaching the potential profitability, understanding the commentary on the call around the reduction in membership and mix shift dynamics?

A: This is Leif. As we think about guidance for 2025, we have three major inputs. One is about $130 million of operating plan improvements on the revenue side. We're thinking about getting about 7.5% increase in revenue year-over-year as a result of identification of burden of illness, base rate assumptions and impacts related to contracting. Another is about medical costs, where we're looking at about a $16 PMPM improvement year-over-year. And then there's our OpEx.

Q: What are expectations for cash in 2025 as you're beginning to implement these new initiatives?

A: At December 31, 2024, cash balance was $38.8 million. We received $15 million of additional capitation revenue in early January 2025, bringing effective starting cash position to about $54 million. In February, we received an additional $30 million. We continue to assess liquidity requirements through cash forecasting processes and scenario planning, and will access capital markets as cash needs rise.

Q: Did 4Q come in line with your expectations? Or kind of what was the deviation relative to the 3Q just in terms of sort of that underlying run rate?

A: Josh, good question. In Q4, we did have a couple of onetime things hit the P&L, and they were negative in nature, and they were to the tune of about $17 million. They weren't related to IBNR, they were related to some other items that were part of the cleanup of accounting processes. So those would be onetime in nature, and should be excluded from the total Q4 EBITDA numbers.

Q: How do we think about seasonality through the year, obviously, with some of the changes in Part D kind of up ending the quarterly dynamics?

A: We typically see seasonality. Obviously, the first quarter, fourth quarters are usually the quarters that we see the most utilization just in general. That's why it seems positive. We're seeing some of the utilization trends even though early, that are looking better for quarter 1 of '25. And like I said earlier, it's probably due to a number of confluent things, whether what we're doing to meeting with our providers and how we're working the care enablement model that we described earlier, but also in regards to benefit changes that have also helped meaning increasing ER co-pays, things like that, we've seen from certain plans to defer some of that utilization.

Q: I'm curious if you can comment on how those conversations (payer recontracting) have gone thus far. Is this something where you are seeing a good amount of pushback or maybe it's fairly expected and it's a fairly easy conversation?

A: I think we're really fortunate that we have good partnerships with our payer partners. We're in this together in a lot of ways. And what that means for their performance is when we do well, they get to do well, and there are things that we provide that they're not able to do. So it's a mutual partnership and that doesn't always mean that there are always easy conversations, but we try to strive to land in a place that's mutually beneficial.

Q: Is this specialty side new capitation contracts rolled out like through a pilot program? And is that something that could impact results like this year, next year?

A: Sure. There's a number of things happening this year. We've had certain partners that have done some cap with us that are going to be expanding their capitation agreements with us, which is great for things like oncology. We're looking at sub caps as well to help control certain spend. All these things will be seen to starting in '25 for sure, some probably starting in the middle of the year of '25 and going into '26.