P3 Health Partners Inc. Q1 2023 Earnings Call
Speaker 1: I.
Speaker 1: I.
Speaker 2: Good afternoon, everyone, and welcome to the P3 Health Partners First Quarter Results Conference call. Currently, all participants are unable to send only mode.
Speaker 2: Later, we will conduct a question in the intercession and instructions will follow at that time.
Speaker 2: As a reminder, this conference call is being recorded.
Speaker 2: I will now turn the color over to Karen Blumquist, vice president and best relations of P3. Please go ahead.
Speaker 3: Thank you, operator, and thank you for joining us today.
Speaker 3: Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under the U.S. federal securities laws, including statements regarding our financial outlook and long-term targets. These forward-looking statements are only predictions and are based solely on our current expectations and projections about future events.
Speaker 3: and financial trends that we believe may affect our business, financial condition, and results of operations. These statements are subjects to risk and uncertainties that could cause actual results different materially from historic experience or present expectations. Additional information concerning factors that could cause actual results differ from statements made on this call is can be...
Speaker 3: Non- GAAP financial measures are in addition to and not a substitute or superior to measures or of financial performance prepared in accordance with GAP.
Speaker 3: There are a number of limitations related to the use of these non- GAAP financial measures. For example, other companies may calculate similarly titled non- GAAP financial measures differently. Preferred to the appendix of our earnings release for a reconciliation of these non- GAAP financial measures to the most directly comparable GAAP measures .
Speaker 3: Information presented on this call is contained in the press release we issued today and in our SEC filings, which may be accessed from our investor page of the P3 Health Partners website. I will now turn the call over to Dr. Abdu, CEO and co-founder of P3.
Speaker 4: Good afternoon everyone.
I would like to kick us off today by saying how proud I am of our team and its performance and achievement over the last period.
As you have heard me saying before, we have committed to our investor that we would deliver on a number of very impressive profitability metrics to validate the model. And we believe we have delivered.
Our results will show that we have great momentum in our business model and we are feeling very confident and optimistic how we are tracking in the second quarter and toward our 2023 overall performance.
Today, we're updating our full year 2023 adjusted EBITDA guidance to an improved range of loss of $55 to $35 million. This updated guidance from the prior range of loss of $60 million to $40 million reflect our confidence.
in the performance of the business and all profitability data that we are sharing today will validate that.
As I've shared with you in the past, 2023 is an inflection year in P3 HealthPartners Live.
We have a significant number of persistent lives that we've never had before. For the first time, 83% of our lives that we are serving today are persistent. And we believe that metrics is important as a first step to more clearly demonstrating the future profitability and trajectory of our model.
The overall population funding had improved about 9.2% up from $889 p.m. last year for a quarter to $963 p.m. this quarter.
Our medical margin for the quarter was $39 million.
The medical margin percentage was 13.1, which is consistent with our guidance and with other public peers. And with you this, as a validating data point for the P3 model.
Our network contribution was 17 million. It is important to note that once we took that point, where network contribution exceeds operating expense, the pendulum was swing toward profitability, and we're quickly approaching that key threshold. The distance to reach.
That point is about $62 per month.
And just to give you a context of this, we improve our funding by over $70 p.m. If we do that again, that will help us cross that bridge.
We improved our medical costs by over $30 p.m. If we continue to do that, again, we will cross into profitability.
So it's important for us to see the levers that we're pulling. It's all improving about the health of our population, improving the funding and improving the medical cost ratio.
Our adjusted EBITDA showed very strong improvement with a loss of 19.1 million dollars compared to a loss of 4.1 million dollars in a prior quarter.
Included in the Q123 adjusted EBITDA is approximately $3 million in cost that we do not expect on an ongoing forward basis. Adjusted EBITDA PMPM was a loss of $62 PM, an improvement of $71 PM compared to a loss
of $133 p.m. in the fourth quarter of 2022.
I'm confident about what we're seeing.
Oregon, for example, is quickly moving toward profitability and had a very insignificant loss in the first quarter. California has a positive adjusted EBITDA.
Across all of the markets we serve we notice an extremely increase of the demand.
and a full robust pipeline of growth opportunity. And we're very confident about our growth the rest of this year and in 2024.
In Arizona, our performance is strong, our focus is always, and quality had made us the leader in the markets as we serve.
That focus on quality is clear and I'll give you an example. We recently received full-plus recognition from the CDC for our diabetic prevention and hemoglobin A1C program, which Dr. Bakas will provide some color on later on.
With these very solid results, we are willing our way to realizing the 200 million indebted EBITDA in our material population and cohort.
and that we believe that is inherent in the P3 model. 2023 is a year where we have committed to deliver the data points to validate the P3 model. And our first quarter results are a reflection of that. When we think about where we are as an organization.
I believe that we are with the right team, in the right space, in the right business model, and we are on the right track to achieve profitability. We have done extensive financial benchmarking analysis comparing our results to our direct public peers, some of which that currently have 10 billion dollar evaluation.
Our momentum is building, we're executing an hour plan, and I expect to share with you more positive news and our second quarter results. I'd like now to turn the call over to Atul and Cav Car, our CFL. Thank you, Sharif, and good afternoon, everyone.
We'll start today by providing detail around what we achieved in the first quarter and how we are progressing towards meeting our full year guidance and anticipated profitability in 2024.
Topline results for the first quarter were strong, with capitated revenue of $299,9 million and total revenue of $302 million. The capitated revenue includes a higher mix of persistent lives on our platform which in turn improves profitability. In the first quarter of 2023, we have strong improvements in both medical margin.
contribution which we define as medical margin less network expenses improved by 114 percent over the year to 16.5 million. We believe that the trends in these two critical data points give a clear view of the progress we are making as we work towards reaching profitability in early 2024.
Adjusted EBITDA loss was 19.1 million in the first quarter of 2023. A big improvement compared to the loss of 40 million in the prior quarter.
included in the Q1 2023 Adjustity Bidad is approximately 3 million in cost that we don't expect on a go-forward basis. The Q1 2023 Adjustity Bidad is in line with our expectations for the quarter. As I mentioned on the last call
We anticipate the second and third quarter to show significant improvement as we begin to see the benefits from operational efficiencies and receive mid-year true ups that will create a contour rather than a straight-line spread of results.
We expect the fourth quarter will be slightly softer than the second and third, as we expect to see some seasonality as we move into the colder months and into cold and blue season.
That said, Q4 should still see a meaningful improvement over Q1.
Our net laws in the first quarter of 2023 improved by 14% compared to the same period in the prior year.
in part due to the 300 basis point improvement in SGNA as a percentage of revenue.
For the remainder of the year, we expect platform expenses to continue to taper as we exit the second quarter and get to a more normalized go forward run rate unencumbered by these costs present in Q1.
We started the second quarter of 2023 with a cash balance of 95 million. Although this is not reflected in the Q1 financials due to the timing of the transfer of funds from the capital raise we announced on March 31st, which were received in the first week of April .
For the remainder of the year, we expect our cash burn to be significantly lower than the prior year. And we will end the year with more than adequate cash to operate until we reach positive cash flow. We are feeling really great about where we are from a liquidity perspective. Even better now than we did on the last call.
The capital array is put to rest our liquidity concerns, and we are now myopically focused on operational excellence.
As I sit here today in mid-May, I'm feeling really good about Q2 and 2023 guidance. I want to remind you of our guys for 2023. We still expect 2023 revenue to be between 1.2 billion and 1.25 billion, and we are increasing the adjusted EBITDA guidance to now be a loss of...
Thank you all once again for your interest in the P3 story. And with that, I'll turn the call over to Dr. Bakas, who will give you an example of how we are able to bend the cost curve at P3.
Thanks the tool. Good afternoon. As Sheree mentioned, we are winning in the markets that we serve from both the provider and patient perspective. Thank you.
From last year to the first quarter of this year, we have been better able to align stronger incentives for our providers to improve access to both their EMRs and patient visits, delivering better outcomes in quality of care, documentation, and utilization. As we discussed in previous calls, it takes physicians approximately 24 to 36 months.
to fully encompass the care model on their persistent patients and become converts to the value that value-based care brings. This is precisely why we're seeing the significant medical margin improvement company wide. The provider engagement is paramount, and I'm happy to report that we have more providers engaged with our teams in each market than any time previously. But not only is the provider engagement important, patient engagement is equally important to engage patients to improve their care.
By utilizing our care managers, care navigators, and others on the team, we have been able to significantly improve results on our high-risk, high-cost population, or cohort from 2021 through 2022, reducing both hospital admissions and emergency department utilization by 19%.
For our diabetic population, we have seen a 10% improvement in control of this condition, which is why we were recognized by the CDC as Sharif described earlier.
Key technologies like our risk stratification tool or a care connect tool allow us to understand who is at risk and how to monitor them through their care journey. To push the point further, this high risk high cost population saw a 71.5% improvement in their medical cost ratio, leading to a savings of almost $13 million. Success as we see it is striving for meaningful relationships with both our providers and patients.
and enable both of them be improved data, team support, or better care options. With that, I will turn the call back over to Shreve before we begin Q&A. Thanks, Samir. Before we go into Q&A, I just wanted to remind you all that our...
Kept the promises to our shareholders and investors that we will work hard on improving the The funding and we have improved that from 899 PM PM last year for squirt or to 963 dollar per member per month
first score of 23, that's about 9.3% improvement. We have promised and committed to improve our medical margin. First score of 2022 was $83 PMPM, and as we promised, we delivered, increased the medical margin to $127 per month per month.
That is constituted about 13.1% margin from our revenue. And medical costs ratio had improved from 91, 92% per score or 22 to 87% per score or 23. We promised, we said it, we did it.
and network contribution was $7.7 million per squirt last year or $26 p.m. or 2.8%. This year, first quarter, as we promised, it's more than double, $17 million network contribution, positive 50.
$3 per month, that's 5.5% of the revenue. That is why that confidence that we have and own the performance and the fundamentals of our operation and improving in the health of our population, we increase our EBDA guidance for this year that as I mentioned early.
With that, we're going to open for question and answer operator. Thank you. If you'd like to ask a question, please press star than the one on your telephone keypad. If your question has already been addressed, you'd like to remove yourself from Q.
Please press star than two. Today's first question comes from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.
Good afternoon. I apologize. I'm juggling between a couple calls, but I'm just curious what specifically is it in your opinion that gives you the confidence to raise the adjustin'' deep without guidance.
I apologize, I'm juggling between a couple calls, but I'm just curious what specifically is it in your opinion that gives you the confidence to raise the adjusted EBITDA guidance at this time.
Well Brooks, this is a tool. Thanks for the question. I think there's a combination of events. I think Sheree touched on them all. We feel good about where the revenue is coming in. We feel good about some of the cost reduction efforts that are in the hopper and are being worked on by the team.
We feel really good about where we are.
Great. And then could you just say obviously there's a lot of buzz in the industry about the importance of value-based care and the transition?
Great. And then could you just say, obviously, there's a lot of buzz in the industry about the importance of value-based care and the transition to value-based care?
As you have taken steps to slow your enrollment growth this year to improve the performance of the various cohorts, I'm curious if you see in the marketplace growing or shrinking interest from payers.
And then how you characterize the interest in providers working with P3 to deliver value-based character members. Robb, this is Sharif. Thank you very much. A great question. So, definitely growing, intense growing, excessive.
demand in our business and in our services and our engagement from both the payers and the providers. So that's why that gives us the confidence. We have a clear line of sight to our growth within this year and next year. And we're grateful that we have in our platform almost.
150,000 live that we will convert from either share saving or fee for service into our full risk model over time. So we're seeing increased demand.
Exitemental increased demand from payers and provider.
You know, brups, I would all wear adhythamir from providers. Yes, providers are getting more interested in value-based care, primarily because the whole trend is headed that way. So because of that, they're looking for, you know, teens of people that can enable them to be successful.
And we do it in a way that
very easy for them to align with what we do to drive better performance. They don't have to sell their practice, they don't have to do the things that money people ask them to do. So because of that, the enablement and driving more value-based care into these fee-for-service practices is very, very strong. Makes sense to me. Let me just ask one more question.
It seems like we've put COVID in the rear view mirror and life is returning to normal.
So I think, you know, COVID taught us a lot in regard to even how we practice medicine, from telemedicine and things like that. It's created us to be a little bit more nimble how we improve or drive the access that we need to drive and all those things have worked and I think whether you're an independent fee for service practitioner to allow.
May 11th in regards to really the search that hospitals will be getting, which will be stopping. So all of those things turn to create more value for not only companies like ours, but allows physicians to continue those face-to-face visits that most patients, especially our senior patients, prefer. So with the COVID going down,
It's a good thing for everyone, but again, it has taught us to be more prudent and how we manage patients with any potential disease that may be similar in the future.
Thank you very much for taking my questions and I'm excited about all the progress you're making.
Thanks, Brooklyn. Thank you. Our next question today comes from Ryan Daniels at William Blair. Please go ahead.
Yeah guys, thanks for taking the questions. Congrats on the strong start to the year and the EBITDAG guidance up tick. A couple housekeeping up front and some broader ones. First off, do you just have the number of lives on the platform at the end of the period for our models?
Yeah, the average lies we have 103,400 at the and that's full risk on the platform.
Okay, and then you discussed the three million dollars in cost that appeared in the first quarter that won't be in subsequent Quarters was that due to any one-time cost during the period or is that just a reflection of some of the operating expense? Reductions you put in place really started to hit their stride in the second quarter and then carrying into the back
contractual changes or decisions that we've made, they're just not going to repeat. And I would also characterize 3 million as a potentially conservative number. I think we intend to really continue working on operating expenses. We've been talking, and I feel really good about saying it again. We talked about high single-digit platform expenses for the company.
I don't know if it's ramping effectively in new markets, some of the clinical programs you mentioned, just maturity of the patient base. Just what's driving that? That's a pretty remarkable improvement. And if that continues, obviously, it bodes very well for the path to profitability. So I want to get some more color there. Sure, Ryan. It's actually a combination of a lot of those factors that you just described.
You know, our whole model is geared towards as we get in front of our providers and our care model from an education standpoint, so how they can improve in documentation, understanding how to improve their charting, and at the same time improve quality to drive the revenue number. In addition to that, we also have a lot of work with our care managers and care navigators
So as we continue to work with our practices and educate them, and as I said earlier, it takes a little while for providers to really get in the groove, about 24 or 36 months, but once they do, you really start to see a turn. And the persistent number of lives are therefore very important. The longer you have a patient with you, the more you can improve on their overall care so you see less expenditures.
and improved diagnostic ability over time. So it's kind of like you said, all these factors work together to drive the overall result. And then maybe just one more quick one, if I could, just giving you the opportunity to hit on the Medicare Advantage rate notice and changes to the RADV, the risk adjustment.
A lot of providers have talked about that. Seems like it's not a material impact to the space, but just given the markets you're in and analysis you've done, any thoughts on how that could potentially impact the organization in 2024, if at all? Thanks.
Yeah, I look, I think, as you can imagine, this is an area where analysts spend a lot of time reviewing and analyzing. And I think, you know, also important to stress it is going to affect different companies in different ways for our business for our particular company. You know, there's 2 components to it.
There's an HCC component and there's a rebasing component and they largely offset one another. So as Sharif mentioned, I believe on the last call, I think our position remains the same. We do not expect any material impact on the business. Okay, perfect. Thanks so much and congrats on the strong performance in progress.
Appreciate it. Thank you. Thank you. And our next question today comes from Josh Raskin in the Front Research. Please go ahead.
Hi, thanks. Good afternoon. The number of affiliated providers was flat from 4Q. And I'm just curious if there was some, you know, growth in there and then maybe some terminations and sort of if so, what causes the terminations? And then more broadly, if you could just talk about, you know, provider relations and growth and market development and sort of how you feel about that pipeline.
Yeah, so great, Josh, thank you very much. So you're right, we've added a significant number of providers and we have said goodbye to some of them. And part of the improvement that Amir and Atul had mentioned in the numbers, including the medical margin and the maturation of the population.
It's either moving the population to the same provider and increasing our concentration with the relationship of existing providers or letting go of the provider and the patient bringing new population in. So um...
growth, may lead us to terminate some of the non-productive relationship and non-properable population and providers.
So is that typically a Jan 1 effect record? I sort of think about that juxtapose with a 3,400 MA ads, which typically you would expect more in January , but maybe you lost some patience as well. And that's why you still think you can world 15 to 20 this year. Is there some seasonality to that process?
Yes, definitely with the annual enrollment that takes effect one one and Recently last year Medicare start having open enrollment which is basically for the following 90 days after January and you can change plans if you so desire
So, we have put a lot of effort Josh into realigning our plan partner with our provider partners where we can increase and enhance the membership without having to go add new providers. So basically, Dr. Smith, that I have only humano labs with them. You know, I have humano united, Sintine, Etna, and Anten with them.
So that is a lot of our growth is within the same providers. So we continue very bullish in our growth this year and next year.
That's helpful. And then just last one for me, the capitated revenue, the PMPM, you mentioned in your prepared remarks as well, was up a little bit more or a lot more than we were expecting. Is that coding and effectiveness? Is that the persistency of membership or is there some mix issue or something like that as well? So it's all of the above and mostly the compliance of the...
persistent. So, so it mainly is that persistent and the hard work was that our team did last year.
And mainly is that persistent and the hard work was that our team did last year. OK, perfect, thanks.
Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star than one. Our next question comes from Gary Taylor Cowan. Please go ahead.
Hi, good afternoon. I had two questions. The first one just a little bit of a knit, I think, but the 5 million PDR charge in the quarter, I know that's excluded from EBITDA, but that's related, I guess, to a specific contract. It's a very more detailed event.
I'm sorry, can you repeat the question, Gary? I didn't quite hear you. Yeah, the $5 million premium deficiency charge in the quarter, I know it's excluded from EBITDA, but is that related just to single specific contract, or is there any color on that?
No, it's not related to any specific contract. What we do is we take a look at, and this is a gap requirement. It's non-cash item, as you can imagine. This is just reflecting sort of an estimate of unknown claims exceeding premiums. We are taking a look at that just our general policy around how we are doing that.
Can you just elaborate a little bit on, so you're expecting sequential improvement, EBITDA loss, the next couple quarters before it comes off a little bit in the 4Q, but that's very different than the seasonality over the last three years, or generally the...
Even though law in the MLR has accelerated throughout the year, so just wanted to understand that expectation a little bit better.
Well, I mean, if you think about it from the bottom of the P&L up, I mean, our operating expense is something I think that, unlike in the prior year, I think we are expecting much more consistency and much more predictability around. Last year with the challenges with the audit and a lot of consulting fees, I think that complicated matters.
But we do expect a much more predictable flow over the next few quarters. And as I think we talked about also around the revenue expectations, the way that we manage, excuse me, the way that we account for revenues, particularly the mid-year and final sweeps as we accrue them effectively on a cash basis, we do expect to see
I'd like to turn the conference back over to Dr. Sharif Abdu for closing remarks.
confident our results. We're excited to share those results with you. Our growth remain robust and as I mentioned to Josh our membership, some of that remain in our platform but just moved from a full risk into an upside that we turned us into more positive as part of our purposeful and smart growth.
And finally, I want to tell you that we're very committed to our vision of transforming the healthcare and very committed to our mission. More importantly, we want to continue to do well while we're doing good. With that, I thank you all very much and I'll see you next quarter.