Q2 2023 P3 Health Partners Inc Earnings Call
Hello, and welcome to the P. Three health partners Q2, 2022 earnings call.
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Now I'll turn the conference over your host today Caren bomb questions. Ma'am. Please go ahead.
Thank you.
And thank you for joining us today 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 largely on our current expectations and projections.
About future events and financial trends that we believe may affect our business financial condition and results of operation.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations.
Digital information concerning factors that could cause actual results to differ from statements made on this call is contained in our periodic reports filed with the SEC.
The forward looking statements made during this call speak only as of the date hereof and the company undertakes no obligations to update or revise the forward looking statements.
We will refer to certain non-GAAP financial measures on this call, including adjusted EBITDA adjusted EBITDA per member per month medic.
Medical margin in medical margin per member per month.
These non-GAAP financial measures are in addition to and not a substitute or superior to measures of financial performance prepared in accordance with GAAP.
There are a number of limitations related to the use of non-GAAP financial measures. For example, other companies may calculate similarly, titled non-GAAP financial measures differently refer to the appendix of our earnings release for a reconciliation of these non-GAAP financial measures and the most directly comparable GAAP measure.
Information on this call is contained in the press release, we issued today and in our SEC filings, which may be accessed from the investors page of P. Three health partners website.
Thank you and I'll now turn the call over to Dr. <unk>, CEO and co founder of P. Three.
Thank you Karen and welcome everyone to our second quarter 2023 conference call.
I would like to kick off the call by saying, we have had a strong second quarter and they would like to thank our team for their hard work and contributions to the success.
Adjusted EBITDA for the quarter was positive approximately $200000 compared to a loss of $29 million in the prior year same period.
As a matter of fact, adjusted EBITDA was positive in four out of the five states that we serve in this quarter.
This is a reflection of what we have shared with you previously that would more persistent lives on the beasley platform than new lives and a higher level of maturation translate into funding improvement medical cost improvement and enhanced medical margin, which all flow through to the <unk>.
Line and lead to profitability.
I would like to share with you a few helpful data points from this past quarter that are reflective of where the P. Three model is operating now and serve as the foundation for our 'twenty to 'twenty four expectations that we have shared with you previously.
Number one.
Medical cost ratio was 84% in the quarter and that led to Medicare margin of about $55 million. We view this metric as the best reflection of the value we deliver to our stakeholders the ability to bend the cost curve.
And answer to the key demand drivers of our business in the marketplace number two.
[noise] medical margin was approximately 161 dollar P. M P M versus $72 P. M. P. M. In the same period of the prior year. If you were to compare that to the other value based care provider peers are 161 P. M. P M or a 16% margin is.
Squarely in the maturation range of any cohort and exceed as your loan margin of $113 P. M. P M food.
Quarter up 2023, and we believe that we can even improve further.
Number three.
Medical cost trend was about increase of roughly 1% for Medicare advantage lives year over year, when you compare that to the overall market.
At mid single digits or higher it is clear that the <unk> III care model is working and bending the cost curve.
Number four.
Operating expenses were.
Were $85 P. M P M versus $102 P. M. P. M. In the same period prior year, that's down approximately 20% compared to the prior year.
Number five.
Finally, adjusted EBITDA P. M. P. M was close to breakeven versus negative 19, five dollar P. M. P. M. In the same period of the prior year, an output of all great trends that I, just noted and consistent with our previous remarks that we believe we are on the path to sustainable.
Variability and an adjusted EBITDA basis in the near term.
The above metrics are just a few validating data points of PS three model and our trajectory.
And in particular, we are achieving great outcomes now and not just projecting in the future.
As a result were updating our 2023 full year adjusted EBITDA guidance range at two lots of $52 million to $30 million for the year from the original range that we gave in the beginning of the year of lots of 60 to 40 million more to come from that tool on this topic.
In the past we have told you that we can expand into adjacent counties with minimal costs by leveraging the existing infrastructure in the quarter. We did just that we have entered Jackson and jet being counties in the state of Oregon with a large national payer partners.
Also in the second quarter, we made an important announcement, we named Bill better men, our Chief operating officer.
He recently joined Us from Optum care, where he led their Pacific Northwest Operation and served as the Chief operating officer of the Everett clinic and the Seattle Polyclinic.
He was drawn to be three because he has a strong believer mp3 mission and that's only model with which he has significant prior experience running it and optimizing it. He is an exceptional operator and now runs with the day to day operation of the company and local market.
As we think about achieving our long term guidance for the company operational excellence will be critical to achieving those goals. We believe that bill is the right leader with the right experience to help us to do that with that I'm going to turn it over to our chief operating officer.
Better now.
Thank you for the very kind words shrieks I'd like to start by sharing my objectives for the company over the next few years with some background context Peter.
<unk> on boarded over 100000 Medicare risk lives are.
A relatively short period of time, you can see that by moderating growth for just the past six months you begin to see the effectiveness of the pizza remodel met.
Medical margin P. M P M.
$161 is a testament to that.
In my prior experience I saw the affiliate model in action in two important ways.
<unk> ability to grow and second ability to bend the cost curve.
I was drawn to P. Three because I believe the model is highly effective and the team has significant experience in helping drive it to optimal outcomes.
Brilliant model works across geographies payers and providers. Although there are differences in models across the value based care industry capital intensity and scalability being just to G. III clinical outcomes in medical cost improvements. We believe are very similar whether you compare.
Sure, It's a oak streets clinic employed model or agile ons affiliate model.
There are more similarities than differences the value based care model in all its current forms shared the same thing it is the right model.
There is actually more variation in operational execution.
How long the J curve has from time zero to maturation and how much or little do you have to spend to achieve the desired outcomes.
T Threes model is high growth low capex. It is the most capital efficient model in the marketplace.
There is limited capex to build clinics are significant market spend to attract members.
Our outcomes relative to other models speak to our ability to effectively engage physicians and patients to bend that cost curve.
Members mature on the P. Three platform after 24 to 36 months.
Success requires strict operational discipline to achieve particularly with our rapid growth.
Demand side is there because of our outcomes are revenue is at a 15% discount to the health plan revenue and we are running at 16% medical margin off that now with a ways to go before maturation.
On the cost side. There is no one thing that turns the cost curve. It's many many little things done really well it requires operational excellence my focus and the objective is to further instill a culture defined by operational excellence across our team and local markets and to optimize <unk>.
Clinical outcomes to near perfection, that's our teams goal and that's Michael.
With that being said I wanted to take a minute to focus on our oldest market, Arizona, where it started where it is now and where we believe it can go for.
For folks that are focused on cohorts. This is a relevant example of a market cohort not that just similar to our peers that discuss market cohorts publicly.
If we compare the Arizona market from 2018 to the second quarter of 2023, the trajectory of the P. Three model becomes clearer.
Let's take members for example in 2018 it was 10000 today it is approximately 45500.
Revenue P. M. P. M. In 2018, it was $628 P. M P M.
In the second quarter of 2023, it was $921 P. M. P. M medical margin P. M. P. M. In 2018, it was negative $53 P. M. P. M. In the second quarter of 2023, it was positive $163 P. M. P M.
In the future we expect continued improvement.
So how is this achieved and how do we improve upon it.
It is a culture, where everyone at all levels is driving towards Kpis benchmarks.
Seeding them and resetting new ones higher.
I'll leave you with this T. Three is an incredible company and has an incredible team with tremendous experience going back to the health care partner days.
And I hope to marry my experience to take it to the next level higher together.
Thank you for your time today, and now I will turn the call over to a tool catheter car our CFO .
Thanks, Bill and good afternoon, everyone I'll start today by providing detail around a strong quarter and how we are progressing towards meeting our full year guidance and anticipated adjusted EBITDA profitability in 2024.
Top line results for the second quarter were strong with Captained and revenue of $325 6 million in total revenue of $329 1 million, both representing growth of approximately 22% compared to the prior year.
For the first half capitation revenue was $624 3 million in total revenue was $631 2 million, both an improvement of approximately 16% compared to the first half of the prior year.
In the first half of 2023, we had funding increases of 12% as a result of the maturation of the lives on the platform.
And to give you a more updated sense of P. Three scale at the end of the quarter. We had 129000 members on our platform. This consists of 116000 Medicare advantage, an ACO reach members plus an additional 13000 members and part D membership and fee for service relationship.
We remain as optimistic as ever about our membership growth over the long term as we have guided in the past.
In the second quarter of 2023, our medical margin improved to $55 million or $161 on a P. M. P M basis, which is a 132% and 123% improvement respectively compared to the prior year gross profit improved significantly.
Over the prior year to $26 8 million.
This is the second quarter in a row that we've seen significant progress and begins to paint a clear picture of our expected trajectory. Overall. Furthermore, these improvements to our medical margin and gross profit reflect the increases in funding in 2023, the mix of persistent lives on the platform and our ability to manage.
Cost trends.
As it relates to cost trends, we saw a significant drop in our platform support costs going from 12% of revenue in the second quarter of 2022 down to 7% in the current quarter.
This high single digit percentage is consistent with the prior commentary I provided around this metric and was driven by a realignment of our staffing model to focus more of our spending on patient care, while we invested in critical infrastructure, such as our accounting and analytics departments. We will continue to monitor our spending with them.
Towards continuous improvement and efficiency and incorporate this mindset into our everyday cash management.
Adjusted EBITDA was positive in the quarter at $200000, an improvement compared to a loss of $28 7 million in the same period of the prior year.
First half of 2023, adjusted EBITDA loss was $18 9 million compared to a loss of $47 6 million in the first half of 2022.
These strong results reflect our ability to combine our improvements in medical margin with an ongoing discipline to leverage our existing infrastructure and drive continuous improvements in operating efficiencies.
As we move into August the strength, we are seeing across our markets reinforces our view and for the second quarter in a row, we were going to raise our guidance. We still expect 2023 revenue to be between $1 2 billion and $1, two 5 billion and our medical margin to be between $155 million and 175 million.
But we are increasing our adjusted EBITDA guidance to now be at a loss of 50 million to $30 million compared to the guidance at the start of the year of a loss of $60 million to $40 million and the revised guidance. We gave in Q1 of a loss of $55 million to $35 million.
Thank you all once again for your time today and with that I'll turn the call over to Dr. <unk>, Our Chief Medical Officer.
Good afternoon today, I would like to provide some color on what we're seeing for utilization correct.
Utilization trends are running consistent with our expectations and at levels similar to those of the last four quarters.
We are certainly aware of all the discussion regarding increased medical costs out there publicly particularly on the outpatient side. However, we at <unk> have only seen a slight uptick in medical expense overall in part due to strong inpatient cost reductions in fact after reviewing the paid claims data we have seen in medical cost trending of approximately 1%.
Attribute our strong success two actions like number one significant provider engagement in all our markets, which has led to an increase in access by 6% to 7% and axis is the key to driving improved revenue and quality and decreased medical expense.
Number two we have seen our networks specialists more than double their use of <unk> as compared to utilizing hospital for surgery or other procedures like endoscopy.
Number three.
Continued success in <unk> activities with our teams leading to a system wide acute and <unk> thousand 178, a reduction of 20% over the last 18 months and then E. R per visit per thousand of $2 89, a reduction of 19% over the last 18 months.
And number four.
We have an improved quality gap closures by 5% at the same time last year.
And we have stated previously the maturity of the model now that we've had the majority of our population is greater than 24 months is bearing fruit in these persistent lives.
Whether our teams working with the patients or providers to influence behavior change.
Education providers on proper documentation reforming prior authorization and concurrent review or even encouraging both patients and providers to close gaps in care. All of these actions and many more are consistent with Sharif and Bill's remarks that P. III care model is managing revenue quality and cost efficiently.
With that I will turn the call over to the operator for Q&A.
Thank you.
Yes. Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble the roster.
And the first question today comes from Josh Raskin with Nephron research.
Hi, Thanks, Good afternoon I guess.
First question is just on the G&A number down $10 million absolute dollars sequentially I think there might have been some one timers in the first quarter, but what what drove that and how sustainable is that $27 million on a quarterly basis.
Yeah. Thanks, Thanks for the question so on the.
The one timers part of it they were actually relatively little in terms of the one timers and you'll see some disclosure year to date. There is maybe a total of $3 million, but this is really on the back of a complete redesign as I was mentioning of how do we staff the business how do we.
Position ourselves for growth kept getting people in the right places and.
Making sure that we have adequate resources in the places that they are really critical to our success. So.
When you think about it we think it's very sustainable.
But not all not only does it sustainable I think there is probably some opportunity I don't think youre going to see quite the same quantum every quarter.
A reduction going forward, but I think this is a very very solid base from which I think we can become even more efficient.
Yeah to add to that Josh.
But the tool just said it is measuring it per member per month, and it's a improvement per member per month is a sustainable measure as we grow and add more members more than just absolute dollars.
Yeah I get that.
And then on the provider side I know, we talked about this last quarter and there was a little bit of a calling I think your provider count I saw 2600 is down about 200 from last quarter is that still more intentional where there are some providers that lap is that more on the ACO reach side, where you're kind of calling the book, maybe just any color on the provider account.
Yes, it is intentional.
We are.
Focusing on extending our mind share and wallet share of the existing practices.
And reducing the number of an engaged and that don't have that many membership engagement value based.
So the sustainable disciplined growth our focus on increasing the number of engaged provider and expanding the relationship with engaged provider Josh.
Okay, and then I could just sneak one more in I know you mentioned on the call some of the New County expansions up in Oregon, I'm, just curious how we should be thinking about the game plan for one sort of number of new counties that you guys are thinking about in the next year or two and then how long does it take these to ramp what's a reasonable expectation in terms of even just number.
<unk> lives under management over say 12 24 months period.
Yes so.
So as we grow as we mentioned before we will go to the counter use.
Right next door. So it's it's really almost.
And in the same state and literally it's half an hour or 45 minutes drive between the counties that we're in and the new counties.
And so that was purposefully Josh done so we can leverage the infrastructure and don't have to do.
Extra buildup.
So we're going to continue to focus on the growth of the contiguous counties and adding more lives through expanding the network in these county, and our relationship with the payers.
To answer your question.
Yeah, I guess it is it similar provider groups are what makes it so easy when you talk about other than you know the corporate infrastructure how is it easier to get the docs are they part of large groups that practice across counties.
Not only that but.
The staffing they care managers can cover more than one practice.
The education provided by the medical directors can be provided by the same person. So the common services that we share across practices can be leverage over that space.
That makes more sense. Thanks, thanks Sri.
Thank you and the next question comes from Ryan Daniels with William Blair.
Hey, guys. Congrats on the strong performance. Thanks for taking the questions I guess number one given the outperformance you saw this evening what are your thoughts on kind of getting to a sustainable EBITDA breakeven target I know you talked about.
Early 2024 do you think you can accelerate that or is that still the right point to think about from a kind of a launch point of positive EBITDA on an ongoing basis.
Yes, Ryan. Thanks. This is a tool speaking look I think it gives us more and more confidence in what we said earlier I think we're still of the view 24 as EBITDA profitability.
With with regards to 'twenty three and the increase in guidance is just reflective of our increased confidence.
We will evaluate that as it goes forward and an update but at this point, where we're where we're just sort of a higher degree of confidence in what we said earlier.
Okay, Great and then Great case study on Arizona, It really shows the power of the platform for growth and increasing <unk>.
The MTM rates in medical margins and I'm curious given that that's the case given that you are now profitable on an EBITDA basis in four or five states.
What do you think about re accelerating membership growth I know that's been fairly flat I know you've called some of the smaller underperforming physician groups is it now time to maybe step that up a little bit more or do you need to balance that in order to hit that EBITDA positive level.
Yeah, Ryan this is Jerry so.
We're definitely excited about the good performance from all of the states that we're in and as I mentioned in the last call. It is not because of softening of the demand, but rather we have.
As an industry term use glass 24, and <unk> 25, almost the ability to double the size of the company, but we have determined and shared with you that we are going to follow a disciplined growth to reach the point of profitability and sustainable with the disciplined profitable growth.
Okay, perfect I'll hop back in the queue and congrats again thanks.
Thank you.
Thank you and our next question comes from Gary Taylor with Cowen.
Hi, good afternoon.
Two quick ones for me first I just wanted to understand on the on the guidance raise on EBITDA is that more on.
On the a lower sustainable G&A or the lower platform costs, you were talking about this quarter.
Yeah, Gary Thanks for the question. This is a tool speaking look I think there's a couple of components to it that really drive it and it's not on the back of one single factor of one single metric I think you know as we as we went through the quarter and as we go through you know we're already in August we look at a couple of key metrics around four <unk>.
Ample physician and patient engagement.
Those are those are going exactly as we expected and frankly, a little bit better it gives us some confidence that we're.
Where we're able to engage with those patients. We think we have a better opportunity to control medical cost the.
The second part of this is persistent lives and I think that's a theme for the year, where the balance of the persistent lives is substantial one and I think we're seeing the benefits of that.
We do have we're optimistic around growing our membership has been gone through the quarter the business developments and the demand that we see is is is every bit what we thought and maybe even a little bit better.
And then you do have the efficiency factor I think that this is a sustainable cost reduction as I mentioned, just a minute ago. I think this is there is an opportunity to get even better at it but it's a combination of all those things it's not just any one.
Second one for me I know one of the key issues.
Anticipated improve margin performance was the <unk>.
Revenue.
For 'twenty three versus not booking any in 'twenty two I saw in the Q4 14 and a half.
In the first half so was that all in the two Q. It should we think about the EBITDA impact is being you know roughly half is being.
Shared with your affiliated docs.
Well I'll tell you about the first part of it yeah. That's a that's in the disclosure that was all in the second quarter.
But look we don't really talk other than sort of a requirement of disclosing we don't really talk about it because we sort of really think about sleeves as part of the normal course of the business, where we're going to be seeing those across the year in the various quarters.
But but again I think we feel good about.
The performance of the quarter and also our ability to kind of predict.
<unk>.
The amounts that we wind up seeing.
So.
But youre going to continue to book those on a cash basis right.
We will see.
Okay last one for me I just saw that the note about the cyber security incident is there a quick just explanation on kind of what happened in contained or any go forward impact or anything. Thank you.
Yeah, I think I think the quick answer is no go forward impact we did have an event in the quarter. It was relatively small.
The immaterial as we see it but.
It did happen and we reflected that as part of expenses, but we don't necessarily consider that as a <unk>.
As a as an ongoing thing.
We quickly closed all of the gaps that we saw in.
In security in an elevated everybody's awareness around it. So we think we've got it under control, but yeah that is something that we excluded.
Thank you.
Yeah.
Thank you and our next question comes from Brooks O'neil with Lake Street capital markets.
Good afternoon, everyone I have a couple of questions I guess I'd start off with.
Appreciate it tools comments about <unk>.
Demand.
And the activity in the first half.
Just talk a little bit about what you anticipate for the second half in terms of.
Patient demand and to provide a response to.
What what could be either one time or seasonal increase in demand.
Hey, Brooks this is amir.
Our demand continues to be high not only from our payer partners, but also from our clinicians and our providers willing to grow with us. So we are very.
Bullish in regards to our growth as we move forward.
Sure.
Thank you.
So so so for US it's continued to work with our clinicians as we bring more opportunities with payers that want to continue to grow.
So I think as we look from the third and the fourth quarter that will do quite well.
As you roll through the latter part of the year.
Alright, let me ask you a second question.
Obviously, the financial performance showed significant improvement year over year, which is terrific.
Do you have anything you can point to that indicate whether you believe quality remain.
As good as it's been or perhaps is even getting better in terms of the way you're taking care of your patients and members.
Yeah, Brooklyn Mirror again so.
As we've said before a lot of what we see as far as improvement of quality of care comes in the maturation as well right. So as physicians start to learn more and more of the tools that <unk> can bring to those practices working with the care managers working with the overall team quality team et cetera, we.
We start to see those results so the quality of care does improve.
As we work with our clinicians so I think that's part of the reason why we're seeing such success in the model overall.
As a tool mentioned earlier in addition to that when we just.
Great poor quality measures those things also rise as physicians get more engaged with closing gaps in care working with teams et cetera to drive those very things. So we expect quality overall, whether from clinical care or quality measures.
To continue to improve.
Great and then.
Last one I had I was quite impressed with the funding improvement that you've achieved so far in 2023 and I'm curious if you have any indications of whether that's sustainable into 2024.
Yeah, Hi, Brooks this is bill betterment.
We're really excited about what we've been able to.
Achieve this first half of the year. The teams are really laser focused in my in my part earlier I shared with you. The theres many little things that we're doing what I'm excited about is the level of engagement, we have with our groups right now you're seeing us see six to seven <unk>.
<unk> more visits than we did the prior year that is not by chance that as a focus within the organization and so as a result of that Youll see revenue continue to funding continued to improve from the first half into the beginning of next year. So we're excited about where we're at.
We are headed.
Alright, congratulations keep up all the good work.
Thanks Brooks.
Thanks Brooks.
Thank you.
A question and answer session I would like to hand, the photo management for any closing comments.
Great. Thank you very much Keith before end of the call today I would like to go a couple of things number one.
We are not seeing any evidence of increased utilization there by prior author otherwise inpatient or outpatient however.
There is definitely consideration for Susan novelty and seasonable and changes in the in the winter that can.
<unk>.
It can change the utilization, but there is no evidence that we're seeing that patient and provider demands for.
For services are increasing.
Number two as we continue to perfect our ability to predict.
The sweep and to smooth out the year is that tune said, we were going to continue to discuss with the accounting and the.
Otter two.
To allow us to be able to accrue for.
The suites and the right time and the period that it belongs to and will continue to have this and we'll update you as we go along.
Yeah.
I'll leave you with this the first half of 2023 results showed the progress we are making towards achieving our goals. Our focus is on the patient and producing better clinical outcomes and our model does just that while lowering medical costs.
The mission and the model are working and the momentum we are seeing in the business is quickly driving us towards profitability.
With that I'd like to thank you all for your time today and have a great evening.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.