P3 Health Partners Inc.

Good day and welcome to the P3 Health Partners fourth quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Ryan Halstead. of Ambassador Relations. Please go ahead, sir.

Thank you, operator, 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 operations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ from statements made on this call is contained in our periodic reports file with the SEC. The forward-looking statements made during this call speak only as of the date hereof and the company undertakes no obligation to update or revise these forward-looking statements. We will refer to certain non-GAAP financial measures on this call, including adjusted operating expense, adjusted EBITDA, adjusted EBITDA per member per month, medical margin, medical margin per member per month, and cash used. These non-GAAP financial measures are in addition to and not a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. 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. Please refer to the appendix of our earnings release for reconciliation of these non-GAAP financial measures to the most directly comparable gap measures. Information presented on this call is contained in the press release that we issued today and in our SEC filings, which may be accessed from the investors page of the P3 Health Partners website. I will now turn the call over to Eric Kaufman, CEO of P3 Health Partners.

Thank you for joining us today. I'd like to begin with three key headlines. First, we entered this year focused on strengthening our business for near-term profitability. Our programmatic initiatives, which we have previously quantified as representing over $130 million of adjusted EBITDA opportunity, are on schedule. Second, we are reaffirming our 2025 guidance on all metrics, except for total members, which we are slightly raising. The macro environment is improving in the Medicare sector following years of pressure due to factors like V28, cost trends, rich benefit designs, and higher quality bonus thresholds. Our early indicators for 2025 are showing positive trends, and we are seeing a flow-through on benefit design changes and utilization. Further, the improved payer bids and CMS's 2026 advance notice signal a more favorable trajectory for 2026. and as payer benefit design changes are expected to rationalize, they will contribute an estimated $30 to $35 per member per month of incremental medical margin benefit. Finally, we have significantly enhanced our senior leadership team with the addition of multiple key new hires with substantial industry experience. Turning now to fourth quarter results. We reported membership growth from 4Q23 to 4Q24 of 13%, with revenue growing 7% to $371 million. On an annual basis, we ended 2024 with revenues of 1.5 billion or 18% growth year over year. Our fourth quarter medical margin of $7 million decreased year over year due to the elevated utilization trends which persisted through the quarter. Adjusted EBITDA for the quarter was a loss of $68 million, which included unfavorable out-of-period true-ups related to a single-payer partner. Excluding these costs, adjusted EBITDA results are on track with our 2024 jumping-off point. As benefit design changes rationalize over the coming months and years, these network expenses will normalize, serving as a tailwind to adjusted EBITDA. Now, moving on to our full-year 2025 guidance. We have reaffirmed our 2025 outlook for revenues of 1.35 to 1.5 billion and adjusted EBITDA between negative 35 million and 5 million positive. Our growth strategy moving forward is deliberate with a focus on growing profitably when we expect to achieve profitability this year. We are encouraged by the early trends so far in the first few months of the year that gives us further confidence in our targets. Laith will walk through the building blocks of our full year 2025 guidance, and Amir will share some initial utilization trends. Building on the programmatic initiative set forth in 2024, we are carrying strong momentum into Q1 of 2025. We remain on track to realize our $130 million plus EBITDA improvement opportunity comprised of $20 million in operational efficiencies $35 million in contract rationalization, and $75 million in operational execution. Starting off with operational efficiencies, we executed on our objective of reducing operating expenses by $20 million. As we said in the latter half of 2024, we executed on our planned contract rationalization with both provider network and payers to yield $35 million of EBITDA improvement. This included the elimination of roughly 60 TINs in the provider network and a handful of payer contracts that have already been completed. Additionally, we are on track for incremental EBITDA improvements of another $25 to $30 million in our remaining contracts through renegotiation and ongoing network hygiene. Now I'll pivot to operational execution. Annually evaluating the patients is a cornerstone of high quality and successful medical management. To that end, we are making strong progress on our burden of illness program and are on track in Q1. By engaging our physician network with a combination of new processes and tools, we are assessing our patients more thoroughly and earlier in the year, reflecting their unique disease burden, building care plans, which then allows more time in the year for needed treatment and support and closure of quality gaps. As an example, P3's medical group and affiliates where we have deployed new tools with the largest patient population, achieved a 20% year-over-year improvement in assessing burden of illness through improved point of care tools and processes. In addition, because of these programs, we are also seeing positive trends on our medical expense initiatives. We made significant investments in field operations for 2025, and I'm very pleased by the reception to our care enablement model from the providers across our markets. Additionally, we've introduced P3 Restore, an innovative program now available in all of our markets. This initiative offers personalized one-on-one sessions with a physician coach aimed at reducing physician burnout, which is a crucial part of our strategy to transform healthcare and improve engagement. yielding better patient outcomes and longer clinician tenure. Also serving as a testament to the strength of the P3 platform is our ability to attract world-class talent. Shelley Martin joins us as regional market president. Shelley's track record of building high-performing teams and scaling innovative care models, as demonstrated at OptumCare Utah and Kaiser, will be invaluable as we continue to expand our market presence. Equally exciting is the appointment of Todd Smith as our new Chief Legal and Compliance Officer. Todd's extensive experience in healthcare law, regulatory compliance, and risk management at Elevance Health, Bright Health Group, and Optum places him at center stage to guide our legal and compliance strategies. Both Shelly and Todd have proven their ability to navigate the intricacies of value-based and risk-bearing models, which aligns perfectly with P3's mission.