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 touch-tone phone. 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 Halsted of Investor 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 target. 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 filed 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 GAAP measures. Information presented on this call is contained in the press release that we issue 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 Aric Coffman, 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. Third, 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. As payer benefit design changes are expected to rationalize, they will contribute an estimated $30-$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 Q4 '23- Q4 2024 of 13%, with revenue growing 7%- $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 billion-$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, and we expect to achieve profitability this year. We are encouraged by the early trends so far and the first few months of the year that gives us further confidence in our targets. Leif will walk through the building blocks of our full year 2025 guidance, and Amir will share some initial utilization trends. Building on the programmatic initiatives set forth in 2024, we are carrying strong momentum into Q1 of 2025. We remain on track to realize our $130 million+ 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-$30 million in our remaining contracts through renegotiation and ongoing network hygiene. Now I'll pivot to operational execution, annually evaluating the patients as 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 Permanente, 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 Shelley and Todd have proven their ability to navigate the intricacies of value-based and risk-bearing models, which aligns perfectly with P3's mission. With that, I'll pass the call to Leif. Thanks, Aric. At-risk membership was 123,800, an increase of 14% year- over- year. Top-line results in 2024 were strong as the team executed on and delivered revenue of $1.5 billion, representing 18% year-over-year growth. On a PMPM basis, capitated revenue increased 2.5% year- over- year, when adjusting for the one-time change in accounting for the recognition of revenue associated with our delegated health plans and their final payments, impacting approximately $21 PMPM in 2023. Fourth quarter 2024 revenue was $371 million, a 7% increase over fourth quarter of 2023, or a 16% increase year- over- year after adjusting for the one-time change of accounting in Q4 2023. On a PMPM basis, revenue increased 3% quarter over prior year quarter when adjusted for the change in accounting. Growth was primarily driven by sustained organic expansion in our established markets and partially tempered by reduced PMPM funding. Full year Medical Margin of $85.5 million decreased by approximately 37% year- over- year, or $70 on a PMPM basis. The full year compression was driven by elevated medical expenses, especially Part D expenses. We reduced our Part D expense in Q4 2024 and have made progress in reducing in half our membership with Part D risk. Our platform support costs, as a percentage of operating revenue, are 6.1% in 2024, which is down from 7.7% in 2023. Adjusted EBITDA loss for the full year was $167.2 million for 2024, compared to a loss of $85.5 million in the prior year. On a per member per month basis, 2024 Adjusted EBITDA loss was $147, a $45 change from the prior year. Adjusted EBITDA loss for the fourth quarter 2024 was $67.6 million, or approximately $175 PPPM basis. Our fourth quarter prior-period development associated with IBNR were relatively small, reflecting stability in our reserving practices as we are now adequately positioned. Additionally, our new reserving process introduced in Q1 2024 has now been in place for three quarters, making it an established framework that provides us with stronger visibility. We feel confident in the accuracy of the data exiting 2024, including any associated lags, which further supports our ability to manage reserves effectively. From an internal control standpoint, a key achievement over the past year was the successful remediation of seven previously identified material weaknesses. Looking ahead to 2025, our primary focus is maintaining the strong control environment established in 2024 while also driving execution of our clinical and operational initiatives. I'm confident in the meaningful progress P3 is making towards long-term sustainable growth. Turning to our 2025 guidance, we are slightly increasing our total membership expectation to 109,000-119,000 in 2025 due to the growth of our ACO membership. For the full year, we are reaffirming our revenue range of $1.35 billion-$1.5 billion. Our revenue guidance includes MA funding increases of 3.1%. In addition, the revenue guide includes reductions in overall membership as a result of network rationalization, which is partially offset by favorable premium increases, including the benefit of renegotiated payer contracts and member mix shift. As a reminder, we recontracted 25% of our payer partners effective January 1, 2025, and expect to recontract 50% in 2025, effective for plan year 2026, with the remainder being executed effective 2027. We are issuing guidance for Medical Margin to be in the range of $174 million-$210 million in 2025, and our Medical Margin PMPM in the range of $133-$147. Our Medical Margin guidance includes a benefit from rationalizing underperforming provider and payer contracts, improving execution across affordability programs, including hospice and palliative care, and positive changes from benefit plan designs, including reducing total Part D risk membership by 50%, offset by regional medical cost inflation in 2025. We are reaffirming our Adjusted EBITDA guidance range of negative $35 million- $5 million positive for the fiscal year. This guidance incorporates an expected $8 million contribution from our ACO operations. Additionally, we've realized nearly $20 million in operating cost efficiencies, which will be reflected throughout the remainder of 2025. It's important to note that due to the seasonal utilization patterns, we typically see lower EBITDA as a proportion of full year guidance in the first and fourth quarters compared to the second and third quarters. Turning to our balance sheet, at December 31, our cash balance was $38.8 million, noting an additional $15 million of capitation revenue was received in the first week of January 2025. With that, I'll turn it over to Amir. Thanks, Leif. As Aric and Leif described, there have been many factors leading to the current 24 medical expense trends, many of which were due to either health plan benefit changes with increasing pass-through costs, increased facility unit costs, whether from hospitals, dialysis centers, or higher utilization of elective or surgical procedures and higher Part B drug utilization. Despite these trends leading to overall higher costs, our utilization trends actually showed slight improvements in admits per thousand, emergency department per thousand, and observation rates per thousand at 0.5%, 1%, and 3%, respectively, in quarter four '24. We did see, however, increased SNF average length of stay from 17-19 days in our markets, and as Aric and Leif mentioned, we reduced our Part D exposure from certain plans. Before I go on to discuss 2025, let me start by saying, as the Co-founder and the Chief Medical Officer of P3, there has been a palpable reinvigoration of our staff from our new leadership, driving improved morale and a strong sense of purpose to our mission for both our providers and the patients. As mentioned earlier, new for 25 is the investment in our care enablement model to put more resources, people, and point-of-care tools in our affiliate provider offices to aid them with improved scheduling, especially on our high-risk, rising-risk, and high-cost patients, ensuring better access and improved visit volumes and other administrative tasks necessary to perform well in value-based care. From this initiative, we have already seen improved interest in our PCPs from all markets, leading to improved documentation for burden of illness, as Aric described, improved quality, Part C measures from 28.6% when looking at April of '24 versus March of '25, early utilization trends on par with quarter four of 24, and significantly improved SNF average length of stay, now trending to 14 days. In addition, in both our California and Nevada markets, where we are delegated for utilization management, high-cost selective cases are trending down by 25% in California and 12.5% in Nevada. Subjectively, but also very important, we're seeing tremendous provider appreciation with the P3 Restore program, which is something unique and a differentiator compared to others in the provider enablement platform, driving a greater sense of purpose and getting back to the why of becoming a physician, allows for a different mindset and a better foundation to perform well in value-based care. P3 has also contracted and is in the process of expanding new capitation and contracts for oncology, as well as creating subcaps for things like tighter management of musculoskeletal conditions. Many of our health plan contracts are already showing decreased medical expense pass-throughs and a reduction in Part D exposure. The care enablement model is also creating more direct opportunities with our PCPs to drive more appropriate referrals to more cost-effective in-network specialists, plus improved referrals to palliative care and hospice for improved care of our sickest patients. This is a key directive of ours, increasing the number of patients enrolled in hospice from 2.3% in '24- 4% in 2025. Of course, we will continue to drive performance on our successful COPD program and begin new ones, like focusing on our patients with polypharmacy to reduce potential utilization expense and comorbidity. P3 understands the market dynamics that Aric described above, and we are strengthening our model where care happens, at the point of care, within the offices of our primary care physicians. With that, I'm going to turn it back to the operator to open the floor to questions. Operator. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Brooks O'Neil with Lake Street Capital Markets. Please go ahead. Hey, good afternoon, guys. This is Aaron on the line for Brooks. Are you able to hear me okay? Yeah, we hear you great. How are you? I'm doing well, thanks. I appreciate the added color on the guidance there. I was wondering if you could maybe elaborate on maybe the timing around reaching the potential profitability, understanding the commentary in the call around the reduction in membership and mix shift dynamics. If you could maybe add a little bit of the key puts and takes that led you to the range you provided and how we should maybe think about the cadence towards that profitability target. Yeah, this is Leif. Let me take a stab at answering the question for you. As we think about guidance for 2025, we have our three major inputs. One, which we've outlined in the $130 million of operating plan improvements, is on the revenue side of things. The way we're thinking about this for 2025 is we're thinking about getting about a 7.5% increase in revenue year- over- year as a result of our identification of burden of illness, our base rate assumptions as to the increase in revenue year- over- year, and then some impacts related to contracting. All three of those parties go into that 7.5% increase. You think about medical cost as another major driver of our opportunity for improvement from an EBITDA perspective in 2025. We're looking at about a $16 PMPM improvement year- over- year. How we came to that conclusion was we increased our run rate for normal course inflation of medical costs year- over- year, inflationary costs, in addition to added an additional amount for the second half of 2024, where we saw elevated costs across Part A and Part B. We offset that by some specific programs that we have across hospice and palliative care that we think are going to be really influential in 2025, as well as some chronic condition programs. Last and not least, the TIN rationalization and payer rationalization that we performed at the end of 2024. The last piece, obviously, is our OpEx, which is pretty straightforward. Got it. Thanks for that color. I think you ended around $39 million to end the year. Expectations, maybe you could talk a little bit about comparative to 2024, what you're expecting for 2025 on the cash front as you're sort of beginning to implement these new initiatives. Thanks for taking the questions. Yeah, absolutely. Yeah, you hit the nail on the head. At December 31, 2024, we were at $38.8 million of cash. What's not reflected as of that date is we received $15 million of additional capitation revenue in early January. That brings that total effective starting cash position to about $54 million. That's just to kind of level set. In addition, in February, we received an additional $30 million to help fund our first half 2025 operating cash needs. As you guys well know, we're regularly assessing kind of our liquidity requirements through our cash forecasting processes and scenario planning. We continue to have full support and backing of our Board, and we will continue to access capital markets as cash needs arise as we think about that in 2025. Great. Appreciate all that color. Thanks, guys. Thank you. The next question will come from Joshua Raskin with Nephron. Please go ahead. Hi, thanks. Good afternoon, guys. You hear me okay? Yeah, Josh. Thank you. Perfect. Perfect. I guess just to start, maybe we start with the fourth quarter results. I was sort of thinking of a stepping-off point. I think we talked about last quarter about $30 million when you adjusted 3Q for some of the one-time items. I thought I heard the prior period reserve development was not significant in the quarter. Did 4Q come in line with your expectations, or what was the deviation relative to even 3Q, just in terms of that underlying run rate? Yeah, Josh, good question. You did hit the commentary from our Q3 release about the $30 million kind of exit run rate of Q4. In Q4, we did have a couple of one-time things hit the P&L, and they were negative in nature, and they were to the tune of about $17 million. They were not related to IBNR. They were related to some other items that were part of the cleanup of, I'll just say, the accounting processes as I came in and transitioned over from my predecessor. Those would be one-time in nature and should be excluded from the total Q4 EBITDA numbers. It still sounds like $20 million, even if you exclude the $17 million, you're still about $20 million worse than 3Q. Is that just seasonality? I know 1Q, 4Q are typically lower, but is there anything else deteriorating in terms of utilization trends or anything like that? Hey, Josh, this is Amir. Sorry for the delay. Yeah, we did see increasing unit costs. We did have COVID, RSV, the typical things you'd see in that seasonality that did increase some of those costs there as well. We did have a plan of ours, one of our plans that had some poor performance as far as how they were looking at and working with some of their payment methodologies with their underlying providers, which we also had to take in that quarter. Okay. Okay. Now moving to 2025, it is an improvement in EBITDA of about $153 million, just using your midpoint. We have talked about the $130 million that you guys have already made up. One is, I think you talked about potentially getting some of the $130 million in Q4. Did any of that come through? What makes up that incremental sort of $23 million above and beyond the $130 million? Josh, this is Aric. Most of the $130, aside from some of the OpEx that we took care of in Q4, that we should have seen some benefit from there, most of it is coming in 2025 out of the $130 plan. Just to state that we were intentional about calling it a $130-plus plan. There are a few things probably to mention that are within our commentary today. One is around our partnership with the payers. We have found some opportunities with the payers beyond what was in our original $130 million improvement plan that we are working through with them right now. We are quantifying that in the $25 million range in terms of additional improvements we expect to get. That would also include, Josh, some of the network changes that we talked about last quarter as well. We have about 20 TINs that we put on what I'd call kind of a watch list to look at their performance overall. We are continuing to monitor that performance. By the end of this quarter, we will make some determinations after we have enough run-out to see if we need to action those as well, like we did last year. Okay. Gotcha. And then just the last one, I heard a couple of numbers in the Part D, and I just do not think I got it down right. But where are you in terms of getting out of Part D risk? 25% of your contracts have already been adjusted, and then did you say 50% this year, and then the remaining 75% for 2027? No. About half of our Part D risk is gone at this point. We are working with the other payers this year to see if we are able to get the other portion of the Part D out. We expect that to be a 1-1-2026 if we are successful. Hey, Josh, just one other question. Okay. I think I was interpreting. Did that answer your question? Sorry. Yeah, yeah. That's what I was looking for. Just what percentage of your members are you at risk for? It sounds like you're halfway there. Yeah. All right. Perfect. Thanks, guys. The next question will come from David Larsen with BTIG. Please go ahead. Hi. I think you mentioned some improving trends in utilization, Amir. There were three areas. Can you just sort of repeat those? Were those in 4Q, or is that what you are currently seeing in 1Q of 25? How complete is the 1Q data? We're only sort of three months into the year. It's my understanding it takes time to basically collect all that data. What gives you that visibility? Thanks. Yeah. Hey, Dave. Going back to quarter four. Quarter four, although we started to see some trends in admits per K, ED per K, Obs per K showing slight decreases in that trend, which was great, we still saw unit costs being elevated, as well as increasing surgical costs and things like that overall. We end up having a higher cost structure in quarter four, as we described earlier. However, those trends still seem to be continuing in quarter one as we look into the first six weeks of the year. We do have some line of sight. You're right. We don't have all the claims as of yet, but it's a good indicator from what we see from a census perspective and things like that. The other thing is where we're delegated, as you know we are for a number of our plans, we were able to start to see as well high-cost procedures, surgical procedures, things like that, were actually decreased from what we saw from quarter one of '24, which is also a good harbinger for, hey, we're sort of on the right track as we're looking forward to going further down the road into 25. Those are the signs we wanted to make sure we mentioned to the street and to people like yourselves to show that, hey, things have been better, which could be due to not only in our conversations with our providers, but also in regards to planned benefit changes, things like that, that may have also helped to affect, or I should say effectuate lower utilization starting in 25. Okay. Did you have a medical trend, a percent number that you reported for the fourth quarter and how that compares to last year? I did not. What we described was what we were looking at from the quarter from the 1%, the 0.5%, the 1%, and the 3% was indeed what we were seeing as a trend for the whole year in comparison for 24 versus 23. That is true. Let me say it that way. Okay. Okay. Okay. Thanks very much. Appreciate it. Sure. The next question will come from Ryan Langston with TD Cowen. Please go ahead. Hi. Thanks. Good afternoon. I guess just in the context of talking about some positive trends in Q1, how do we think about seasonality through the year, obviously with some of the changes in Part D kind of upending the quarterly dynamics? 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 one of '25. 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 copays, things like that. We've seen some from certain plans to defer some of that utilization. These things working together are actually helping us to see a better quarter one than we've seen in the past. Does that help? Yeah. I think I—oh, sorry. Go ahead. No, I was going to say I just wanted to make sure that helps. That was clear. Yeah, it does. Thank you. I guess just last thing for me, I thought I caught in your prepared remarks saying that Medicare, the macro environment for 2025, was improving. I guess can you just elaborate on that? Is that just more kind of you carving out Part D, or is there something you think structurally changing in 25, maybe just some of the benefit changes and things like that? Thanks. Thanks, Ryan. This is Aric. I think the biggest thing is really looking at the benefit design change that happened from 24 into 25 and what we expect will continue to happen from 25 into 26. That is a combination of base benefits as well as supplemental benefits, things like flex cards and those kinds of things going away, and other reductions that are moving utilization down. It is kind of a nice spot to see and to be in because we are seeing those things start to flow through. The next question will come from Ryan Daniels with William Blair. Please go ahead. Yeah. Hey, guys. This is Jack Slevin for Ryan. Thanks for taking the questions. I think most of my questions have been answered already, but you noted that you're looking to recontract like 50% of the payer partners this year and more next year. I'm curious if you can comment on how those conversations 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? Just kind of curious if you can give us any insights onto kind of what you're seeing there. Thanks. 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. What that means for their performance is when we do well, they get to do well. There are things that we provide that they're not able to do. When you think about things like quality numbers for the plans, they need the help that we can provide. When you think about the shift with the primary care providers and the networks in their markets, they need help there too. They recognize that we can provide that to them. It is a mutual partnership, and that does not always mean that they're always easy conversations, but we try to strive to land in a place that's mutually beneficial. Okay. Understood. Thanks. Maybe just as a follow-up too, I think you noted in your prepared remarks that you're expanding new capitation contracts, and it sounded like it was on the specialty side. Is this something that's rolled out through a pilot program? Or maybe you can just dive into that a little bit and just kind of comment on the demand you're seeing from the specialty side. Maybe just as a follow-up, is that something that could impact results this year, next year? I'm just kind of curious how that plays into P3's overall positioning kind of going forward. Thanks. Sure. Yeah, definitely, this is Amir. 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 subcaps as well to help control certain spend. I mentioned musculoskeletal in my remarks, but there are opportunities that we're seeing with certain providers that we can actually help control some of the costs in regards to some of the utilization we're seeing with key specialties, as well as even looking at Part B drugs to some extent. All these things will be seen starting in 2025 for sure, some probably starting in the middle of the year of '25 and going into 26. Okay. Perfect. Thanks for taking the questions. Sure. You're welcome. This concludes our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.