P3 Health Partners Inc. (PIII) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining us this afternoon. My name is Steve Tuekam, and I'm an associate with JPMorgan Healthcare Investment Banking team. Before we start, just a usual reminder that we'll have a Q&A session right after the presentation to the extent time allows. Today, I'm pleased to introduce to you, P3 Health Partners, a patient-centered, physician-led health care company. We have 2 wonderful speakers, Dr. Sherif Abdou, Chief Executive Officer; and Atul Kavthekar, Chief Financial Officer. I'm sure they're excited to tell you more about the company, and the work their team has been doing to lead healthcare in a new direction by cultivating wellness and not just managing illness. With that, I'll pass it over to Dr. Abdou.

Thanks, Steve, and thank you, everybody, for your time today. It's very exciting to be here in person finally. So hopefully, everyone is safe and enjoying the conference so far. So I'm going to get right to the point, since I'm between you and the drinks, so I won't take too much time for you today. So what we're going to talk about today is 3 things. Number one, I'm going to share with you the exciting opportunity of investing in P3 and why P3 is a great opportunity for everyone to be part of the success and the growth. Number two, I'm going to show you the data that support the continued growth, and continued improvement of the unit economics of the cohort and the patient results that we'll share with all of you today, including a case study of market entry. And definitely, at the end, I will share with you our updated guidance for 2022 and 2023 as well. So in opportunity, I'm going to split it into 5 categories. It is the tremendous level of demand and requests that we're getting from patients, from providers, differently from payers as well and that is fueling our growth and our pipeline moving forward. And I'm going to share with you the cohort study with a proven continuous, consistent, repeatable, sustainable unit economic and improvement in the outcome. And we're also going to share with you the data that you would notice. And unapologetically, I'm going to compare it with our peers and friends. They're not competitors, they're peers and friends in the space. And I'll tell you why the feeling are mutual. The more that we have level -- the reason that we have the receiving the significant demand and so is agilon, so is Oak Street is because of one another. We are spreading the word value-based contract. And you will see in the data, if you add P3, agilon, Oak Street, CareMax, Privia, Cano will constitute less than 5% to 10% of the space in the Medicare Advantage. So they're peers. They're spreading the words to us. So when I go to any place, "Oh, yes, we heard about Cano. We heard about Oak Street or we heard about agilon, we heard about you." So there is a level of acceptance we're paving the road for one another. So their peers, their friends. I like all of them. So -- and we're going to share with the data and share with you the comparison as well. And we're going to talk about the adjusted EBITDA and cash flow and the meaningful growth moving forward. And finally, we're going to share with you the strong financial outlook, and I'm going to leave you with the concept that there is an embedded EBITDA of over $200 million in the matured population that we're dealing with today. So -- and P3 would like to look at the solution rather than the problem. But when -- but the first step of solving a new problem is realizing that there is one. The next step is having a solution for it, not hanging on to a problem. So the independent physicians are in trouble. P3 is here to help. We have sustained -- if you go back in Tucson in 2018, when we started there, the rate of moving from independent physician to staff employed physicians is double what it is today. And the reason we believe we proudly believe that it's P3 helping those physicians to remain independent in improving the economics of providing care for the patients that were privilege and honor to serve together. And the payers are very important part and partner in our growth. We started with one contract in Arizona. We have 6 in Arizona today. We have 20 in the 5 states that we're in. So the payers are extremely important part to partner with. And as you know, most of the payers, if not all of them, had a demand from their boards and their directors to increase the value-based contract contribution in the population that they serve. And we can help with that, and that's why we partner with our payers. Health system. We thought in the past, these are off limits. And the health system in the past lived with their medical groups as a loss leader and move on. We have demonstrated and we're working with multiple health systems today to take over the management of their medical group, and move it from a cost center to a profit center. And move the hospital dependency on heads and beds to actually like a larger population with lower admits per 1,000. We have shared with the hospital system and now they're coming to the party to see that there is a clear path between just heads and beds and a population per 1,000 that can improve the unit economics and overall income in the hospital while reducing the population utilization and cost as well. We have dealt with a lot of local market that's highly inefficient. And because of our network and ability to -- once we mature in the market, we're able to steer and share the data with the primary care physicians. Since we were delegated to the network and credentialing, we are able to reduce the number of cardiologists or pair them into the -- to spearhead more efficiency and more better outcome and more cost effectiveness and quality indicator or cost indicator and utilization indicator as well. So these are the element of P3 models. We partner with an independent physician and improve their economics. We partner with the payer and improve the star rating, medical costs and benefits that they can share with the patient and help them grow this. We partner with the health system to move Medicare groups from lost leaders to a profit leader, and maintaining the higher quality and low-cost economics that can produce to improving the economics that can produce for the health system overall. And finally, the network flexibility, ability to identify, grow and direct and steer the patient to the right doctor in the right time in the right place and improving the quality and the cost overall in time as well. So our market entry, the map indicates where we are today, there is the map indicates where we're going to be in the future. The -- if you look at on the right-hand side on that slide, it's really the most exciting part. We grew from 300 primary care physician when we entered in the first market, and we ended up with 2,600 this year. And we have a CAGR of 72%. And with all the respect and admiration that we have for agilon and their model, the CAGR of physician improvement is on the right-hand side. So that's an important piece of our growth is the primary care growth. And we're very proud to share that 98% retention rate that we are having in the physician that joined us from 2018, 92% still with us -- 98% is still with us today. So how do you translate that into the model. So let's talk membership, 2018 was 10 actually started the year, end of the year at 15, in 2019, 15,000, today, we're over 100,000, 500-plus in growth. The revenue, we ended the year -- first year 2018, $88 million (sic) [ $86 million ], and we're going to end up '22 over $1 billion. That is a 600% CAGR. In the markets that we're in or the finance counties, by 2019, we were in 5 counties. As we sit here today, we're in 15 counties. It's 200% CAGR. So I love the cohort study as a scientist. And in the background, you want to prove everything through cohort, identify, move the bias and then follow it through over time. But as a population health management enthusiasm, I like the market analysis and the market case study first because that's what in life. Patients are going to come in and going to leave, you're going to add more payers, you're going to add more population, you're going to add more HMO, you're going to add more PPO you're going to add more -- so what are you going to do it then? What is the economics look like after all these changes. So let me share it with you and this is going to be posted and available to everybody online as well. 2018 in Arizona 10,000 lives. Today, almost 50,000 lives. And we have another 20,000 or 30,000 in our platform ready to be transformed into full risk. But today, we have 10,000. I mean it started 10,000 in Arizona, today, 50,000 lives. So revenue. We ended the year, as I shared with you, 2018, $88 million (sic) [ $86 million ], that's the only market that we were in. Today, Arizona alone is almost $0.5 billion in revenue. We started -- the revenue per member per month at $628. Today, we're around about $824 on an average, while growing and almost 400-plus percent in the membership and revenue. And the medical margin, this is the story, ladies and gentlemen, we started the first year negative $54 (sic) [ $53 ]. Last year, annualized '22, $148 (sic) [ $149 ] PMPM positive. While growing the population 4 times because that is the real world. You're going to grow it 4 time, and what are you going to do with the medical margin. The medical margin went from negative $54 (sic) [ $53 ] to 148% -- so that $148 (sic) [ $149 ] PMPM, apology. Number of providers started with 300 and now it's almost 1,600 over the same period of time. Haven't lost much, less than 2%. And they are fueling our growth as well. Number of health plans, the payers care about you, do the payers saying, how could you starting with one, Blue Cross Blue Shield of Arizona, today have Blue Cross Blue Shield of Arizona, we have Aetna, we have Anthem, we have United, we have Humana, we have Centene, pretty much all the payers in Tucson and surrounding county have signed contract with us in Arizona. So I'm going to just frame it one more time to remind you. We started with 10,000 live. Today, it's 50,000 lives. We started with $88 million (sic) [ $86 million. ] Today, it's $0.5 billion. We started with $628 PMPM. Today, we're at $824 PMPM and funding. We started with a negative $54 or so, $53 PMPM negative Medicare margin today at $146 (sic) [ $149 ] PMPM medical margin. And we started with 300 providers [indiscernible] first our network. Today, we're at 1,600. And we started with 1 health plan. And today, we have every major health plans in Pima County and surrounding county that will have partnered with us as well. So great case study, big picture. What happened with the cohort? I want to see the cohort. Here comes the cohort. So you can tell in '19 and '20 and '21, what we did is picked up the people that came at 1/1/2019, followed them through the 3 years. The one that came in 1/1/'20 followed them through 2021, '22 annualized. And same thing with '20 and '21 and end of '21 to '22, the mid-year '22. So you can see in the first cohort, we had a 5% improvement from the benchmark. In the second cohort, we have 7% improvement in the benchmark. And the final cohort or the longest cohort, we have an 8% improvement from the benchmark. So these are real patients. These are consistent patients over a period of time. This is a true defined cohorts and that's what we consistently improved comparing to the benchmark. That is how you get a medical margin from negative $54 (sic) [ $53 ] to $146 (sic) [ $149 ] over 4 years in Arizona, while you're growing it from 10,000 to 50,000 lives is by consistently producing a better outcome to the maturing cohort from with that. So this compares one more time to agilon. So again, cohorts over time, the depth of COVID and then it lands almost in the same field in the medical -- in the clinical margin in -- for the population that we both are having the privilege and honor to serve. So one ask me actually while I'm preparing the presentation, so why do you compare yourself to agilon so much? I think because of the similarity of the models and independent physicians and not building clinics or whatever, so more into the affiliate network model. And I think similarity of the results and the outcome is compelling. And they're valued just $7 billion and we're not. So I want to share with you that we should, by tomorrow, have the same market value as agilon. I showed you the results, just kidding. So the utilization. So how do you improve the medical margin? How do you improve -- it's improving utilization from the benchmark. I can repeat it to you, it's 30% to 40% reduction in admits per 1,000, a SNF per 1,000 and in ER visits per 1,000. One more than the other cannot ignore the COVID impact and cannot ignore the fact that we've never had a single year where we had more continued persistent patient than new patients. We always had every year more new patients than the old continued patients. So that's why I'm going to talk about the inflection point moving forward and this. And the inflection point of this. For the first time in '23 and '24, we're going to have more continued persistent population than in new population from the growth. So that's an important point. That is the inflection point. That is why we drive into breakeven and profitability in '24 because for the first time, our mature cohort that performing as you saw is going to be the majority of the population that we're going to serve for '23 and '24. So like I said, an average margin in the cohort over the years, $68 in year 1, $162 like I shared very similar to whereas agilon, we might be running a little a year behind or so, but it's very similar to agilon. And anticipated increase in EBITDA, we're going to improve our EBITDA almost 50% or more next year, as we will share with you in a minute. What drives the EBITDA and the cash flow? Maturation of the cohort and the population that we're serving for over a period of 2. The consistent growth, not overgrowth but it's consistent where we will have more population that mature and persistent with us than the other. There is a significant onetime expense last year. I can go tell you on in details, but the reality is there is a $10 million to $30 million basically related to either onetime adjustment or onetime expense over the last year. And I think engaging into fully delegated contracts, where we get to pay the claim, receive the premium upfront that's going to allow us a more positive cash flow into the operation, and earlier cash receiving in the settlement, if we receive the payment, we retain the savings immediately. We will have to wait until we settle with the health plan. And let me give you the serious stat that the lawyers give us some lecture how to talk about. So 2022 guidance, we're going to reaffirm all the numbers that we shared with you at the end of the year today, including the revenue membership and EBITDA investment. 2023 numbers, we're expecting 115,000 to 120,000 Medicare risk membership. That's 15% to 20% more than end membership. But remember, we have an attrition rate of about 10%, which is half of the national average. But -- so we're going to add on an average 20% to 25% new patients in the population that we're going to have the privilege and honor to serve in 2023. And our revenue guidance is $1.20 billion to $1.25 billion, up about 14% to 20% from 2022 full year revenue. And our adjusted EBITDA is between $40 million and $60 million or $60 million and $40 million depends on your methodology of calculation. It will remain negative but it would be an improvement EBITDA by 50% from last year. And we're expecting and continue to be bullish, consistent and believer that we're going to be in a breakeven to a positive EBITDA in 2024. So -- and I'm going to leave you with that if you are an investor interest in P3, there is a long-term embedded EBITDA in our unit economics of the population that exists today for about $200 million. So we still remain bullish and consistent on our prediction of long-term -- 20-plus percent long-term EBITDA. And the -- if you calculate that, that will give you a much bigger picture of the investment opportunity in P3. With that, I thank all of you for your attendance today. I'm excited to be here presented on behalf of P3 and I'm excited to be in person and be safe and Happy New Year. Thank you, everyone.

[Operator Instructions] Also, I have some few questions that have been submitted online. I can start with those in the meantime. First question, what are the levers you pull to align incentives with physicians?

So -- it's a great question. Thanks, Steve. And it's actually, we get asked that a lot. So there's economics, so we usually talk about social more of an economic incentive, but I'd like to split it into a little bit more. Let me get the economics out of the way. It's important. It's a -- and consistently see an evidence of 50% increase of the physician compensation from the average market income in the markets that we're lucky to serve with them. Number two, it's the workflow. The -- we accommodate our model into the workflow, we don't ask the provider to change their workflow to fit in our model. We have -- in a very few occasions that we've talked to the doctors, not even in a competitive way but just talk to them about as you talk to any other models or any other MSOs. A lot of the other MSOs require the doctors to change the workflow to fit in their model. We don't. We actually -- because being physicians ourselves, being primary care ourselves, we have set down in the back room in an architect and design multiple workflows for physician try to create that. So they like us because we fit in our workflow. We don't ask them to fit in ours. And finally, I think the clear purpose and the team surrounding them that we put in place that allow them to be able to serve their patient better and get a better outcome to their patient, it's exciting. And I would love to share with you some video -- testimonials video from our doctors from Oregon and Arizona, that voluntarily and an independent interviews in their local TVs, they went and just converted the conversation from talking about them to how P3 help them, help their patient, help their family and so forth. So it's an exciting opportunity to partner with the physician improve outcome to their patients.

Okay, I'll go to the next question. Technology obviously plays a big part in your business. Can you talk a little bit about your tech stack? Is it internally developed? Is it off-the-shelf?

So very early on, we sat down and debated the role of the tech in our population health management. We have determined a few things. Number one, we're not a tech company. We're a health care company. Number two, we're going to be a tech-enabled company. We're not going to be tech-dependent or tech-driven company. We're going to be tech-enabled. And number three, we determined that what we really, really need to do is to get an effective, efficient, actionable data to the providers at the point of care. Going back and meeting with the doctors, yes, it's helpful and create a competition, a month or a quarter later and say, you didn't do great. Your admits were not great. Okay. Well, you made me feel good. Of course, it's a sense of competition and it works a lot of the time. But going at the point of care and telling them, here's the 5 things that you can do today they can improve the outcome tomorrow or by Friday or next weekend, that is what they want to do. Tell me what to do now. Don't tell me I didn't do well last month or last quarter. Yes, I'd like to get that report, but it's not as helpful. So we determined we are not a tech company. We're tech-enabled, not tech-dependent and we're going to get the data to the doctor at the time, at the point of care but it's going to be actionable, timely data to use as well. I didn't answer the question if it's off the shelf or whatever. It's a mix. So our data analytics is proprietary, and we build it, but EHR is Athena and accounting is this. And so anything that we find off the shelf that is easy to use, we do it. But our analytics is proprietary and we build it ourselves.

Can you provide a breakdown of your membership by product type, like what percentage is MA, MSSP, ACO REACH?

So the population that we have today, 100% are MA. They're a full risk patients with 100%. We have in the neighborhood of 8,000 to 10,000 MSSP that will be converting to ACO REACH effective this year. But in the past, we did not have any DCE or risk in regular Medicare but we will starting in 1/1/23. And we have about 20,000 plus thousand commercial lives on shared savings in our platform. We have about 8,000 to 20,000 of Medicaid and commercial on a capitation and shared saving, but not risk at all. So -- but the full risk patient 100% of them are MA, as we sit here today, 98% of our revenue comes from MA risk patients.

Okay. There's obviously a big focus on profitability in your industry. Can you talk a little bit about the key drivers -- the key levers you'll pull to achieve it, profitability?

Sure. I'll let him answer...

Let me try. Thanks for the question. I think it's an important thing and something we're definitely focused on. But there's a couple of key drivers that are going to take us from '22 to '24, where we're expecting to become profitable on an adjusted EBITDA basis. First of all, is continued growth on the member side. Secondly, it's going to be harvesting greater revenue in terms of on a PMPM basis. The medical expenses, we're going to continue driving down. And you'll see some data in the presentation materials that Sherif had just presented, and I think they're quite compelling, and I think we expect those to continue. And then lastly, it's really around our operating expenses. I think the company has incurred a lot of onetime expenses that we saw this year as a result of some things that were a bit out of the control and part of being a new public company but we expect them not to recur going forward. Number one. And number two, I think there is a greater emphasis and a greater focus on managing those costs much more actively going forward. So all of those things combined are going to be the real important drivers. And that's going to be kind of a continued emphasis not just for a few quarters but that's really going to be the new way we run the business.

Okay. Maybe one more question. Can you quickly comment on the audit? I know it's been another big focus for the past few quarters.

Yes. No, it's -- thanks for the question as well. I think that's also important to address. I'm still relatively new here, but as you can imagine, that's something that I was thinking about even before I joined. And then the short answer is yes. I think that all of the challenges are generally behind us. I really like what I see. I think there's been a lot of focus that the company has put into its infrastructure before I joined, and I think there's going to be continued investment in strengthening, not just the accounting, but more broadly, the finance, the data analytics capabilities the company has, I mean, that's going to be really critical as we are more effective at telling our story. And -- but to answer your question, absolutely, I think we're in pretty good shape.

Great. Thank you. Okay. If no further questions, Dr. Abdou, if you have any closing remarks, maybe?

Thank you very much. Really appreciate the opportunity. Thanks, JPMorgan and its team in putting this together and inviting us to present and a great team to work with. And thanks, everyone, for your time and attendance. And hopefully, we'll see you in person next year.

Thank you very much.

Thank you.