Good day, and welcome to the P3 Health Partners First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Ryan Halstead. Please go ahead.

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 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 flow. 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 a 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 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 Aric Coffman, CEO of P3 Health Partners.

Thank you, Ryan, and thank you all for joining us today. The quarter was in line with our expectations. I'm going to cover the following topics in my remarks. First, our 2025 guidance; second, an update on our strategic initiatives that we announced on our Q3 2024 call; and third, a high-level view of our quarter. Leif will go into more financial details shortly. First, we are reiterating our guidance for 2025 based on the following facts. Three of our four markets are breakeven or better in Q1, and we expect operating metrics from our most recent initiatives to hit in Q2 and grow sequentially throughout the rest of the year. We have one payer that is an outlier on performance. They have been a collaborative partner helping to contractually resolve the performance issues in 2025, with more improvements ahead in 2026. Given some of the 2025 insurance benefit design changes, we are seeing that start to flow through into better financial performance across our markets. Additionally, we saw increased funding across our markets by 8% on a PMPM basis, indicating more accurate capture of disease burden even with V-28 changes. As we outlined in our prior remarks, we began implementing our programs in the back half of 2024 and are rapidly scaling in 2025, making future performance even brighter. Now on to execution. We are executing our programmatic initiatives ahead of schedule, representing over $130 million of adjusted EBITDA improvements across our three buckets: operating efficiency, contracting, and operational execution. On operating efficiency, we have achieved the goal of a $20 million year-over-year improvement and have identified additional efficiencies that we are executing against in Q2 and throughout the remainder of the year. Operating expenses in Q1 '25 declined 18% sequentially and 11% year-over-year. This improvement reflects streamlining corporate overhead functions and driving efficiencies in delegated services. At the same time, we've strategically reinvested dollars into our market operating teams to support frontline execution and drive long-term growth. For contracting, we are ahead of schedule on the $35 million in incremental EBITDA improvements and are now working on realizing additional opportunities in our remaining contracts that will impact 2025 and 2026. We have already renegotiated payer contracts to reduce Part D exposure, improve funding, and are continuing to work with our one outlier payer partner on additional opportunities for improvements after addressing some of the issues we saw in 2024 and 2025. In network contracting, we had 20 TINs that we disclosed that were on our watch list, and 18 of the 20 have made significant improvements, while 2 contracts were eliminated based on a comprehensive performance analysis. Demand from payers and primary care providers for strong value-based care partners is high. Growth remains a lever we can control, thanks to our consistent track record of achieving utilization rates better than local fee-for-service benchmarks and quality scores nearing or exceeding. On operational execution, the care enablement model is bearing fruit and gaining momentum in reducing medical expense and improving outcomes. The model encompasses enhanced data sharing, improved point-of-care decision-making, and real-time tools supporting more comprehensive evaluations. The highest level of engagement with the deepest deployment of people and tools are what we refer to as Tier 1 providers, and we refer to the percentage based on the number of members in that tier. There has been a steady ramp of converting groups into our Tier 1 category, indicating the highest level of collaboration and engagement. Beginning this year, Oregon lagged the rest of the markets with the percentage of Tier 1 at 20%, and now we are on track to have 60% enrolled by the beginning of Q3. On the medical expense side of the equation, our complex care program, which includes palliative care and hospice care, is on track to deliver over $30 million of savings for 2025 through three primary value creation levers: increasing clinically appropriate referrals, reducing hospital-related site of care mix, and increasing the 90 to 100-day non-hospital referring site of care mix. We expect these numbers to begin to show in Q2 and continue through the second half of the year. Next, our quality performance, which is trending positively, saw a nearly 30% improvement in Part C measures when comparing April 2024 to March 2025. Amir will comment further on his section on the impacts across our metrics. For Q1 results, we reported membership and revenue in line with expectation. Total revenue is $373 million, a 4% decrease from the prior year, reflecting our intentional network and payer rationalization. Our Q1 membership decreased by 8% year-over-year, consistent with our prior commentary and guidance range. Our per member funding increased by 8% to $1,063 on a PMPM basis compared to the full year 2024, reflecting both improved capture of disease burden and favorable impact of our strategic contract renegotiations. We continue to enhance our ability to more thoroughly and accurately address our members' health conditions, ensuring appropriate care planning and gap closure. In doing so, we are generating more value from our existing membership base even as we've strategically exited certain partnerships and payer plans to optimize our network. I'll add a few comments on ACO REACH as well. Over the past year, our ACO membership has increased by 60% and is now growing profitably. We are confident in our ACO operations contributing $8 million of EBITDA as reflected in our full year guidance. With that, I'll hand it over to Leif to walk through our financial results in more detail.

Thanks, Aric. I'll start by providing context for our first quarter financial results and then turn to our 2025 guidance and liquidity position. Average membership for Q1 2025 was approximately 116,000 compared to 126,000 in Q1 2024. This 8% year-over-year decline was intentional and aligned with our strategy to exit unprofitable plans and remove nonviable providers from our network ahead of 2025. Notably, our ACO REACH population now accounts for approximately 15% of our total membership at the end of Q1. For the first quarter 2025, capitated revenue totaled $370 million and total revenue reached $373 million, both in line with expectations. This represents a 4% decrease year-over-year, primarily driven by the membership decrease noted above. On a per member basis, funding increased by 8% compared to the full year 2024, reflecting enhanced burden of illness documentation accuracy and improved contract terms. Medical margin for Q1 2025 was approximately $17 million or $49 PMPM compared to $37 million or $96 PMPM in Q1 2024. Q1 2025 included a $23 million negative impact from prior year claims related to a single regional payer partner. After normalizing this, Q1 2025 medical loss ratio was approximately 89% compared to a full year normalized 2024 MLR of 96%. Adjusted operating expenses decreased by $3 million compared to the first quarter of 2024, representing an 11% year-over-year improvement. The full impact of our planned cost reductions will materialize over the coming quarters. We remain diligent in reviewing our operating costs to drive efficiency across delegated services and eliminate waste within corporate overhead while continuing to seek opportunities to enhance our effectiveness in provider and payer partnerships. Adjusted EBITDA for the quarter was a loss of $22 million or $64 PMPM. The majority of this loss is attributable to a single underperforming contract with $9 million net coming from a prior period adjustment. The breakout of the $9 million is $23 million in claims, as noted previously, offset by a positive $14 million in retro adjustment to supplemental benefits. When normalizing for this, adjusted EBITDA would have been a loss of $13 million. The $13 million loss was wholly attributable to a single payer performance, which is being actively remediated; the rest of the business is operating at or near breakeven. ACO REACH contributed $2 million of positive EBITDA in Q1 2025, representing a $5 million sequential improvement and a $2 million year-over-year increase. Looking ahead to the remainder of 2025, I want to reiterate our full year guidance. We remain confident in our ability to meet our full year targets for the year for the following primary reasons. Excluding a single payer partner who we are actively collaborating with to resolve performance issues, our markets are performing at breakeven or better in the first quarter. Two, as Aric noted, P3 is on schedule in executing the $130 million operating improvement plan and has identified additional opportunities across payment integrity initiatives, end-of-life care management, and payer reconciliations. The timing around when these additional items will materialize within our P&L is still being refined. As Amir will discuss, we're seeing positive results from our clinical initiatives in improving utilization, including admissions per 1,000 and emergency department visits per 1,000, and higher provider engagement with our care enablement model. Turning to the balance sheet, we ended the quarter with approximately $40 million in cash. We are actively managing our liquidity and have multiple levers available to ensure adequate cash flow in 2025 and continue to receive strong support from our investors for our strategic initiatives. With that, I'll turn the call over to Amir to discuss our clinical performance.

Thanks, Leif. I'd like to focus on the clinical initiatives that are driving our performance improvement and early positive trends we're seeing across our markets. In comparing Q1 '25 to fiscal year '24, our utilization metrics have trended positively for acute admissions, emergency department utilization, and post-acute care admissions, with observation usage remaining the same due to the increased focus of the two midnight rule by the hospitals. Using current census data, admits per 1,000 decreased 3.2%, emergency department visits per 1,000 saw a 21% decrease, and skilled nursing facility admissions per 1,000 decreased 22%. Observation rates remained flat. Furthermore, we've seen a 1% decrease in readmissions despite seasonality, and our skilled nursing facility average length of stay for our delegated lives has decreased from 19 to 14, a greater than 25% drop. High-cost claims greater than $20,000 have decreased by 11% in January and February of '24 versus January and February of '25. Overall, as Leif stated above, our medical loss ratio decreased from 96% in fiscal year '24 to 89% in Q1 of '25, with more opportunities to come. Our clinical programs are showing initial positive results, particularly in oncology cost management and targeted initiatives for high-cost disease states. In our delegated markets, we decreased high-cost elective procedures through better care coordination and appropriate site of care management. Our primary care provider education program velocity has significantly increased, with the number of education sessions up 235% year-over-year, the number of educated providers up 141% year-over-year, and the number of unique educated providers up 65% year-over-year. Our care enablement model is producing more frequent interactions with our providers and driving more patient visits and improved engagement. This engagement led to the adoption of a new point-of-care tool by our clinicians, which notably improves workflow. This is fundamental to our clinical strategy. To date, we are already seeing a 6% plus improvement in the burden of illness capture. Moreover, we've increased our quality gap closures that will become evident in Q2 of '25. Our complex illness program is exceeding budgeted targets, with January performance above our projections and showing even more momentum as we progress into Q2. In fact, 36% of our selected members are now enrolled, putting us ahead of our goal to achieve the $30 million plus, as Aric and Leif described. We continue to expand our disease-specific programs. Our COPD pulmonary management program is showing positive results in reducing hospital admissions and emergency department visits for these patients. Additionally, we've launched a polypharmacy management initiative to address medication issues in our complex patients and improve medication adherence. Our P3 Restore program, which provides personalized one-on-one sessions with a physician coach aimed at reducing physician burnout, continues to receive positive feedback from our provider network. This program is a crucial part of our strategy to transform health care and improve engagement, yielding better patient outcomes and longer clinician tenure. Our Innovaccer implementation is now fully operational in Nevada with strong adoption across our provider partners. The system continues to track on schedule for complete deployment across our entire population by mid-summer, enabling us to standardize our data infrastructure and analytics capabilities across all markets, bring AI capabilities into our toolbox, and allow us to more efficiently provide needed information to our physician partners. The fundamental clinical metrics driving our business forward are trending in the right direction. We remain confident in our ability to achieve our 2025 targets. With that, let me turn the call back to Aric for closing remarks.

Thanks, Amir. I want to emphasize several key points that demonstrate our momentum in 2025. While there are still some headwinds facing the overall industry, we are reaffirming our guidance across all metrics based on the positive progress we are seeing as a result of the many aforementioned initiatives. Three of our four markets have already achieved breakeven or better in Q1, with our operational initiatives expected to deliver increasing benefits starting in Q2 and building throughout the year. While we do have one payer partner performing below our targets, they have been collaborative in addressing these challenges for 2025, with additional improvements on the horizon for 2026. It's particularly encouraging to see the positive impact of benefit design changes flowing through our financials across the markets as we expected. Despite the V28 changes, we're experiencing an approximately 8% increase in PMPM funding, reflecting our improved burden of illness capture. This is especially promising considering we are still scaling these initiatives. And as we complete this rollout in 2025, our performance trajectory looks even stronger. Looking ahead to 2026, we are encouraged by the approximately 5% increase in the final rate notice from CMS, marking a significant step forward in addressing the rising costs and utilization trends. Operator, I'll now turn it back to you for questions.

Our first question comes 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?

Yes, we hear you great.

Awesome. So I really appreciate all the color on the call, and congrats on the progress so far. Just curious on a couple of things from our end. So I guess in relation to the $130 million in EBITDA initiative, it sounds like you've made some pretty tangible progress there. I'm curious how much of that materialized in Q1 versus what you expected, and maybe what we can expect to be layered in throughout the rest of the year here. Maybe just some of the key puts and takes there would be great.

Yes, Aaron, it's Leif here. I appreciate the question. And as it relates to the $130 million of improvement from an EBITDA perspective and actually what's been layered into the P&L or achieved thus far, I would think about it this way. From a top-level perspective, we do have some of the improvements back-end weighted in 2025. So you will see a heavier benefit in the back half of the year than you see in the front half of the year. But if you broke down some of those individual components and thinking about OpEx, we achieved roughly about maybe a fifth of our OpEx savings in Q1. And why I say that is some of the activities that we did exercise to drive our OpEx savings were initiated or have an impact in Q1, and the full run rate will come back in Q2 through Q4. And then from a contract rationalization perspective, most of those are ratably going to be seen as an impact to the P&L equally across the quarters. So you'll see one fourth approximately come to the P&L from that standpoint. Really, the back-end weighting of the material perspective on our EBITDA goals is really going to be around those operational execution items, and those are going to be on the back-end side where we'll see a disproportionate benefit to the P&L than what you saw in Q1.

Absolutely. Okay. Thanks for that, Leif. That makes sense. And I know Amir mentioned this briefly on the call, but I guess I'm curious about engagement and satisfaction trends with the Restore program. Curious if you can share any metrics there, just anything you've heard in general that's worth mentioning?

Yes. So just overall, for the whole care enablement model, the whole engagement strategy that we've been doing with the increased investment with boots on the ground with our providers has been working quite well. This has given us that opportunity to do the point-of-care tool in the offices that drive better performance on basically everything that we do, which is great. So that's very good for us. As far as the P3 Restore program, we are actively electing key providers within each market to go through the program. And as they go through that 3-month program and graduate, they become people that actually become ambassadors for other providers. So that is actually working well also. So currently, we have probably 9 or so physicians that have already gone through and have been enriched by the understanding of what the program can deliver. So we're expecting a lot more to come from that as we disseminate what that program looks like to other physicians when we have our global physician meetings. But as far as actual numbers in overall performance from those, we'll be tracking that from those physicians that have gone through to the performances in their practices.

Got it, got it. Makes sense. Okay. Appreciate it, guys. Thanks for taking our questions.

Thanks, Aaron.

The next question comes from Josh Raskin with Nephron Research. Please go ahead.

Hi, thanks. Good evening. I guess I'd like to drill down a little bit on this one specific outlier payer that's given you some issues. Maybe just some color is that multiple markets, maybe what percentage of capitated revenues are coming from that one? And then more specifically, what's driving the actual cost pressures from that payer?

Hey, Josh, this is Aric. Thanks for the question. So in terms of overall markets, we don't call out any individual payers by name in the way that we think about reporting out. I would say that we don't have any single payer that is more than about 22% of our overall top line revenue across any of our payers. And I would also say that they are being very collaborative in how we rectify some of the things that flowed into 2025 from 2024, as well as 2025 corrections and being really collaborative in how we're working together to look at 2026, including a lot of things in the benefit design.

So I guess maybe, Aric, just like what are the actual costs? Is it more - are you seeing inpatient? Are you seeing utilization of sub benefits? Or what exactly is driving those costs? What's the surprise?

Hey, Josh, it's Leif. Those costs that came in were - just to be very clear, we were all truly related to 2024, and they were all mostly inpatient or disproportionately weighted to inpatient as opposed to professional services.

Okay. So it's not like the 2025, it's not like the first quarter was running terribly wrong. It's just you catch up from.

2023 is completely isolated to 2024.

Yes, 2024, maybe just to add to that, Josh. In addition, when we look at that overall book of business, it was distributed throughout that geography relatively equally. And that particular payer had some claims migration difficulties, which is what turned out, which caused the delay in getting that information to us.

All right. So they had a systems issue, and then obviously, it came in late. Got you. Got you. Okay. And then you guys mentioned - and I heard it today as well, but on the last call, you were talking about these sort of payer contracts that you've been working on in terms of getting more efficiencies. And I guess I'm specifically interested in the supplemental benefit changes and maybe some of the impacts of not having the Part D risk because everything - is that working as expected and maybe some of the highlights there?

Yes. I would say it's working as expected and maybe even a little bit ahead of schedule. And I think where we had given guidance around those renegotiations is that we would have - we did 25% of the contracts last year. And it was a combination of things. It was an increase in overall percent of premium that was coming through. It was also on rationalizing some of the supplemental benefits that were going out from a cost perspective. And then as we look into 2026, again, there are going to be additional things that happen around 2026 benefit design. But the level of engagement has been really high. And even where - in one example that we have with one of the payers, our network contracts and the network that we hold is a significant improvement over the network that they hold, and it's a plan that we're not delegated for network. But in that particular situation, they're taking our network as a proxy to say, hey, how can we get this design even in 2025 back into our programmatic so that we can see the same results that you're seeing in your network? And just across the board, the level of collaboration from our payer partners has been fantastic.

Okay. Got you. Got you. I'll leave it there.

Thanks, Josh.

Our next question comes from Ryan Langston with TD Cowen. Please go ahead.

Thanks. I'm sorry if I missed this, but there's been some kind of high-profile public commentary out in the market about accelerating trends in Medicare Advantage. Just wanted to see if that's what you're seeing, if you're not seeing that. Just kind of any maybe early reads on Q2 or just anything related to that would be helpful.

Hey, Ryan, can you help me out a little bit? I just want to make sure I'm a little more clear as far as what you mean as far as the accelerated things that you're seeing in Medicare Advantage, just we're speaking the same language.

Well, there was a very large public payer this week who has really talked about how trends are starting to get worse than they were even, say, a month ago when they reported. So just wondering if you're seeing sort of a similar trajectory or if you're not?

Actually, we're not. We're actually seeing improvements from the comments that Aric made as well as Leif. Things are actually improving from the benefit structures and what we've been paying or seeing as we start '25; much better as far as utilization from what we see from, I would tell you, from just the actual census volumes that are coming into the hospital, etc., are actually on the decrease. So those things are actually showing us good signs that things are getting better right now. We do know costs are relatively high on a per unit basis, but we do see the overall volume utilization coming down, which is a good sign going forward.

And then maybe one thing to add on that. Ryan, we're seeing the same trend for what it's worth on ACO REACH when we compare first quarter over first quarter for our membership.

Okay. Great point. That's helpful. And then I think Josh asked about kind of that one payer you called out. Maybe I'll ask about the market. You said 3 out of 4 are breakeven. That's pretty good progress. But maybe just give us some details on kind of what's going on in that one market. Is that where that payer is located or anything else kind of going on there you'd call out? Thanks.

Hey, Ryan, it's Leif. You kind of hit the nail on the head, leading the horse to water there, right? That one payer is in one market, and that one market is the market that is underperforming currently today. And as we noted, all of our other markets are operating at or near breakeven.

And then I would say, this is Aric. And within that market, we have more than one payer partner in that market, and we're not seeing the same kind of trend with those other payers in that same market.

Okay. That's helpful. Thanks, guys.

You're welcome. Thanks.

This is the end of the question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.