On Monday, BTIG downgraded P3 Health Partners Inc (NASDAQ:PIII) from Buy to Neutral following the company's fourth-quarter earnings report.
P3 Health reported a revenue of $346.9 million, a 34% increase year-over-year, surpassing both BTIG and consensus estimates which were set at $300 million and $303 million, respectively. However, the company's adjusted EBITDA of negative $44.3 million was significantly below the expected negative $8.4 million by BTIG and negative $4 million by consensus.
'Given the higher than expected medical claims costs, increases in reserves, lack of visibility, and fairly tight cash position, we are downgrading PIII to Neutral," said the analysts.
In the fourth quarter of 2023, P3 Health experienced approximately $40 million in additional medical costs due to an uptick in Incurred But Not Reported (IBNR) reserves, increased utilization, and a receivables writedown. These costs were attributed to factors such as the flu, COVID-19, Medicare Part B, and overall higher usage in Medicare Advantage markets.
Despite a roughly 26% reduction in medical expenses in January 2024 compared to December 2023, indicated by a decrease in hospital admissions and emergency department visits, BTIG expressed concerns about the sustainability of these improvements. The company's management described January's figures as more normal, but BTIG remains cautious. They noted that it can take 6-9 months to obtain a clear view of actual claims data following the date of service.
BTIG also highlighted the aggressive cost management strategies being adopted by health plans in response to financial pressures, which could further impact P3 Health's visibility into claims costs. With medical expenses possibly remaining high, there is worry that P3 Health's projected EBITDA for 2024, which is estimated to be between $20 million and $40 million, may not be achieved.
P3 Health has recently raised an additional $25 million, bringing its total cash position to $55 million. However, BTIG views this amount as insufficient, considering that P3 Health used $76 million in cash from operations in 2023. The firm's analysis suggests a cautious outlook for the company's financial health moving forward.
InvestingPro Insights
According to the latest data from InvestingPro, P3 Health Partners Inc (NASDAQ:PIII) is facing financial scrutiny. The company's market capitalization stands at $325.38 million, but it's grappling with a negative P/E ratio of -5.63 for the last twelve months as of Q4 2023, indicating that it is not currently profitable. This aligns with the concerns raised by BTIG regarding the company's cash burn and lack of profitability.
The InvestingPro Tips highlight several challenges for P3 Health. Most notably, the company is quickly burning through cash and suffers from weak gross profit margins, which are at a mere 2.5%. Moreover, P3 Health's short-term obligations exceed its liquid assets, adding to the financial pressure. These insights suggest that the company may face further difficulties unless it can reverse these trends.
Investors considering P3 Health should note that the company does not pay a dividend, which could be a factor for those seeking income-generating investments. For those looking for more in-depth analysis, InvestingPro offers additional tips on P3 Health's financial health and prospects. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable insights.
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