Jack Senft

Jack Senft of UBS, on for Kevin Caliendo, questioned if the one-year DHA renewal is typical or a stop-gap measure and asked for the gross margin outlook for the second half of 2025.

Answer

CEO Dr. Ido Schoenberg clarified that while multi-year deals are more common, the one-year term resulted from broad, high-level budget negotiations and does not reflect the client's view on the long-term partnership. CFO & COO Mark Hirschhorn noted that Q2 margins were boosted by implementation revenue and expects margins to be 'somewhat flattish' for the rest of the year, in line with initial guidance.

Jack Senft, on behalf of Ryan Daniels at William Blair, asked about the dynamics of payer re-contracting conversations and sought more detail on the expansion of new specialty capitation contracts, including demand and timing of impact.

Answer

Executive Aric Coffman characterized payer negotiations as mutual partnerships, where P3's value in areas like quality scores facilitates constructive conversations. Chief Medical Officer Amir Bacchus confirmed the expansion of capitation, particularly in oncology, and the creation of sub-caps for areas like musculoskeletal spend. Bacchus stated these new contracts will begin to impact results during 2025, with some starting mid-year and extending into 2026.

Jack Senft, on for Ryan Daniels, asked for more details on plans to enhance payer and provider contracts and whether P3 would exit relationships with uncooperative partners. He also questioned if the company would consider exiting entire markets, not just individual relationships.

Answer

CEO Aric Coffman responded that contract enhancements are focused on improving Part D terms and percent of premium, and that the company has already exited several subscale payer contracts. CFO Leif Pedersen confirmed that P3 is willing to exit entire markets, citing the decision to withdraw from Florida as an example of exiting a small, geographically isolated market that was not a strategic fit for investment.

Jack Senft of William Blair asked about Privia's growth focus, questioning whether the company is prioritizing new market entry or driving density in existing markets, especially since the guidance excludes new market entries.

Answer

CEO Parth Mehrotra clarified that the company can grow organically in existing markets without deploying capital, as those costs are already expensed. Capital deployment is focused on increasing density in existing states, which is highly value-accretive, and entering new states. He noted that while the current guidance is prudent and excludes new business development, the company has consistently added states and absorbed costs in prior years.

Jack Senft, on for Ryan Daniels, asked about the sequential decrease in gross margin, whether factors beyond the Payor mix shift contributed, the outlook for margins in 2025, and if the lower Q4 G&A expense represents a sustainable run rate.

Answer

CFO Ian Harris confirmed the gross margin decline was almost entirely due to the revenue mix shifting towards the Payor business, a trend he expects will continue to cause a slight decline in 2025, though less pronounced than in 2024. He explained the G&A decrease resulted from cost optimization actions taking full effect and signaled that some G&A savings would be reinvested into marketing and technology in 2025, meaning the Q4 G&A level is not a fixed run rate.

Jack Senft questioned the outlook for customer acquisition costs (CAC), particularly with the focus on awareness-driving partnerships and potential inefficiencies from an election year. He also asked about the different strategies for growing capture rates among new populations like military and Medicare.

Answer

CFO Ian Harris explained that the company's dynamic, in-house marketing operation has successfully managed CAC, noting that brand awareness increased in Q2 even as ad spend decreased. CEO Dr. Jon Cohen added that CAC is not a monolithic metric, as acquisition strategies and costs differ significantly across subsegments like Medicare, military, and teens. He confirmed that each population has a highly specific go-to-market strategy.

Jack Senft, on for Ryan Daniels, asked for a breakdown of the mid-single-digit growth guidance by segment and whether this rate is a sustainable long-term baseline. He also inquired about the client retention rate for Q4 and the full year 2024.

Answer

Executive Matthew McKee explained that while the education market presents an opportunity, the core healthcare segment will be the primary growth driver in 2025, with a balanced pipeline between environmental and dining services. He reiterated that the cross-sell opportunity remains significant. Executive Theodore Wahl confirmed that mid-single-digit growth is the baseline expectation for the next 3-5 years, with SG&A leverage expected to enhance earnings. He also stated that client retention was greater than 90% for 2024, trending higher in the second half of the year.

Jack Senft, on for Ryan Daniels, asked for an update on demand for environmental and education services, the company's manager training pipeline for supporting growth, and the long-term opportunity in the mental health and substance abuse markets.

Answer

Executive Theodore Wahl stated that 2025 growth is expected to mirror the current revenue mix, with the dining cross-sell being the 'lowest hanging fruit.' He affirmed the company is well-positioned with its manager training program, which he identified as the primary gating factor for growth. Executive Matthew McKee added that for adjacent markets like behavioral health, the company targets inpatient facilities of sufficient scale to support an on-site manager, noting growing demand for outsourcing in these areas.

Speaking for Ryan Daniels, Jack Senft inquired about LifeStance's capital allocation priorities between debt paydown, de novo clinics, and M&A. He also asked for details on payer negotiations and whether the recent G&A expense level is a sustainable run rate.

Answer

CFO David Bourdon stated that the primary uses of capital will be funding internal growth (de novos, technology) and acquisitions, with no plans to pay down debt. He also indicated G&A would step up in Q4 for strategic investments. CEO Ken Burdick added that payer negotiations are successful due to ongoing dialogue and strong employer demand for mental health access, which serves as a key lever.

Jack Senft of William Blair asked about the staffing levels for the new hybrid revenue cycle management (RCM) structure, the sustainability of favorable payer mix and hospital contract fees, and the key drivers of strong same-unit revenue growth.

Answer

CFO Kasandra Rossi confirmed that RCM staffing is complete at approximately 135 employees, which is deemed appropriate. CEO James Swift noted that hospital contract revenue is stable following renegotiations, while Rossi described the favorable payer mix as a multi-quarter 'reset' that is expected to level off. Rossi also attributed same-unit revenue strength to market-driven neonatology volumes and higher acuity in maternal-fetal medicine, which is expected to continue.