P3 Health Partners Inc.

Good day and welcome to the P3 Health fourth quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist 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 a 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 Gabby Gable of Investor Relations. 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 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, normalized adjusted EBITDA, 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 those 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 Eric Kaufman, CEO of P3 Health Partners.

Thank you, Gabby. Good afternoon and thank you for joining us today to hear about our results and future direction, including significant smart growth into a new geography, which we will detail in a bit. We are excited about 2026 and beyond as we execute on our plan. I want to start by framing the financial trajectory of the business as we move into 2026 before Amir and Leif provide insight into our 2025 performance. For 2026, we are guiding to an adjusted EBITDA at a midpoint of $10 million, representing a significant improvement from our 2025 adjusted EBITDA loss of $161 million. We have clear visibility into that improvement, supported by actions already underway. Over the past year, we have identified $170 million of structural and operational improvement opportunities that bridge this performance. These opportunities fall into three primary areas. Number one, $125 million or 75% from contracting and revenue-related actions, which is already being realized in our 2026 financials. Number two, $35 million or 20% from operational execution around MedEx initiatives and network contracting. And number three, $10 million or 5% from payer benefit design collaboration and membership profiles. Taken together, these provide a clear path from our 2025 results to our 2026 outlook. These changes reflect fundamental improvements in how we contract, operate, and partner with both payers and providers. As a result, we enter 2026 with a high degree of confidence in our guidance. Stepping back, 2025 was a year of strengthening the foundation of the business. We focused on improving our contracts, increasing provider alignment and accountability, and advancing our clinical and quality performance. We secured meaningful improvements across key payer relationships and continued refining our network to concentrate on providers who are aligned with value-based care. At the same time, we deepened engagement across our provider base with more than half of our patients now served by a Tier 1 provider group operating with higher levels of clinical integration and accountability. We also made meaningful progress on quality, achieving four-star status across 70% of our priority Medicare Advantage plans, reinforcing our value proposition with payer partners and supporting future growth. The work completed during the year established the foundation for the improvement we expect to realize in 2026. Consistent with our focus on smart growth, We recently announced a partnership that expands our presence into a new Medicare Advantage geography with 29,000 new members that are management, representing 25 percent in-year growth. With these new lives, it will add roughly $27 million of revenue in 2026. Combined with our existing at-risk membership, this brings total lives under management in 2026 to approximately 140,000 members. Additionally, this partnership includes a multi-year glide path to risk, which at current membership levels equates to more than $300 million in revenue upon moving to full risk. The glide path ensures that we can establish the core foundations for operational execution prior to assuming full risk. This partnership reflects how we think about growth entering new geographies through a phased glide path. Further, we are taking on the delegated functions early in the glide path and well ahead of when we take risk. This approach reduces volatility, supports financial performance during the rent period, and creates a structured pathway to long-term risk alignment. What I want to leave you with is this. The structural work we completed in 2025, improved contracts, tighter accountability, disciplined cost structure is already embedded in the business and supports the improvement we expect to see in 2026. With that, I will turn the call over to Amir to discuss our clinical performance.

Thanks, Eric. At the clinical level, our focus continues to center on consistent execution of the care enablement model. This model embeds care coordination, utilization management, and quality support directly within our most engaged provider practices, enabling clinicians to proactively identify and manage higher risk patients. These capabilities remain foundational to improving care delivery and strengthening our ability to manage total cost of care over time. We continue to deepen alignment with our Tier 1 provider network, and the share of members attributed to these higher performing practices continues to increase. These providers consistently demonstrate stronger documentation accuracy, improved quality performance, and more effective management of patients with chronic and complex conditions. Across markets, our core clinical programs remain focused on post-acute management, chronic care management, and special utilization oversight. These programs are designed to support effective care transitions and reduce avoidable inpatient utilization, improve stability for patients with chronic conditions through sustained engagement, provide clear clinical pathways and oversight for high-cost specialty services. During the year, we also expanded our complex care program, which is designed to provide more intensive clinical support for members with advanced chronic conditions and higher acuity needs. This program includes dedicated care teams and 24-7 clinical hotline, allowing patients and providers to quickly access guidance and support when issues arise. The goal is to intervene earlier, prevent unnecessary emergency department visits and hospitalizations, and ensure patients receive the right level of care at the right time. Looking ahead, our clinical focus remains on expanding Tier 1 participation, continuing to standardize these care management workflows across markets, and further integrating data and clinical insight into day-to-day provider practice support. With that, I'll turn the call over to Leif to walk through our financial results. Thanks, Amir.

I'll cover three areas today. Our fourth quarter and full year results, our liquidity position, and our 2026 outlook. For the full year, we reported adjusted EBITDA of negative 161.3 million. On a normalized basis, Aligning results to performance year to provide a clearer view of the underlying trajectory, adjusted EBITDA was negative $149.1 million, a $44 million improvement over 2024. I'll now walk you through 2025 results. Total revenue for fourth quarter was $384.8 million compared to $370.7 million in the same quarter prior year. Capitated revenue PMPM was $1,060 compared to $971 in Q4 2024, a 9% improvement. For the full year, total revenue was $1.46 billion compared to $1.50 billion in 2024. Full year capitated revenue PMPM was $1,026 compared to $981 in the prior year, a 5% improvement. The increase in PMPM reflects continued improvement in burden of illness documentation, strengthened contractual economics, and membership mix. Medical margin for the fourth quarter was negative 28.7 million, or a negative 83 PMPM, compared to 7.3 million, or a $19 PMPM in the prior quarter, prior year quarter. For the full year, medical margin was $23.5 million or $17 PMPM compared to $85.4 million or $56 PMPM in 2024. On a normalized basis, full year medical margin was $52.3 million or $38 PMPM compared to $51.4 million or $34 PMPM in 2024. Operating expense for the fourth quarter was $35.1 million compared to $28.7 million in the prior year period. Notably, however, the fourth quarter included a $10 million reclassification of network expense to operating expense related to third-party vendor costs. Full-year operating expense, including the reclassification referenced, was $101.8 million compared to $111.8 million in 2024, a reduction of $10 million, or 9% year-over-year. This reflects structural cost actions implemented throughout 2025, including reductions in duplicate corporate infrastructure, tighter discretionary spending controls, and improved market-level accountability. At the same time, we selectively reinvested in market operations provider support, utilization management, and care coordination functions that directly influence clinical performance and medical cost stability. The result is a leaner operating structure with improved cost discipline and stronger alignment between operating expense and core platform. Adjusted EBITDA for the fourth quarter was a loss of $76.1 million compared to a loss of $67.6 million in the prior year period. Full year adjusted EBITDA loss of $161.3 million compared to a loss of $167.2 million in 2024. On a normalized basis, full year adjusted EBITDA loss of $149.1 million in 2025 compared to a loss of $193.0 million in 2024. The $44 million year-over-year improvement on a normalized basis reflects the combined impact of stronger contracting economics, improved provider alignment, and structural cost actions implemented during the year. From a liquidity standpoint, we ended the year with $25 million of cash on hand and remain focused on disciplined working capital management and efficiency as we execute through the stabilization phase of our business. Turning to our outlook for 2026, we are guiding to an adjusted EBITDA in the range of negative $20 million to positive $40 million. At a midpoint of $10 million, this represents approximately $170 million year-over-year improvement that Eric outlined. We expect at-risk membership in the range of 107,000 to 117,000 members and total revenue in the range of $1.5 billion to $1.7 billion. Our range reflects several key initiatives where timing of execution will influence where we land. As we gain visibility throughout the year, we expect to narrow the range accordingly. The improvement is supported by two categories of drivers. The first is largely already embedded revenue rate improvement from CMS, actions taken in our cost structure, and contract renegotiations that have been executed. The second is tied to initiatives currently underway, primarily in medical cost management and continued evaluation and renegotiation of underperforming contract arrangements. The timing of execution across these initiatives is the primary variable within the range. Medical cost management remains our largest controllable opportunity. Multiple initiatives are in flight, and their benefit is expected to build as programs scale through the year. Additionally, we will continue to evaluate our contract portfolio with a focus on targeted renegotiations and the progression towards full delegation where appropriate. While we made strides in improving our underlying cost structure in 2025, we will continue to operate with discipline while targeting investments in frontline operations. With that, I'll turn it back to Eric.

Thanks, Leif. Before we open it up for questions, I want to leave you with three key takeaways as we close out 2025. First, we have strengthened the foundation of the business through tightened execution across our markets, strengthened accountability, improved contractual economics, and continued alignment in our provider network around the care enablement model. These actions, along with investments in key talent, were central to repositioning the company and establishing a more disciplined operating cadence. Second, we have continued to align the business toward the areas where our model performs best. We are increasingly concentrated in arrangements where incentives, clinical workflows, and accountability are closely aligned. The new partnership we announced this quarter reflects that approach and provides a deliberate pathway toward full risk while maintaining a disciplined growth profile. Third, the financial trajectory is improving. On a normalized basis, we delivered $44 million of year-over-year EBITDA improvement in 2025, driven by stronger contracting economics, disciplined cost management, continued progress in provider alignment, and improved quality execution. These improvements serve as the foundation for the $170 million of earnings growth we are guiding to in 2026, and early 2026 results provide confidence in our range. In short, the structural work completed during 2025 has positioned the business with a stronger foundation, has improved alignment across our markets, and has provided a clear path to profitability as we execute in 2026. With that, let's open it up for your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speaker phone, 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 and then two. At this time, we will pause momentarily to assemble the roster. And the first question will come from Ryan Langston with TD Cowan. Please go ahead.

Hi, thanks. On the risk member guidance midpoint of 112,000, I think you said there's 140,000 with the new Nebraska agreement. Are those included in the 112 or those extra?

Hey, Ryan, this is Eric. Those are extra. The 112 are the full risk members, and then the Nebraska lives are lives under management, and that's an additional 29,000.

All right, thanks. And then just on that agreement, 20,000, 29,000 lives, you know, decent, decent sizes versus sort of where you're at now. What kind of stand up costs or geo entry costs do you need to make and invest to kind of move into that new geography?

The economics of that deal allow us to get funded in order to cover those stand up costs. And we have obviously some of that infrastructure already built within P3 that we'll be utilizing.

All right, and then just last thing. On the $170 million improvement, I appreciate the dollar amounts by bucket. Is there a way you can kind of give us a sense how much run rated entering the year versus what you still need to activate here in 2026 to start realizing that benefit? Thanks.

Yeah, Ryan, this is Leif. That's a good question. Appreciate the question there. And one is... The really good news about that 170 is about 75% of that is run-rated starting in January, and that really focuses around revenue and our contract updates that we performed over late 2025 that started at the beginning of the year. That would be POP increases, you know, other contractual adjustments that we made, as well as the benchmark increase from CMS year over year. And so we feel really, really confident with where the revenue piece is going to come in, in addition to some of the, I'd say, structural changes we made in 2025 to improve our estimation process. And so we feel like about 75% of that is fully baked, where 20% is kind of operational in nature, and we're going and executing, and we have our MedEx initiatives, as well as other initiatives inside our operations to drive those results. And then there's a small portion coming just from benefit design and how that flows through the P&L in 2026, as well as our membership mix that's still settling out as part of open enrollment.

All right. Thank you.

Thanks, Ryan.

Again, if you have a question, please press star and then 1. The next question will come from Joshua Raskin with Nefron. Please go ahead.

Joshua Raskin Hi. Thanks, Joel. Good afternoon. I guess I'll stick with the Nebraska Blues here. How exactly are you interacting with the plan for the first two years versus what you're doing for the providers? And then, are there certain metrics that have to be met in order to convert to full risk in 2028? Or is that just contractually set that, you know, it's a two-year plan to get to that path to risk? And if you want to keep the arrangement as fees in 2028, do you have the ability to do that?

Yeah. So, we have a two-year, Josh, this is Eric. Thanks for the question. In our new arrangement, we have a two-year glide path to risk. The contract itself contemplates the two years of fee-for-service as we do that glide path. And then we will move into risk in 2028.

Okay, so that's contractual. There's no, you can temporarily pause it. There's no metrics that have to be hit. It's just that, it just converts 1-1-28.

It converts 1-1-28. We have performance metrics that we need to hit within the contract itself in terms of the value creation that we're providing to the client.

Okay, gotcha. And then within that bucket of, separate from Nebraska Blue, separate from that, within that bucket of recontracting changes with the plans in 2026, Can you just give some just tangible examples of what is different in some of these 2026 contracts relative to what you were doing in 2025, other than just, you know, CMS rate updates and it's giving you this confidence and, you know, this big improvement in EBITDA?

Yeah, so some of the things that we did within those contracts, you know, one, I would say that the payers have been very receptive to understanding how both organizations can be successful. recognizing that there's been a lot of changes in the way that the contract started, and some of these contracts were quite old, to where we are today. And so it's a combination of changes in the amount of premium that we get, as well as some of the charges that get charged back to P3 from the payers, in which there might have been a benefit to both them as well as us. in terms of not duplicating costs where we had services that we were already providing. They may have been paying for some of the services that they didn't need. And so we just came together and said, hey, let's do something that makes sense. And then the other thing I'd mention is STARS performance has been pretty important as well with our payer providers as well. So, you know, we talked about the improvement in STARS that we've had, and that, you know, obviously is important to plan revenue. And so there are some adjustments to be made in some of the contracts related to STARS performance.

Okay. Okay. That's helpful.

Thanks. This will conclude our question and answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.