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

Good day, and welcome to the P3 Health Partners Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. William Hoover 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 certain 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 could cause actual results to differ from statements made in this call is contained in a periodic report filed with the SEC. The forward-looking statements made during this call speak only as the date hereof, and the company undertakes no obligation to update or revise these forward-looking statements. We will refer to these 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 righted 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.

Good afternoon, and thank you for joining us today to discuss our second quarter results. Q2 represents a continuation of the positive momentum we have built over the last two years and reflect sustained execution against the plan we shared with you at the outset of my tenure. None of this happens without the work of our teams across the country. Their focus, discipline and their day-to-day execution are what converts strategy and the results and I want to thank them for their dedication they bring to serving our patients, our providers and payer partners. We delivered $54 million of adjusted EBITDA in the second quarter, bringing our first half total adjusted EBITDA to $80 million building on the trajectory we established in Q1. Given the strong performance and our confidence in the underlying business, we are raising our full year 2026 outlook. It has been just over two years since I began leading P3 and the results this quarter reflect how much the structural and operational changes we have made across our contracts, our markets and our operating model, continue to compound. We remain focused on medical cost improvement, quality and burden of illness performance, disciplined growth and continued operational improvements through people, process and technology. There are three things to highlight about P3 performance through the first half of 2026. First is operational execution. As we have discussed previously, our operating model is centered around medical cost management quality execution, provider engagement and coding accuracy. Across the organization, we are expanding our point-of-care tools ahead of schedule, now reaching greater than 65,000 lives across our portfolio, allowing more accurate burden of illness capture and quality gap closures. These AI-enhanced tools reduced the administrative burden for the clinicians as we are meeting our provider partners where they are to drive adoption in daily practice. Our quality performance is tracking ahead of our internal glad path towards 4 stars on HEDIS and medication adherence measures. Our impact across utilization management and payment integrity are tracking at or above plan and we'll be expanding these programs as part of our contractual reset with payers. Our clinical and care management programs continue to expand with a focus on high-risk rising risk patients and transitions of care. The impact from our operating model can be seen in our Q2 MA, medical expense trend and quality trajectory. Medical cost trend across our MA population for the first half of 2026 was 1.8% lower than full year 2025, which Leif will cover in more detail. This is a significant and sustained differentiator in the sector when compared to peers running 5% to 7% year-over-year. Quality remains one of the most important levers in Medicare Advantage both for the patients we serve and for the strength of our payer relationships. Strong quality performance is not only linked with better patient outcomes. It directly supports better economic terms and deeper alignment with our payer partners and is an area where P3 continues to differentiate. Quality is tracking well through the first half of the year, where we are ahead of Glidepath to get to 4 star on HEDIS and medication adherence measures. We have also improved our process around alternative submissions, driving 3x the total submissions at this point compared to the prior year, with total members impacted by quality submissions up close to 20% from Q1. This progress reflects the scale and effectiveness of our improved processes. Second is our payer partnerships and our contract structure design work we began 18 months ago. We focused on redesigning and enhancing our risk profile, funding and cost accountability with our key payer partners, including enhanced funding mechanisms, revising risk-sharing arrangements delegation expansion and improving alignment around medical cost accountability. As you look at the composition of this quarter's results, a portion of our Q2 performance reflects onetime nonrecurring items across multiple payer contracts. These settlements are more than a financial event. They reflect the trust our payer partners continue to place in P3 and our shared commitment to taking care of our patients and provider partners. Third is growth. Our engagement in Nebraska that we shared with you earlier this year continues to progress positively. We are executing on our expected trajectory and look forward to sharing more as it matures. We favor a deliberate Glidepath on geographic expansion, understand the population, build the clinical and operational infrastructure and validate performance before taking on full risk. This sequencing reduces downside exposure and positions us to enter full risk in a disciplined way. In addition, with our existing partners, we continue to explore growth opportunities in both current and new geographies. Overall, our second quarter was strong, and it reflects the compounding benefit of the work we have done over the past 2 years. We have two quarters remaining in 2026, and our attention remains on sustaining that execution. These results reinforce our confidence that the business has moved into a phase of durable, more predictable earnings. And that trajectory is what gives us the confidence to raise our outlook for the year. The core economic levers that drive the business, our contract structure, our operating model and our clinical execution are increasingly within our control. Our work is never finished, but the framework for 2026 is solid, and we remain focused on executing with the same discipline that got us here. Our success is predicated on the engagement of our clinician partners. I'm proud of the work we have established with the P3 Restore program to impact clinician engagement, improve practice sustainability and bring solutions to help them succeed. To speak more about that and to discuss our clinical performance, I'll turn the call over to Amir.

Thank you, Aric. I want to spend a few minutes on the clinical work driving the financial results we are delivering. The medical expense trend performance we are seeing this quarter is not accidental. It reflects deliberate clinical programs, expanding point-of-care technology and disciplined utilization management and payment integrity execution, all built around the care enablement model. I will walk through where that work is showing up most clearly this quarter. Our point-of-care technology deployment is ahead of plan, tracking to roughly 110% of our original year-end goal where the tool is in use, the results are clear. Providers are addressing nearly 90% of care gaps at the point of care with capture rates running several points ahead of our broader enterprise average. Today, the tools open in roughly half of eligible visits, and we are closing that gap through the in-office training embedded directly into provider rather than relying on remote onboarding. Our provider network and clinical teams saw 87% of our patients through the second quarter, 2 points ahead of our internal Glidepath including 99.5% of our highest risk members enterprise-wide, well ahead of the 90% glide path for their calculation. Seeing members regularly is foundational to how we care for our population. Care management team and senior wellness centers play a key role in that effort, extending access and creating additional touch points with our highest risk patients beyond the traditional practice setting, helping us reach and see more of our population. Together, this engagement allows us to connect patients to the right clinical programs, moderate to chronic conditions proactively and intervene earlier when care is needed. It is a key driver of both quality outcomes and the overall health of our patients. Our utilization management program is built around a simple principle, patients should receive care in the right setting delivered by the right level of provider at the right time. We have expanded our review of prepaid hospital billing to confirm medical record support, the level of care submitted and broadened our review of appropriate site of care, helping direct patients to home health support rather than a skilled nursing facility when that is the better clinical fit. That work has driven a 17% year-to-date redirect rate from skilled nursing to home, reflecting our commitment to caring for patients in the setting that is best for their recovery and well-being while remaining responsible stewards of the health care resources we are interested with. We also continue to invest in our provider community through P3 Restore, our clinician coaching program. In the first half of the year, we expanded the program across four markets, and clinicians completing the program report meaningful improvement across measures like stress management, leadership confidence and practice satisfaction. This work supports the stability and engagement of the provider network, our model depends on. And this quarter, we expanded the offering further to include asynchronous education and CME credit, making it easier for more of our provider community to participate. In total, this work reflects a clinical foundation that is increasingly built for scale from how we engage patients and support providers to how we manage utilization and ensure payment accuracy. It is the operating discipline that underpins the financial results you're about to hear. With that, I'll turn the call over to Leif, to walk you through our financials.

Thank you, Amir, and good afternoon. Q2 was another strong quarter. We delivered $54 million of adjusted EBITDA, including approximately $9 million of underlying adjusted EBITDA, excluding favorable contractual settlements and prior year development. Importantly, the underlying business is profitable and improved quarter-over-quarter. The settlements recognized in the quarter reflect the constructive resolution of legacy contractual matters and strong alignment with several of our payer partners. More broadly, our results demonstrate the cumulative impact of the foundational changes we have made across the business, including improved payer economics, better medical expense performance, and disciplined clinical and operational execution. This afternoon, I will cover three areas. First, our financial performance for the quarter, including an update on our medical cost trend; second, our capital position and liquidity and third, our revised outlook for the remainder of 2026. Starting with membership, total at-risk membership at the end of Q2 was approximately 105,000 and compared to 116,000 in Q2 2025. Consistent with what we have shared previously, the year-over-year decline reflects the deliberate portfolio actions we took throughout 2025, including the exit of arrangements that did not meet our economic thresholds. The membership base we are operating from today is more concentrated in relationships where our model performs best. In addition to our at-risk membership, we manage approximately 28,000 lives through management services arrangements, bringing total lives under management to approximately 133,000. We began reporting this metric in Q1 because it provides a more complete view of the scale of the P3 platform and reflects our ability to support payer and provider partners across different levels of risk and service. Moving to revenue. Q2 revenue was $386 million compared to $356 million in the same period of 2025. Despite a lower membership base, per member funding for our at-risk population improved approximately 15% year-over-year, reflecting continued success in rate progression, contractual restructuring and further maturation of our burden of illness documentation across our network. Medical claims expense for the quarter was $269 million. The results include approximately $45 million of favorable payer settlements and prior year development. Year-to-date, our MA medical cost trend is 1.8% below full year 2025 baseline when fully excluded the favorable payer settlements and adjusting for prior year development. Medical margin for the quarter was $98 million or $311 PPMP. Medical loss ratio for the quarter was 85.6% when adjusted for the favorable payer settlements and prior year development noted above. These results reflect the improved payer economics clinical execution and enhanced payment integrity workflows, along with the utilization management progress previously described. Adjusted operating expense for the quarter was $32 million. Consistent with cost structure we have established over the prior 18 months. That total includes continued investment in professional fees supporting improved Codian documentation as well as infrastructure costs associated with standing up our Nebraska market. We continue to direct investment towards frontline capabilities that drive medical cost and quality performance while remaining diligent about cost discipline across the rest of the organization. Adjusted EBITDA for Q2 was $54 million compared to a loss of $17 million in the same period of 2025. Of that result, approximately $45 million reflects the favorable payer settlements and prior year developments noted previously. Excluding those items, underlying Q2 adjusted EBITDA was approximately $9 million, reflecting the core operating performance of the business. These Q2 results bringing us to adjusted EBITDA of $80 million for the first half of 2026, compared to a loss of $39 million in the first half of 2025. Of the $62 million in favorable payer settlements and prior year development recognized across the first half, $17 million was recognized in Q1 and $45 million in Q2. Excluding those items, underlying first half adjusted EBITDA was approximately $18 million. For us, this is an important milestone. It shows the improvement in our economics is not solely dependent on contractual settlements for prior period development, the core business itself is now generating positive adjusted EBITDA. On the balance sheet, we ended the quarter with $21 million in cash and equivalents. Consistent with the liquidity framework we have communicated, we continue to manage capital with discipline while maintaining focus on operational execution and financial stability. Now moving to our updated 2026 outlook. We are raising our full year 2026 adjusted EBITDA outlook to a range of $80 million to $110 million with a midpoint of $95 million. The revision reflects the favorable contractual settlements in prior year developments recognized in the first half. as well as continued improvement in our expectations for the remainder of the year. We are also tightening the range as we gain further visibility into the back half of the year. Our confidence is rooted in the improved economics now flowing through our results and the operating discipline we have established across the business. We remain mindful of the typical seasonal build in medical expense trend in the second half of the year and we are actively managing that dynamic through the same care management, utilization management and payment integrity programs Amir described. With that, I'll turn it back to Aric for closing comments.

Thanks, Leif. Before we open the line for questions, I want to leave you with three takeaways from the quarter. First, the structural work we set out to do 2 years ago is now fully embedded in how we are in the business. contract restructuring, network concentration and operational redesign continue to translate directly into our economics, and we are seeing that disciplined compound quarter after quarter. There is more work ahead of us in the back half of the year, and it remains a top priority. Second, our clinical model, utilization management and payment integrity processes continue to set us apart. From the growth in our patients seen to our quality performance to the continued scaling of our point-of-care technology, we continue to drive down total cost of care and improve outcomes. These efforts are reflected in our MA medical cost trend this year, running nearly 2% below our 2025 baseline. We expect that gap to remain a meaningful point of differentiation as the year progresses. Third, we head into the back half of the year in a stronger position than where we started it. We are raising our full year outlook to $80 million to $110 million, and our fundamentals continue to mature. Our results are becoming more predictable. We are proud of the progress this business has made, and we remain focused on executing with the same discipline that got us here. With that, operator, please open the line for questions.

[Operator Instructions] And our first question for today will come from Ryan Langston with TD Cowen.

On the payer settlement, can you walk us through specifically what that is related to? Is that impacting both revenue and expense? And are you able to explicitly size the settlement in the quarter?

Ryan, it's Leif. I appreciate the question. I think the easiest way to kind of walk through that is just -- I'll just reiterate what that bridge is first and foremost. And so Q2 adjusted EBITDA was $54.4 million, less $45 million of favorable prior period development and payer settlements. And just to let you know, Ryan, specifically, the payer settlement amount was $41 million, and that did not affect revenue that only affected medical claims expense.

And then maybe anything -- I'm sorry, if I missed it, maybe anything on just sort of seasonality of earnings, medical margin, EBITDA through the back half of this year?

Yes. So as you think about where we're at year-to-date, we were at $80 million for the 6 months ended June 30, for a reported EBITDA number. Underlying that is $18 million of embedded EBITDA and $62 million of prior period settlements that came from Q1 and Q2. The midpoint for guidance in the back half is $95 million. So if you just took where we're at today, and you assume that we would get to a midpoint from an underlying EBITDA perspective, that would be about $15 million of additional EBITDA in the back half of the year. That takes into consideration both what we expect there to be some normal traditional industry pressure from the backside of the year in medical expense from utilization. But that is being offset by in-year programmatics that are going to drive and offset some of that cost. And just -- I'm going to take it a step further for you, Ryan, as well. Just as we think about it, and Aric spoke to this in his opening comments, is we are seeing a 1.8% reduction in MedEx trend when you look at full year 2025 and you compare that to the 6 months ended 6/30, and we are down 1.8%, and that's attributable to a number of things that include the programmatics that we have in place, also is contributing to that decrease as some of the network curation, and specific actions that we took with our membership population exiting 2025. And then there were some other factors as it relates to benefit plan reductions -- benefit reductions within our payer partner plans that they.

And just 1 last 1 for me, and I'll hop back in the queue. I guess any insight into how your plans price benefits for 2027? And then just maybe more specifically, some of the plans have talked about further market exits or further plan exits next year. Any thoughts on if those exits will actually impact your current membership.

Yes, thanks for that. This is Aric. So I think there's -- some of it's a little bit early to know. We're still in August, and some of those factors will get played out as we get more insight into what the benefit design actually looks like. We've seen some of the same notifications on county exits. We don't expect that to have a major impact on our membership overall in terms of the exits from counties. And then in terms of the benefit design, we'll have a much cleaner picture when we get to the next earnings call after Q3.