P3 Health Partners Q1 2026 Earnings Call - Flat Medical Trend Drives EBITDA Beat and Raised Outlook

Operator: Please note this event is being recorded. I would now like to turn the conference over to Gabriella Gabel. Thank you. Over to you.

Gabriella Gabel, Investor Relations or Legal Compliance, P3 Health Partners: 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 any 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. 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 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 in our SEC filings, which may be accessed from the investor’s page of the P3 Health Partners website. I will now turn the call over to Aric Coffman, CEO of P3 Health Partners.

Aric Coffman, Chief Executive Officer, P3 Health Partners: Thanks, Gabby. Good afternoon, and thank you for joining us today to discuss our first quarter results. Q1 represents an inflection point for the business and reflects the continued execution of the two-year framework we have discussed over the past several quarters. The results of which delivered $26 million of adjusted EBITDA in Q1, exceeding internal expectations. The strength of the first quarter, combined with the momentum we are carrying into the rest of the year, provide us confidence to raise our full year 2026 outlook. It has been 24 months since I began leading P3, and we have fundamentally repositioned the organization through contract restructuring, market optimization, operational redesign, and tighter alignment between our clinical and financial infrastructure. The financial results this quarter demonstrate that these structural changes are now translating into measurable economic performance.

Importantly, the improvements we are seeing here are not being driven by temporary factors. It is the result of deliberate operational and strategic actions that are now embedded within the business model. The underlying business generated significant positive earnings during the quarter, and our operating fundamentals continue to mature. I would like to acknowledge the hard work and dedication from our teams that made this happen day in and day out. They deepen the relationships with our clinical and payer partners to unlock the potential in the business, buttressed by the improvement in the macro environment. From here, our focus is straightforward: continue expanding medical margin, continue improving contract economics, continuously improve operating execution, and scale the platform and markets and partnerships where our model performs best. Three primary drivers contributed to the improved underlying performance this quarter. First is the improvement in our payer contract structures.

Over the past 18 months, we have significantly redesigned how risk, funding, and cost accountability are structured across our payer and network relationships. This includes improved alignment around medical cost accountability, enhanced funding mechanisms, revised risk-sharing structures, greater operational coordination with our payer partners, and a path to delegation in our go-forward contracts. These are not temporary tailwinds. They represent a structural repositioning of the economic framework of the business. We are increasingly seeing payers recognize the value our model creates when operational accountability and economic incentives are fully aligned. As a result, MA funding rates improved approximately 15% year-over-year. Delegated functions expanded across 63% of membership in 2026, and contract alignment improved meaningfully across several of our largest relationships. These changes position the business for more durable and sustainable profitability going forward. Second is operational execution.

Over the last 2 years, we have focused heavily on building a disciplined operating model centered around medical cost management, quality execution, provider engagement, and risk accuracy. We are now seeing those efforts translate into improved financial performance. Across the organization, burden of illness capture and documentation accuracy continue to improve. Stars performance is tracking ahead of our internal glide path. Tier 1 provider concentration continues to increase. Care management engagement amongst our highest acuity populations continues to expand, and operational workflows across utilization management and payment integrity are increasingly effective across markets. Q1 MA medical expense trend was roughly flat compared to full year 2025 medical expense trend.

At a time when payers and peer organizations have generally guided to a 7% trend or higher, our trend reflects the compounding impact of tier 1 provider concentration, delegated utilization management, disciplined payment integrity, and we expect it to remain a durable point of differentiation. This isn’t a one quarter result evidenced by our full year 2025 MedEx trend, which was under 2% across both Medicare Advantage and ACO populations. At the same time, our operating expense structure remains controlled. We continue to invest selectively in frontline clinical capabilities, provider engagement, and data infrastructure while maintaining focus on overall cost efficiency. The third item is the improving macro environment. The 2026 CMS benchmark update improved the underlying economics of the Medicare Advantage market and reinforced the sustainability of value-based care models that can effectively manage quality and medical cost performance.

In addition, benefit design rationalization across the industry is creating more sustainable utilization dynamics across MA populations. We believe the current environment increasingly favors organizations that have the following: strong provider alignment, local market operating capabilities, effective medical cost management, and a scalable clinical infrastructure. P3 is well-positioned within that group. Looking forward, we believe Medicare Advantage environment continues to move in a constructive direction. For organizations like P3 that effectively manage medical costs and execute on quality, this environment increasingly supports long-term margin expansion opportunities. The industry has moved into a period where operational execution and the ability to manage that cost of care effectively is what matters, not simply scale. As we look toward the rest of 2026 and 2027, the actions we have taken over the last two years position us to compete and win in that environment. Our payer relationships remain central to our success.

One of the clearest lessons we have learned is that our model performs best when operational accountability and economic accountability are aligned through delegation. When we control key delegated functions, particularly claims payment, utilization management, and care management, we consistently produce stronger medical cost performance, better quality outcomes, improved member engagement, and more favorable economic outcomes for both P3 and our payer partners. As a result, we will prioritize markets and payer relationships with a clear pathway toward deeper delegation, stronger economic alignment, density, and long-term partnership stability. The depth of operational control this model affords us, particularly the integration of claims payment, utilization management, and care management within our platform, is a structural differentiator within the value-based care landscape and one that is difficult to replicate. This level of delegation simplifies our data sharing and meaningfully improves our cash flows to help us realize surplus more quickly.

This disciplined approach materially improves long-term margin quality, predictability, and shareholder value creation. Our Nebraska partnership, which added an additional 28,600 lives under management, reflects exactly this type of disciplined expansion strategy. The implementation remains on track, operational readiness milestones continue to progress as planned, and the partnership reinforces our ability to enter new geographies through structured, delegation-oriented growth pathways. Over time, partnerships structured in this manner will become meaningful contributors to long-term earnings growth and market expansion. These partnerships solve for one of the major issues around growth in value-based care, establishing cash flow to the business and contractual elements that are mutually beneficial for P3 and the payer partner. Overall, our first quarter was strong. We have three quarters ahead of us, and our focus remains on sustaining execution.

The results reinforce our confidence that the business has moved into a phase of improving operational consistency and earnings quality. The core economic levers that drive the business are increasingly within our control. While our work is never done, the economic framework for 2026 is solid within the business. We remain focused on executing with discipline against that opportunity. With that, I’ll turn the call over to Amir to discuss our clinical performance.

Amir, Chief Clinical Officer or Clinical Leadership, P3 Health Partners: Thank you, Aric. I want to spend a few minutes on the clinical work that is driving the financial performance Leif will discuss shortly. The nearly flat MA medical cost trend that we are seeing in the quarter is not accidental. It is the result of deliberate clinical programs, improved utilization management workflows, and enhanced payment integrity capabilities. The clinical foundation driving our approach centers on our Care Enablement Model embedded within our tier 1 provider network. Execution across four areas is tracking ahead of plan.

First, our Stars performance is tracking ahead of our internal glide path for gap closures across all markets, signaling that our quality trajectory is on track heading into the second half of the year and provides confidence in achieving our goals. Second, total members seen across all markets through quarter one is ahead of plan by approximately 5%, which directly supports burden of illness documentation and our ability to manage care for the highest complexity members. Third, our Tier 1 provider concentration continues to deepen. The share of members attributed to Tier 1 providers has increased from 56% in Q1 2025 to 62% in 2026, reflecting continued progress in aligning our network around practices with the highest level of clinical integration and accountability. These providers consistently demonstrate more effective chronic disease management and better overall cost performance.

Lastly, our high-risk program provides intensive support for our most complex members. A core feature of the program is a dedicated 24/7 clinical call center, giving members and their caregivers direct access to clinical guidance before seeking higher cost care. This capability is designed to reduce avoidable ED visits and inpatient admissions by ensuring members have a supported lower acuity pathway when issues arise. This program was introduced in late 2025 and continues to ramp in the early part of 2026. In addition to our clinical foundation, we have strengthened our utilization management infrastructure across the network, with a focus on high-cost settings, including inpatient, post-acute care, and readmissions. The result is a more consistent, cost-effective care experience across our markets. We’ve also made meaningful progress on payment integrity, implementing process improvements that ensure we are paying accurately for the services our members receive.

This is an area where operational discipline translates directly to medical margin, and the work we have done over the past several quarters is now showing up in our results. Lastly, our P3 Restore program, where we provide a three-month individualized coaching engagement to provider partners, has reached across all of our markets, with lasting impact on provider engagement and practice sustainability. With that, I’ll turn the call over to Leif to walk you through our financials.

Leif, Chief Financial Officer, P3 Health Partners: Thank you, Amir. Good afternoon. Q1 was a strong start to the year. We delivered $26 million of adjusted EBITDA, exceeding internal expectations for the quarter. The results reflect the cumulative impact of the work Aric described, including improved payer economics, disciplined clinical execution, and strategic portfolio decisions such as smart, deliberate market growth. This afternoon, I will cover three areas. First, our financial performance for the quarter, including an update on our medical cost trends. Second, our capital position and liquidity. Third, our revised outlook for the remainder of 2026. Starting with membership, total at-risk membership at the end of Q1 was approximately 106,000, compared to 118,000 in Q1 2025. The year-over-year decline reflects the deliberate portfolio actions that 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 currently manage approximately 29,000 lives under management service arrangements, bringing the total lives under management to approximately 135,000. Going forward, we intend to provide total managed lives as an additional operating metric to better reflect the broader scale of our platform and the expanding scope of services we provide across our payer and provider relationships. Moving to revenue. Q1 revenue was $386 million, compared to $373 million in the same period of 2025. Despite a lower membership base, per-member funding for our Medicare Advantage population improved approximately 15% year-over-year, reflecting rate progression, contractual restructuring, and continued maturation of our burden of illness documentation across our networks.

Medical claims expense for the quarter was $306 million. The results include approximately $17 million of favorable prior year development and payer settlements. Q1 2026 MA medical cost trend is approximately flat to the full year 2025 baseline when adjusted for the prior year items. Medical margin for the quarter was $74 million. Medical loss ratio for the quarter was 85.2% when adjusted for the favorable prior year development and payer settlement noted above. These results reflect the structural contract improvements, clinical execution, and enhanced payment integrity workflows, along with utilization management progression previously described. Adjusted operating expense for the quarter was $25 million, consistent with the cost structure we have established over the prior 18 months. We continue to direct investments towards frontline capabilities that drive medical costs and quality performance.

Adjusted EBITDA for Q1 was $26 million, compared to a loss of $22 million in the same period of 2025. Excluding the prior year items, underlying Q1 adjusted EBITDA was $8 million, reflecting the core operating performance of the business. On the balance sheet, we ended the quarter with $25 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. Of additional note, we recently completed a series of strategic capital structure transactions designed to improve financial flexibility and address the Nasdaq minimum stockholders’ equity requirement. On April 28th, approximately $250 million of debt was converted to preferred equity. While not reflected on the 3/31/2026 balance sheet, it materially improved stockholders’ equity.

Separately, we have an agreement to issue up to $70 million in additional preferred equity, $30 million of which has been issued to date. Collectively, we believe these actions bring stockholders’ equity above the Nasdaq minimum compliance threshold, materially strengthening the company’s financial position and enhance the long-term balance sheet flexibility. Moving to our updated 2026 outlook. We are revising our full year 2026 adjusted EBITDA outlook to a range of $20 million-$60 million, with a midpoint of $40 million. The revision reflects both the favorable prior year development and payer settlements recognized in Q1 and our confidence in the underlying operating trajectory of the business through the remainder of the year. Our confidence in the full year is rooted in the same pillars we outlined at the start of 2026.

The structural contract improvements now flowing through our economics, continued clinical execution across cost management, quality and Stars performance, and the operating discipline we have established across the business. The width of the range reflects the normal variability in claims development and full year cost expectations. Results within the range are contingent on cost trend development throughout the year and execution against medical cost initiatives. With that, I’ll turn it back to Aric for closing comments.

Aric Coffman, Chief Executive Officer, P3 Health Partners: Thank you, Leif. Before we open the line for questions, I want to leave you with 3 takeaways from this quarter. First, the structural work is producing results. The contract restructuring, network concentration, and operational redesign we have executed over the past 2 years are showing up in our economics. Additional structural work remains a priority in 2026, and we are executing against it. Second, our clinical model, utilization management, and payment integrity processes are differentiators. At a time when the industry is broadly guiding to 7% or higher medical cost trend, P3 delivered flat trend in the quarter following a sub 2% trend in 2025. That outcome is driven by the clinical and operational infrastructure Amir described. We expect it to remain a point of differentiation as we move forward. Third, the setup for the remainder of 2026 is strong.

We are raising our full year outlook, our operating fundamentals continue to mature, and the predictability of our performance has improved. We have plenty of work ahead, but we are executing with confidence. With that, operator, please open the line for questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you press star and then one on your telephone keypad. If you’re using a speakerphone, 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 our roster. We have our first question from the line of Ryan Langston from TD Cowen. Please go ahead.

Ryan Langston, Analyst, TD Cowen: Hey, thanks. On the utilization point, can you maybe just talk about what you saw in the first quarter in terms of A and B versus Part D? I guess, is it still logical to expect that Part D MLRs are gonna trend higher as we move through the year, just as members hit their out-of-pocket maximums?

Aric Coffman, Chief Executive Officer, P3 Health Partners: Hey, Ryan, thanks for the question. This is Aric. I’ll have Leif give a little more detail. One thing I want to remind on that Part D part is we’ve significantly reduced our Part D exposure and are continuing to reduce our Part D exposure in all of our contracts beyond 2026. We’ll still I think Leif is looking for an answer here for you.

Ryan Langston, Analyst, TD Cowen: Okay. Oh, hey, Leif.

Leif, Chief Financial Officer, P3 Health Partners: Hey, how’s it going? Thanks for the question. Appreciate it. On kind of the MedEx trend side of things, we actually saw a bigger reduction across Part B in our book of business collectively when we look at in-year 2025 versus in-year 2026, where Part A was predominantly flat.

Ryan Langston, Analyst, TD Cowen: Okay. Can you break out, I think it was around $18 million of positive PYD and payer settlement. Are you able to tell us what each of those were? In terms of the positive PYD, good to see, was anything reestablished back in reserves above and beyond what the amount was that was included in the results for 1Q? Thanks.

Leif, Chief Financial Officer, P3 Health Partners: Hey, Ryan. I didn’t catch the last half of that, but let me answer the first half of the question. The first half of the question is that split between those two items is about 65, 35, meaning, 65% of that $17 million is related to favorable prior year development of our reserves, and about 35% relates to some payer settlements.

Ryan Langston, Analyst, TD Cowen: Okay. The second part was, Did you reestablish any positive PYD back into reserves or did that all flow through into the results for the first quarter?

Leif, Chief Financial Officer, P3 Health Partners: What we disclosed is what flowed through the period in the quarter, and we stayed consistent with our reserve methodology. We did not reduce any of our pads or our estimates from an IDNR process perspective.

Ryan Langston, Analyst, TD Cowen: Okay. Got it. Thank you very much.

Operator: Thank you. We have our next question on the line of Brooks O’Neil from Lake Street Capital. Please go ahead.

Brooks O’Neil, Analyst, Lake Street Capital: Good afternoon, gentlemen. Thanks for taking the questions. Congrats on the quarter. First off, for me, just thinking about potential payer partners, expansion with existing ones, do you think that, to what extent do you think that they take notice of, you know, kind of the results for the quarter just reported, the conversion to preferred stock and kind of see, you know, a much more financially sound partner? Does that benefit you guys? To what degree might that benefit you guys?

Aric Coffman, Chief Executive Officer, P3 Health Partners: Hey, Ben. Thanks for being on. Appreciate the question. Yeah, I think, you know, our ability to demonstrate positive momentum, and an improved balance sheet, it does help, you know, prospects as you think about growth, to have a healthy balance sheet. It also supports part of our strategy as we move forward in expanding delegation. You know, that one is so important, not just for the data side of it, but for claims delegation, it also speeds up the timing that you have to get the dollars that you’ve impacted in the business as well as improves cash flow in the business obviously as well.

Brooks O’Neil, Analyst, Lake Street Capital: Makes sense. Then, you know, just the, you mentioned the delegation. I guess what’s kind of the pathway? I know you have the set pathway and the newer managed services contract. Otherwise, what’s kind of the pathway to get that beyond 63%?

Aric Coffman, Chief Executive Officer, P3 Health Partners: Yeah, Ben, good question. The standout market, we have one particular geography in which our current delegation is very limited. We’ve approached that contractually with those payers. We have a glide path to get to delegation with each one of those payers based on the internal timetables that they have. That’s not something that we’ll just flip on. Each one of these needs things like a pre-delegation audit, and then there’s, you know, testing that has to happen, and then you move into a full delegation. I expect that to be stairstepped over the next, you know, probably two years, to be honest.

Brooks O’Neil, Analyst, Lake Street Capital: Okay. That’s helpful. That’s all I had, gentlemen. Congrats again on the quarter. That was very nice.

Aric Coffman, Chief Executive Officer, P3 Health Partners: Thanks so much, Ben. Appreciate it. Thank you.

Operator: Thank you. This concludes our question answer session. I would like to turn the conference back over to Aric Coffman for any closing remarks.

Aric Coffman, Chief Executive Officer, P3 Health Partners: Thank you so much. Appreciate everyone joining, and thanks for listening to our first quarter results.

Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.