P3 Health Partners Q3 2025 Earnings Call Unveils Key Contradictions on Part D Risk, EBITDA Timelines, and Payer Contract Adjustments

Date of Call: None provided

Financials Results

• Revenue: $341.6M total capitated revenue for Q3 (~$982 PMPM); normalized PMPM ~6.4% above 2024 full-year average; Q3 recognition reduced by mid-year settlement adjustments
• Gross Margin: Medical margin Q3 $4.4M ($13 PMPM) vs $0.5M ($1 PMPM) prior period; YTD medical margin $52.2M ($50 PMPM); normalized YTD medical margin $80.8M ($78 PMPM); normalized medical cost trend flat YOY

Guidance:

• Full-year 2025 adjusted EBITDA guidance revised to a loss of $110M to $95M.
• Company cites $120M–$170M of EBITDA opportunity across next five quarters to drive 2026 improvement.
• Management expects a ~5% net base premium improvement in our markets for 2026.
• Normalized medical cost trend remained flat YOY; coding/rate uplift impact to be quantified next quarter.
• Management expects meaningful profitability in 2026 assuming execution of these initiatives.

Business Commentary:

* Stable Medical Cost Trend: - Normalized medical cost trend remained flat year over year, despite rising industry trends, contributing to a $100 million EBITDA improvement year over year. - This stability is attributed to clinical programs, utilization management efforts, and deeper provider alignment.

• Capitated Revenue and Payer Contracts:
• Capitated revenue was $341.6 million for the quarter, approximately $982 per member per month, reflecting 6.4% above the 2024 full-year average.

• Revenue growth is driven by improved burden of illness documentation and more favorable contract terms secured through renegotiation efforts with payers.

• Operational Improvement and Efficiency:

• Operating expense for the quarter was $21.1 million, a 33% reduction from the previous year, reflecting targeted cuts in administrative costs.

• This improvement was achieved by aligning the cost structure with the operating model, reinvesting in market operations, and optimizing resource allocation.

• Provider Alignment and Performance:

• The share of lives attributed to tier one providers increased, with these providers performing 17.4% higher in STARS HEDIS gap closures compared to non-tier ones.
• Improved alignment with higher-performing providers enhances quality performance and cost management, contributing to the overall stability of the business.

• Guidance Revision and EBITDA Opportunities:
• Full-year adjusted EBITDA guidance was revised to a range of minus $110 million to minus $95 million.
• The revision reflects improved controls in operating cadence, positioning the company to achieve meaningful profitability in 2026 through identified $120-$170 million EBITDA expansion opportunities.

Sentiment Analysis:

Overall Tone: Neutral

• Management: "we are revising our full-year adjusted EBITDA guidance to a range of minus $110 million to minus $95 million"; "core business continues to show positive signs of stabilization"; "we have line of sight to achieve meaningful profitability next year"; Q3 cash $37.7M; highlighted $120–$170M in 2026 EBITDA opportunities.

Q&A:

• Question from Josh Raskin (Nephron Research): What convinces payers to cede margin in MA recontracting, and did you push for plans to share surplus or have 'skin in the game' vs. full capitation for 2026?
  Response: Payers accept concessions because P3 delivers high‑risk management, med expense reduction and STARS/quality support; P3 largely remains on a full‑capitation model (payers keep admin margin while P3 takes risk) with increased bilateral accountability and more frequent operational cadence.

• Question from Ryan Langston (TD Cowen): Was the guidance reduction driven by a single payer/market or broader issues, and how are non‑core assets performing/any plan to shed them?
  Response: The guide reduction was broader but primarily driven by unfavorable mid‑year settlements and some delayed medical cost initiatives; one market continues to create headwinds, but contractual adjustments tied to that market are part of the $120M–$170M 2026 EBITDA opportunity.

• Question from David Larson (BTIG): How large was the prior‑period/mid‑year settlement impact in Q3, and what PMPM revenue growth do you expect for 2026 from coding and rate increases?
  Response: Q3 had a roughly $24M unfavorable impact (a $3M prior‑period decrement plus a $21M mid‑year true‑up); company expects ~5% aggregate base premium improvement in its markets for 2026, with coding improvement to be quantified next quarter.

Contradiction Point 1

Part D Risk and Network Alignment

It involves changes in strategic objectives and partnerships, which could impact financial performance and operational effectiveness.

Was the guidance reduction due to a specific payer/market or broader factors? What's the performance of those specific assets? Are there opportunities to divest them by 2026 or 2027? - Ryan Langston (TD Cowen)

2025Q3: We are still experiencing headwinds in one market, but part of the $120 million-$170 million EBITDA opportunities in 2026 includes contractual adjustments related to this market. - Leif Pedersen(CFO)

What is the status of the renegotiation, and are there expected impacts in the second half of this year? - Aaron Wukmir (Lake Street)

2025Q2: We're about 75% complete in renegotiation. Contract changes will impact 2025 and 2026, reducing Part D risk and aligning networks. - Aric Coffman(CEO)

Contradiction Point 2

Prior Period Adjustments and Data Exchange

It involves the handling of prior period adjustments and data exchange with partners, which could affect financial reporting accuracy and operational efficiency.

What is the likelihood of a prior period adjustment in 2026 related to 2025 claims? What was the PMPM cost trend in the quarter? - David Larson (BTIG)

2025Q3: Expenses and revenue have been adjusted to normalize the comparison between 2024 and 2025. We expect less lumpiness and more consistent booking methods moving forward. - Leif Pedersen(CFO)

What were the specific costs of the prior-year catch-up, and how do you avoid future catch-ups? - Joshua Richard Raskin (Nephron Research)

2025Q2: There was a net $9 million out-of-period adjustment. A major factor was an adjustment to 2024 RAF final receivables. We've improved our processes and data exchange with the national payer. - Leif Pedersen(CFO)

Contradiction Point 3

Part A and B Cost Trends

It involves a discrepancy in the reported cost trends for Part A and B costs, which directly impacts financial forecasting and operational strategy.

What was the PMPM cost trend in the quarter? - David Larson (BTIG)

2025Q3: Our PMPM cost trend for Part A and B costs is flat when comparing normalized 2025 year-to-date with full year normalized 2024. - Leif Pedersen(CFO)

Which market is underperforming and how are you addressing it? - Ryan Langston (TD Cowen)

2025Q1: We have seen higher utilization across the portfolio for this first quarter. Cost trends for Part A costs are running a bit ahead of our expectations, particularly in the northern region, mainly due to acuity issues. Part B costs came in below expectations, principally driven by pharmacy. - Leif Pedersen(CFO)

Contradiction Point 4

EBITDA Improvement Timeline

It involves the timeline for EBITDA improvements, which is crucial for understanding the company's financial performance and strategic execution.

Was the guidance reduction driven by that payer, that market, or broader factors? How are those specific assets performing? Is there an opportunity to divest some by 2026 or 2027? - Ryan Langston (TD Cowen)

2025Q3: The $320 million year-to-date EBITDA exceeds last year's performance by $134 million. - Leif Pedersen(CFO)

Can you provide details on the $130 million EBITDA initiative, including Q1 results and expectations for the remainder of the year? - Brooks O'Neil (Lake Street Capital Markets)

2025Q1: EBITDA improvements are back-end weighted in 2025. About one-fifth of OpEx savings were achieved in Q1, with full run-rate benefits from Q2 to Q4. Contract rationalization impacts are ratably spread across quarters. - Leif Pedersen(CFO)

Contradiction Point 5

Payer Contract Adjustments and Revenue Guidance

It involves differing explanations regarding payer contract adjustments and their impact on revenue guidance, which are critical for investor expectations.

Was the guidance reduction driven by a specific payer/market or broad-based factors? How are those specific assets performing? Is there potential to divest some of these assets in 2026 or 2027? - Ryan Langston (TD Cowen)

2025Q3: The guidance reduction was primarily related to mid-year settlements coming in less than expected and some medical cost initiatives being pushed out to 2026. - Leif(CEO)

When do you expect to achieve profitability, how significant is the membership decline, what impact do product mix shifts have, and what are the key factors behind the revenue guidance range? - Aaron (Lake Street Capital Markets)

2024Q4: Our 2025 guidance includes a 7.5% revenue increase due to burden of illness identification, base rate assumptions, and contracting impacts. - Leif Pedersen(CFO)