P3 Health's Q3 2025: Contradictions Emerge on Prior Period Adjustments, Revenue Alignment, Contractual Changes, EBITDA Growth, and Payor Contracts

Date of Call: November 14, 2025

Financials Results

• Revenue: $341.6M total capitated revenue for Q3 (~$982 PMPM); included a $21M midyear settlement adjustment plus a $3M prior-period decrement (total $24M unfavorable); normalized capitated revenue PMPM ~6.4% above 2024 full-year average.
• Gross Margin: Medical margin $4.4M ($13 PMPM) in Q3 vs $0.5M ($1 PMPM) prior period; YTD medical margin $52.2M ($50 PMPM); normalized YTD medical margin $80.8M ($78 PMPM); underlying normalized medical cost trend flat YOY.
• Operating Margin: Operating expense $21.1M in Q3 vs $31.6M prior year (-33%); Adjusted EBITDA loss $45.9M Q3, YTD adjusted EBITDA loss $85.2M (normalized YTD loss ~$70.1M); revised FY2025 adjusted EBITDA guidance to a loss of $110M to $95M.

Guidance:

• FY2025 adjusted EBITDA guidance revised to a loss of $110M to $95M.
• Company expects meaningful profitability in 2026 driven by $120M–$170M of identified EBITDA opportunities.
• Strategic JV will add ~13,000 fully accretive ACO members; ~25,000 Medicare Advantage lives in pipeline for 2026.
• Expect aggregate ~5% net premium (rate) improvement across the company’s markets for 2026; additional coding improvements to be quantified next quarter.
• Membership ~116,000; operating controls and contractual adjustments targeted to improve 2026 cash flow and margins.

Business Commentary:

* Financial Performance and Operational Stability: - P3 Health's adjusted EBITDA for Q3 was a loss of $45.9 million, while year-to-date adjusted EBITDA loss was $85.2 million. - The company reported normalized adjusted EBITDA year-to-date loss of approximately $70 million, reflecting stable underlying performance. - The stabilization is attributed to improvement in medical cost trends, operational improvement plan, and strategic joint ventures.

• Medical Cost Trends and Clinical Programs:
• Capitated revenue is up roughly 6%, and normalized medical cost trend remained flat year-over-year.

• The stable cost trend is driven by effective clinical programs and utilization management efforts, despite industry-wide cost increases.

• Provider Alignment and Strategic Partnerships:

• The growing share of lives attributed to Tier 1 providers, who consistently outperform on cost and quality metrics, has improved alignment in the provider network.

• The strategic joint venture adding approximately 13,000 fully accretive ACO members is set to enhance profitability and cash flow.

• Renegotiation Efforts and Contractual Improvements:

• The company has made progress in renegotiating contracts, with improved visibility in midyear settlement recognition and reduced prior period adjustments.

• These efforts are aimed at aligning contract terms with the value delivered, ensuring greater accountability and improved economics.

• Outlook for 2026 and Potential Expansion:

• P3 Health plans to address $120 million to $170 million in EBITDA expansion opportunities over the next 5 quarters, driven by improved alignment, clinical programs, and contractual improvements.
• The expectations for 2026 are supported by favorable macro tailwinds, including improved rate environment and rationalized competitive landscape.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management emphasized stabilization and progress: "capitated revenue is up roughly 6%," "achieving over $100 million in EBITDA improvement year-over-year," and repeatedly framed 2025 as transitional with the foundation to "translate the operational progress... into meaningful earnings expansion in 2026."

Q&A:

• Question from Joshua Raskin (Nephron Research LLC): What convinced payors to accept the renegotiated terms and were their 2026 benefit design changes consistent with expectations from recontracting?
  Response: Management: Yes—changes broadly met expectations; payors are motivated by needing help on high‑risk patients, expense reduction and Stars/quality, driving the recontracting outcomes.

• Question from Joshua Raskin (Nephron Research LLC): Have you structured contracts to give payors "skin in the game" (participation in surplus) and are 2026 contracts full capitation?
  Response: Management: The company takes capitation risk; payors retain admin margin and their incentive/skin is execution on plan-level responsibilities (e.g., Stars); model remains primarily capitation with bilateral accountability.

• Question from Joshua Raskin (Nephron Research LLC): How do you align incentives so plans pay attention to medical management and minimize recurring prior-period adjustments?
  Response: Management: Increased cadence, clearer expectations and joint operational committees with payors to improve accountability and reduce miscommunications.

• Question from Ryan Langston (TD Cowen, Research Division): Was the guidance reduction driven by a single payor/market or was it broader?
  Response: Management (Leif): It was broader—primarily due to midyear settlements coming in lower than expected (process now fixed) and some medical initiatives deferred into 2026.

• Question from Ryan Langston (TD Cowen, Research Division): How are the noncore assets/underperforming market assets performing and is there opportunity to shed them into 2026/2027?
  Response: Management (Leif): One market is still a headwind; contractual adjustments tied to that market are part of the $120M–$170M EBITDA opportunity expected to improve 2026 results.

• Question from David Larsen (BTIG, LLC, Research Division): Can you repeat the prior-period dollar impact and the Q3 settlement amount—how favorable or unfavorable was it?
  Response: Management (Leif): Q3 had a $3M prior-period decrement plus a $21M midyear true-up, totaling a $24M unfavorable impact in the quarter.

• Question from David Larsen (BTIG, LLC, Research Division): What are the odds of another prior-period adjustment in 2026 and why weren't those claims booked in 2024?
  Response: Management (Leif): Late data from non‑delegated plans and lumpy 2024 timing caused the swing; with improved processes and payor coordination they expect more consistent booking and not material swings going forward.

• Question from David Larsen (BTIG, LLC, Research Division): What PMPM revenue growth do you expect in 2026 from coding improvements and rate increases?
  Response: Management (Aric): Base rate changes aggregate to ~5% premium improvement across their markets; coding (burden of illness) improvements are positive but will be quantified next quarter.

• Question from David Larsen (BTIG, LLC, Research Division): Does the cited ~5% include coding improvement or is it just base rate?
  Response: Management (Aric): The ~5% is base rate improvement only; coding gains are incremental and will be reported later.

• Question from David Larsen (BTIG, LLC, Research Division): What was the PMPM cost trend in the quarter—flat or up/down?
  Response: Management (Aric): Normalized Part A and Part B costs are flat when comparing 2025 YTD to normalized 2024 (i.e., no material PMPM increase YOY).

• Question from David Larsen (BTIG, LLC, Research Division): If cost trends remain flat and rates increase, should we expect ~500bps of gross margin expansion in 2026?
  Response: Management (Aric): Yes.

Contradiction Point 1

Prior Period Adjustments and Revenue Alignment

It involves the company's approach to addressing prior period adjustments and aligning revenue expectations, which are crucial for financial forecasting and investor confidence.

What are the chances of another prior period adjustment in 2026 for 2025 claims? Why weren't the claim expenses recorded in 2024? - David Michael Larsen (BTIG)

2025Q3: Expectations for 2026 include better revenue and expense alignment, reducing material swings. Improved JOCs with payors and new people working on issues will minimize miscommunications. - Leif Pedersen(CFO)

What caused the prior-year catch-up, and how will you avoid future catch-ups? - Joshua Richard Raskin (Nephron Research)

2025Q2: We believe that taking proactive steps to address these issues and improve data exchange capabilities will significantly reduce the likelihood of similar one-time impacts in the future. - Leif Pedersen(CFO)

Contradiction Point 2

Contractual Adjustments and Financial Impact

It involves the company's explanations for contractual adjustments and their financial impact, which are critical for understanding the company's financial health and strategic decisions.

How are those assets performing, and is there an opportunity to divest some in 2026 or 2027? - Ryan Langston (TD Cowen, Research Division)

2025Q3: Contractual adjustments related to this market are part of the $120 million to $170 million EBITDA expansion opportunity for 2026. - Leif Pedersen(CFO)

Why was guidance lowered, and is it solely due to the prior year catch-up? - Ryan M. Langston (TD Cowen)

2025Q2: The guidance was lowered by about $54 million at the midpoint, including about $33 million from prior period adjustments and about $20 to $30 million from unexpected underperformance in the Oregon market. - Leif Pedersen(CFO)

Contradiction Point 3

Revenue and Expense Alignment

It involves expectations for revenue and expense alignment in 2026, which are critical for financial forecasting and investor confidence.

What are the odds of a prior period adjustment in 2026 related to 2025 claims? Why weren't those claims expenses booked in 2024? - David Larsen (BTIG, LLC, Research Division)

2025Q3: Expectations for 2026 include better revenue and expense alignment, reducing material swings. Improved JOCs with payors and new people working on issues will minimize miscommunications. - Leif Pedersen(CFO)

What progress has been made on the $130 million EBITDA initiative in Q1, and how will the remaining amount be phased in throughout the year? - Unidentified Analyst (Lake Street Capital Markets)

2025Q1: We expect 2025 to be a building year for us as we work to finish streamlining operations and better align revenue and expense timing. - Leif Pedersen(CFO)

Contradiction Point 4

Contractual Adjustments and EBITDA Expansion Opportunity

It involves contractual adjustments and the EBITDA expansion opportunity for 2026, which are crucial for financial performance and strategic planning.

Can you provide an update on the performance of those specific assets and whether there are plans to divest some by 2026 or 2027? - David Larsen (BTIG, LLC, Research Division)

2025Q3: Contractual adjustments related to this market are part of the $120 million to $170 million EBITDA expansion opportunity for 2026. - Leif Pedersen(CFO)

Can you provide an update on the $130 million EBITDA initiative, including Q1 progress and the remaining implementation timeline? - Unidentified Analyst (Lake Street Capital Markets)

2025Q1: We expect to realize most of this EBITDA opportunity in the back half of the year as we sequentially ramp operational execution initiatives. - Leif Pedersen(CFO)

Contradiction Point 5

Payor Contracts and Risk

It involves changes in the approach and expectations regarding payor contracts and risk management, which can impact revenue and cost structures.

What strategies are in place to improve margins in the MA books, particularly for 2026? Do these changes align with the recontracting process discussions? - Joshua Raskin(Nephron Research LLC)

2025Q3: Our business provides value to payors, including investment in their membership, reduction of net expenses, and Stars and quality support. These factors drive our renegotiation conversations. Benefit design adjustments met our expectations despite variations in approach across geographies. - Aric Coffman(CEO)

Can you update on progress in reducing Part D risk? - Joshua Raskin(Nephron)

2024Q4: We'll continue to work through the Part C transitions with a very clear focus on contract rationalization, reducing our risk, pushing out that Hard Call risk, just a very clear focus on reducing our Part D risk. - Aric Coffman(CEO)