P3 Health Partners Inc. Q4 FY2025 earnings call

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. 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. Over the past year, we have identified $170 million of structural and operational improvement opportunities. These opportunities fall into three primary areas: $125 million or 75% from contracting and revenue-related actions, $35 million or 20% from operational execution around MedEx initiatives and network contracting, and $10 million or 5% from payer benefit design collaboration and membership profiles. 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. 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. 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. 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. 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. 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. Our core clinical programs remain focused on post-acute management, chronic care management, and special utilization oversight. 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. 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.

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. 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. 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. 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.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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.