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Monday, Aug. 10, 2026 at 4:30 p.m. ET
Investor Relations - William Hoover
Operator: Good day, and welcome to the P3 Health Partners Second Quarter 26 Earnings Conference Call. All participants will be in a listen-only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press *1 on your touch tone phone. And to withdraw your question, please press *2. 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 the call are forward-looking statements under the U.S. Federal Securities Laws. Including statements regarding our financial outlook and long term targets. 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 and 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 that could cause actual results to differ from statements made on this call is contained in a periodic report filed with the SEC. The forward looking statements made during this call speak only as of the date hereof, and the company undertakes no obligation to update or revise these forward looking statements. We 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 direct comparable GAAP measures. The 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 Investor page of the P3 Health Partners website. I will now turn the call over to Aric Coffman, CEO of P3 Health Partners.
Aric Coffman: 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 2 years and reflects 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 into results. And I want to thank them for the 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 is been just over 2 years since I began leading P3. The results of 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 3 things to highlight about P3's 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 thousand lives across our portfolio. Allowing more accurate burden of illness capture and quality gap closures. These AI enhanced tools reduce 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 glide 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 will 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 to the first half 26 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 1 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. We are ahead of our glide path 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 glide path 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 reflects the compounding benefit of the work we have done over the past 2 years. We have 2 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 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 partner. I am proud of the work we have established with the 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 will turn the call over to Amir.
Amir Bacchus: Thank you, Aric. I want to spend a few minutes on the clinical work driving the financial results we are delivering. 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 appointment 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. Todd, the tool is open in roughly half of eligible visits, and we are closing that gap through the in office training embedded directly into provider offices 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 glide path. Including 99.5% of our highest risk members enterprise wide. Well ahead of the 90% glide path for that population. Seeing members regularly is foundational to how we care for our population. Our 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, monitor 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 the health care resources we are entrusted with. We also continue to invest in our provider community through Restore, our clinician coaching program.
The first half of the year, we expanded the program across 4 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. 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 are about to hear.
With that, I will turn the call over to Leif to walk you through our financials.
Leif Pedersen: 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 3 areas. First, 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 at the end of Q2 was approximately 105 thousand compared to $116 thousand 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 thousand lives through management services, bringing total lives under management approximately 133 thousand.
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 excluding the favorable payer settlements and adjusting for prior year development. Medical margin for the quarter was $98 million or $311 PMPM. 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 coding and documentation, as well as infrastructure costs associated with standing up our Nebraska market. We continue to direct investment towards frontline capabilities that drive medical costs, 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 bring us to adjusted EBITDA of $80 million for the first half of 26. Compared to a loss of $39 million in the first half of 25. 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 or 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 trends 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 will turn it back to Aric for closing comments.
Aric Coffman: Thanks, Leif. Before we open the line for questions, I want to leave you with 3 takeaways from the quarter. First, the structural work we set out to do 2 years ago is now fully embedded in how we run the business. Contract restructuring, network concentration and operational redesign continue to translate directly into our economics, and we are seeing that discipline 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: Thank you. We will now begin the question and answer session. If you are 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 *2. And our first question for today will come from Ryan Langston with TD Cowen. Please go ahead.
Brian Langston: Thanks. Good afternoon. On the payer settlement, can you walk us through specifically what that is related to? Is that impact impacting both revenue and expense? And are you able to explicitly size the settlement in the quarter?
Leif Pedersen: Hey, Ryan, it is Leif. Appreciate the question.
Leif Pedersen: I think the easiest way to kind of walk through that is just I will 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 settlement. 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.
Brian Langston: Got it. Okay. that is helpful. And then maybe anything I am sorry if I missed it. Maybe anything on just sort of seasonality of earnings, medical margin, EBITDA through the back half of this year?
Leif Pedersen: Yes. So as you think about where we are 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 are 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 gonna drive and offset some of that cost. And just, you know, I am 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 if you look at full year 2025 and you compare that to the 6 months ended 36, and we are down 1.8%.
And that is attributable to a number of things that include the programmatics that we have in place, Also, it is contributing to that decrease. it is 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, our benefit reductions within our payer partner plans that they offered in 2026. Okay. Got it.
Brian Langston: And just 1 last 1 for me, and then I will 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 planned exits next year. Any thoughts on if those exits will actually impact your current membership? Thanks.
Aric Coffman: Yes. Thanks for that. This is Aric. So I think there is some of it is a little bit early to know. We are 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 have seen some of the same notifications on county exits. We do not expect that to have a major impact on our membership overall in terms of the exited counties. In terms of the benefit design, we will have a much cleaner picture when we get to next earnings call after Q3. Got it.
Aric Coffman: You are welcome.
Operator: Your next question will come from Benjamin Haynor with Lake Street Capital Markets. Please go ahead.
Benjamin Haynor: Good afternoon, gentlemen. Thanks for taking the questions. First off, Leif, if I can kind of summarize what you said it sounds like the core EBITDA that you have generated in the first half of the year is effectively if you do the same in the back half of the year, that is what gets you to the kind of the midpoint of the guidance range. Am I hearing you right there?
Leif Pedersen: I think you are directionally correct in that analysis, Ben. I do think that we have factored in some back half pressure that goes into that. As well as risk rating other opportunities inside the second half of the year.
Benjamin Haynor: Got it. And then on with the Nebraska trajectory, it sounds like that is going well. Can you maybe remind us how that tracks What happens in 2027 before you move to at risk in 2028, I believe?
Aric Coffman: Yes. Thanks for the question. This is Aric. So we will remain in a relationship in 2027 where we are performing services on behalf of our partner in Nebraska We will continue to build out and scale the programmatics that we put in place there. And we do not move into the full risk arrangement until 2028.
Benjamin Haynor: Okay. Got it. And then it sounds like the point-of-care tools, those have seen quite the adoption thus far. You know, half of office visits, that is pretty impressive. Where do you think you can get, and is there any kind of additional feedback that you have gotten that you can share on those tools and that program?
Amir Bacchus: Well, we continue to roll out the program and we get more interest from our providers all the time. Really, as we started the program because, again, as a novel program, we started really, really a year or so ago, getting the interest as the provider starts to talk more about it and understand what it is to actually make the workflow easier. Is the key. Right? So as we work through our tier 1 providers and then now looking at expanding into our tier 2 providers, and them talking about the value that it brings to improve their workflow. that is kind of the magic that allows us to get more traction within the tool.
And then to drive better performance because not only can we show them you know, gaps in care opportunities, but we can show them a and better understanding from a diagnostic standpoint and the clinical diagnosis that they have had. For suspect diagnoses as well. Improve the care of the patient. Because you link those with our other team members, whether it is our high-risk management that we deal with on some of those populations within those practices, as well as our care management teams.
Benjamin Haynor: And is it through all the tier 1 providers and just rolling out into tier 2? Or how far along in the process is it?
Amir Bacchus: You know, almost all of our Tier 1s at the same time we are expanding into Tier 2s. So the Tier 2s are getting more traction every day. Then if you want, we can break down those numbers exactly for you as we go. But there is been a number of really good actions that we have had with FQHCs, etcetera, and how they are looking at how they utilize the information.
Benjamin Haynor: Okay. Got it. Well, congrats on the progress, gentlemen, and thanks for taking the questions.
Leif Pedersen: Thanks, Benjamin.
Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Aric Coffman: Thanks, everyone, for joining, and that will conclude the call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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P3 Health Partners (PIII) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool