Good day and welcome to the P3 Health Partners third quarter 2026 earnings conference call. Our participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to William Hoover with 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 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 the future events and financial trends that we believe may affect our business, financial conditions, and results of operations. These statements are subject to risk 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 our periodic reports 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 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 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 Eric Coffman, CEO of P3 Health Partners.

Good afternoon, and thank you for joining us today to discuss our third quarter results. It has been two and a half years since I began leading P3, and the changes we have made across the business continue to build on one another. Our third quarter results reflect that work, with $21 million of adjusted EBITDA, bringing our year-to-date adjusted EBITDA to $101 million. As a result, we are raising the low end of our full year adjusted EBITDA guidance to $90 million, increasing the midpoint to $100 million. Our focus now is on building upon the durable foundation we have created. We have four areas of focus, medical cost management, quality and burden of illness documentation, discipline growth, and refining our operations through people, process, and technology. I want to thank our teams across the country for the focus and care they bring every day, and our provider and payer partners who share our commitment to delivering better care for the patients we serve. There are two areas of the business I want to highlight that drive our results, operational execution and growth. I'll start with our execution. First and foremost, our year-to-date Medicare Advantage medical expense is 0.7% below the full-year 2025 medical expense on a normalized basis. In other words, this means we are bending the medical cost curve through the first three quarters of the year. Our combined approach to medical cost management, quality execution, and accurate documentation create a compounding impact With peers in our sector reporting medical cost trend of 7% or more, this is a meaningful differentiator for P3. This quarter, we showed progress across our model in the following areas. Utilization management had its strongest quarter of the year, with meaningful gains in how we manage both inpatient stays and outpatient services. Compared to Q1, our inpatient to observation rate is up more than 10 points, and outpatient prior authorization avoidance has improved 68%. Quality had its strongest quarter of the year with our highest weighted outcome measures moving in the right direction. We saw nine point improvements over the prior year in both blood pressure control and control of diabetes, which are two triple weighted measures. Patient and provider engagement remains ahead of plan with our teams having seen 91% of our patients year to date and 97% of high risk members. We are enhancing our AI-enabled technology to improve the point-of-care experience for clinicians and improve outreach capabilities to our patients. In addition, we continue to invest in our P3 Restore program aimed at directly supporting our clinician partners. Clinical leadership and analytics continue to deepen. We built an enhanced medical economics function focused on more quickly identifying areas of higher cost and utilization. that then allows us to put interventions in place against the findings. Additionally, we continue to invest in talent and are thrilled to welcome Dr. Mike Milley as Chief Clinical Officer to lead and strengthen our clinical execution. Turning to growth, our growth comes from two sources, expanding in the markets where we already operate and entering new markets in a capital efficient and deliberate way. First, expansion in existing markets. We grow our legacy footprint in three ways. New plans and counties adjacent to our current service areas, increasing provider density, and taking on more delegated functions with our current payer partners. This growth runs on infrastructure, care teams, and relationships we already have in place, so it adds membership at low incremental cost. Each function we take on also gives us better returns by controlling medical costs and quality outcomes more tightly. Second is smart growth in new geographies. New market entry is a repeatable model. Partnership, development, and then a move to meaningful risk on a glide path. We start with delegated operations for plan partners and building the clinical and operational infrastructure. Then we expand the scope of delegated functions and finally move to full risk arrangements. This sequence keeps growth capital light and gives us time to build network relationships to understand the local market before we take on full risk. Nebraska is the model for this approach. Since launching in May, we have put utilization management, payment integrity, coding, and quality programs in place. On top of those functions, we have added our clinical programs including senior wellness centers that provide direct patient care, more points of access, and high-risk clinical programs. Demand for this model is strong. There are more than 60 mid-sized Medicare Advantage plans facing similar pressure on medical cost and quality. Our solution manages more of the levers that drive performance with a clear path to margin first and membership growth after. We are actively pursuing opportunities in our pipeline, sequencing them at a pace our infrastructure supports and on terms that reward the value we create. Overall, our third quarter results reinforce the consistency of the earnings improvement we have established this year, and we enter the final quarter with momentum and a stronger operating foundation. The core levers that drive our performance are demonstrating measurable results, and we continue to see substantial opportunity within our existing book of business. We have identified more than $200 million of potential value creation across payer economics, Thank you, Eric.

Our year-to-date medical cost performance continues to compare well against the industry. As expected, the third quarter medical expense ran higher than the first half of the year, driven primarily by outpatient and professional services, while inpatient costs tracked in line with expectations. Within outpatient, cardiovascular procedures are the largest driver. Our response, built on the care enablement model, has two parts. Targeting the specific drivers of the increase and continuing to strengthen the programs behind our year-to-date performance. First, we are going directly after those drivers. Our teams have identified where costs are rising and are focused on mitigating them in the fourth quarter and into next year. One of our most effective tools is our high-utilizer model, which identifies members with repeat hospital, emergency, and observation visits down to the provider they seek. Our clinicians and care managers step in earlier and direct care to the appropriate site. We are focused on transitions of care, including medication reviews and care coordination for patients being discharged from a facility. For those patients with barriers to care, our teams are performing at high assessments to reach high-risk patients who are not seeing their primary care physician. Second, utilization management has its strongest quarter of the year. Since the first quarter, our outpatient prior authorization effectiveness has improved 68% per member. On the inpatient side, our review teams raised the rate at which appropriate hospital stays moved to observation from 24 to 34%. Third, we continue to execute on quality. We are submitting supplemental data at more than twice last year's pace, and our quality outreach reached more than 76,000 members, or 96% of our MA members. in the quarter. That work is showing up where it matters most for patient outcomes. Blood pressure control and diabetes control, two of our most heavily weighted measures, are each up approximately nine points over last year. Better control of these measures means better control of overall medical spend and improvement in outcomes. And finally, we continue to invest in our clinician partners through P3 Restore. In the third quarter, we added 23 clinicians to the program's one-on-one coaching and education program. Their feedback continues to be strong, especially around work-life balance, leadership, and a renewed sense of purpose. On the backdrop of provider burnout, about 40%, and a physician shortage, this is important for long-term success. The clinical foundation behind our year-to-date performance is in place and scaling. Under the leadership of Dr. Mike Milley, our new Chief Clinical Officer, our teams are focused on the levers that provide the highest quality care to patients at the lowest cost to the system. And that focus will carry through the fourth quarter and into 2027. With that, I'll turn the call over to Leif.

Thank you, Amir, and good afternoon. Q3 marked our third consecutive profitable quarter. We delivered 21 million of adjusted EBITDA. Two items drove a meaningful part of that result. First, approximately $7 million of favorable medical margin from the 2025 CMS ACO reconciliation. Second, approximately $5 million of non-cash income from a liability release associated with our ACO joint venture. Excluding these and other prior period and non-reoccurring items, underlying Q3 adjusted EBITDA was approximately $10 million. Importantly, the underlying business remained profitable despite medical expense pressure in the quarter. Year-to-date performance continues to reflect improved payer debt economics, strong clinical execution, and progress in utilization management and payment integrity. Based on our year-to-date results and current expectations for the fourth quarter, we are raising our midpoint guidance from $95 million to $100 million. I'll cover three areas today. are Q3 financial performance, liquidity, and our outlook for the remainder of 2026. Starting with membership, we ended the third quarter with approximately 105,000 at-risk members compared to approximately 116,000 in Q3 of 2025. The year-over-year decline primarily reflects deliberate portfolio actions taken in 2025 and early in 2026 to exit or reduce and many more. As a result, our current membership base is more concentrated in payer and provider relationships, where we believe the P3 model can generate attractive and sustainable economics. In addition to our at-risk membership, we manage approximately 28,000 lives through management services arrangements, creating a potential pipeline for deeper Future at-risk relationships and bringing total lives under management to approximately $133,000. Moving to the top line, third quarter revenue was approximately $396 million, compared with $345 million in the prior year quarter, a 15% increase. Capitated revenue per at-risk members increased approximately 18% year over year, reflecting rate progression, improved payer economics, and continued maturation of our burden of illness performance. Total revenue also benefited from growth in other revenue streams, primarily management services and incentive-related revenue, along for fee-for-service and care coordination activity. Against that revenue backdrop, medical expense was the most impactful operating trend in the quarter. Medical claims expense was approximately $322 million. The quarter included favorable prior period adjustments associated with the 2025 CMS ACO reconciliation noted earlier. Year-to-date Medicare Advantage Part A and B medical expense remains approximately 0.7% below the full year 2025 level on a normalized basis. However, medical expense stepped up during the quarter compared to the first half. particularly across outpatient and professional services. Improving that trend is one of our primary operating priorities as we finish the year. As Amir described, we are focused on specific areas driving the increase through utilization management, care management, payment integrity, and targeted medical economics work. Medical margin for the quarter was approximately 44 million or $140 and a member per month. Medical loss ratio was approximately 90.6% after adjusting for the favorable prior period items recognized during the quarter. While medical expense increased during the quarter, our year-to-date economics continued to benefit from improved payer funding, utilization management and payer payment integrity processes and disciplined clinical execution. Beyond medical costs, We continue to manage the overall cost structure closely. Adjusted operating expense in the quarter was approximately $35 million compared to approximately $32 million in the prior quarter. The increase reflects continued investment in our data and clinical capabilities in the build-out of our Nebraska market infrastructure. We continue to invest in capabilities that directly support medical costs, quality, and burden of illness performance. At the same time, we are reducing back office and third party spend to keep our cost structure aligned with the size and needs of the business. Bringing those components together, Q3 adjusted EBITDA was 21 million, compared with an adjusted EBITDA loss of approximately 46 million in the third quarter of 2025. As outlined earlier, underlying adjusted EBITDA for the quarter was approximately 10 million. On a year-to-date basis, adjusted EBITDA was $101 million, compared with adjusted EBITDA loss of approximately $85 million through the same period in 2025. After excluding prior period items and specific non-recurring operating costs, underlying adjusted EBITDA was approximately $29 million. For us, that is an important measure of the progress we have made. The underlying business has generated positive EBITDA in each of the first three quarters of 2026, giving us stronger operating base as we move through the fourth quarter and into 2027. With that, let me move to liquidity. We ended the quarter with approximately $44 million of cash and cash equivalents. We continue to actively manage liquidity and capital requirements against our operating plan. while maintaining the investments necessary to improve the underlying performance of the business and preserve appropriate financial flexibility as we move into 2027. That brings me to our outlook for the balance of the year. We are raising the low end of our full year 2026 adjusted EBITDA guidance from 80 million to 90 million, resulting in a revised range of 90 million to 110 million and increasing the midpoint from 95 million The revised outlook reflects our year-to-date reported performance, including favorable prior period items recognized during the year, as well as our current expectations for the underlying business in the fourth quarter. Our outlook incorporates the higher medical cost run rate experienced in Q3 and our current expectations across revenue, medical expense, and operating costs. It also assumes continued execution against the clinical utilization management, payment integrity, and cost initiatives we have discussed today. Our priorities for the remainder of the year remain clear. Improve Medicare Advantage medical cost performance, maintain discipline around operating expense, continue strengthening payer economics, and build on positive underlying earnings performance generated through the first three quarters. I'll turn it back to Eric.

Thanks, Leif. Before we open the line for questions, I want to leave you with three takeaways. First, our clinical and operational execution is delivering. The structural and clinical work we set out to do two years ago is now embedded in how we run the business. Utilization management and quality have their strongest quarters of the year. Our clinical programs continue to scale. and our differentiated medical cost trend remains below what peers are reporting. Second, we are growing in a smart and balanced way. We are deepening the partnerships in our existing markets. Nebraska is proving our framework in a new market and the opportunity to bring that framework to more health plans is significant. We will pursue it at a pace our infrastructure supports and on terms that reward the value we create. Lastly, 2026 has set the baseline for 2027 and beyond. Our year-to-date results, in an upward revision to full-year guidance midpoint, reflect what our teams have built over the last two years. Combined with the $200 million of value creation we have identified, our performance reinforces our confidence in the growth and earnings potential of P3. With that, operator, please open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star 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 then two. The first question comes from Ryan Langston with TD Cohen. Please go ahead.

Hi, thanks. Good afternoon. I know it's a little early, but maybe how should we think about any sort of building blocks for 2027, you know, other than sort of PYD, any other one-timers to keep in mind? And Eric, I think he talked about expanding and growing the membership base. Maybe give us some insight into what enrollment could look like next year and remind us if those lives come on at sort of care management arrangements or full risk.

Yeah, hey, thanks for the question, Ryan. And there's a few of those things that we won't have full clarity into until we get, obviously, through open enrollment. And that process is underway right now. We'll be happy to detail some of the things that we see as we head out of open enrollment and get into the beginning of 2027. We'll have a better line of sight. I think that the dollars that we pointed to in terms of what we see as additional opportunities within the existing business, we'll also get into some greater clarity on that for you as we head into the beginning of next year.

Okay, and then you noted that cost trends kind of stepped up a bit in the quarter. Maybe can you just give us a sense how cost trend has materialized through the year by quarter, sort of on a year-over-year basis? And maybe was there any sort of particular geography that's driving that increase, or was it more broad-based?

Leif, do you want to hit on that one?

Yeah. Hey, Ryan. As we noted, through... Q2, when we did Q2 earnings, you will note that we were, when we compared 2026 full-year PMPMs to 2025 full-year PMPMs, we were at 1.7% favorable on a year-over-year basis. Through Q3, that dropped down to a 0.7% favorable on a year-over-year basis. So Q3 did show some increased pressure on the MedEx side of the business. and predominantly on the Part B side of the business, we're seeing some increased utilization there.

Yeah, real quick, Ryan, as well. So when you asked about geography, we did see probably some of those costs increased more in Nevada than probably other markets, which we're looking deep into, especially in regards to that outpatient utilization and some of the professional services in that market.

Okay, that's helpful. And then just, if I could squeeze one more in, just, Eric, on the 200 million of identified opportunity, appreciate you don't want to, you know, explicitly talk about it until you give 27 guidance, but I guess maybe just any other high-level insight into if that's more sort of clinical angle, is it operational? Just like any other detail you could give us I think would be helpful just to kind of understand how you're sort of looking at 2027, at least at this point. Thanks.

Hey, Ryan. Let me take a first stab at it, and I'll let Eric and Amir kind of augment where necessary. The way I would think about that $200 million is that's going to be a multi-year realization into the P&L, and that timing is going to depend on execution, obviously. And we, like you said, we will provide further guidance when we do our 2027 guidance. But I'd really think of it as the three buckets that Eric talked about. One is, you know, our clinical execution, which is really, you know, our burden of illness documentation quality as a continued areas of focus. Care Management, Utilization Management, and PI. Those kind of all fall into that bucket, and I would say that that preponderance is the biggest piece of that value creation from a proportionality perspective to the other two buckets, which I'll talk about. The second largest is going to be kind of provider economics, and that would just be our continued maturation on our Payor Contracting with our payers, as well as our in-network contracting opportunities, and then some relatively small portion of how quality flows into those contracts as well. And then the last piece, which is probably the smallest portion of all those value levers moving forward, but not necessarily unimportant, is our operating efficiency, which is really our OpEx costs and how we think about our structure moving forward and how we're being efficient with the dollars that were given to spend to drive that return on investment.

Okay, thank you. Thanks, Ryan.

The next question comes from Ben Hainer with Lake Street Capital Markets. Please go ahead.

All right, good afternoon, gentlemen. Thanks for taking the questions. Just following up on Ryan's last question there, On the 200 million in opportunities, is that for the existing membership? And then, you know, you talked about bending the cost curve. How much meat on the bone is left there? Is that something that you can continue to kind of track at, you know, very low or even flat growth here or here?

Yeah, hey, this is Eric. Ben, thanks for the question. In terms of the dollars, yes, that's reflective of the existing membership base that we have. So that's where we point those dollars. And then on the second, I think the exciting part is we still have a lot in terms of executional opportunities, clinical programs that we're launching and that are maturing within our markets. and you probably also heard that we've made significant investments into our clinical bench. So we added in Dr. Mike Milley to come in as a Chief Clinical Officer and that's gonna be a really important part of attacking some of the opportunities that still exist within medical costs and really getting ahead and preventative on some of the things that sometimes that just happen and that's gonna be done through high risk programs and being able to get care delivered more closely to those high risk patients, whether that's in the home or through our senior wellness centers or clinics in the markets.

Ben, this is Amir. I would add one or two things to what Eric said. So definitely everything that Eric and Leif described is spot on. A couple other quick things. We continue to see more delegation, which is great. So as we continue to see more delegation, it gives us more of the opportunity to help manage and be tighter on MedExpense. We know some of the issues that we had in Nevada. We have our clear line of sight as to some of those things that are going on, especially from our MedEcon department, which we stood up even more with our new clinical leadership at the same time. So a lot more information that we're seeing to be able to get on things quicker, to manage more expeditiously, to drive results.

Got it. That's helpful. And then just wondering how the conversations are going with potential plan partners to get more of these agreements a la Nebraska. Are those progressing? Should we expect to hear more about those in the near future? What's the right way to calibrate that?

Yeah, Ben, I think what we can comment on is that we're in active conversations. I think we've said publicly there's well over 60 mid-sized plans that are in a similar type of situation. with a lot of lives, millions of lives in those plans, and they're looking for solutions. And so it's an exciting opportunity.

Okay, got it. And then a quick housekeeping one. It looks like other medical expense came down, I don't know, $8 million or something sequentially. What's driving that? And can they continue at the Q3 level?

Hey, Ben, it's Leif. Part of what's driving that from a reported basis is some of the one-time ACO true-up that happened in Q3. So that $7 million that I outlined in my opening remarks was a net number to medical margin. And there was about $13 million of medical expense that actually reduced in the quarter related to that portion of the ACO 2025 settlement.

Got it. Thanks for taking the questions, gentlemen, and congrats on the progress. Thank you very much. Thank you.

This concludes the question and answer session. I would like to turn the conference back over to Aric Coffman for any closing remarks. Please go ahead.

Yeah, I just want to thank everyone for being on with us today, and we look forward to seeing you again next quarter. Goodbye.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.