P3 Health Partners outlines $120M–$170M EBITDA improvement opportunity for 2026 while strengthening payer contracts

Earnings Call Insights: P3 Health Partners Inc. (PIII) Q2 2025

Management View

• CEO Aric Coffman reported that the company is nearing full execution on its $130 million EBITDA improvement plan, stating, “Our core business is moving in a positive direction. And we are well positioned for continued momentum into 2026.” He highlighted that three out of four markets are breakeven or better through the first half of the year, and funding has improved by 10% across membership on a normalized per member basis.
• Coffman announced the successful renegotiation of a contract with a major payer, extending into 2026 and positioning the company for approximately $20 million in contractual improvements. He added, “We are near finalization of an amendment and extension of our senior debt with a note originally due at the end of September and we expect to round out the remaining $40 million on the accordion from May of 2025 to ensure a strong cash position.”
• The CEO provided an update on the care enablement model, noting that it is delivering accelerated results in clinical quality metrics, with field-based physician engagement specialists driving almost threefold improvement in care gap closures. He stated, “We currently have 65% of our membership with Tier 1 providers across our portfolio.”
• CFO Leif Pedersen stated, “We are encouraged by the performance of our core business this quarter. We did face some unfavorable prior period headwinds. The results underscore a meaningful improvement in our underlying business fundamentals.” He emphasized a 13% reduction in operating expenses and a workforce reduction of 25% since January 2024.
• Chief Medical Officer Amir Bacchus detailed the impact of clinical initiatives, including reductions in emergency department admits, readmissions, and hospital admissions. He cited, “Programs such as hospital at home for acute illness, improved chronic care management at home… and palliative and hospice services… have all helped to drive success.”

Outlook

• The company revised its full-year 2025 guidance to a range of $39 million to $69 million adjusted EBITDA loss, citing prior period headwinds and the underperformance of a single payer. Pedersen stated, “We now anticipate full year 2025 adjusted EBITDA to fall within a range of $39 million to $69 million loss.”
• Management outlined a clear path to an additional $120 million to $170 million of EBITDA improvement in 2026, driven by base rate increases, burden of illness documentation, benefit design rationalization, and operational levers such as revamped utilization management and clinical programs. Coffman explained, “We anticipate driving additional EBITDA improvements in the range of $120 million to $170 million, with the majority of the impact occurring in 2026.”

Financial Results

• Q2 membership was reported at 115,000, down 9% year-over-year due to intentional rationalization of payer and provider partnerships.
• Capitated revenue for Q2 was $352 million, with total revenue of $356 million, reflecting a 6% decline year-over-year.
• Q2 medical margin, excluding prior period adjustments, was $39 million or $114 PMPM. Pedersen noted, “Q2 include significant improvements to our hospice and palliative care program, resulting in approximately a $10 million reduction in medical expenses.”
• Operating expense was down $3 million compared to Q2 of the prior year. Adjusted EBITDA for the quarter was a loss of $17 million; normalized loss after adjustments was $8 million, a $5 million improvement from Q1 normalized results.
• Year-to-date adjusted EBITDA loss was $39 million; excluding prior period adjustments, the loss improved to $22 million for the first half of 2025.
• Liquidity at quarter-end stood at $39 million.

Q&A

• Joshua Richard Raskin, Nephron Research: Asked about prior period adjustments and processes to prevent future catch-ups. Coffman responded that data migration issues with a plan in 2024 were resolved and regular meetings have improved data exchange processes. Pedersen specified, “It was a net $9 million of out of period that impacted Q2 unfavorably.”
• Raskin also questioned reserve booking methodology. Pedersen said, “We’re not just taking planned data… we take not only the claims information that comes to us, whether we pay it or receive it, and then we overlay that with our own information to come up with our best estimate.”
• Ryan M. Langston, TD Cowen: Sought clarification on guidance revision and noncore asset performance. Pedersen broke down the revised guidance, attributing changes to prior period adjustments, underperformance in Oregon, and “some other puts and takes.”
• Langston asked about the ability to exit underperforming markets. Coffman stated, “We need all of our businesses to be profitable… we have a lot of confidence in what’s going to happen in that market in 2026 and we will take further steps if needed.”
• David Michael Larsen, BTIG: Asked about RAF score adjustment and process improvements. Pedersen described it as an “isolated incident with 1 of our payers related to our 2024 RAF accrual,” and said the issue has now been resolved.
• Aaron Wukmir, Lake Street: Asked about renegotiation efforts and impact on Part D exposure. Coffman said the renegotiation is “about 75% complete” and the changes will have impact in both 2025 and 2026.

Sentiment Analysis

• Analysts’ tone was neutral to slightly negative, focusing on the causes and prevention of prior period adjustments, the sustainability of cost controls, and clarity on guidance revisions. Repeated inquiries probed the reliability of data processes and the ability to exit or fix underperforming markets.
• Management maintained a confident and explanatory tone in prepared remarks and Q&A, emphasizing operational progress and mitigation of past headwinds. Coffman and Pedersen used assertive language, with phrases like “we are well positioned” and “we are confident that ongoing efforts… will drive meaningful margin recovery.”
• Compared to the previous quarter, management’s tone remained confident, but guidance was revised downward and explanations for headwinds were more detailed. Analyst sentiment was consistent with the prior quarter, remaining focused on risk factors and operational execution.

Quarter-over-Quarter Comparison

• Guidance shifted from reaffirmation in Q1 to a revision downward in Q2, with the adjusted EBITDA loss range widened to $39 million to $69 million for 2025.
• The strategic focus stayed on the execution of the EBITDA improvement plan and operational efficiency, but Q2 remarks provided more detail on contract renegotiations and risk mitigation with underperforming payers.
• Analysts’ concerns about prior period adjustments and data reliability persisted quarter-over-quarter, with additional focus in Q2 on the sustainability of recent improvements.
• Key metrics such as membership and revenue continued to decline as part of intentional rationalization, while per member funding and operational performance improved.
• Management’s confidence in achieving future profitability remained strong, now emphasizing a specific $120 million to $170 million EBITDA improvement target for 2026.

Risks and Concerns

• Management highlighted prior period headwinds, underperformance of a single payer, and challenges with data exchange and claim migrations as current risks.
• Mitigation strategies include contract renegotiations, improved data processes, and operational improvements to utilization management and care coordination.
• Analysts raised concerns about the recurrence of prior period adjustments, underperformance in specific markets, and the reliability of future guidance.

Final Takeaway

Management concluded that despite headwinds and a revised outlook for 2025, P3 Health Partners is executing on strategic initiatives that have already demonstrated operational improvements and cost controls. The company is targeting a significant EBITDA improvement of $120 million to $170 million in 2026, underpinned by enhanced contracting, clinical program expansion, and a continued focus on profitability and sustainable growth.

Read the full Earnings Call Transcript

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