Good day, and welcome to the P3 Health's Third Quarter 2025 Earnings Call. Please note, this event is being recorded. I would now like to turn the call over to Gabby Gabel 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 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 future events and financial trends that we believe may affect our business, 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 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 Investors page of the P3 Health Partners' website. I will now turn the call over to Aric Coffman, CEO of P3 Health Partners.

Thanks, Gabby. Good morning, and thank you for joining us today. As we discuss our third quarter results, I want to begin by framing where we are in the evolution of the business. This continues to be a transitional year, one focused on improving stability, strengthening operating discipline and maturing the clinical foundation of the organization. Throughout this period, we have remained focused on execution in our core markets, deeper provider alignment and consistent delivery of our Care Enablement Model. There are several positive indicators that reinforce the progress we are making. First, our capitated revenue is up roughly 6% and normalized medical cost trend has remained flat year-over-year, even as cost trends across the industry have risen, demonstrating the impact of our clinical programs and utilization management efforts. Second, the operational improvement plan communicated last year is now embedded in the business, achieving over $100 million in EBITDA improvement year-over-year. Third, as discussed last quarter, we are moving forward with the strategic joint venture that will add approximately 13,000 fully accretive ACO members, improving profitability and cash flow and providing a more stable membership mix. As we previously discussed, we have an additional 25,000 Medicare Advantage lives in the pipeline for 2026. Lastly, we are intentionally rationalizing our provider network to improve margin performance. This includes exiting groups that do not align clinically or economically and growing where our Care Enablement Model consistently delivers strong outcomes. Taken together, these elements strengthen the foundation of the business and position us for meaningful profitability in 2026. With that context, I'll provide a brief overview of our quarterly results before Leif walks through the financials in more detail. For the quarter, membership was approximately 116,000 members in line with expectations. Adjusted EBITDA loss for the quarter was $45.9 million, and year-to-date adjusted EBITDA loss was $85.2 million. Adjusting for prior year items, normalized adjusted EBITDA year-to-date was a loss of approximately $70 million, which we believe provides a clear reflection of the underlying performance of the business. As we discussed on our last call, there are $120 million to $170 million of EBITDA opportunities over the next 5 quarters, which we will cover in more detail. Despite the numbers for the quarter, we have addressed and strengthened the processes that support visibility and predictability. The core business continues to show positive signs of stabilization across medical management, quality performance and alignment to population burden of illness. Given this, we are revising our full year adjusted EBITDA guidance to a range of minus $110 million to minus $95 million, which we believe accurately reflects our current expectation for the year. With that reset in place, I want to speak to the underlying performance of the business. The progress we are seeing in the core business is being driven by the Care Enablement Model, which embeds clinical support and data-driven workflows directly into provider practices. This approach is improving documentation accuracy, quality performance and care coordination. We have strengthened utilization management and care management capabilities, improving predictability across inpatient, post-acute and specialty care. We are also deepening provider alignment with a growing share of lives attributed to Tier 1 providers who consistently outperform lower engagement groups on both cost and quality metrics. For example, Tier 1 providers performed 17.4% higher in care closures compared to non-Tier 1 providers in the first half of this year. In addition, we are advancing payment integrity and contract hygiene efforts to ensure that terms are aligned with the value being delivered. This includes targeted renegotiations, standardization across payors and clearer accountability for execution. Together, these initiatives are building a more stable, consistent and scalable operating platform and reinforcing the earnings durability of the model as we move into 2026. As we look ahead, we are positioned to translate the operational progress we've made this year into meaningful earnings expansion in 2026. We continue to execute against the $120 million to $170 million EBITDA expansion opportunity, driven by improved alignment with our population of burden of illness representing roughly 40% of the total opportunity, scaling of clinical and operational programs that are delivering measurable impact, which represents roughly 30% of the opportunity, contractual improvements, both secured and in progress, which represents roughly 20% of the opportunity and the remaining portion made up of product and benefit environment stabilization which we've seen from our partners going into 2026. The work underway to strengthen provider alignment and invested Care Enablement Model in standardized clinical and financial workflows is laying the foundation for earnings expansion in 2026 and the model is becoming more stable and scalable over time. With that, I'll turn it over to Dr. Amir Bacchus to discuss our clinical performance in more depth.

Thank you, Aric. At the clinical level, our focus remains on consistent execution of the Care Enablement Model. This model embeds care coordination, utilization management and quality support directly into our highest engaged provider practices, enabling clinicians to proactively identify and manage their high-risk patients. This remains a key driver of the stable medical cost trend we are seeing in the business. We are also continuing to deepen alignment with Tier 1 providers, and the share of lives attributed to these higher-performing practices continues to increase. These providers consistently demonstrate stronger documentation accuracy, higher quality performance and more effective management of chronic and complex patients. In addition, our clinical programs in post-acute management, chronic care management and specialty utilization continue to operate consistently across markets. These programs are designed to ensure appropriate care transitions and avoid unnecessary inpatient stays, improve chronic condition stability through longitudinal care engagement and provide clear pathways and oversight for high-cost specialty treatment. Looking ahead, our focus is on expanding Tier 1 participation, continuing to standardize these clinical workflows across markets and further integrating data and clinical insights into day-to-day provider practice support. With that, I'll turn the call over to Leif to discuss our Q3 results.

Thank you, Amir. I want to start by providing context on the quarter and then walk through our financial performance, liquidity and our 2025 full year outlook. As Aric noted, this remains a transitional year focused on strengthening the operating foundation of the business, improving clinical and financial execution, deepening provider alignment and supporting long-term scalability. We are aligning our cost structure to the scale of our model, and we are encouraged by the stable medical cost trends and the impact our Care Enablement Model is having across the core business. With that, I'll walk through the financial performance for the period. Total capitated revenue for the quarter was $341.6 million or approximately $982 per member per month. The quarter reflects the recognition of unfavorable midyear settlement, reconciling previously estimated accruals to actual settlement receipts. We have reviewed the drivers of the variance and strengthened both our teams and our processes to support greater visibility and predictability in future settlement recognition. These improvements are now in place and are embedded in our current operating cadence. On a normalized basis, adjusted for prior year items, capitated revenue PMPM is approximately 6.4% above the 2024 full year average, reflecting continued improvement in burden of illness documentation and the impact of our improved contract terms. Medical margin for the quarter was $4.4 million or $13 PMPM compared to $500,000 or $1 PMPM in the prior period. The reported results this quarter reflect the impact of the major settlement adjustments recognized in capitated revenue. Excluding this effect, underlying medical cost trend, normalized for prior year adjustments, remained stable, consistent with the pattern we have seen throughout the year. On a year-to-date basis, medical margin was $52.2 million or $50 PMPM. On a normalized basis, adjusted for prior year items, year-to-date medical margin was $80.8 million or $78 per member per month. Importantly, as Aric touched on in his opening remarks, normalized medical cost trend has remained essentially flat year-over-year, reflecting the progress we are making in clinical execution and cost management discipline. Operating expense for the quarter was $21.1 million compared to $31.6 million in the prior year period, an improvement of $10.4 million or 33%. This improvement reflects targeted reductions in core administrative headcount and support costs as we continue to align our cost structure with the operating model and scale the business. At the same time, we have reinvested in market operations, provider support, utilization management and care coordination roles that directly influence clinical performance and medical cost trends. The result is a more focused and efficient operating model with resources concentrated on the areas that drive performance, predictability and long-term sustainability. Adjusted EBITDA for the quarter was a loss of $45.9 million and year-to-date adjusted EBITDA loss was $85.2 million. On a normalized basis, adjusting for prior year items, year-to-date adjusted EBITDA loss was approximately $70.1 million. We believe this normalized view provides a clearer reflection of the underlying operational performance and the progress made throughout the year. This normalized trajectory reflects stable underlying medical cost trend, continued maturation of clinical and utilization management programs and ongoing alignment of our provider network towards higher-performing Tier 1 practices. Taken together, these elements provide a sound starting point as we move into 2026 and continue to execute against our plan. From a balance sheet perspective, we ended the quarter with $37.7 million of cash. We are maintaining a disciplined approach to working capital management and resource allocation as we execute through the remainder of the year. Given the year-to-date performance and the normalization adjustments discussed, we are revising our full year adjusted EBITDA guidance to a range of $110 million loss to a $95 million loss. This range more accurately reflects our current run rate performance and incorporates the improved controls now embedded in our operating cadence. It provides a clear, durable baseline from which to execute going forward. Stepping back, it's important to look at our performance and trajectory over a multiyear horizon. In 2024, the business operated at a normalized adjusted EBITDA loss of approximately $191 million reflecting structural challenges and prior year dynamics. 2025 has been a year of reinforcing the operating foundation, positioning the business to scale more effectively. As our efforts mature, we continue to execute against the $120 million to $170 million in adjusted EBITDA opportunities for 2026. We have line of sight to achieve meaningful profitability next year. With that, I'll turn it back to Aric for closing remarks.

Thanks, Leif. Before we open it up for questions, I want to leave you with three key takeaways that reinforce our confidence in the opportunity ahead. First, our core operating model is working. We have seen stable medical cost trends throughout the year, driven by consistent execution of our Care Enablement Model, stronger Tier 1 provider alignment and disciplined clinical program delivery. This stability is foundational and it is what allows us to scale effectively. Second, we see favorable macro tailwinds heading into 2026. Payors have already signaled a shift towards more sustainable benefit designs, and we expect to benefit from the improved rate environment communicated by CMS. Together, these trends support a more rational competitive landscape and improved economics for value-based care models like ours. Third, and most importantly, as we've highlighted earlier, on an apples-to-apples year-over-year comparison, we have demonstrated the ability to improve EBITDA over $100 million from 2024 to 2025 and have identified $120 million to $170 million in EBITDA expansion opportunities from 2025 to 2026 that we are actively executing against today. In short, the foundation is in place. 2025 has been about disciplined execution, aligning the network, reworking our contracts, maturing the Care Enablement Model and establishing a disciplined operating cadence. This work positions us to deliver meaningful profitability in 2026 and support a more durable business going forward. With that, let's open it up for your questions.

Our first question comes from Josh Raskin with Nephron Research.

I wanted to start on the renegotiation efforts, and I know you talked about this last quarter and having made some good progress. But I guess the question that sort of I keep coming up with is, what convinces the plans to sort of see margin in their Medicare Advantage books, especially when they're trying to increase their margins for 2026? And now that you can see the benefits for all the plans for 2026, do you think the changes they made were consistent with the conversations when you guys were going through that recontracting process?

Josh, thanks for the question. This is Aric. Yes, I think so. And there's differences across each geography in terms of how they approach benefit design and there is a mix across the markets, but it meets our expectations in terms of what they did to the benefit designs in those geographies. And then when I think about why on renegotiations, like what is the motivation for the payors, there's a lot of investment that happens from our business into their membership, and they need the help, especially on things around high-risk patients, net expense reduction as well as Stars and quality. And so those are the things that I think are really driving those conversations.

Okay. And then maybe just a quick follow-up on that. Have you made an attempt to sort of have the plans have more skin in the game, sort of participate in a potential surplus that you can create? Are all of your contracts for 2026 full capitation?

It's a good question. One of the things we're doing to ensure they have a vested interest is that we take on the risk from the payors. They receive their administrative margin, and we utilize a percentage of the premium to operate our business. Their involvement really hinges on executing the business that may lie outside of ours, and they also need to meet the criteria that affect Stars performance, which are related to the plan.

On their side, Okay, yes. Yes, I was just thinking like how do you align the incentive around medical management and making sure that they're doing everything that they can. It just seems like we keep getting some of these prior year things or prior period things and the payors keep coming back with updated data. I just know if there was a way to sort of think about getting them to pay more attention, but you still think just taking 100% cap. That's the model, and that's been working, right? That's your idea?

Yes, that's correct. And I agree with you. I mean, I think the partnership that we have and that we're developing with the payors on a go-forward basis, there's bilateral accountability for outcomes on the things that we're supposed to be doing. And we've increased the cadence that we're doing in those meetings. We have a lot more visibility, and we've set probably different levels of expectations for them moving forward, if that's helpful.

Our next question comes from Ryan Langston with TD Cowen.

I think in the last one or two calls, you've talked about some of the issues being sort of targeted at a single payor, single market kind of dragging on performance. Was the guidance reduction sort of driven by that payor, by that market or is it sort of more broad based?

It was a little more broad-based, Ryan. It's a good question. Really, the guidance reduction was primarily related to two things. One is the midyear settlements came in less than expected. And so as we talked about, we've got new structural controls put in place around the process, both with how we're coordinated between our MRA function and our finance function moving forward. In addition, that was one of the last areas that we've restructured in early 2025. So our expectations going into '25 were based upon some old processes that we feel like we have corrected moving forward at this point in time. And then a smaller portion of the guidance reduction was related to our back half assumptions on some of our medical cost initiatives just got pushed out and that will flow into 2026. And so that was a smaller piece of the reduction as well.

Okay. Regarding that, I believe you mentioned last quarter that some noncore assets were impacting performance. I assume this is related to one market and one payor. Could you provide any insights on how those specific assets are performing? Additionally, is there a chance to divest some of those by 2026 or possibly even 2027?

Yes. It's another good follow-up question, so I appreciate that. We are still experiencing in 2025 headwinds associated with one of our markets. And as part of our expectation for 2026 in the $120 million to $170 million EBITDA opportunities that Aric outlined, part of that expansion of EBITDA is related to contractual adjustments related to that market.

Our next question comes from David Larsen with BTIG.

I'm sorry, can you please repeat what the prior period dollar amount was in the third quarter? And I thought I saw some language about settlement in the third quarter. How much was that either favorable or unfavorable?

The net amount from the prior period in our profit and loss statement was a $3 million decrease. We experienced an actual $3 million headwind during the quarter. When we refer to the prior period, we're talking about 2024, not 2025. The midyear adjustment had a $21 million impact specifically for Q3. This was due to the fact that Q1 and Q2 were generating revenue at a higher rate than expected, which did not continue into Q3, prompting us to make this adjustment in Q3.

So it was a total $24 million unfavorable impact in the third quarter?

Yes.

That's helpful. It's great to hear that the trend is normal as you described. My question is about the likelihood of another prior period adjustment in 2026 related to 2025 claims. Why weren't those claims expenses recorded in 2024? What caused the lack of visibility?

Yes. Some of this is the fact that we do have non-delegated plans, and we get data later than expected. And so some of that is just materialization of how that data comes through our P&L. The expectation for 2026 would be that we will have a more consistent method of how we are booking our expenses and our revenue that should preclude that normalization from having to happen. And why we're normalizing to a large degree, is because we want to compare our 2025 results to 2024. And 2024 was really, really lumpy. Yes, it's very back half loaded to how expenses hit the P&L. And then in Q1, we had a material cost adjustment on the MEDAC side that related to 2024. My expectation moving forward is that you will have normal fluctuation of how IBNR settles out and runs out, but that we won't have these material swings moving forward.

And just to add to that, just based on Josh's question about how the relationship with the payors and how that's working through. This is another element there where with our improved joint operating committees that we're having with the payors and us laying down a different set of expectations and having some new people, too, that are doing some of this work, we're going to be able to eliminate some of those miscommunications or late communications from what you've seen previously.

Okay. And then just in terms of like per member per month revenue growth expectations in '26, what percent increase would you expect to see based on number one, improved coding? And then number two, rate increases, which I would assume would flow through from the favorable MA rates the plans are going to get?

Yes. This is Aric. I'll take the first swing. And so we've done a pretty deep look at the rate changes that are coming through. And as you know, it varies by county in terms of how that works out. So if you look at the whole country, the aggregate is about a 5% net improvement in premium. And it turns out that in our four markets, that's exactly where we land in aggregate is a 5% improvement in premium in terms of those overall dollars. What we've talked through with the expectations for the burden of illness operations, we are seeing improvements year-over-year in those numbers, David. We won't have full guidance on the impact for that until we get into the next quarter.

Okay. So the 5% includes coding improvement and also the premium?

No, 5% is just the base rate improvement. And then as we look at the coding improvement, we'll have better line of sight into that as we get into the next quarter, but we are happy with the progress seen year-over-year.

Okay. And just one more quick one. What was the per member per month cost trend in the quarter? Did I hear it was flat or normal? What was the percent?

When we compare our Part A and Part B costs, they are flat when we consider normalized year-to-date data for 2025 versus the full year of normalized 2024. That indicates a flat trend.

Okay. So if that continues, you should see at least 500 basis points of gross margin expansion in theory in 2026?

Yes, correct.

At this time, there are no more questions. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.