PIII

Please note this event is being recorded. I would now like to turn the conference over to Gabriella Gabel. Thank you. Over to you.

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 any 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. 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 in our SEC filings, which may be accessed from the investor's 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 afternoon, and thank you for joining us today to discuss our first quarter results. Q1 represents an inflection point for the business and reflects the continued execution of the two-year framework we have discussed over the past several quarters. The results of which delivered $26 million of adjusted EBITDA in Q1, exceeding internal expectations. The strength of the first quarter, combined with the momentum we are carrying into the rest of the year, provide us confidence to raise our full year 2026 outlook. It has been 24 months since I began leading P3, and we have fundamentally repositioned the organization through contract restructuring, market optimization, operational redesign, and tighter alignment between our clinical and financial infrastructure. The financial results this quarter demonstrate that these structural changes are now translating into measurable economic performance.

Importantly, the improvements we are seeing here are not being driven by temporary factors. It is the result of deliberate operational and strategic actions that are now embedded within the business model. The underlying business generated significant positive earnings during the quarter, and our operating fundamentals continue to mature. I would like to acknowledge the hard work and dedication from our teams that made this happen day in and day out. They deepen the relationships with our clinical and payer partners to unlock the potential in the business, buttressed by the improvement in the macro environment. From here, our focus is straightforward: continue expanding medical margin, continue improving contract economics, continuously improve operating execution, and scale the platform and markets and partnerships where our model performs best. Three primary drivers contributed to the improved underlying performance this quarter. First is the improvement in our payer contract structures.

Over the past 18 months, we have significantly redesigned how risk, funding, and cost accountability are structured across our payer and network relationships. This includes improved alignment around medical cost accountability, enhanced funding mechanisms, revised risk-sharing structures, greater operational coordination with our payer partners, and a path to delegation in our go-forward contracts. These are not temporary tailwinds. They represent a structural repositioning of the economic framework of the business. We are increasingly seeing payers recognize the value our model creates when operational accountability and economic incentives are fully aligned. As a result, MA funding rates improved approximately 15% year-over-year. Delegated functions expanded across 63% of membership in 2026, and contract alignment improved meaningfully across several of our largest relationships. These changes position the business for more durable and sustainable profitability going forward. Second is operational execution.

Over the last two years, we have focused heavily on building a disciplined operating model centered around medical cost management, quality execution, provider engagement, and risk accuracy. We are now seeing those efforts translate into improved financial performance. Across the organization, burden of illness capture and documentation accuracy continue to improve. Stars performance is tracking ahead of our internal glide path. Tier 1 provider concentration continues to increase. Care management engagement amongst our highest acuity populations continues to expand, and operational workflows across utilization management and payment integrity are increasingly effective across markets. Q1 MA medical expense trend was roughly flat compared to full year 2025 medical expense trend.

At a time when payers and peer organizations have generally guided to a 7% trend or higher, our trend reflects the compounding impact of tier 1 provider concentration, delegated utilization management, disciplined payment integrity, and we expect it to remain a durable point of differentiation. This isn't a one quarter result evidenced by our full year 2025 MedEx trend, which was under 2% across both Medicare Advantage and ACO populations. At the same time, our operating expense structure remains controlled. We continue to invest selectively in frontline clinical capabilities, provider engagement, and data infrastructure while maintaining focus on overall cost efficiency. The third item is the improving macro environment. The 2026 CMS benchmark update improved the underlying economics of the Medicare Advantage market and reinforced the sustainability of value-based care models that can effectively manage quality and medical cost performance.

In addition, benefit design rationalization across the industry is creating more sustainable utilization dynamics across MA populations. We believe the current environment increasingly favors organizations that have the following: strong provider alignment, local market operating capabilities, effective medical cost management, and a scalable clinical infrastructure. P3 is well-positioned within that group. Looking forward, we believe Medicare Advantage environment continues to move in a constructive direction. For organizations like P3 that effectively manage medical costs and execute on quality, this environment increasingly supports long-term margin expansion opportunities. The industry has moved into a period where operational execution and the ability to manage that cost of care effectively is what matters, not simply scale. As we look toward the rest of 2026 and 2027, the actions we have taken over the last two years position us to compete and win in that environment. Our payer relationships remain central to our success.

One of the clearest lessons we have learned is that our model performs best when operational accountability and economic accountability are aligned through delegation. When we control key delegated functions, particularly claims payment, utilization management, and care management, we consistently produce stronger medical cost performance, better quality outcomes, improved member engagement, and more favorable economic outcomes for both P3 and our payer partners. As a result, we will prioritize markets and payer relationships with a clear pathway toward deeper delegation, stronger economic alignment, density, and long-term partnership stability. The depth of operational control this model affords us, particularly the integration of claims payment, utilization management, and care management within our platform, is a structural differentiator within the value-based care landscape and one that is difficult to replicate. This level of delegation simplifies our data sharing and meaningfully improves our cash flows to help us realize surplus more quickly.

This disciplined approach materially improves long-term margin quality, predictability, and shareholder value creation. Our Nebraska partnership, which added an additional 28,600 lives under management, reflects exactly this type of disciplined expansion strategy. The implementation remains on track, operational readiness milestones continue to progress as planned, and the partnership reinforces our ability to enter new geographies through structured, delegation-oriented growth pathways. Over time, partnerships structured in this manner will become meaningful contributors to long-term earnings growth and market expansion. These partnerships solve for one of the major issues around growth in value-based care, establishing cash flow to the business and contractual elements that are mutually beneficial for P3 and the payer partner. Overall, our first quarter was strong. We have three quarters ahead of us, and our focus remains on sustaining execution.

The results reinforce our confidence that the business has moved into a phase of improving operational consistency and earnings quality. The core economic levers that drive the business are increasingly within our control. While our work is never done, the economic framework for 2026 is solid within the business. We remain focused on executing with discipline against that opportunity. With that, I'll turn the call over to Amir to discuss our clinical performance.

Thank you, Aric. I want to spend a few minutes on the clinical work that is driving the financial performance Leif will discuss shortly. The nearly flat MA medical cost trend that we are seeing in the quarter is not accidental. It is the result of deliberate clinical programs, improved utilization management workflows, and enhanced payment integrity capabilities. The clinical foundation driving our approach centers on our Care Enablement Model embedded within our tier 1 provider network. Execution across four areas is tracking ahead of plan.

First, our Stars performance is tracking ahead of our internal glide path for gap closures across all markets, signaling that our quality trajectory is on track heading into the second half of the year and provides confidence in achieving our goals. Second, total members seen across all markets through quarter one is ahead of plan by approximately 5%, which directly supports burden of illness documentation and our ability to manage care for the highest complexity members. Third, our Tier 1 provider concentration continues to deepen. The share of members attributed to Tier 1 providers has increased from 56% in Q1 2025 to 62% in 2026, reflecting continued progress in aligning our network around practices with the highest level of clinical integration and accountability. These providers consistently demonstrate more effective chronic disease management and better overall cost performance.

Lastly, our high-risk program provides intensive support for our most complex members. A core feature of the program is a dedicated 24/7 clinical call center, giving members and their caregivers direct access to clinical guidance before seeking higher cost care. This capability is designed to reduce avoidable ED visits and inpatient admissions by ensuring members have a supported lower acuity pathway when issues arise. This program was introduced in late 2025 and continues to ramp in the early part of 2026. In addition to our clinical foundation, we have strengthened our utilization management infrastructure across the network, with a focus on high-cost settings, including inpatient, post-acute care, and readmissions. The result is a more consistent, cost-effective care experience across our markets. We've also made meaningful progress on payment integrity, implementing process improvements that ensure we are paying accurately for the services our members receive.

This is an area where operational discipline translates directly to medical margin, and the work we have done over the past several quarters is now showing up in our results. Lastly, our P3 Restore program, where we provide a three-month individualized coaching engagement to provider partners, has reached across all of our markets, with lasting impact on provider engagement and practice sustainability. With that, I'll turn the call over to Leif to walk you through our financials.

Thank you, Amir. Good afternoon. Q1 was a strong start to the year. We delivered $26 million of adjusted EBITDA, exceeding internal expectations for the quarter. The results reflect the cumulative impact of the work Aric described, including improved payer economics, disciplined clinical execution, and strategic portfolio decisions such as smart, deliberate market growth. This afternoon, I will cover three areas. First, our financial performance for the quarter, including an update on our medical cost trends. Second, our capital position and liquidity. Third, our revised outlook for the remainder of 2026. Starting with membership, total at-risk membership at the end of Q1 was approximately 106,000, compared to 118,000 in Q1 2025. The year-over-year decline reflects the deliberate portfolio actions that 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 currently manage approximately 29,000 lives under management service arrangements, bringing the total lives under management to approximately 135,000. Going forward, we intend to provide total managed lives as an additional operating metric to better reflect the broader scale of our platform and the expanding scope of services we provide across our payer and provider relationships. Moving to revenue. Q1 revenue was $386 million, compared to $373 million in the same period of 2025. Despite a lower membership base, per-member funding for our Medicare Advantage population improved approximately 15% year-over-year, reflecting rate progression, contractual restructuring, and continued maturation of our burden of illness documentation across our networks.

Medical claims expense for the quarter was $306 million. The results include approximately $17 million of favorable prior year development and payer settlements. Q1 2026 MA medical cost trend is approximately flat to the full year 2025 baseline when adjusted for the prior year items. Medical margin for the quarter was $74 million. Medical loss ratio for the quarter was 85.2% when adjusted for the favorable prior year development and payer settlement noted above. These results reflect the structural contract improvements, clinical execution, and enhanced payment integrity workflows, along with utilization management progression previously described. Adjusted operating expense for the quarter was $25 million, consistent with the cost structure we have established over the prior 18 months. We continue to direct investments towards frontline capabilities that drive medical costs and quality performance.

Adjusted EBITDA for Q1 was $26 million, compared to a loss of $22 million in the same period of 2025. Excluding the prior year items, underlying Q1 adjusted EBITDA was $8 million, reflecting the core operating performance of the business. On the balance sheet, we ended the quarter with $25 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. Of additional note, we recently completed a series of strategic capital structure transactions designed to improve financial flexibility and address the Nasdaq minimum stockholders' equity requirement. On April 28th, approximately $250 million of debt was converted to preferred equity. While not reflected on the 3/31/2026 balance sheet, it materially improved stockholders' equity.

Separately, we have an agreement to issue up to $70 million in additional preferred equity, $30 million of which has been issued to date. Collectively, we believe these actions bring stockholders' equity above the Nasdaq minimum compliance threshold, materially strengthening the company's financial position and enhance the long-term balance sheet flexibility. Moving to our updated 2026 outlook. We are revising our full year 2026 adjusted EBITDA outlook to a range of $20 million-$60 million, with a midpoint of $40 million. The revision reflects both the favorable prior year development and payer settlements recognized in Q1 and our confidence in the underlying operating trajectory of the business through the remainder of the year. Our confidence in the full year is rooted in the same pillars we outlined at the start of 2026.

The structural contract improvements now flowing through our economics, continued clinical execution across cost management, quality and Stars performance, and the operating discipline we have established across the business. The width of the range reflects the normal variability in claims development and full year cost expectations. Results within the range are contingent on cost trend development throughout the year and execution against medical cost initiatives. With that, I'll turn it back to Aric for closing comments.

Thank you, Leif. Before we open the line for questions, I want to leave you with three takeaways from this quarter. First, the structural work is producing results. The contract restructuring, network concentration, and operational redesign we have executed over the past two years are showing up in our economics. Additional structural work remains a priority in 2026, and we are executing against it. Second, our clinical model, utilization management, and payment integrity processes are differentiators. At a time when the industry is broadly guiding to 7% or higher medical cost trend, P3 delivered flat trend in the quarter following a sub 2% trend in 2025. That outcome is driven by the clinical and operational infrastructure Amir described. We expect it to remain a point of differentiation as we move forward. Third, the setup for the remainder of 2026 is strong.

We are raising our full year outlook, our operating fundamentals continue to mature, and the predictability of our performance has improved. We have plenty of work ahead, but we are executing with confidence. 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 press star and 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 and then two. At this time, we will pause momentarily to assemble our roster. We have our first question from the line of Ryan Langston from TD Cowen. Please go ahead.

Hey, thanks. On the utilization point, can you maybe just talk about what you saw in the first quarter in terms of A and B versus Part D? I guess, is it still logical to expect that Part D MLRs are gonna trend higher as we move through the year, just as members hit their out-of-pocket maximums?

Hey, Ryan, thanks for the question. This is Aric. I'll have Leif give a little more detail. One thing I want to remind on that Part D part is we've significantly reduced our Part D exposure and are continuing to reduce our Part D exposure in all of our contracts beyond 2026. We'll still I think Leif is looking for an answer here for you.

Okay. Oh, hey, Leif.

Hey, how's it going? Thanks for the question. Appreciate it. On kind of the MedEx trend side of things, we actually saw a bigger reduction across Part B in our book of business collectively when we look at in-year 2025 versus in-year 2026, where Part A was predominantly flat.

Okay. Can you break out, I think it was around $18 million of positive PYD and payer settlement. Are you able to tell us what each of those were? In terms of the positive PYD, good to see, was anything reestablished back in reserves above and beyond what the amount was that was included in the results for 1Q? Thanks.

Hey, Ryan. I didn't catch the last half of that, but let me answer the first half of the question. The first half of the question is that split between those two items is about 65, 35, meaning, 65% of that $17 million is related to favorable prior year development of our reserves, and about 35% relates to some payer settlements.

Okay. The second part was, Did you reestablish any positive PYD back into reserves or did that all flow through into the results for the first quarter?

What we disclosed is what flowed through the period in the quarter, and we stayed consistent with our reserve methodology. We did not reduce any of our pads or our estimates from an IBNR process perspective.

Okay. Got it. Thank you very much.

Thank you. We have our next question on the line of Brooks O'Neil from Lake Street Capital. Please go ahead.

Good afternoon, gentlemen. Thanks for taking the questions. Congrats on the quarter. First off, for me, just thinking about potential payer partners, expansion with existing ones, do you think that, to what extent do you think that they take notice of, you know, kind of the results for the quarter just reported, the conversion to preferred stock and kind of see, you know, a much more financially sound partner? Does that benefit you guys? To what degree might that benefit you guys?

Hey, Ben. Thanks for being on. Appreciate the question. Yeah, I think, you know, our ability to demonstrate positive momentum, and an improved balance sheet, it does help, you know, prospects as you think about growth, to have a healthy balance sheet. It also supports part of our strategy as we move forward in expanding delegation. You know, that one is so important, not just for the data side of it, but for claims delegation, it also speeds up the timing that you have to get the dollars that you've impacted in the business as well as improves cash flow in the business obviously as well.

Makes sense. Then, you know, just the, you mentioned the delegation. I guess what's kind of the pathway? I know you have the set pathway and the newer managed services contract. Otherwise, what's kind of the pathway to get that beyond 63%?

Yeah, Ben, good question. The standout market, we have one particular geography in which our current delegation is very limited. We've approached that contractually with those payers. We have a glide path to get to delegation with each one of those payers based on the internal timetables that they have. That's not something that we'll just flip on. Each one of these needs things like a pre-delegation audit, and then there's, you know, testing that has to happen, and then you move into a full delegation. I expect that to be stairstepped over the next, you know, probably two years, to be honest.

Okay. That's helpful. That's all I had, gentlemen. Congrats again on the quarter. That was very nice.

Thanks so much, Ben. Appreciate it. Thank you.

Thank you. This concludes our question answer session. I would like to turn the conference back over to Aric Coffman for any closing remarks.

Thank you so much. Appreciate everyone joining, and thanks for listening to our first quarter results.

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

Day, welcome to the P3 Health fourth quarter 2025 earnings conference call. All participants will be in a 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 a touch-tone phone. 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 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 those 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.

Thank you, Gabby. 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, which we will detail in a bit. We are excited about 2026 and beyond as we execute on our plan. I want to start by framing the financial trajectory of the business as we move into 2026 before Amir and Leif provide insight into our 2025 performance. 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. We have clear visibility into that improvement, supported by actions already underway. Over the past year, we have identified $170 million of structural and operational improvement opportunities that bridge this performance.

These opportunities fall into three primary areas. Number one, $125 million, or 75% from contracting and revenue related actions, which is already being realized in our 2026 financials. Number two, $35 million or 20% from operational execution around MedEx initiatives and network contracting. Number three, $10 million or 5% from payer benefit design, collaboration and membership profile. Taken together, these provide a clear path from our 2025 results to our 2026 outlook. These changes reflect fundamental improvements in how we contract, operate, and partner with both payers and providers. As a result, we enter 2026 with a high degree of confidence in our guidance. Stepping back, 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. At the same time, 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, reinforcing our value proposition with payer partners and supporting future growth. The work completed during the year established the foundation for the improvement we expect to realize in 2026. 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 under management, representing 25% year-over-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. Additionally, this partnership includes a multi-year glide path to risk, which at current membership levels equates to more than $300 million in revenue upon moving to full risk. The glide path ensures that we can establish the core foundations for operational execution prior to assuming full risk. This partnership reflects how we think about growth, entering new geographies through a phased glide path.

Further, we are taking on the delegated functions early in the glide path and well ahead of when we take risk. This approach reduces volatility, supports financial performance during the ramp period, and creates a structured pathway to long-term risk alignment. What I want to leave you with is this, 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. With that, I will turn the call over to Amir to discuss our clinical performance.

Thanks, Aric. 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. These capabilities remain foundational to improving care delivery and strengthening our ability to manage total cost of care over time. 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. These providers consistently demonstrate stronger documentation accuracy, improved quality performance, and more effective management of patients with chronic and complex conditions. Across markets, our core clinical programs remain focused on post-acute management, chronic care management, and special utilization oversight.

These programs are designed to support effective care transitions and reduce avoidable inpatient utilization, improve stability for patients with chronic conditions through sustained engagement, provide clearer clinical pathways and oversight for high-cost specialty services. During the year, 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. This program includes dedicated care teams and 24/7 clinical hotline, allowing patients and providers to quickly access guidance and support when issues arise. The goal is to intervene earlier, prevent unnecessary emergency department visits and hospitalizations, and ensure patients receive the right level of care at the right time. 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 insights into day-to-day provider practice support.

With that, I'll turn the call over to Leif to walk through our financial results.

Thanks, Amir. I'll cover three areas today, our fourth quarter and full year results, our liquidity position, and our 2026 outlook. For the full year, we reported Adjusted EBITDA of -$161.3 million. On a normalized basis, aligning results to performance year to provide a clearer view of the underlying trajectory, Adjusted EBITDA was -$149.1 million, a $44 million improvement over 2024. I'll now walk you through 2025 results. Total revenue for fourth quarter was $384.8 million, compared to $370.7 million in the same quarter prior year. Capitated Revenue PMPM was $1,060, compared to $971 in Q4 2024, a 9% improvement.

For the full year, total revenue was $1.46 billion, compared to $1.50 billion in 2024. Full year capitated revenue PMPM was 1,026, compared to 981 in the prior year, a 5% improvement. The increase in PMPM reflects continued improvement in burden of illness documentation, strengthened contractual economics, and membership mix. Medical margin for the fourth quarter was -$28.7 million, or -83 PMPM, compared to $7.3 million, or $19 PMPM in the prior year quarter. For the full year, medical margin was $23.5 million, or $17 PMPM, compared to $85.4 million, or $56 PMPM in 2024.

On a normalized basis, full year Medical Margin was $52.3 million, or $38 PMPM, compared to $51.4 million, or $34 PMPM in 2024. Operating expense for the fourth quarter was $35.1 million, compared to $28.7 million in the prior year period. Notably, however, the fourth quarter included a $10 million reclassification of network expense to operating expense related to third-party vendor costs. Full year operating expense, including the reclassification referenced, was $101.8 million, compared to $111.8 million in 2024, a reduction of $10 million or 9% year-over-year. This reflects structural cost actions implemented throughout 2025, including reductions in duplicate corporate infrastructure, tighter discretionary spending controls, and improved market level accountability.

At the same time, we selectively reinvested in market operations, provider support, utilization management, and care coordination functions that directly influence clinical performance and medical cost stability. The result is a leaner operating structure with improved cost discipline and stronger alignment between operating expense and core platform. Adjusted EBITDA for the fourth quarter was a loss of $76.1 million, compared to a loss of $67.6 million in the prior year period. Full year Adjusted EBITDA loss of $161.3 million compared to a loss of $167.2 million in 2024. On a normalized basis, full year Adjusted EBITDA loss of $149.1 million in 2025 compared to a loss of $193.0 million in 2024.

The $44 million year-over-year improvement on a normalized basis reflects the combined impact of stronger contracting economics, improved provider alignment, and structural cost actions implemented during the year. From a liquidity standpoint, we ended the year with $25 million of cash on hand and remain focused on disciplined working capital management and efficiency as we execute through the stabilization phase of our business. Turning to our outlook. For 2026, we are guiding to an Adjusted EBITDA in the range of -$20 million to $40 million. At a midpoint of $10 million, this represents approximately a $170 million year-over-year improvement that Aric outlined. 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.

Our range reflects several key initiatives where timing of execution will influence where we land. As we gain visibility throughout the year, we expect to narrow the range accordingly. 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. The timing of execution across these initiatives is the primary variable within the range. 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 a progression towards full delegation where appropriate.

While we made strides in improving our underlying cost structure in 2025, we will continue to operate with discipline while targeting investments in frontline operations. With that, I'll turn it back to Aric.

Thanks, Leif. Before we open it up for questions, I want to leave you with three key takeaways as we close out 2025. First, we have strengthened the foundation of the business through tightened execution across our markets, strengthened accountability, improved contractual economics, and continued alignment in our provider network around the Care Enablement Model. These actions, along with investments in key talent, were central to repositioning the company and establishing a more disciplined operating cadence. Second, we have continued to align the business toward the areas where our model performs best. We are increasingly concentrated in arrangements where incentives, clinical workflows, and accountability are closely aligned. The new partnership we announced this quarter reflects that approach and provides a deliberate pathway toward full risk while maintaining a disciplined growth profile. Third, the financial trajectory is improving.

On a normalized basis, we delivered $44 million of year-over-year EBITDA improvement in 2025, driven by stronger contracting economics, disciplined cost management, continued progress in provider alignment, and improved quality execution. These improvements serve as the foundation for the $170 million of earnings growth we are guiding to in 2026, and early 2026 results provide confidence in our range. In short, the structural work completed during 2025 has positioned the business with a stronger foundation, has improved alignment across our markets, and has provided a clear path to profitability as we execute in 2026. With that, let's open it up for your questions.

Thank you. We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your touchtone phone. 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 Star and then two. At this time, we will pause momentarily to assemble the roster. The first question will come from Ryan Langston with TD Cowen. Please go ahead.

Hi. Thanks. 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 are those extra?

Hey, Ryan, this is Aric. 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.

Great. Thanks. Just on that agreement, the 29,000 lives, you know, decent sizes versus sort of where you're at now. What kind of standup costs or geo-entry costs do you need to make and invest to kind of move into that new geography?

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.

All right. Just last thing. On the $170 million improvement, appreciate the dollar amounts by bucket. Is there a way you can kinda 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? Thanks.

Yeah, Ryan, this is Leif. That's a good question. Appreciate the question there. 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. We feel really, really confident with where the revenue piece is gonna come in addition to some of the I'd say structural changes we made in 2025 to improve our estimation process.

We feel like about 75% of that is fully baked, where 20% is kinda operational in nature, and we're going and executing. We have our MedEx initiatives, as well as other initiatives inside our operations to drive those results. 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.

All right. Thank you.

Thanks, Ryan.

Again, if you have a question, please press star and then one. The next question will come from Joshua Raskin with Nephron. Please go ahead.

Hi. Thanks. Good afternoon. I guess I'll stick with the Nebraska Blues here. 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 wanna keep the arrangement as fees in 2028, do you have the ability to do that?

Joshua, this is Aric. 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. Then we will move into risk in 2028.

Okay. 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 1-1 128. 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.

Okay. Gotcha. Separate from Nebraska Blue, separate from that, within that bucket of recontracting changes with the plans in 2026, 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 that's giving you this confidence on, you know, this big improvement in EBITDA?

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. 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, you know, 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 vendor services that they didn't need.

We just came together and said, "Hey, let's do something that makes sense." The other thing I'd mention is Stars performance has been pretty important as well with our payer providers as well. You know, we talked about the improvement in Stars that we've had, and that, you know, obviously is important to plan revenue. There are some adjustments to be made in some of the contracts related to Stars performance.

Okay. Okay, that's helpful. Thanks.

This will conclude our question and answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.