PIII

Business Context and Reporting Period

P3 Health Partners Inc. (P3) is a patient-centered, physician-led population health management company operating primarily in the Medicare Advantage (MA) market. The company utilizes a capitated, at-risk model where it manages the total healthcare needs of members attributed to its physician network in exchange for fixed monthly payments. This Form 10-Q covers the quarterly period ended March 31, 2026.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Turnaround: The company reported a net income of $3.0 million in Q1 2026, a significant improvement from a net loss of $44.2 million in Q1 2025. This was driven by a $11.0 million income tax benefit (due to the release of uncertain tax positions) and improved operating margins.
• Revenue Growth: Total operating revenue increased 4% year-over-year to $386.4 million. Capitated revenue rose 3% to $379.5 million, while other revenue surged 86% to $6.9 million.
• Medical Expense Reduction: Medical expenses decreased 10% to $336.0 million, primarily due to a 10% reduction in average at-risk members (from 117,700 to 106,400) resulting from intentional network rationalization, favorable reserve development, and a $13.5 million reduction in prior period claims expense from a related party.
• Membership Decline: Average at-risk membership decreased to 106,400 in Q1 2026 from 117,700 in Q1 2025. Affiliate primary care physicians also decreased to 2,300 from 2,800.
• Debt Financing: The company drew the full $70.0 million available under the VGS 5 Promissory Note during the quarter. Interest expense increased to $16.8 million from $8.7 million due to higher debt levels and interest rates.

Outlook, Risks, and Unusual Items

• Going Concern Warning: Management has concluded that there is substantial doubt about the company's ability to continue as a going concern for one year following the issuance of the financial statements. The company has a working capital deficit of $353.3 million and a stockholders' deficit of $143.5 million. It relies on raising additional capital through debt or equity to fund operations.
• Subsequent Event - Debt Exchange: On April 27, 2026, the company entered into a Debt Exchange Agreement converting approximately $252.5 million of outstanding VGS promissory notes into various series of cumulative preferred stock. Additionally, the company entered a Securities Purchase Agreement to issue up to $70.0 million of units (Series D Preferred Stock and warrants), with $30.0 million funded by April 30, 2026.
• Key Risks:
  • Dependence on third-party payors and Medicare Advantage contracts.
  • Need to raise additional capital to meet liquidity requirements.
  • Regulatory risks, including an ongoing DOJ investigation regarding arrangements with insurance agents and brokers (Civil Investigative Demand received in June 2024).
  • Compliance with debt covenants and Nasdaq listing requirements.
• Unusual Items: The Q1 2026 results included a $6.4 million release of uncertain tax positions and a $2.4 million release of accrued interest/penalties, significantly impacting the income tax benefit. Additionally, a $13.5 million reduction in medical expense related to a prior period true-up from a related party (Atrio Health Plans) improved operating results.

Investor Verification Checklist

• Liquidity Status: Verify the company's ability to secure the remaining $40.0 million of the Series D Preferred Stock offering and other financing to address the substantial doubt regarding going concern status.
• Debt Restructuring Impact: Review the terms of the April 2026 Debt Exchange Agreement and the new preferred stock dividend obligations (ranging from 13.5% to 19.5%) to assess future cash flow burdens.
• Membership Trends: Monitor the impact of the 10% decline in at-risk membership on future revenue growth and whether the company can offset this with higher per-member rates or new contracts.
• Regulatory Investigation: Track the status of the DOJ Civil Investigative Demand regarding broker arrangements and potential financial or reputational fallout.
• Medical Cost Management: Assess the sustainability of the medical expense reduction, distinguishing between one-time true-ups and structural improvements in cost management.