P3 Health Partners(PIII) - 2025 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q1 2025 show a $44.2 million net loss, stable assets, increased liabilities, and a going concern warning Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $783.9 million, total liabilities $662.8 million, with a $315.6 million working capital deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $40,082 | $38,816 | | Total Current Assets | $191,435 | $184,140 | | Intangible assets, net | $553,889 | $574,350 | | Total Assets | $783,870 | $783,420 | | Liabilities & Equity | | | | Claims payable | $268,664 | $255,089 | | Total Current Liabilities | $507,034 | $496,415 | | Long-term debt, net | $106,121 | $89,824 | | Total Liabilities | $662,791 | $633,891 | | Total Stockholders' Equity | $63,250 | $75,936 | Condensed Consolidated Statements of Operations For Q1 2025, total operating revenue decreased 4% to $373.2 million, resulting in a net loss of $44.2 million, an improvement from Q1 2024 Q1 2025 vs Q1 2024 Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Capitated revenue | $369,517 | $384,134 | | Total Operating Revenue | $373,225 | $388,488 | | Medical expense | $372,043 | $382,057 | | Operating Loss | ($38,088) | ($43,831) | | Net Loss | ($44,246) | ($49,606) | | Net Loss Attributable to Controlling Interest | ($20,480) | ($18,700) | | Net Loss Per Share (Basic & Diluted) | ($6.28) | ($7.86) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $33.5 million in Q1 2025, offset by $30.7 million from financing, ending with $41.3 million cash Q1 2025 vs Q1 2024 Cash Flows (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($33,466) | ($20,030) | | Net cash provided by financing activities | $30,657 | $11,401 | | Net change in cash and restricted cash | ($2,809) | ($8,629) | | Cash and restricted cash, end of period | $41,293 | $32,305 | Notes to Condensed Consolidated Financial Statements Key notes highlight substantial doubt about going concern, $30 million new debt financing, a 1-for-50 reverse stock split, and a subsequent asset sale - The company has experienced losses since inception and anticipates operating losses and negative cash flows to continue, raising substantial doubt about its ability to continue as a going concern within one year[37][38] - On April 11, 2025, the company effected a 1-for-50 reverse stock split of its Class A and Class V common stock to meet Nasdaq's minimum bid price requirement, with all share and per-share amounts retroactively adjusted[50][82][83] - In February 2025, P3 LLC secured up to $30.0 million in new debt financing via the VGS 4 Promissory Note, fully drawn by March 14, 2025, maturing in August 2028 with a 19.5% interest rate[65] - On May 1, 2025, the company sold its remaining MA-related business assets in Clearwater, Florida, for approximately $0.1 million[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 4% revenue decrease, improved net loss, widened Adjusted EBITDA loss, critical liquidity, and ongoing efforts to secure additional financing Results of Operations Total operating revenue decreased 4% to $373.2 million in Q1 2025 due to a 9% drop in members, while medical expenses also decreased, and a $7.0 million premium deficiency reserve benefit was recognized Revenue Comparison (in thousands) | Revenue Type | Q1 2025 | Q1 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Capitated revenue | $369,517 | $384,134 | ($14,617) | (4)% | | Total operating revenue | $373,225 | $388,488 | ($15,263) | (4)% | - The decrease in capitated revenue was primarily driven by a 9% decrease in at-risk members, from 126,800 at March 31, 2024, to 115,500 at March 31, 2025, due to strategic termination of underperforming contracts[138][159] - Premium deficiency reserve was a $7.0 million benefit in Q1 2025 versus a $1.0 million expense in Q1 2024, a change of $8.0 million, due to network rationalization and improved contract profitability[162] Non-GAAP Financial Measures Adjusted EBITDA loss widened to $22.2 million in Q1 2025, and Medical Margin significantly decreased to $17.2 million, reflecting profitability pressures Reconciliation of Net Loss to Adjusted EBITDA Loss (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss | $(44,246) | $(49,606) | | Interest expense, net | 8,725 | 4,256 | | Depreciation and amortization | 21,052 | 21,539 | | Income tax provision | 1,073 | 2,072 | | Mark-to-market of stock warrants | (3,322) | (216) | | Premium deficiency reserve | (6,962) | 1,000 | | Equity-based compensation | 1,808 | 1,449 | | Other | (318) | (264) | | Adjusted EBITDA loss | $(22,190) | $(19,770) | Medical Margin Calculation (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Capitated revenue | $369,517 | $384,134 | | Less: medical claims expense | (352,317) | (347,582) | | Medical margin | $17,200 | $36,552 | Liquidity and Capital Resources The company faces significant liquidity challenges, with $40.1 million unrestricted cash insufficient for operations, leading to a going concern warning, despite securing $30 million in new debt - The company has concluded that there is substantial doubt about its ability to continue as a going concern, as existing cash resources are not sufficient to support planned operations for at least the next year[183] - As of March 31, 2025, the company had $40.1 million of unrestricted cash and cash equivalents[166] - In February 2025, the company entered into a financing transaction for a $30.0 million unsecured promissory note (VGS 4 Promissory Note), which was fully drawn by March 14, 2025[169] Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(33,466) | $(20,030) | | Net cash provided by financing activities | $30,657 | $11,401 | | Net change in cash | $(2,809) | $(8,629) | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company qualifies as a Smaller Reporting Company - Disclosure is not required for Smaller Reporting Companies[193] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls - Based on an evaluation as of the end of the reporting period, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[195] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[196] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company received a civil investigative demand from the DOJ in June 2024 regarding an investigation under the False Claims Act concerning arrangements with insurance agents - In June 2024, the company received a civil investigative demand (CID) from the Department of Justice (DOJ) under the False Claims Act[200] - The investigation concerns the company's arrangements with insurance agents and brokers, including remuneration paid to them, and the company is cooperating with the investigation[200] Item 1A. Risk Factors The primary risk is potential delisting from Nasdaq due to minimum bid price non-compliance, addressed by a 1-for-50 reverse stock split, though sustained compliance is not assured - The company faces a risk of delisting from The Nasdaq Capital Market for failure to meet continued listing requirements, specifically the minimum bid price rule[202] - After receiving a deficiency notice, the company effected a 1-for-50 reverse stock split and regained compliance with the bid price rule on April 29, 2025, but there is no assurance of sustained compliance or that the stock's liquidity won't be harmed[203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the quarter ended March 31, 2025, that were not previously disclosed - No unregistered sales of equity securities occurred during the quarter that were not already reported on a Form 8-K[206] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[207] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[208] Item 5. Other Information No other material information is reported, and no director or officer adopted or terminated Rule 10b5-1 trading arrangements during the quarter - During the quarter ended March 31, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[211] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, financing agreements, and officer certifications